Legal News

Do You Know How Many China Employees You Have? I’ll Raise You One.

China WFOE employees

The other day I was searching for an email from a client named “Joe” and I came across another Joe from whom I had not heard in quite a while. So I shot “other Joe” an email to ask him how his China business was going and he replied to me today by saying he was operating it in “stealth” mode but that it was going well.

I immediately went into China lawyer mode and told him that if he was using independent contractors in China, he was looking for trouble. I then told him how my firm has been working on a slew of cases for foreign companies in China who are being sued for various benefits (like an employee termination package) from people that these foreign companies thought were never employees.

I went on to say that in most instances, China’s labor officials are siding with the putative employees against the foreign companies and our role has mostly been to negotiate a settlement with the “employees,” oftentimes by hinting that our client is so tired of this sort of thing they are thinking of leaving China, in which case the settlement offer will be a lot more than they can get by litigating — which will be zero.

In my email, I said that if you are using Chinese nationals for your business in China and doing so by any method other than by using a third party hiring agency, you run a substantial risk of having these people be deemed to be your employees, with all the attendant costs and risks.

I also told him about companies that operated in China for stealth mode for years and paid their people in China for years, only to have those people run off with everything. These “stealth” companies cannot sue the people who ran off with everything because they have no contract with them and because they were never legally in China in the first place.

Don’t do it.

2 responses to “Do You Know How Many China Employees You Have? I’ll Raise You One.”

  1. Even foreign lawyers operate in “stealth” mode. In reality, all of us are in a way advising on Chinese law even though we can find a million excuses to get around it.
    “Stealth” is not the problem. The problem is how to.

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