Refer China: Foreign Employee’s Contract Ruled Invalid, But Won ¥ 450,000+

Case Overview: Foreign Executive Hired Without Legal Work Permit

Foreign Employee's Contract Ruled Invalid, But Won ¥450,000+ in Compensation

Case Overview: Foreign Executive Hired Without Legal Work Permit

In March 2014, a Turkish national, Mr. T, signed an employment contract with a domestic Chinese company, Company A, to serve as its General Manager. The agreement included a monthly salary of RMB 70,000 and benefits such as two annual round-trip air tickets to his home country and housing subsidies. However, after Mr. T began his employment, Company A failed to obtain a legally required work permit for him.

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On April 20, 2015, Company A unilaterally issued a "Certificate of Termination of Labor Contract," terminating Mr. T's employment. Mr. T later submitted a separate "Unilateral Termination Compensation Agreement," stamped with the company's official seal, financial seal, and the legal representative's seal. The agreement stipulated that the company would pay RMB 450,000 (including 1.5 months of unpaid wages from March 8 to April 20) and RMB 15,000 for return airfare.

Although Company A acknowledged the authenticity of the termination certificate, it contested the validity of the compensation agreement, arguing that the document lacked personal confirmation and was thus unenforceable.

Court Ruling: No Valid Labor Contract Without Work Permit

After reviewing the case, the court cited Article 5 of the Regulations on the Administration of Employment of Foreigners in China, which states that employers must apply for employment permits before hiring foreign nationals. Because Mr. T never received such a permit, the court held that there was no legally recognized labor relationship, rendering the contract invalid due to a violation of mandatory legal provisions.

Judgment Point 1: Labor Pay Must Still Be Granted

Even though the contract was invalid, the court ruled that Mr. T had already provided labor services. As such, Company A was legally obligated to pay him for the work performed. Company A admitted to the wage liability, and the court supported the claim.

Judgment Point 2: Statutory Severance Not Applicable

Since the labor contract was deemed invalid, Mr. T's claim for statutory severance and non-compete compensation under the Labor Contract Law lacked legal grounds. The court rejected these requests.

Judgment Point 3: Employer Bears Fault and Must Compensate

The court emphasized that obtaining a work permit is the employer's legal obligation. Company A's failure to fulfill this duty resulted in the invalidity of the contract, constituting fault. Because Company A could not prove that Mr. T had access to or control over the company seals, the court accepted the stamped compensation agreement as valid evidence of financial loss.

As a result, the court ordered Company A to pay the following as per the agreement:

RMB 450,000 in outstanding wages and compensation
RMB 15,000 for return airfare

Both parties appealed the ruling, but the second-instance court upheld the original judgment and dismissed the appeals.

Judicial Insight: Legal Employment Status Is Key to Labor Protection

Foreign nationals who work in China without valid employment permits cannot establish legally recognized labor relations and are not entitled to statutory benefits under the Labor Contract Law, such as severance or compensation. However, the law does ensure basic fairness: if labor is provided, payment is required.

Furthermore, if a contract's invalidity results from the employer's failure to meet legal obligations, they must bear the responsibility for resulting losses. The court advised both employers and foreign workers to ensure proper legal procedures are followed to safeguard employment rights and avoid legal risks.

Source: 苏州工业园区人民法院