How to deal with the labor disputes related to foreign employees?

According to the “Administrative Provisions on Employment of Foreigners in China” (hereinafter referred to as the “Provisions”), an employer hiring a foreigner shall apply an employment permit for the said foreigner.

Many provinces and cities require the employer to provide a labor contract with the foreign as stipulated in Article 17 of the “Provisions” for applying the employment permit. However, considering that many foreigners are temporarily dispatched to work in subsidiaries in China and maintain the employment with the parent companies, some provinces and cities accept an assignment letter or a dispatch letter instead of a labor contract where the subsidiaries meet relevant requirements. Taking Shanghai as an example, if a multinational corporation or regional headquarter dispatches management or technical personnel to its subsidiaries in China, the subsidiaries could provide an assignment letter or a dispatch letter instead of a labor contract.

If a foreign employee has a labor dispute with a subsidiary in China, whether he could enjoy all the rights as stipulated in the “Labor Law” and “Labor Contract Law”?

Firstly, we shall determine whether the foreign employee has an employment relationship with the subsidiary in China.

If a foreigner has signed two labor contracts, in judicial practice, the main viewpoint is that the employer who pays the wage shall undertake the employer’s obligations. For example, in the case (2021) Liao 02 Min Zhong No.7576, the court held that, “although the foreign employee signed a labor contract with a subsidiary in China, his wage was paid by the overseas parent company, and the employee had signed an overseas assignment letter with the overseas parent company. Therefore, it should not be recognized that the employee has a labor contract relationship with the subsidiary in China. Such determination could prevent the employee to obtain double compensation from both the subsidiary in China and the overseas parent company.” In the case (2017) Hu 01 Min Zhong No.2768 and the case (2020) Lu 10 Min Zhong No.1902, both courts held that the foreign employee worked for the subsidiary in China, and the subsidiary in China paid his wage, which was in line with the basic characteristics of labor relations, and therefore, there was an employment relationship between the two parties. Where the foreign employee’s wage is borne by both the subsidiary in China, and the subsidiary in China, generally speaking, it shall be determined that the there was an employment relationship between the foreign employee and the subsidiary in China, no matter the amount of wage borne by the subsidiary in China is high or low.

Secondly, if a foreign employee is deemed to establish an employment relationship with the subsidiary in China, the rescission or termination of such labor contract may not be dealt with in accordance with the “Labor Law” and the “Labor Contract Law”. The reason is that the adoption of Article 25 or Article 22 of the “Provisions” varies in different provinces and cities.

Article 25 of the “Provisions” stipulates that, “Labor disputes between employers and foreigner employees shall be handled pursuant to the Labor Law and the Law on Mediation and Arbitration of Labor Disputes.” Article 22 stipulates that, “The working hours, rest and off days, work safety and occupational health and social security for foreigners employed in China shall comply with the relevant provisions of the State.” In view that Article 22 only states 5 items which shall comply with the relevant laws without any catch-all provisions, in judicial practice, there are disputes regarding the above question.

Taking Shanghai for example, the cases in 2017 and 2018, the courts held that the rescission or termination of such labor contract could be dealt with in accordance with the “Labor Law” and the “Labor Contract Law”, such as (2017) Hu 02 Min Zhong No.1039. However, the courts in Shanghai changed this viewpoint later then, and they prefer to strictly implement Article 22 of the “Provisions”. In Beijing, Guangzhou, the main viewpoint is that the rescission or termination of such labor contract could be dealt with in accordance with the “Labor Law” and the “Labor Contract Law”. For example, in the case (2018) Yue Min Zai No.267, the court held that the agreement between the two parties regarding the exemption of liability for terminating the labor contract one month in advance was a violation of the mandatory provisions of the “Labor Contract Law” and should be invalidated. Another example is the case (2019) Jing 0108 Min Chu No.28262, the court held that both parties agreed that the foreign employee could not resume work after a continuous 30 days sick leave, the company could terminate the labor contract without responsibility, which was a violation of the provisions on medical treatment, and such agreement was invalid.

In summary, if subsidiaries in China wish to rescind or terminate labor contracts with foreign employees without applying the “Labor Contract Law” and relevant laws, there are two measures: (1) the wage shall be paid by the overseas parent company; and (2) to prescribe special provisions in the labor contract regarding the conditions and responsibilities for rescission or termination, which may be deemed as valid in some provinces and cities.