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Basic Protections When Using A China Employee Dispatch Company.

Posted in Legal News

Got an email the other day (probably the tenth such email I have received) from someone about to sign a contract with a Chinese employee dispatch company.

The email asked that one of our China lawyers review the contract within the next two days to make sure there were no “hidden issues”.  I promptly wrote back to decline the assignment, explaining that there were far too many questions/hidden issues to accomplish much of anything within two days.

Foreign companies sometimes use Chinese employee dispatch companies to hire employees in China on behalf of the foreign company. The advantages of this can be many, the chief one being that the foreign company need not worry (at least so much) about China’s various and complicated employment laws.  Some (though fewer and fewer) employee dispatch companies will even hire someone on behalf of a foreign company that does not have a China entity (such as a WFOE).  This is a legal (as opposed to illegal) way for a foreign company to have someone in China essentially operating as their employee.

But the laws/regulations on employee dispatch in China are constantly changing and so using one of these companies can be a legal minefield.  And the thing to remember is that the China employee dispatch company does not care much about you (the foreign company) beyond your ability to keep paying them.

Anyway, I very quickly (as you will see below) reviewed the documents provided to me and just as quickly fired off a return email warning of countless “hidden issues” that were immediately apparent to me at first glance.  My email (modified slightly) is below.  I am posting it here because the issues (hidden or otherwise) it discusses are relevant to virtually all relationships with these third party dispatch companies, and because it highlights the dangers of just signing the dispatch contract put in front of you.

Here’s my email:

Based only on the documents you have provided me and on the very limited facts I was able to glean from a two minute review of the emails that were included with yours, I see all sorts of potential hidden issues here and there is absolutely no way we can do anything on this in two days.  We have dealt with ________ [the dispatch company] many times and so I am not terribly surprised by what you have here, but based on my five minute review of just the English language documents (as opposed to the email) here are my initial thoughts:

1.  It is not clear to me that you can legally do what you are doing.  I do not have enough information to know one way or the other.  Company D [this will be what I call the Chinese dispatch company] does not really care about the legality of what you are ding because it will get paid anyway, even if someone from your company finds him or herself in jail the next time they go to China.  The legality of this whole arrangement is the first issue that should be determined.

2.  I saw only a contract between you and Company D, nothing between Company D and the putative employee of Company D. What this means is that the employee of Company D can do whatever he or she wants and probably can never be fired.  Reveal your company secrets. Check.  Steal from you.  Check.  All without your having any recourse.

3.  Oh, and if the putative employee steals from you or reveals your company secrets, it appears that nobody can fire this employee under Chinese law, but on top of that, you couldn’t do it anyway because there is no mechanism in your contract with Company D that would require Company D to fire the employee.  But hey, you are still required to pay Company D for this employee for two years and then if Company D deliberately or accidentally signs the employee (or even with your begging Company D not to do so) for another two years, you have to pay for that too.  And if you somehow manage to fire this employee for stealing from you and this employee sues Company D for that (but remember, it is very unlikely that Company D would ever fire this employee so this is not really a likely scenario, but I am running with this just to highlight how much is missing here) Company D will no doubt just pay this employee whatever it wants because you are the one who will be on the hook for that payment anyway.  Why should Company D pay lawyers to defend claims that you are required to cover in any event?

4.  Like I said, the above is based on the English version only.  The English is actually completely irrelevant since the Chinese controls.  My guess is that the Chinese version is considerably worse (to the extent that is even possible) for you.

What we typically tell our clients (and let me stress that you are not our client and that the above is based on only a 7 minute total review — five for the contract and two for the emails — and therefore you should not consider it to be legal advice and you should recognize that it is based on what might be inaccurate facts and incomplete documents and that we never even looked at the Chinese language document(s) and therefore you should NOT rely on it in making your decision and you should seek out your own independent legal counsel to assist), in these situations is that we need a sufficient and realistic amount of time to review the documents, to revise the documents, and to work with both the client and with the Chinese employee dispatch company to craft some documents that will protect the American company from its employee and from the Chinese employee dispatch company.  This sort of thing takes more like two weeks, not two days.

I truly wish you the best of luck on this and I am sorry that we could not help you.

What do you think?

  • John W

    According to the new regulations on dispatching employees, You can only outsource your temporary,less important or replaceable positions for the dispatched employees. If you hire the ones who do the main job, the employee can file a lawsuit against you in China regarding occupationary injury, We need to go back to see why there is dispatched employess in China? I think it’s initially been hired in national stated big firms or companies to save cost. People do the same jobs not getting paid equally and later it becomes a kind of privillege for some people to exploit the others. Chinese people are very against this kind of dispatched forms of employing and New law is imposing more regulations on discrimination or inequity in treating employees in the same positions. In my view, you can outsource your job to a company or you just hire employees formally. In china, you can fire your employees at anytime you want and just pay for a smaller amount of damage compared with USA. Also, there is no union or strike. It’s a heaven for companies. I am attorney in china. John W

  • theAdmiral

    Great post Dan. I hope that others looking to do business in China (and other countries outside the USA) eventually realize that they need solid legal advice. Kudos to you for taking the time to give a cursory glance and sharing your thoughts. Also, in regards to John W’s comment, I am 99% sure his statement of “you can fire your employees at anytime you want…” is 100% wrong.

    • Devin Petty

      …compared with USA.” Guessing the statement is contextually correct.