Case interpretation by Judge Xiao Daming, Judge of Second Civil Division of Beijing Second Intermediate Court, translated by Sun Jin (Marlow), China attorney at law

Case Summary:

In July of 2005, Mr. Shen signed a labor contract with a Japanese company. According to the contract, Mr. Shen shall work in Beijing representative office of this company when the contract valid, the salary is 3500rmb/ month, and the position is assistant of general manager. After the first working month, the representative office would send him to Japan for 2-month-training. The salary would raise to 4500rmb/ month after training. During the contract period, representative office shall not dismiss Mr. Shen without cause and Mr. Shen shall not dismiss the representative office without cause. The party who violate the contract shall bear the compensation of 5000rmb. On Aug. 25th, 2005, the representative office notified Mr. Shen to go to head office in Japan for training, but the second day the head office failed to arrange the training due to the massive work. Till Feb. 6th, 2006, Mr. Shen asked about the training issue, the chief representative replied the training was cancelled due to the massive work. But starting from this month, the salary raised 1000rmb. Considering the representative office violated contract, Mr. Shen resigned to the chief representative by oral, and then off-duty from the second day. The representative office thought Mr. Shen’s dismission caused a loss, and appealed to labor dispute arbitration commissions in March of 2006, claiming Mr. Shen to pay for compensation of 5000rmb. The arbitration commissions didn’t accept the application, because the representative office are not qualifies to the litigation party. The representative office disagreed to the ruling and brought the case to the People’s court. The court determined the representative office were not qualified for the litigation party, and dismissed the action.

Interpretation:

The representative office which is set up by a foreign enterprise in China, is an office which represents a foreign enterprise’s right. This kind of offices are not qualifies for legal person, and shall not conduct business operation. It is not able to claim for the contract right, nor to bear the contract liability. The foreign enterprise shall bear the liability of the office acts. Refer to signing a contract, when the office is authorized, or the employee deems the unauthorized office is authorized, the contract conduct shall be determined as foreign enterprise conducts. According to the above reason, the representative office’s act shall be bored by the foreign enterprise.

However, according to relevant regulation, foreign enterprises are not allowed to employ directly in China, and the Chinese labors are not allowed to sign a contract with foreign enterprise or representative office directly. When a foreign enterprise or its representative office plans to employ, the employee shall sign a labor contract with a foreign affairs service unit of the administrative license firstly, and then the foreign affairs service unit exports the labor to foreign enterprise or its representative office. So a representative office shall not sign labor contract with Chinese employee directly, and it is not qualifies for a litigation party.