Working Abroad in China: Application of Employment Law for Foreign Employees in Shanghai

Jan 03, 2020

Working Abroad in China

Application of Employment Law for Foreign Employees in Shanghai

Authors: Zack Li, Normand Gauthier


Working in China as a foreign national is a great experience for many. However, when employment issues arise, it can quickly become a nightmare. Over the years, I have noticed that the misunderstandings and questions are recurring. Thus, I created this series “Working Abroad in China” which explores and discusses some key matters foreign employees should know. An important detail was excluded in previous articles, which is the applicability of labor law for foreign nationals. This point may vary per location, adding complexity to labor disputes with foreign employees. This requires in-depth research, in respect of the principles set in the previous article, The Basics. Consequently, I decided to invite a local expert and a friend of mine, Zack Li [1] to explain the interpretation of the applicability of Chinese employment law for foreign nationals.


For the question of whether foreign employees shall be covered under the Labor Contract Law, there is no clear answer. To date, there are several laws, regulations and local policies that mentioned the status on the applicability of Labor Contract Law for a foreign employee.


Article 22 of the Circular on the Issuance of the Regulations on the Management of the Employment of Foreigners in China, the one with the highest hierarchy, states that:“The working hours, rest, vacation and workplace safety and health as well as the social security of foreign employees in China must follow the relevant provisions of the state.” This article sets out all the matters that must follow the relevant provision of the State. In turn, it could be interpreted that other points are not included. For example, the termination of labor contract and economic compensation could be negotiated and agreed on by both parties.


In Shanghai, the local labor authority formally issued its opinions in 1998 confirming the above interpretation:“Employment term, job position, salary, insurance, working time the condition of termination and liability and other rights and obligations for both parties, is arranged by the employment contract.” It can be understood that the Shanghai government recognizes a larger negotiation range when it comes to foreign employees. Yet, the Shanghai Court feels differently.


It can be seen that the Shanghai government recognizes a larger negotiation range when it comes to foreign employees. Yet, the Shanghai Court feels differently.


In 2010, the Shanghai No. 2 Intermediate People’s Court stated that even if a labor contract is signed with a foreign employee, no matter the agreement reached in the contract, the labor contract law still applies:


“According to Labor Contract Law Article 26, if the labor contract clause is against the law or regulation, then that clause is deemed invalid. Since the Labor Contract Law is higher than the Circular on the Issuance of the Regulations on the Management of the Employment of Foreigners in China in hierarchy, and Labor Contract Law is more recent than the Circular, then it can be inferred that if the agreement in the labor contract with a foreign employee is against the Labor Contract Law, it is invalid.”


Cases

We can note that different authorities may have different interpretations of the applicability of the Labor Contract Law for foreign employees. The decision of the Court appears to be divided on that subject. Below are four different cases from the Shanghai No.2 Intermediate People’s Court, Civil Affair Court No.3. Two cases from 2010 and two from 2015 will be presented. In these four cases, we can witness two opposite attitudes from the same court over the five years.


The earliest case is (2010)沪二中民三(民)终字第2187号. In this case, the employer and the employee agreed in the labor contract that the contract can be terminated with a three-month notice without any reason. Nevertheless, the Court decided that an employer can only terminate the labor contract under the limited ground described in the Labor Contract Law such as mutual consent, employee causing severe damages to the employer by neglecting his duties, etc.[2] Although the articles in the employment contract can be drafted by the free will of both parties, the Law stipulates that the employer can only terminate the employment using the conditions described in the Labor Contract Law. Therefore a “3-month notice without reason” goes beyond the legal conditions and the employer terminating the labor contract based on that agreement is illegal.

The second case takes place in 2010 (2010)沪二中民三(民)终字2271号. This case is more straightforward, since there is no special agreement in the labor contract. The labor contract law includes a termination condition and the economic compensation rule applied automatically.

It is also noteworthy that, in both of the above-mentioned cases, the economic compensation rule was applied without any kind of previous agreement. From these two cases, we can see that the foreign related employment relationship is treated the same as a domestic employment relationship.


Notwithstanding, five years later, the same court, Shanghai No. 2 Intermediate People’s Court, Civil Affair Court No.3, did a 180-degree turn of their attitude on the same matter. In (2015) 沪二中民三(民)终字第7号, the Court referred to the Shanghai labor authorities’ opinions of 1998 and decided that all termination related matter is arranged by the labor contract. Since there is no agreement on the severance payment of termination, the severance payment rule cannot be applied.

In (2015)沪二中民三(民)终字第1523号, both parties agreed in the labor contract that the term of the contract is pending. In this case, the Court supported that this kind of agreement for the term of the contract is valid. When the work permit of the employee expired, the employer did not renew the work permit and decided that the contract expired on the day the work permit expired. The employment relationship ended legally. Therefore, there is no requirement for severance payment.

From these four cases, it can be noted that, at least for the 3rd Civil Affair Court of Shanghai No.2 Intermediate People’s Court, the attitude went from forbidding to allowing a larger negotiation range in foreign employee’s labor contracts. More recently, the High Court of Shanghai completed the judicial review of a case related to foreign employment. In that case, the employer and the foreign employee agreed that the employer does not need to pay any compensation to the employee regardless of the reason that led to the employment termination. After the labor arbitration and two rounds of court procedure, the High Court has confirmed that other than the mandatory aspects mentioned above, the other the employment conditions can be arranged by the employer and the foreign employee. Once the arrangement has been fixed in the contract, then both parties are bound by the agreement. It could be foreseen that the most recent case by the High Court of Shanghai could serve as a general standard applied across in Shanghai. This could therefore further reduce the uncertainty surrounding employment of foreign nationals. We will provide a detailed analysis of this case in an upcoming article of Working Abroad in China.


At this moment, the cases above are still insufficient to reach a conclusion on the detailed application of Labor Contract on foreign employees. My goal with this article is to make the reader understand that labor disputes with foreign employees add a layer of complexity and uncertainty. This must be taken into consideration when negotiating the employment contract and considering legal actions, because the general trend suggests that the employment contract could play a much more important role compared to the domestic employment relationship.


This article is a vulgarization of laws and regulations and does not constitute legal advice. The author is not responsible for any loss caused by using any information provided in this article.
For all intent and purpose, the term China in this article refers to the People’s Republic of China.

[1] https://www.linkedin.com/in/zack-li/
[2] Labor Contract Law of the PRC (2012 Amendment), Chapter IV

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