Just received an email from a friend asking the following:
I’m heading off again to work for a few years at our China Rep Office. My new employment contract with the head office says U.S. law will apply. Will it? And what if there is a conflict between U.S. and China’s laws, which will control?
We get this question far too frequently and we have seen way too many employment contracts written as though the company’s home country law applies all around the world. The reality is that if you are working for a Chinese company in China (be it a Rep Office, a WFOE, a JV, or whatever), Chinese law is going to apply to your employment relationship.
I know of no country that would allow otherwise. I mean, imagine if a United States subsidiary of a Pakistani company were to claim in a U.S. court that it should not be required to pay overtime because their contract calls for Pakistani law to apply and Pakistani law does not provide for that. Better yet, imagine if a Saudi company were to argue in a French court that it can discriminate on the basis of gender and religion because it can do so in Saudi Arabia and its French subsidiary’s employment agreements call for Saudi law. Even if the employee at issue were a Saudi citizen, there is absolutely no way a French court would go along with this argument. In fact, the argument is so bizarre I am not even aware of anyone ever having made it.
Any employer-employee relationship between a Chinese company and an employee working in China is going to be governed by China law, no matter what the contract says. So in China there would be no conflict of laws because Chinese law would simply apply. This is why it is important that your China employment contracts and employee manuals should use Chinese as the official language. Chinese courts and Chinese administrative bodies are the only rightful jurisdiction for China employment law disputes stemming from employment in China (yes, this is true for expats too) and so it only makes sense to have these documents in the language the triers of fact are sure to understand.
Here is a more interesting/complicated question. What would happen if a U.S. company had a contract with a U.S. citizen and that contract provided that the U.S. citizen would go work at the U.S. company’s WFOE for a few years and that contract called for application of U.S. law. Now as I have said above, no Chinese court would apply anything but Chinese law to this relationship, but what would happen if the U.S. citizen were to flip around and sue the U.S. company in a U.S. court for failing to abide by some particular U.S. law? I do not know the answer to this question, but I can tell you that if it were to benefit my client, I would argue that Chinese law applies. But, I can also tell you that if it were to benefit my client, I would argue U.S. law applies.
Bottom Line: Putting something in a contract does not make it so. It is incumbent upon you to know what your contracts really mean.