Accompany with the rapid development of the foreign direct investment in China, there are more and more foreigners coming into China to work. However, lots of foreign employees did not go through the legal formalities before their employment in China; in such cases, it is difficult for the Court to confirm the employment relationship between the foreign employees and the employers once dispute arises.

Certificates for Foreign Employee

Generally speaking, there are three certificates required to be obtained when employing a foreigner (which also includes employees from Hong Kong, Macau and Taiwan), which are:

– working permit;

– employment license;

– residence permit

The employer needs to apply to relevant authority for employment permission for the foreigner before hiring the foreign employee. After the employer obtains the employment permission, the employee needs to apply for working permit. The last step is that the foreign employee needs to apply to relevant Public Security Bureau for the residence permit within 30 days after obtaining the working permit. The foreign employee shall be employed only after obtaining working permit and residence permit.

Social Insurance

As stated under relevant stipulation of the Circular of the Ministry of Human Resources and Social Security on Promulgating the Interim Measures for the Participation of Foreigners Employed in China in Social Insurance, it is the compulsory obligation of the employer to pay the social insurance premiums for the particular foreign worker.

Whether PRC Labor Law is Applicable to Foreign Employee

According to Article 23 of the Regulations on the Management of the Employment of Foreigners in China (hereinafter referred to as “the Foreign Employment Regulation”), the working hours, rest and vacation, work safety and hygiene as well as the social security of foreign employees in China must follow the relevant provisions of the state.

It is clear that there are labor standards on the above mentioned five aspects clearly stipulated by law applicable to foreign employee.

Except the Foreign Employment Regulation, there is no specific labor regulation for foreign employee. And the Foreign Employment Regulation mainly provides rules from the angle of the administrative management on foreigners entering into China to be employed in the Country. There are few provisions regarding the rights and obligations or other substantive law issues after the foreigner is employed in China.

It is the opinion issued by the Shanghai Labor and Social Security Bureau that the principle of autonomy of will between the foreign employee and the employer is applicable on aspects such as conditions for termination of the employment contract and liability for breach of contract.

We believe, though certain clauses can be freely agreed by the foreign employee and the employer based on principle of autonomy of will, such mutual agreement shall not violate the mandatory provisions under relevant PRC labor law, such as Probation Period, Termination during Probation Period, Salary Standards for Probation Period; the agreed conditions for termination of the employment contract beyond the conditions stipulated in the relevant PRC labor law. In all this cases, for example, the employer shall not disclaim legal liability thereof or denies the worker’s rights.

In other words, any agreement regarding the substantive rights or obligations shall not be conflict with the relevant PRC labor law.

Does PRC labor law apply to Foreign Employee without Working Permit?

According to relevant provision of the Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Labor Dispute Cases (IV), the foreigner employed in China without obtaining the working permit is not qualified to be employed in China and cannot be protected by the PRC labor law, thus the employment contract between such foreigner and the employer shall be deemed as invalid. In judicial practice, the relationship between such foreigner and the employer may be deemed as in reality ordinary service relations in PRC civil law.

Two Kinds of Special Employment Relationship

Employment Relationship in Foreign Representative Office

Foreign representative office does not possess the status of legal person under PRC law, therefore instead of directly signing employment contract with employee, foreign representative office usually hire employees through a PRC dispatching agency such as FESCO. The dispatching agency signs employment contract with the employees and then dispatches the employees to the foreign representative office. The foreign representative office needs to pay for the services of dispatching workers, including wages, labor insurance, service charge of dispatching agency in accordance with the contract between dispatching agency and the foreign representative office.

The Foreign Employees Dispatched by Foreign Parent Company

“Dispatch” hereby means that the employment relationship is directly established between the foreign parent company outside China and the foreign employees, and the governing law agreed in the employment contract is the foreign law. No rights or obligations under the PRC labor law involved. Then foreign employees are sent to China to work for PRC subsidiaries of the foreign parent company. This situation usually happens in the top management position or highly skilled technical positions in multi-national companies.

In practice, under this kind of “dispatching”, the salary is usually paid outside China. However, in order to simplify finance operations, in some cases the salaries are paid by the foreign companies’ subsidiary in China. According to relevant regulation issued by the State Administration of Taxation regarding tax declaration of the foreign employees employed in China, under this kind of “dispatching”, though the salary is paid by foreign company outside China, while the foreign employee worked in Mainland for a period or periods exceeding 90 days or was present on the Mainland for a period or periods exceeding in the aggregate 183 days in any 12-month period commencing or ending in the taxable year concerned, such foreign employee has to declare and pay the personal income tax.

Suggestion

It is not hard to see that the labor relationship of the foreign employee is special, and there are changes and differences of the judicial opinions on dealing with related foreign-related labor dispute during recent years. Therefore, we suggest that, firstly the foreign employee and the employer need to go through the formalities for foreigners employed in China to avoid the legal risks arising from illegal employment; secondly, from the angle of flexible employment forms, the foreign employee and the employer may agree on conditions for termination of the employment contract and related economic compensation to avoid potential disputes.

For further information about this topic, please, write an email to info@dandreapartners.com

Disclaimer
This article is intended solely for informational purposes and does not constitute legal advice. Although the information in this article was obtained from reliable official sources, no guarantee is made with regard to its accuracy and completeness.

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