Employment Issues about Resident Representative Office of Foreign Enterprises

The resident representative office of an American company (“S”) recruited Mr. Gao as its administration manager directly, instead of entrusting a labor dispatch company to recruit personnel. S and Mr. Gao agreed to a monthly salary of RMB20, 000, both parties had not signed a labor contract. 4 years later, S dismissed Mr. Gao, and Mr. Gao asked for RMB 80,000 as the economic compensation. However, S refused to pay such payment. Mr. Gao submitted the dispute to the court, the court determined that the relationship between S and Mr. Gao was not the labor relationship, and did not support Mr. Gao’s request.

“Interim Provisions on the Management of Resident Representative Offices of Foreign Enterprises (“Interim Provisions”) promulgated in 1980 has stipulated that a resident representative office (“RO”) shall entrust local service units for foreigners to recruit personnel. There are detailed local regulations or judicial rules in Beijing, Guangdong, Shanghai and other provinces and cities. Therefore, in practice, for the dispute arising from the directly recruitment between RO and personnel, the local courts always take this dispute as a normal civil dispute rather than a labor dispute, and judge this disputes in accordance with the laws and regulations other than Labor Law, Labor Contract Law and other labor related laws and regulations. The case is a typical example.

For RO, recruiting personnel by dispatching may have some disadvantages, such as its cost maybe increased, and the management of labor may be relatively complex. The cost of recruiting personnel directly maybe lower and RO needs not to pay the economic compensation when there is a dispute, but RO can not manage personnel in accordance with labor related laws and regulations, if the parties fail to make an agreement, RO can not manage personnel effectively.

Amendment of “Labor Contract Law of People’s Republic of China” which will be taken into force on July 1, 2013, has stipulated that recruiting personnel by dispatching shall be carried out in the temporary, or ancillary, or replaceable(“3 requirements”) positions. Since Labor Contract Law can not regulate RO, it is hard to identify whether the dispatch company can dispatch personnel to RO working in the positions which do not meet 3 requirements.

What is interesting, the draft of soliciting of “Interpretation of the Supreme People’s Court on Several Issues about the Application of Laws for the Trial of Labor Dispute Cases (IV)”(“Interpretation”) has stipulated if RO recruits Chinese personnel directly instead of entrusting local service units for foreigners, the relationship between RO and personnel can be deemed as labor relationship. However, the Interpretation promulgated on Jan. 18, 2013, has deleted this provision. For this reason, RO has to recruit personnel by dispatching will not be changed in a short period.