Employment of Expatriates
– the Legal Issues
Garden Hotel Guangzhou
2 November 2011
Jeremy Sargent
Managing Partner
JSA Guangzhou Office
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
LETS START WITH SOME SCENARIOS
1.
Neil starts working with his company’s WFOE in Guangzhou and 6 months later
applies for a Work Permit
2.
Sabrina works as an English teacher for a local language school. She comes to
China on a 6 month F Visa which she is able to renew every 6 months in Hong
Kong. In her employment contract, she is granted 3 month’s paid maternity
leave. Later she becomes pregnant applies for maternity leave.
3.
Tom is offered a job by a Shanghai WFOE. He signs an employment contract
which provides that the WFOE may terminate his employment by “one month’s
written notice” at any time. Later he is terminated by the WFOE.
4.
Max is employed by a UK-based company and is sent to China on business for
five months to explore opportunities.
5.
A UK company sets up a WFOE in Shenzhen and sends one of its key managers,
Jake, to work at the WFOE for 2 years. Jake remains employed by the UK
Company but he is required to sign a local employment contract with the WFOE
“for Work Permit purposes only”. He gets his Work Permit. Later he is terminated
by the UK Company.
LETS START WITH SOME SCENARIOS
6.
Clare is offered a job at a US company’s Rep Office in Shanghai. She obtains a Work Permit.
Later, she is fired and decides to take arbitration proceedings against the Rep Office in
Shanghai.
7.
David is employed by a Hong Kong company and is dispatched to work in China for the Hong
Kong company’s WFOE in Guangzhou. He keeps his original employment with his Hong Kong
employer and his Hong Kong employer issues him with an assignment letter. Using such
assignment letter, he obtains a Work Permit and starts to work for the Guangzhou WFOE. 3
years later, he is terminated by the Guangzhou WFOE and commences arbitration proceedings
against the Guangzhou WFOE.
8.
Chris rents an apartment in Guangzhou via a local property agency. His visa has expired. He
signs the lease agreement and moves in. He operates an unregistered business from the
apartment. His “good friend” Jack reports him to the police and claims a reward.
9.
Sophie works for a Guangzhou WFOE, has a Work Permit and signs an open-term employment
contract. Later, she starts a part-time evening job at a friend’s company in Guangzhou. Her
friend’s company fails to pay her wages.
10.
Christine works for a Guangzhou WFOE and obtains a Work Permit. She is granted maternity
leave – but then claims an additional 30 days’ leave for “late childbirth” (i.e. she is over 23
years of age).
11.
Anna is employed by a Guangzhou WFOE and has a Work Permit. The Guangzhou WFOE then
dispatches her to work at its branch in Beijing
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
INTRODUCTION

What is an “Expatriate”?
A person of foreign nationality
 Hong Kong/Macao/Taiwan residents
 Chinese citizens with foreign residency??


What is “Employment”?


Engaging in remunerative work in the PRC
What is “Non-Employment”?
Study
 Travel
 Unpaid internships

©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
KEY LEGISLATION

Labour Law (1995) / 中华人民共和国劳动法

Employment Contract Law (2008) / 中华人民共和国劳动合同法

Regulations for the Administration of the Employment of
Foreigners in China (1996) / 外国人在中国就业管理规定

Other PRC laws, regulations, notices, etc relating to
employment
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
LEGAL VS ILLEGAL EMPLOYMENT
Legal Employment
Illegal Employment
Work Permit and
Residence Permit
Working for Entity on
Work Permit
Protected by Labour
Laws
No Work Permit
Working for Entity Not
Listed on Work Permit
Civil Law applies
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
CASE STUDY 1: ILLEGAL EMPLOYMENT
Facts:
A South Korean lady, Ms X, signed an Employment Contract with
a Chinese garment company in March 2008. The company later
dismissed Ms X and refused to pay compensation. Ms X
commenced arbitration proceedings.
Result:
The arbitration commission, and later the local court, dismissed
the claim on the basis she had no Work Permit and, as such, her
employment was illegal and not protected by employment laws
and regulations
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
REQUIREMENT TO OBTAIN WORK
PERMIT?

An Expatriate should apply for a Work Permit if:
he/she works for a company based in China – regardless of
how long he/she works for such company

in China for more than 90 cumulative days in a calendar year
– even where he/she remain an employee of an overseas
company
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
QUALIFICATIONS/CONDITIONS

Following conditions will apply:
The job has “special requirements”

Shortage of local candidates in China

Expatriate is at least 18 years old and in “good health”

Expatriate has the expertise and work experience for the job

Expatriate has no criminal record

Expatriate has a confirmed employer
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
APPLICATION PROCEDURES

The application for a Work Permit and Residency Permit
broadly involves:
Preparation of documents







Application form
Resume
Temporary Residence Form
Qualification Certificates of the Expatriate
Health Check
Other required documents
Application for Work Permit and Residence Permit




Employer applies for Employment License
Employer applies for a Visa Notice
Employee applies for Z-Visa
Employee reenters China and applies for Work Permit and
Residence Certificate
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
DIRECT HIRE VS INT’L ASSIGNMENT
Direct Hire
International Assignment
Expat
Foreign
Company
Foreign
Company
Employment
Relationship
Expat
China
Subsidiary
Employment
Relationship
China
Subsidiary
Assignment to
China
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
DIRECT HIRE VS INT’L ASSIGNMENT
Direct Hire
Assignment
Applicable Law
Employment Laws
Civil Law (e.g. contract
law)
Written contract
Yes
Not necessary
Termination at will
No
Yes, by contract
Annual leave
Yes
No – unless agreed
Overtime pay
Yes
No – unless agreed
Maternity leave
Yes
No – unless agreed
Compensation for
fault
Based on statute
Based on losses
Dispute resolution
Labour arbitration
Court proceedings
INTERNATIONAL ASSIGNMENT

Although there is a basis under PRC law, not all labour
authorities will recognize international assignment approach
during Work Permit application (e.g. Shenzhen) – and will insist
on a local Chinese employment contract between Expat and
hiring company

Risk of “dual contracts” – i.e. both overseas contract and local
Chinese contract – even if unintended

Possible “de facto” employment relationship between Expatriate
and Chinese entity may be deemed to exist – if elements of a
labour relationship exist (i.e. qualified employer/employee,
Expat subject to employer’s rules and system, the Expat engages
in work similar to the usual business of the employer, etc)
(MOLSS Notice 2005)

“Charge-back” of salary from overseas employer to China
company – tax issues
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
CASE STUDY 2: DUAL CONTRACT RISK
Facts:
An American employee was assigned by his US head office to
work for its Shanghai WFOE under an international assignment
arrangement. He signed an employment contract with his US
head office and was dispatched to work in China. For the
purposes of his Work Permit application, he also signed a very
simple local employment contract with the WFOE. Later, his
employment was terminated by the US head office. He
commenced arbitration proceedings in China against the WFOE
and legal proceedings in the US against head office.
Result:
The arbitration commission rejected his claim but, on appeal to
the court, he won his claim. The court held that the simple local
contract was valid and binding. The argument that the local
contract was simply “paperwork” for the Work Permit application
was rejected.
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
DOES THE EMPLOYMENT
CONTRACT LAW APPLY TO EXPATS?

Employment Contract Law, Article 2:
“This Law shall apply to the establishment of labour relationships
between enterprises, individual economic organizations, private
non-enterprise units etc. in the PRC and their workers and the
conclusion, performance, variation, rescission or termination of
labour contracts….”
………. but

Foreigner Employment Regulations 1996, Article 23:
“The working hours, rest and vacation, work safety and hygiene
as well as social security of the foreign employees should follow
the relevant provisions of the state…..”
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
DIFFERENT INTERPRETATIONS

Different interpretations

Beijing, Guangzhou – “yes”, it applies to all employees in
China – including Expats

Shanghai – “yes” , but only provisions relating to working
hours, rest and vacation, work safety and hygiene and
social security apply – all other provisions may be decided
by agreement (Shanghai Labour Bureau Opinions On the
Implementation of the Foreigner Employment Rules
(1996))

Highly controversial!
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
CASE STUDY 3: APPLICABILITY OF
EMPLOYMENT CONTRACT LAW
Facts:
In 2007 a Canadian GM signed an employment contract with a
Shanghai WFOE which provided that “either Party may terminate
upon 30 days’ notice”. He was subsequently terminated and
filed a claim against the WFOE.
Result:
The court rejected his claim on the basis that the parties were
free to agree upon conditions for termination in his employment
contract.
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
CASE STUDY 4: APPLICABILITY OF
EMPLOYMENT CONTRACT LAW
Facts:
In 2008, Mr J, a Malaysian, worked in an auto company in
Shanghai and secured the necessary Work Permit. Mr J suffered
from stress and illness and was unable to work. During his sick
leave, the company failed to pay him sick pay on the basis that,
as a foreigner, this was not mandatory. He initiated a claim in
the court.
Result:
The court accepted his claim on the basis that sick pay was a
form of “rest leave” and, as per the 1996 Rules, the law relating
to sick leave should apply.
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
EMPLOYMENT BY REP OFFICES

Does Employment Contract Law apply to employment of Expats
by Rep Offices?

Differing views – but generally accepted that it does not apply

A Rep Office is not a distinct legal entity and does not meet
definition of “employer” under Employment Contract Law –
although Employment Contract Law Implementing Rules includes
“branches” as an “employer”

Furthermore, a Rep Office is a registered place of business of a
foreign company and, accordingly, an employment contract
between a Rep Office and an Expat involves two foreign parties
and is outside of the jurisdiction of PRC employment laws
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
FOREIGN EXPERTS

Foreign Experts – technical, cultural, economic, consulting experts

Considered as “foreigners working in China” – but different set of rules
and regulations

Foreign Expert should apply for a Foreign Expert Certificate instead of a
Work Permit

Regulations contain certain minimum standards applicable to Foreign
Experts including:




40 hour working week
Paid OT
20 days’ annual leave
Sick leave on 100% pay for first month
In Guangdong, must sign a prescribed form employment contract – more
flexible than under the Employment Contract Law
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
GETTING STRICTER IN GUANDONG…

Guangdong Regulations on the Management and Service of
Foreigners (May 2011) 广东省外国人管理服务暂行规定

Regarded as pilot local implementation of a national policy of
“introducing high-level, restricting ordinary and prohibiting lowend” (引进高端， 限制一般， 禁止低端)





GD will publish certain catalogues of positions “restricted” and
“encouraged” for employment of foreigners
Sharing of information between different government departments
Rewards for reporting illegal entry, employment, business activities,
criminal activities
Hotels, schools, landlords, banks, health authorities… now have
obligations to check and report
Fines applicable for failure to comply
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
GETTING STRICTER …

November 2010 – Guangzhou PSB and Labour Bureau issued a
Circular to take action to “clear illegal employment of foreigners”
and provided rewards to anyone reporting such illegal
employment

March 2011 – Shenzhen PSB dispatched 800 police officers to
check 110 companies and 360 leased properties

April 2010 – Guangzhou labour authorities issued a Notice (Sui
Ren She Fa [2011] No 45) reinforcing certain reqiurements for
Expat employment – including a minimum of 2 years’ work
experience

June 2011 – Chongqing – raid on English training centres – 15
Expats detained

August 2011 – 16 Expats deported from Dongguan
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
PENALTIES FOR VIOLATION

Illegal employment of Expatriates

Employee
Fine of up to RMB1,000
 Possible deportation


Employer
Fine of RMB5,000-50,000
 Deportation expenses

©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
EXPATS EMPLOYED BY EMBASSIES
AND CONSULATES

Diplomatic personnel not subject to rules on employment of
foreigners – expressly excluded under the 1996 Regulations

Locally-employed Expats are subject to such rules and should
obtain Work Permits – but appears that Foreign Affairs Office
approval is required?

Highly arguable that employment of locally-engaged Expats not
subject to Employment Contract Law (a “foreign government”
and a “foreign individual”)
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
BACK TO OUR SCENARIOS
1.
Neil starts working with his company’s WFOE in Guangzhou and 6 months later
applies for a Work Permit
2.
Sabrina works as an English teacher for a local language school. She comes to
China on a 6 month F Visa which she is able to renew every 6 months in Hong
Kong. In her employment contract, she is granted 3 month’s paid maternity
leave. Later she becomes pregnant applies for maternity leave.
3.
Tom is offered a job by a Shanghai WFOE. He signs an employment contract
which provides that the WFOE may terminate his employment by “one month’s
written notice” at any time. Later he is terminated by the WFOE.
4.
Max is employed by a UK-based company and is sent to China on business for
five months to explore opportunities.
5.
A UK company sets up a WFOE in Shenzhen and sends one of its key managers,
Jake, to work at the WFOE for 2 years. Jake remains employed by the UK
Company but he is required to sign a local employment contract with the WFOE
“for Work Permit purposes only”. He gets his Work Permit. Later he is terminated
by the UK Company.
BACK TO OUR SCENARIOS
6.
Clare is offered a job at a US company’s Rep Office in Shanghai. She obtains a Work Permit.
Later, she is fired and decides to take arbitration proceedings against the Rep Office in
Shanghai.
7.
David is employed by a Hong Kong company and is dispatched to work in China for the Hong
Kong company’s WFOE in Guangzhou. He keeps his original employment with his Hong Kong
employer and his Hong Kong employer issues him with an assignment letter. Using such
assignment letter, he obtains a Work Permit and starts to work for the Guangzhou WFOE. 3
years later, he is terminated by the Guangzhou WFOE and commences arbitration proceedings
against the Guangzhou WFOE.
8.
Chris rents an apartment in Guangzhou via a local property agency. His visa has expired. He
signs the lease agreement and moves in. He operates an unregistered business from the
apartment. His “good friend” Jack reports him to the police and claims a reward.
9.
Sophie works for a Guangzhou WFOE, has a Work Permit and signs an open-term employment
contract. Later, she starts a part-time evening job at a friend’s company in Guangzhou. Her
friend’s company fails to pay her wages.
10.
Christine works for a Guangzhou WFOE and obtains a Work Permit. She is granted maternity
leave – but then claims an additional 30 days’ leave for “late childbirth” (i.e. she is over 23
years of age).
11.
Anna is employed by a Guangzhou WFOE and has a Work Permit. The Guangzhou WFOE then
dispatches her to work at its branch in Beijing
©JSA 2011
For further information, please contact JSA on +86 20 8776 1206 or email at [email protected]
THE END
Any Questions?
©JSA 2011
FURTHER INFORMATION

For further information, please contact:
如需更多信息，请联系：
Jeremy Sargent
JS Associates Ltd
3404 North Tower World Trade Center
371-375 Huanshi East Road, Guangzhou
Tel: + 86 20 8776 1206
Email: [email protected]
www.jsachina.com.cn
©JSA 2011