Employment Permit: Protecting the Foreign Employees’ Interest in China

Can foreign employees enjoy similar protection under the Labor Contract Law in China? This Article will focus on the employment permit for foreign employees, which is often ignored or misunderstood by some foreigners working in China, resulting in lack of protection under the Labor Contract Law in case of any dispute between the foreign employees and their employers. We will discuss the topic via an exemplary case which took place in 2009.

As the Chinese economy is developing at a high speed, more and more foreigners come to China for work. As we know, the Labor Contract Laws of the People’s Republic of China (“Labor Contract Law”) came into force in 2008. The Labor Contract Law features a high level of protection regarding the benefits of employees, drawing attention all over the world. But can foreign employees enjoy similar protection under the Labor Contract Law in China? This Article will focus on the employment permit for foreign employees, which is often ignored or misunderstood by some foreigners working in China, resulting in lack of protection under the Labor Contract Law in case of any dispute between the foreign employees and their employers. We will discuss the topic via an exemplary case which took place in 2009.

1. Case

Ms. Green (name changed) worked for a foreign invested company (“FIC”) in China which at that time was still in the course of incorporation. However, because FIC had not been established back then, it could not apply for the employment permit for Ms. Green. Thus, another company (“TC”) was used to apply for the permit, without Ms. Green’s knowledge, and was consequently named as the “employer” on the issued employment permit. Furthermore, Ms. Green did not sign any contract with the FIC.

After a few months, the FIC unilaterally terminated the work relationship with Ms. Green. Ms. Green did not agree with the termination. She thought that she worked for FIC and thus had established labor relationships with the FIC and her interests would be protected by the Labor Contract Law. She sued to the Labor Arbitration Committee, claiming that FIC shall pay RMB 4,000 as compensation in lieu of termination notice, and additionally double salary for the employment period as the FIC had employed her without written labor contract. Both claims were based on respective provisions of the Labor Contract Law. However, the labor arbitration commission refused to decide on the merits of the case by stating that the dispute does not fall under the jurisdiction the commission, because Ms. Green did not have the relevant employment permit during her work for FIC.

Ms. Green did not accept such decision and now filed the case with the arbitration court. Nevertheless, the court held the almost same opinion as the arbitration commission and returned the verdict as follows: Ms. Green’s employment permit was issued for employment with TC. When working for FIC, Ms. Green did not apply for a new employment permit, but even extended the term of the employment permit with TC as the named employer. Under such circumstances, even though Ms. Green worked for FIC, the two parties did not establish any employment relationship as specified by labor laws. Therefore, the dispute is not governed by labor laws but may be solved according to the stipulations between the two parties as per the general civil law. Accordingly, the court adjudicated that there’s no legal basis for Ms. Green’s claims, thus such claims were rejected.

2. Legal Analysis

The most crucial questions regarding the above-mentioned case is that whether Ms. Green established a labor relationship with FIC and accordingly whether this case is governed by Labor Contract Law. In order to answer these questions, firstly it is essential to understand the role which the employment permit plays in the administration system of foreign employment in China.

Generally speaking, the employment permit is a must for a foreign employee to work legally in China, as it is specified in Article 8 of the Rules for the Administration of Employment of Foreigners in China (the “Rules”), “Foreigners seeking employment in China shall hold a valid Employment Visa for their entry (for certain countries an agreement for mutual exemption of visas exists which prevails), and may work within Chinese territory only after they obtain the Employment Permit for Foreigners.” Thus, pursuant to the Rules, a foreigner shall be deemed as illegally working in China if he/she does not obtain any employment permit.

Based on the analysis in the preceding paragraph, Ms. Green obtained the employment permit, thus she could legally work in China. But she ignored that the employment permit only permits the foreign employee to work for the employer written on the permit. According to the Rules, if the employee changes his/her work, the employment permit shall be changed correspondingly, otherwise, his/her work with the new employer shall be deemed as illegal, as it is stipulated in Article 24 of the Rules, “The employer of the foreign employee in China shall be the same as specified in his Employment License. When the foreigner switches employers within the area designated by the Certificate Office but stays in a job of the same nature, the change must be approved by the original Certificate Office and recorded in his Employment Permit…”

Ms. Green changed her job, but did not go through the formalities for changes of the employment permit. Instead, she continued to extend the term of her employment permit in the name of TC. Based on the information written in the employment permit and the above-mentioned stipulations of the Rules, the labor arbitration commission and the court had sufficient reason to consider that the employer of Ms. Green was TC, namely from the labor law aspect, the labor relationship was between Ms. Green and TC. Even though Ms. Green in fact worked for FIC, the work was not approved by law, thus there cannot be any labor relationship between Ms. Green and FIC, and in consequence the Labor Contract Law does not apply. Therefore, Ms. Green’s claims which were based on the Labor Contract Law were rejected by the court.

The court ruled that the relations between Ms. Green and FIC shall be governed by the Civil Laws instead of Labor Contract Law. The Civil Laws do not provide preferential protection to employees as the Labor Contract Law does. Therefore, Ms. Green’s claims were rejected in total by the court.

3. Conclusion

It can be seen from the case that the employment permit is vital for foreign employees to protect their legal rights and interests under the Labor Contract Law. It is especially important for foreign employees to pay attention to the following issues when working in China:

a) Obtain a valid employment permit. The employment permit is the certificate for legal employment of foreign employees in China. Only based on a valid employment permit can a foreign employee’s legal rights be protected by the Labor Contract Law and other labor laws in China. Once the employment permit expires or becomes invalid for whatever reason, the foreigner cannot establish labor relationships with any employer. Under such circumstances, if the foreigner still works for any company or other entity, the foreigner's legal rights and interests cannot be protected by labor laws.

b) Keep the employment permit updated according to the situation. The Labor Arbitration Commissions and the courts are very likely to consider the information written in the employment permit as the most important evidence for judging a case. Even though the actual situation has changed, as long as the employment permit has not been changed accordingly, the labor arbitration commissions and the courts are still likely to make verdicts according to the information written in the employment permit.

ABOUT THE AUTHOR: Mr. Alan King & Ms. Iris Xie
Mr. Alan King, Partner and Attorney at Law with Zhongyin Law Firm and founder of Amarislaw. He gained rich experience in foreign investment, mergers & acquisitions, private equity funds formation and operation, corporate financing and litigation.

Iris Xie, the Attorney at Law of Zhongyin Law Firm, is experienced in legal affairs with regard to civil and commercial laws, economic laws etc. She gains rich experiences in mergers & acquisitions, foreign direct investment, company law, labor law and intellectual property and dispute resolution.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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