After I got off the phone, I thought of how one of the things I love about what I do is the mix of law and business. My firm supplies the legal acumen and we mostly rely on our clients to supply the business acumen. I am always stressing to my clients that though I will do my utmost to understand their business, I will never know it as well as they do. I help with their business decisions by providing them with the legal tools they need to make the right decision.
So I always love it when I see a good business argument for what we tell our clients they must do from a legal perspective. We are always telling our clients never to hire anyone illegally in China. If you are going to have someone work for you in China, you should hire them as an employee of an existing China company, such as a WFOE. China pretty much does not have independent contractors and so someone who works for you is probably your employee and you want that relationship to be legal. I then tell them of all the legal headaches they will likely eventually face if they try to hire someone “off the grid” while doing business in China.
So I was delighted to see a post, entitled, “Don’t hire a Chinese citizen illegally,” at the always excellent China Inspection Tips discussing how the “business risks” of hiring “off the grid” are even greater than the legal risks. According to the post, hiring a Chinese citizen illegally will subject you to the following:
That individual [whom you hire] will know all about your supply chain: your suppliers, your prices, your products, your main customers. After talking to your suppliers, and doing a few internet searches, she will also know your main competitors.
Do you see how much can go wrong? Imagine she starts proposing your products to your competitors, and sets up a trading company (which might be owned by a relative of hers). Imagine if she contacts your customers directly with lower prices. This kind of things takes place every day in China.
If you hired that person illegally, you will not be able to sue her. Again, a Chinese court of law will not give any weight to your demands (even if you got a contract). You will have no way to pressure/punish that rogue employee.
Very good points.
In fact, more than once, my firm has been contacted by software and gaming companies who set up their own coding/software development offices in China and did so completely illegally. These companies are calling us because those offices ran off with the software or game that they had been paid to develop. These companies are calling us for our help in suing the Chinese offices. Our response is that we cannot sue the Chinese office because there is no real office to sue and suing the individuals who worked at the office probably will be a waste of time as well. Since the individuals were neither employees nor under a formal contract, the Chinese courts would almost certainly find they owed no contractual duty nor any other duty not to take the software/game.
Bottom Line: Hire your employees in China the right way or don’t even bother.
