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.
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Dan Harris

I am a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

I mostly represent companies doing business in emerging market countries. It has taken me many years to build my network and it takes constant communication and travel to maintain it. My work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

I was named as one of only three Washington State Amazing Lawyers in International Law, I am AV rated by Martindale-Hubbell Law Directory (its highest rating), I am rated 10.0 by AVVO.com (its highest rating), and I am a SuperLawyer.

I am a frequent writer and public speaker on doing business in Asia and I constantly travel between the United States and Asia. I most commonly speak on China law issues and I am the lead writer of the award winning China Law Blog (www.chinalawblog.com). Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed me regarding various aspects of my international law practice.

I am licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at my firm, I focus on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.

  • 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.