China economic growth is often highlighted through its infrastructure, trade, and manufacturing strengths. However, beneath major projects like the Belt and Road Initiative and the impressive skylines of major cities, a quieter but significant change is happening. The makeup of China workforce is evolving as foreign professionals become essential contributors—from top executives in Shanghai’s multinational companies to technical staff in the Greater Bay Area. Yet, for many expatriates and multinational HR teams, China labor market presents a unique legal environment where missing a single document can mean losing all labor law protections.
For better advising clients on relocating, seconding, or hiring directly in China, grasping the details of Labor Relationship Recognition is crucial for managing risks. China legal system treats foreign employment with strict regulations that can surprise those used to more relaxed Western systems. The key rule is clear: without official administrative approval, no labor relationship exists, and without that, the protections of Chinese labor law disappear, leaving employees with only weak civil claims.
The Key Document: The Employment Permit
Central to foreign employment in China is one essential document: the Foreigner Employment Permit (also known as the Foreigner Work Permit). This requirement is designed to protect the local labor market. Unlike some countries where the right to work is assumed, in China it depends on meeting specific conditions.
A 2023 case in Guangdong illustrates the serious consequences of this rule. An American employee, Mr. Yang, had a contract and performed his job, but his employer failed to obtain the necessary permit. When a dispute over overtime and severance arose, the court ruled that no labor relationship existed because of the missing permit. As a result, Mr. Yang could not claim statutory worker benefits like overtime pay or severance. This case highlights that in China, a signed contract alone does not guarantee legal employment status. Without the required permit, the contract is often considered invalid under labor law, and the worker is treated as a service provider or unauthorized worker without employee protections.
Moreover, the permit must exactly match the employment situation. It is valid only for the specific employer and location named. For example, if a worker permit is for Shanghai but they work in Beijing, courts have ruled the employment unauthorized, as happened in a 2014 Beijing case. This strict geographic rule means compliance must be precise, as labor administration is localized and permits do not transfer between regions.
A Positive Exception: Permanent Residency and Equal Rights
There is, however, a notable exception: foreign nationals with permanent residency in China, often called the Chinese Green Card. A 2021 Nanjing case involving a Singaporean showed that permanent residents are treated like local employees. They do not need a separate employment permit and are entitled to all labor law rights, including social insurance and severance.
This creates two levels of foreign employment: those dependent on permits, whose status is fragile and strictly regulated, and permanent residents, who enjoy more secure and equal treatment. For senior executives and long-term expatriates, obtaining permanent residency is a strategic way to protect employment rights.
The Challenge of Secondments: Substance Over Paper
Multinational companies often face complex issues when sending staff from overseas headquarters to Chinese branches. The question of who the real employer is becomes legally important. Chinese courts apply a substance over form approach, looking beyond contracts to who actually controls the employee. They assess three factors: who manages personnel matters (like schedules and discipline), whose business operations the employee supports, and who pays the salary.
A 2021 Shanghai case involving a Spanish pilot demonstrates this. Although the pilot had a contract with a third-party company, the court found that because the Chinese company controlled his work, paid his wages, and held his employment permit, the labor relationship was with the Chinese company. This shows the risk for foreign companies trying to avoid local liabilities by labeling workers as seconded or independent contractors. If courts see the true employment relationship, the Chinese entity may be held responsible for social insurance, severance, and other obligations.
Consequences When Employment Is Invalid
If a labor relationship is invalid due to missing permits or non-compliance, employees cannot claim key labor protections like overtime pay, severance, or punitive damages. However, courts do not leave foreign workers completely without options. If the relationship is reclassified as a civil labor service contract, employees can sue for agreed wages. If the employer caused the invalidity, courts may award damages based on fault.
For example, in a 2019 Guangdong case, a French worker sued a construction company that failed to get his permit or sign a labor contract. Although he couldn’t claim statutory benefits, the court found the company responsible and awarded damages calculated under tort law. This fault-based liability offers a secondary protection for foreign workers. Legal approaches vary by region, so foreign nationals should seek local legal advice to understand specific judicial tendencies.
The Importance of Proactive Legal Guidance
For foreigners who plan working in China, it’s clear that working in China requires more than visas and flights. It demands careful review of employment status: Is the permit obtained? Does it match the job and location? Is the secondment structure legally sound? Informal foreign employment in China is no longer viable. With stricter enforcement, lacking a proper permit exposes employees to sudden termination without protections and employers to significant liabilities.
We help bridge the gap between China’s strict administrative rules and the realities of global talent mobility. We treat these challenges as strategic issues, assisting with secondment agreements that meet legal tests, guiding clients through the permit system, and navigating disputes to achieve the best outcomes.
China offers vast professional opportunities, but its labor laws are precise and demanding. The protections of Chinese labor law form a strong defense, but only if administrative compliance is secured. Ensuring all legal requirements are met before starting work is the best way to safeguard clients’ interests and futures in this dynamic market. We are ready to provide that assurance, turning complex regulations into confidence and success.