Contracts Signed Before Work Permit Not Recognized, Court Rules

Source: OT-Team(G),北京海淀法院

  On August 13, the Haidian District Court in Beijing posted a ruling on a labor dispute involving a foreigner. The names in the report have been changed for privacy.

  According to Chinese law, foreigners without residency permits who work in China without obtaining a work permit have their labor contracts with employers deemed invalid. Requests to confirm the existence of a labor relationship under such circumstances are not supported by the courts.

Case Overview

  Swan, a national of country A, joined B Company in May 2020. The two parties signed a labor contract agreeing on a term from May 2020 to June 2023, with a monthly salary of RMB 45,000 and an additional thirteenth salary at the end of the year. B Company obtained a "Work Permit for Foreigners" for Swan on June 28, 2020.

  In January 2021, B Company informed Swan via email that the entire business line of the Beijing branch would be shut down, and the labor contract could no longer be performed. The company asked if Swan agreed to modify or terminate the labor contract. Swan refused both the termination and the transfer and continued working at the company. In February 2021, B Company issued a "Notice of Termination of Labor Relationship" to Swan, citing significant changes in the objective circumstances upon which the contract was based, making it impossible to perform the contract. The company provided Swan with RMB 36,000 as economic compensation for the termination and RMB 45,000 as payment in lieu of notice. Swan rejected the notice, claiming the original business line was not shut down and that B Company had illegally terminated the contract.

  Swan applied for arbitration with the Labor Arbitration Committee. After the arbitration request was denied, Swan filed a lawsuit in the court where the company is registered, seeking confirmation of the labor relationship from May 2020 and demanding RMB 98,000 in compensation for the illegal termination.

Court Ruling

  The court determined that, as a foreigner, Swan's case is an international civil case. According to Article 43 of the "Law of the People's Republic of China on the Application of Laws to Foreign-Related Civil Relations," labor contracts are subject to the laws of the place where the laborer works. Since Swan worked in China, Chinese law applies to this labor dispute.

  Regarding the legal relationship, although B Company signed a labor contract with Swan starting in May 2020, Swan did not obtain a work permit until June 28, 2020. Therefore, the court did not recognize the labor relationship from May 2020 to the date of obtaining the permit due to lack of legal basis. The court recognized the labor relationship starting from June 28, 2020.

  Regarding the compensation for illegal termination, B Company claimed the business line Swan worked on was shut down, which was a result of business decision adjustments and did not constitute a significant change in the objective circumstances upon which the contract was based, as per Article 40(3) of the "Labor Contract Law of the People's Republic of China." Therefore, the company's dismissal of Swan constituted an illegal termination, and Swan was entitled to compensation. Article 47(2) of the "Labor Contract Law of the People's Republic of China" stipulates that if an employee's monthly salary exceeds three times the average monthly salary of employees in the locality, the compensation is calculated at three times the average salary, with a maximum of twelve years. The compensation B Company paid to Swan exceeded the legal standard for illegal termination compensation, so the court did not support Swan's additional compensation request.

  In conclusion, the court dismissed all of Swan's claims.

Legal Explanation

  According to Article 5 of the "Regulations on the Administration of Employment of Foreigners in China," employers must apply for employment permits for foreigners. Foreigners can only be employed after obtaining the "Work Permit for Foreigners in the People's Republic of China."

  Article 33(1) of the "Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Labor Dispute Cases (I)" states that if a foreigner or stateless person signs a labor contract with an employer in China without obtaining employment documents, the court will not support claims to confirm the labor relationship.

  In this case, there was a situation of "employment before approval," violating legal provisions. The parties involved must bear the corresponding legal consequences. It is a reminder that, except for a few special categories of personnel specified by law, foreigners without residence and employment permits cannot be employed in China without approval from the competent Chinese authorities. Labor contracts signed without obtaining these permits are invalid due to violating mandatory legal provisions. Therefore, foreigners should understand and comply with local laws, obtaining the necessary permits before employment. Employers should fulfill their legal obligations, assist foreigners in obtaining the relevant permits, and employ them legally to avoid unnecessary disputes.