Foreign worker assigned by Korean HQ to Changzhou subsidiary won appeal. Court recognized employment relationship, ordered over RMB 500,000 wage difference. Employer bears proof burden for pay cuts.
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Source: OT-Team(G), 中国劳动和社会保障法律网
Can a multinational company sidestep an employment relationship in China simply by labeling a foreign employee as "assigned" by its overseas headquarters?
A recently published case by the China Labor and Social Security Law Network suggests the answer is far from straightforward—and carries important implications for foreign professionals and multinational employers alike.
A Long-Term Assignment That Raised Questions
The case centers on P, a foreign national who had been dispatched by his Korean headquarters (referred to as Company A) to work in a Chinese subsidiary in Changzhou. His connection with the Chinese entity stretched over years: initially assigned in 2004, returning to headquarters between 2013 and 2017, and then re-assigned to China from January 2018 through the end of 2023, where he served as head of a specialized business unit.
During this latest stint, P signed multiple written labor contracts with the Chinese subsidiary, obtained both a Foreign Expert Certificate and a Work Permit for Foreigners in China, and received his salary directly from the subsidiary. His annual income, however, showed a steady decline after 2018. Believing the reduction unjustified, P sought compensation for the shortfall—amounting to over RMB 500,000.
After arbitration authorities declined to accept his case, P brought the dispute to court.
The Core Dispute: Employment Relationship and Wage Reduction
Two key legal questions emerged:
1. Did P have a legally recognized employment relationship with the Chinese subsidiary?
2. If so, was the subsidiary obligated to make up the wage difference caused by the salary reduction?
Diverging Judicial Views
The first-instance court took a restrictive view. It applied the traditional "subordination test" in labor law—focusing on whether the employee is subject to the employer's control both personally and economically. Although P had signed contracts and was paid locally, the court found that his assignment, compensation structure, and job responsibilities were ultimately determined by the Korean headquarters. On that basis, it ruled that no employment relationship existed between P and the Chinese entity.
The court also noted that P had not sufficiently proven possession of a valid work permit (as distinct from a Foreign Expert Certificate), further weakening his claim. Even assuming an employment relationship, the court added, Chinese law only requires wages to meet the local minimum standard—leaving employers broad discretion in setting pay levels.
Accordingly, P's claims were dismissed in full.
Second Instance: A Reversal Grounded in Substance Over Form
On appeal, the court took a markedly different approach—one that emphasized legal compliance and factual employment conditions over corporate structure.
It found that:
P had valid work authorization, supported by official administrative approvals issued over multiple periods;
He had signed labor contracts with the Chinese subsidiary;
He had continuously provided labor to the subsidiary within China.
Under judicial interpretations of China's Labor Contract Law, these elements are sufficient to establish a legally recognized employment relationship for foreign nationals.
The appellate court therefore overturned the first-instance ruling, confirming that P and the Chinese subsidiary were indeed in an employment relationship.
Who Bears the Burden for Pay Cuts?
On the issue of salary reduction, the court highlighted a critical principle:
when an employer unilaterally reduces compensation, it bears the burden of proof.
In this case, the subsidiary argued that it merely acted as a payroll agent for the Korean headquarters and that salary decisions were made offshore. However, it failed to provide evidence justifying the year-on-year decline in P's wages.
Chinese law—and specifically regional regulations such as the Jiangsu Wage Payment Rules—places the evidentiary burden squarely on the employer in such disputes. Absent proof of lawful grounds (such as mutual agreement, internal policies, or significant operational changes), wage reductions are presumed unjustified.
Given that P continued to perform his duties normally, the court ruled that his salary from 2019 to 2021 should be recalculated based on his 2018 level, with the difference paid in full.
Broader Implications for Multinationals and Foreign Employees
This case underscores a critical compliance reality:
"Secondment" arrangements do not override Chinese labor law.
Even where a foreign employee is formally assigned by an overseas parent company, an employment relationship with a Chinese subsidiary may still be established if:
the employee holds valid work permits,
a written labor contract is signed locally, and
the employee is managed and paid within China.
Once such a relationship is recognized, the subsidiary cannot deflect legal obligations by pointing to decisions made at headquarters. Wage adjustments, in particular, must be legally justified and properly documented.
For multinational companies, the message is clear: internal global policies do not supersede local labor regulations. For foreign professionals, the ruling reinforces that their rights under Chinese law are enforceable—even in complex cross-border employment structures.
In short, substance prevails over form—and compliance must follow where the work is actually performed.
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