Source: OT-Team(G), 苏州工业园区人民法院
A foreign executive in China signed a contract without a work permit — making it legally invalid. Yet, after a court ruling, he still received 450,000 yuan in wages and compensation. How did an "illegal hire" end up winning big?
On November 24, a court in Suzhou, Jiangsu Province, released a notable case involving the employment of a foreign national in China. The ruling clarifies how compensation should be handled when a foreign employee's labor contract is deemed invalid due to improper work authorization.
Case Background
In March 2014, a Turkish citizen, identified as T, signed a labor contract with a domestic company, A Co., to serve as its general manager. The contract set a monthly salary of RMB 70,000 and included benefits such as two round-trip tickets home annually and a housing allowance. However, after T assumed the role, the company failed to secure the legally required employment permit for him.
On April 20, 2015, A Co. unilaterally issued a "Certificate of Dismissal and Termination of Labor Contract," ending the employment relationship. At the same time, T submitted another document — a "Unilateral Termination Compensation Agreement" — stamped with the company's official seal, financial seal, and legal representative's seal. This agreement stated that A Co. would pay T 450,000 yuan, equivalent to 4.5 months of salary (including 1.5 months of unpaid wages from March 8 to April 20), and cover 15,000 yuan in airfare for his return home.
A Co. acknowledged the authenticity of the dismissal certificate but contested the validity of the compensation agreement, arguing that despite the company seals, it lacked personal confirmation and should therefore be deemed invalid.
Court Ruling
After reviewing the case, the court found that under Article 5 of China's Regulations on the Administration of Employment of Foreigners, employers must obtain employment approval and an Employment Permit before hiring a foreign national. If a foreigner is employed without these mandatory documents, any labor contract signed is considered invalid.
Because T and A Co. executed the contract without the required permit, the agreement violated mandatory legal provisions and was therefore ruled invalid.
Based on this determination, the court held:
1. Labor remuneration must be paid
Even when a labor contract is invalid, an employer must compensate a worker for labor already provided. Since A Co. acknowledged T's wage claim and agreed to payment, the court upheld this portion of the claim.
2. Statutory economic compensation is not applicable
Because the labor contract was invalid from the outset, T was not entitled to statutory severance or non-competition compensation under the Labor Contract Law. The court rejected these claims due to lack of legal basis.
3. Employer bears liability for fault
Obtaining a work permit for a foreign employee is the employer's legal obligation. A Co.'s failure to fulfill this duty caused the contract's invalidity, and it must bear responsibility for resulting losses.
The company did not provide evidence to prove its seal-management protocols or show that T improperly controlled the company seals. As a result, the court accepted the stamped compensation agreement as proof of T's losses.
The court ruled that A Co. must pay the full 450,000 yuan in overdue wages and compensation, as stated in the agreement, along with 15,000 yuan for airfare.
Both parties appealed, but the appellate court dismissed the appeals and upheld the original judgment.
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