Employment of Expatriates the Legal Issues

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1 Employment of Expatriates the Legal Issues Garden Hotel Guangzhou 2 November 2011 Jeremy Sargent Managing Partner JSA Guangzhou Office

2 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.

3 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

4 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

5 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

6 LEGAL VS ILLEGAL EMPLOYMENT Legal Employment Work Permit and Residence Permit Working for Entity on Work Permit Protected by Labour Laws Illegal Employment No Work Permit Working for Entity Not Listed on Work Permit Civil Law applies

7 CASE STUDY 1: ILLEGAL EMPLOYMENT Facts: A South Korean lady, Ms X, signed an Employment Contract with a Chinese garment company in March 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

8 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

9 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

10 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

11 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

12 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

13 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

14 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.

15 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..

16 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!

17 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.

18 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.

19 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

20 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

21 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

22 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 Expats deported from Dongguan

23 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

24 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 )

25 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.

26 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

27 THE END Any Questions?

28 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 Huanshi East Road, Guangzhou Tel: jeremy.sargent@jsachina.com.cn

Regulations on the Management of the Employment of Foreigners in China (Revised in 2017)

Regulations on the Management of the Employment of Foreigners in China (Revised in 2017) RIVER DELTA Issuing authority: Ministry of Human Resources & Social Security Date issued: 13-03 -2017 Effective