As China inexorably continues increasing its restrictions on hiring personnel via third party employment agencies (sometimes referred to as FESCO companies or as staffing agencies), our China lawyers are more and more often being tasked with helping our clients move their personnel from the third party hiring company to a newly formed (0r even existing) WFOE.

The usual procedure for moving an “employee” from a third party hiring company to a WFOE is as follows:

  1. Terminate the contracts with the hiring agency. Terminate the contract between your company and the hiring agency and terminate the contract between the hiring agency and your “employee.”
  2. Upon resignation, the employee is IMMEDIATELY hired by the WFOE pursuant to the standard employment agreements. There is NO time gap.
  3. Normally, the third party hiring agency is williing to allow you to terminate your contract with them, so long as the employee voluntarily resigns, so long as you pay any fees owed to the employee and to the third party agency, and so long as you sign an agreement freeing the third party hiring agency of any liability surrounding the employee. In many cases, you will want to continue using the third party hiring agency as your outsourced payroll department  to take care of the administrative side of salary payment and payment of employer/employee taxes and benefits. If you keep the third party agency on in this capacity, it will usually be delighted to terminate the employment agent relationship to move into a standard benefits processing arrangement.
The employee usually also prefers moving from being the employee of a third party hiring agency to becoming the employee of a WFOE, but the following two issues typically arise with the employee, assuming he or she has been employed for some time:
  • The employee will not want to lose the employee’s seniority in the employment relationship.
  • The employee will not want to be placed in a setting where they are in a probation period.
Normally, the second issue is always resolved in favor of the employee as it makes little sense to put a good long-time worker under probation. The issue regarding seniority is less clear and typically is subject to negotiation. It makes sense to resolve both of these issues before starting the changeover process.
  • carolina

    what happens if the transfer is from Fesco to Joint venture? Does the Representative office needs to finish the relationship with the Chinese employees, paying the compensation of every year worked by the employee? as is not 100% same company owned company as Wfoe, not sure about it.