When is the Employment Relationship with Foreign Employees established?

A Canadian Mr. D was hired by Company W as its General Manager. Both parties signed a labor contract. Later, Company W dissolved the contract. Mr. D filed a lawsuit against Company W and claimed for the economic compensation. The case was reviewed by the first and second trials. Finally, the Guangdong Provincial High People’s Court reheard the case, and determined that the contact was invalid, which means Company W did not have to pay the economic compensation. (The plot has been simplified, for details, please find (2018) Yue Gao Fa Shen Jian Min Ti Zi No.63)

Article 7 of the “Labor Contract Law” prescribes that an employment relationship is established from the date when the employer puts the employee to work. Company W has put Mr. D to work, so the employment relationship shall be established from that date. Why the court determined that the contract was invalid?

The reason is that foreigners working in China, shall also comply with the “Administrative Provisions on Employment of Foreigners in China”, and the “Law of the People’s Republic of China on Administration of Embarkation and Disembarkation”. Article 5 of the “Administrative Provisions on Employment of Foreigners in China” stipulates that an employer hiring a foreign employee shall apply for an employment permit for the said foreigner, and may only employ him/her upon approval and obtaining a “Permit to Employ Foreigner in the People’s Republic of China”. Article 41 of the “Law of the People’s Republic of China on Administration of Embarkation and Disembarkation” prescribes that foreigners working in China shall obtain a work permit or employment-type residence permit pursuant to the provisions. Therefore, the labor contract signed by foreign employees and domestic employers shall come into force after the foreign employees have obtained the relevant permits. The reason is that after both parties have signed a labor contract, when they apply for the permits, the administrative authorities might reject such application, then the labor contract could not come into force.

Article 14 of the “Interpretations of Supreme People’s Court on Several Issues Relating to Laws Applicable for Trial of Labor Dispute Cases (IV)” stipulates that where a foreigner failed to obtain an employment permit pursuant to the law before entering into a labor contract with a domestic employer, the court shall not support the request for confirmation of employment relationship with the employer. In the above case, the judgment of Guangdong Provincial High People’s Court represents this opinion.

In summary, while applying for relevant permits, the labor contract has not come into force, if the foreigners start to work, such behavior would be deemed as illegal, and both parties would have to undertake the relevant administrative punishment. Therefore, it is recommended to put the foreign employees to work after the relevant permits have been obtained.