One of our client’s recently sent us a couple draft Employment Agreements to review. Can you imagine the client’s surprise when we told them they could not sign these employment agreements with their employees?
The client is a Representative Office (“RO”) of an American company and is wanting to hire some Chinese employees. The Chief Representative of the RO, an American who has lived in China for about 10 years and speaks fluent Chinese) obtained some “standard” China Employment Agreements from the internet, and intended to use these agreements as the basis for employment of the employees. Luckily the Chief Representative’s China instincts kicked in, and he sought our China lawyer’s advice about the employment agreements. Thumbs-up to him!
Under China law, an RO is an office established in China by a foreign company for the purpose of engaging in non-business activities in connection with the business carried on by the foreign company. In practice, this is typically promotional work within China.
Unlike a China WFOE or other limited liability company (LLC), A China RO does not have the status of an separate legal entity. Because the RO is not a legal entity, it cannot enter into any legal agreement, and that includes employment agreements. If a RO wants to hire an employee, it cannot sign the Employment Agreement with the employee directly. To hire a Chinese national, an RO must work with a third party employer. There is a special company in China, Foreign Enterprises Service Corporation (FESCO), that will sign an Employment Agreement with a Chinese national, which allows the individual to work for the RO.
For a non-China national, like the Chief Representative, their employment contract must be with the overseas parent of the China RO.
As a final note, and do we have to say it? We know the internet is a wonderful resource that puts so much at our finger tips. Legal contracts should not be one of these things, particularly in China. China’s legal system can be summarized as “form over function.” If all the “T’s” are not crossed and all the “i’s” are not dotted, or a word is missing or misplaced, a China contract can easily end up invalid, or binding you to something you never intended. Instead of downloading agreements from the internet and trusting these issues to strangers, trust your China lawyer. Plus, we might just have the answers to the questions you didn’t know enough to ask; just like the Chief Representative found out about this RO employment issues. If that RO had proceeded to sign those contracts with its China staff, the RO would be subject to administrative fines, in addition to potential compensation paid to the “employees” who were working under invalid contracts.