Whether An Employment Permit Could Prove A Labor Relationship?

A Singapore company and Singaporean Bai signed a contract, in which the company hired Bai as the manager of Shanghai business development department. Soon, Bai signed a labor contract with the Shanghai branch of a Xiamen company invested by the company. The Shanghai branch applied the employment permit (hereinafter referred to as the “EP”) for Bai. Later, Bai and the Shanghai branch were in dispute; finally, the court determined that there was no labor relationship the two parties.

The Shanghai branch signed the labor contract, and applied the EP, why the court still denied the labor relationship? Let’s analyze step by step.

First, according to the “Administrative Provisions on Employment of Foreigners in China” and relevant immigration laws and regulations, a foreigner should obtain the EP and residence permits before he starts to work in mainland China. In addition, paragraph 1, Article 14 of the “Interpretations of Supreme People’s Court on Several Issues Relating to Laws Applicable for Trial of Labor Dispute Cases (IV)” stipulates that where a foreigner or a Stateless person failed to obtain the EP pursuant to the law before entering into a labor contract with an employer in mainland China, …… and the parties concerned request for confirmation of employment relationship with the employer, the People’s Court shall not support the request. Therefore, if a foreigner has not obtained the EP, the foreigner does not have the labor relationship with the company in mainland China. However, Bai has obtained the EP, so step 1 could not be applied.

Second, if the employer is not consistent with the employer stated on the EP, then the labor relationship would also be denied. Article 23 of the “Administrative Provisions on Employment of Foreigners in China” stipulates that the employer in China shall be consistent with the employer stated on the EP. Therefore, if company A applied the EP for a foreigner, and the foreigner worked for company B, then the foreigner has not established a labor relationship with neither of the two companies. (E.g. (2016) Jing 02 Min Zhong No.4097) In addition, if the EP expires, although both parties have renewed the labor contract, the real labor relationship shall expire forthwith. However, Bai’s EP does not expire, so step 2 could not be applied.

In fact, the determination of the relationship between Bai and the Shanghai branch, involves the determination of the labor relationship between employees dispatched by the parent company to the affiliate in mainland China (hereinafter referred to as the “affiliate”). Regarding this issue, there are disputes in the judicial practice. Many courts would determine the foreigner and the affiliate has labor relationship in accordance with the “Administrative Provisions on Employment of Foreigners in China”. And then those courts make the decision in accordance with the “Labor Contract Law” and relevant laws and regulations. However, there are some other courts which would make a substantive determination. The reason is that if the foreigner keeps the labor relationship with the parent company, then he shall not establish a double labor relationship with the affiliate. Regarding the substantive determination, normally, the courts would consider some factors: a) whether the foreigner works for the employer stated on the EP; b) whether the affiliate could manage the foreigner; c) which company undertakes the salary; d) whether the parties have special agreement that the labor contract entered into with the affiliate is only used for applying the EP; and so on. Shanghai No.2 Intermediate People’s Court holds the opinion on the substantive determinations, and makes the decision on Bai’s case.

In order to control risks, from the perspective of the affiliate in mainland China, it is recommended to make a comprehensive arrangement on issues related to an employee dispatched by the parent company, such as the contract, management, social security, salary and so on.