The ‘Shared Foreigner’ Dilemma : Caught Between Two Contracts

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Source: OT-Team(G), 中国人民大学法学院

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The Law School of Renmin University of China released a case study highlighting how Chinese courts determine labor relationships and wage obligations when a foreign employee signs contracts with two affiliated companies. 

The case centers around a foreign national, referred to as J, and two affiliated companies—Company A and Company B.

Case Overview

According to the facts established by the first-instance court, J, a foreign national, signed a five-year labor contract with Company A on August 1, 2021. The contract stipulated a monthly salary of RMB 30,000 and was valid from September 1, 2021, to August 31, 2026. Company A handled J's work permit application, and on August 19, 2021, J was approved by the Guangzhou Science and Technology Bureau to work at Company A for a 12-month period. On January 10, 2022, J officially obtained a Foreign Work Permit specifying his position as a golf coach with a validity until December 23, 2022.

However, during the employment period, J's salary was not paid directly by Company A. Instead, Company B—an affiliated entity—transferred payments labeled as "travel reimbursements" on August 5 and September 5, 2022, amounting to RMB 18,608 and RMB 17,001 respectively. Furthermore, on January 7, 2022, J signed a separate "Employment Agreement" with Company B for the period from December 11, 2021, to December 11, 2024, agreeing to an annual salary of no less than USD 70,000.

On October 21, 2022, J filed for labor arbitration, requesting confirmation of the labor relationship, payment of overdue and deducted wages, overtime compensation, and economic damages—amounting to over RMB 250,000. The arbitration tribunal partially supported J's claims, confirming a labor relationship between J and Company A from September 1, 2021, to September 23, 2022, and ordered Company A to pay unpaid wages for July through September 2022 totaling approximately RMB 48,000. Company A contested the decision and filed a lawsuit, which was rejected by the district court. Company A then appealed.

Disputed Issues

1.Whether a valid labor relationship existed between J and Company A;

2.Whether Company A fulfilled its wage payment obligations.

Court Rulings

First-Instance Court Findings

The court emphasized that in labor disputes, the party making a claim bears the burden of proof. Employers must provide evidence regarding employment matters within their control; failure to do so leads to adverse consequences for the employer.

On Labor Relationship:

The court found that Company A had applied for and obtained a work permit on behalf of J, as required under the Regulations on the Administration of Employment of Foreigners in China. The permit explicitly listed Company A as J's employer. Coupled with the signed labor contract, this confirmed the legal labor relationship between J and Company A.

Although J had also signed an agreement with Company B, the court ruled that this did not constitute a valid labor relationship since Company B had not obtained the required work permit for employing a foreign national. Moreover, the court noted that Company A and Company B shared overlapping business addresses, personnel, and operational scope, classifying them as affiliated companies. Thus, the court affirmed that J was legally employed by Company A.

On Employment Duration:

Company A failed to provide evidence regarding the start and end dates of the labor relationship. Based on the contract and J's claim, the court recognized that the employment lasted from September 1, 2021, to September 23, 2022.

On Wage Payments:

Company A could not provide proof that it had paid full wages for July, August, and September 1–23, 2022. Therefore, the court held that Company A must pay the remaining salary for these months, totaling RMB 48,379.28. As J did not file a separate lawsuit challenging the arbitration result, the court treated his claims as final.

Second-Instance Court Ruling

The appellate court upheld the lower court's decision, agreeing that:

  • A valid labor relationship existed between J and Company A, based on the labor contract and the officially approved work permit.

  • Although J signed an employment agreement with Company B, that agreement lacked legal standing without proper work authorization.

  • Company A, having agreed to a RMB 30,000 monthly wage, was legally obligated to fulfill that payment standard. Excess payments in prior months could not be offset against future salary unless explicitly agreed upon.

  • Company A failed to prove that it had fully paid J's wages from July through September 2022 and thus must bear the legal consequences.

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