By Weiwei Gu / Christopher Galley / Chelsea Zheng
INTRODUCTION
With respect to the employment of foreigners in China, there are certain relevant laws and regulations that need to be adhered to, including the Administrative Provisions on Employment of Foreigners in China (revised and effective since Mar.13, 2017, “Administrative Provisions”), and the Administrative Law of the People’s Republic of China on Exit and Entry of Foreigners (effective since Jun.30, 2012, “Administrative Law on Exit and Entry”). Based on our understanding of relevant laws and regulations, as well as our familiarity as to the reality of practice, this article will focus on common legal issues we have come across in relation to work permits.
1. What are the circumstances where an employer is legally obliged to apply for, or apply to extend, the validity term of work permit of its foreign employee?
Conclusion 1:
If within the Territory of China, a foreign employee engages in work and in return receives remuneration from an employer, the employer is legally obliged to apply for work permit for its foreign employee.
Pursuant to Art.2 of the Administrative Provisions, “Foreigner working in China” means the act of a foreigner, without the right of residency, lawfully engages in social work and gets paid in return within the Territory of China.” Further, Art.5 of the Administrative Provisions provides that “the employer employing a foreigner shall apply for work permit for these foreigners…….” Therefore, if a foreigner：
(1) engages in social work within the Territory of China, and
(2) gets paid in return for his performance of work from his/her employer,
he/she will be deemed as “working in China”; the employer, accordingly, will be deemed as “employing a foreigner.” Consequently, the employer shall undertake the legal obligation to apply for a work permit for the said foreign employee, in accordance with Art.5 of the Administrative Provisions.
In practice, the determination of whether a foreigner shall be deeded as “working in China,” the principle adopted by the labour department is relatively broad. No matter exactly what form of labour (e.g., consultancy service etc.) is performed by the foreigner, or whether a written labour contract between the foreigner and his/her employer is entered into, the employer is always required to apply for a work permit for its foreign employee provided that (1) the foreign employee actually works within the Territory of China, and (2) the employer makes payment in return for the work performed by the foreign employee.
Notably, in reviewing the application materials for a work permit, the labour department tends to rely on the term of the labour contract (assumed as valid) between the employer and the employee to determine the approved validity term of the work permit of the employee. Art.17 of the Administrative Provisions provides that “An employer and a foreign employee shall enter into a labour contract pursuant to the Law. The term of the labour contract shall not exceed five years,” the validity term of the labour contract between an employer and its foreign employee cannot exceed five years. Thus it can be concluded that the validity term of a work permit also cannot exceed five years.
Conclusion 2:
Where a foreign employee’s work permit expires prior to the labour relation, his/her employer shall apply to extend the validity term of the work permit for the said employee.
Art.5 of the Administrative Provisions provides that “The employer employing a foreigner shall apply for work permit for these foreigners…….” Hence, a valid work permit is a prerequisite for a foreigner to legally work within the Territory of China, and it is also clear that the work permit of the foreign employee must be valid during the whole period when they are employed within the Territory of China. Whenever the expiration date of a foreign employee’s work permit precedes that of the labour contract, their employer should apply to extend the foreign employee’s work permit, thereby ensuring that the foreign employee works lawfully during their employment.
Usually, the validity term of the foreign employee’s work permit tends to be consistent with the term of the labour contract. Nevertheless, inconsistency may occur in practice, especially when one, or more than one, labour contract is entered into between an employer and its foreign employee during the preexisting labour relation. For instance, an employer and a foreigner enter into a labour contract with a three-year valid term and the expiration date on Jan.1, 2019. To comply with relevant laws, the employer proceeds with the application process for the foreign employee and obtains a work permit which will expire on the same date as the labour contract. However, before Jan.1, 2019, the employer and the foreign employee enter into another labour contract where the expiration of the labour relation is scheduled to be Mar.1, 2019. As a result, the foreign employee’s work permit will expire prior to that of the labour relation. To avoid the foreign employee being deemed as illegally working within the Territory of China during the period after the expiration of the original work permit and before the expiration of the labour relation (from Jan.2, 2019 to Mar.1, 2019), the employer should apply to extend the validity term of the foreign employee’s work permit for at least two months.
Besides, as pursuant to Art.18 of the Administrative Provisions, “A foreign employee’s work permit shall become void upon the expiration of the term of the labour contract with his/her employer. When the labour contract is to be renewed, the employer shall submit an application for extending the period of employing the foreign employee with the administrative authorities of labour within 30 days before the expiration of the original labour contract, and once approved, proceed the application for extending the validity term of the foreign employee’s work permit.” Therefore, the foreign employee’s work permit will expire upon the expiration of the labour contract. Besides, whenever a new labour contract is entered into after the original labour contract expires, the employer should apply to extend the validity term of the foreign employee’s work permit.
Further Issue:
Can an employer apply to extend the validity term of its foreign employee’s work permit only to the expiration date of the labour contract?
From a legal perspective, as a work permit is the legal precondition for a foreigner to legally work within the Territory of China, the work permit loses necessity upon the ending of labour relation with their employer. In other words, the necessity of a work permit is reflected only in the existence of a labour relation. Therefore, an employer can apply to extend the validity term of its foreign employee’s work permit only to the expiration date of the labour relation.
The consideration above is consistent with practical operation, in practice, when reviewing and subsequently determining the validity term of a foreign employee’s work permit, the labour department will take the following factors into account:
(1) the term of the labour contract entered into between the foreign employee and his/her employer (Note: It is assumed that the agreed-upon term of the labour contract is valid);
(2) information on the foreign employee’s passport and visa; and
(3) publicly registered information of the employer, etc.
Among these factors above, the term of the labour contract is the most significant. As the validity term of the work permit tends to be consistent with the term of the labour contract, not exceeding the expiration date of the labour relation, it is thus reasonable and practicable for an employer to apply to extend the validity term of a foreign employee’s work permit only to the expiration date of the labour contract.
Suggestion:
Inregards to the process of the renewal itself, it is prudent for employers to constantly be aware of any changes to the visa policy process, as many newpolicies have been introduced in the past couple of years. For example, the State Administration of Foreign Experts Affairs announced on Dec.7, 2017, that from Feb.28, 2018, all applications for renewal must be submitted 30 days ahead of the expiration ofthe current work permit. The consequence of failing to do so would be that the employee and employer would need to go through the original application process again, which would entail the employee leaving China to gather the necessary documents (e.g., criminal record check etc.) in their home countries as the foreign employee would be treated as a first-time applicant.
2. What will be the legal implications if an employer fails to perform its legal duty to apply for, or apply to extend, the validity term of the work permit for its foreign employee?
Conclusion:
The legal consequences arising under the circumstances as mentioned in the headline include (1) both the employer and its foreign employee will be subject to corresponding administrative penalties; (2) the labour relation between the employer and its foreign employee will be deemed non-exiting; (3) the employer still will be liable to pay remuneration to its foreign employee; and (4) the employer will be subject to compensation liability for remedies suffered by its foreign employee.
(1) Administrative Penalties
As pursuant to Art.43 of the Administrative Law on Exit and Entry, “Foreigners who perform any of the following conduct shall be deemed to be illegally employed in China: (1) ……working in China without obtaining a work permit……; (2) working in China beyond the approved scope of work on the work permit; or……” With regard to the resulting administrative penalties, Art.62 of the Administrative Law on Exit and Entry provides that “Foreigners who fall under any of the following circumstances may be repatriated…… (3) foreigners who reside or work illegally in China; or……Repatriated persons shall not be allowed to enter China within one year to five years from the date of repatriation.”
Further, Art.80 of the Administrative Law on Exit and Entry provides that “foreigners working in China illegally shall be subject to a fine ranging from RMB 5,000 to RMB 20,000; where the case is serious, the violator shall be detained for a period of more than five days, but less than 15 days, and be subject to a fine ranging from RMB 5,000 to RMB 20,000…… Persons who employ foreigners illegally shall be subject to a fine of RMB10,000 for each illegally employed foreigner, subject to a total fine of not more than RMB 100,000; illegal income, if any, shall be confiscated.”
Therefore, an employer’s failure to perform its legal duty, namely to apply for or apply to extend the validity term of the work permit for its foreign employee, may expose both the employer and its foreign employee to legal consequences as below:
In terms of the foreign employee:
The foreign employee will be deemed as working illegally within the Territory of China and thus be subject to administrative penalties including:
(1) repatriation and restricted from entering China within one year to five years from the date of repatriation;
(2) a fine ranging from RMB 5,000 to RMB 20,000; and
(3) under serious circumstances, detainment for at least five days but no more than 15 days as well as a fine ranging from RMB 5,000 to RMB 20,000.
In terms of the employer:
The employer will be deemed as conducting illegal employment and thus be subject to administrative penalties including:
(1) a fine of RMB10,000 for each illegally employed foreigner but no more than RMB 100,000 in total; and
(2) confiscation of illegal gain (if any).
(2) Non-existence of Labour Relation
According to Art.14 of the Explanation by the Supreme Court to Certain Issues of the Application of Laws Regarding the Trials of Labour Disputes, where a foreigner hasn’t obtained the work permit within its validity term in accordance with relevant laws when entering into a labour contract with an employer, the court shall not uphold the claim that a labor relation exists between the employer and the foreign employee. Based on relevant cases, we conclude that the “labour relation” referred to in the provision above includes not only the labour relation established by a written labour contract, but also de facto labour relation.
(3) Payment of Remuneration
According to Art.28 of the Administrative Provisions, if the foreign employee has already performed his/her work in the absence of a labour relation, he/she is still entitled to remuneration in return for the work already performed. The exact amount of remuneration is calculated by reference to remuneration paid by the employer to employees on the same or similar positions.
(4) Compensation for Remedies
Disputes between an employer and its foreign employee within the Territory of China shall be governed by the Labour Law of the People’s Republic of China (“Labour Law”), and the Law of Arbitration in Labour Disputes Resolution in the People’s Republic of China, as pursuant to Art.97 of the Administrative Provisions. Therefore, the Labour Law should be applied in resolving disputes arising from the employment of foreigners within the Territory of China.
According to Art.97 of the Labour Law, if a contract concluded is invalid as a result of the employer’s fault and has resulted remedies on its employee, the employer shall bear liability for paying compensation to the said employee.
If the absence of a work permit within its validity term at the point when a labour contract between an employer and its foreign employee is entered into can be contributed to employer’s fault of failing to process the work permit application for the foreign employee, the employer will be subject to the legal implications under Art.97 of the Labour Law, and therefore be liable to compensate for remedies (if any) suffered by the foreign employee as a result of his/her inability to obtain a work permit.
3. What factors can be relied on in determining the validity term of a labour contract between an employer and its foreign employee when the open-ended term of the labour contract as agreed is deemed invalid for violating Art.17 of the Administrative Provisions?
While the term of labour relation between an employer and its employee is generally determined by the term of the valid labour contract as agreed by and between, due to the particularity of the employment of foreigners in China, Art.17 of the Administrative Provisions imposes a special restriction of upper limit on the term of the labour contract between an employer and its foreign employee by providing that “An employer and a foreign employee shall enter into a labour contract pursuant to the Law. The term of the labour contract shall not exceed five years…...”
It often occurs in practice, however, that an employer and a foreign employee may enter into a labour contract with a term exceeding five years, as illustrated by the most typical example of agreeing the term of the labour contract as open-ended. As a labour contract with an open-ended term is “a labour contract entered into by and between an employer and its employee where the expiration date is not agreed therein,” it exceeds the five-year upper limit imposed by Art.17 of the Administrative Provisions. Therefore, the open-ended term of labour contract as agreed by an employer and its foreign employee should be deemed invalid for violating Art.17 of the Administrative Provisions.
Conclusion:
Under the above-mentioned circumstances, the term of labour relation between an employer and its foreign employee is primarily dependent on the validity term of the work permit of the foreign employee.
As a matter of law, Art.5 of the Administrative Provisions provides that “Employers employing foreigners shall apply work permit for the said foreigners, and may only employ foreigners upon approval and obtaining the Permit to Work in the People's Republic of China.” (Note: “Permit to Work in the People’s Republic of China” is referred to in this analysis as “work permit.”) The reference to draw here is that having a valid work permit is a prerequisite for a foreigner to work legally within the Territory of China. If the expiration date of his/her work permit precedes that of the labour contract, he/she will be no longer eligible to work within the Territory of China since the expiration date of the work permit, regardless of the agreed-upon term (open-ended or not) of the labour relation. Therefore, it can be inferred that in cases where the agreed-upon term of the labour contract with a foreign employee is invalid for exceeding the five-year upper limit under Art.17 of the Administrative Provisions, the validity term of a foreigner’s work permit can be relied on to determine how long the labour relation may lawfully exist.
Besides, the analysis above is consistent with the practical operation. In practice, in determining the term of a labour relation under thse above-mentioned circumstances, the labour department depends on the shortest validity terms of the following materials:
(1) the Corporate Business License of the employer；
(2) the passport and visa of the foreign employee；
(3) the work permit of the foreign employee.
In general, the validity term of a work permit is shorter than that of either the Corporate Business License of the employer or the passport and visa; of the foreign employee. Thus, the validity term of a work permit is generally considered by the labour department as the most pivotal factor when determining the term of the labour relation in the circumstances where the term of a labour contract is invalid for violating Art.17 of the Administrative Provisions.
4. SUMMARY
From the aforementioned issues and potential pitfalls in regards to work permits, it is clear that much focus is required to ensure that employers are adhering to the relevant laws and regulations, not only when entering into a labour relation with a foreign employee, but when maintaining the labour relation as well.
It is vital that employers ensure when considering the employment of a foreign employee, they are mindful of the process of obtaining a work permit and relevant issues including the length of time that the contract will be, so that the correct work permit can be applied for to marry up with the term of the labour contract, and as discussed, be mindful that the maximum term of any work permit is five years. It is also recommended that once a work permit expiration is upcoming, or a labour relation is about to expire before the work permit, the application for an extension should be made promptly to avoid falling foul of any of the regulations discussed.
