Mike, the finance director of a subsidiary company in China was appointed to the post by the American parent company. He received two salaries for working one job. Was it legal for Mike to earn these two salaries simultaneously? Through this case, we discover that there are still several loopholes in the Labor Law system concerning foreigners working in China.

I. Case Playback
MeiDuo Company, a listed company with headquarters in the United States, sent a dispatching letter requiring Mike, who was a foreign employee in a subsidiary company in Singapore, to assume a post as senior management personnel in the subsidiary in China. The letter stipulated that Mike shall be the finance director at the subsidiary in China and shall be directly responsible to the parent company in the United States. Mike’s after-tax salary of $10,000 every month will be directly deposited into his Hong Kong bank account by the parent company. Before Mike went to assume his post, the subsidiary in China signed a labor contract with Mike stipulating Mike’s position as finance director with a $10,000 monthly salary, according to the relevant regulations of the administration department which managed the employment of foreign employees.    
After he assumed his post, both the parent company and Mike fulfilled their obligations respectively until the ninth month of the contract when the parent company dissolved their labor relationship with Mike due to ‘neglect of duty.’ After being informed of the dismissal, Mike resorted to the local Labor Dispute Arbitration Committee claiming the nine months salary of $90,000 should be paid by the subsidiary company in China. Mike brought this action to the Court after his case was rejected by the Arbitration Department. Mike claimed that, although he was appointed and sent to China by the American parent company, there was a labor contract and a labor relationship between him and the company in China which proved that he was a factual employee of the Chinese subsidiary. But during the nine months of work, the Chinese company had never paid him anything. According to the labor contract, in the event of a dispute, the Labor Law in China shall be applied to settle the dispute between the two parties. Thus, according to relevant regulations of the Labor Law of China, the Chinese subsidiary should pay him nine months’ salary at $10,000 per month according to the labor contract.
The Chinese company argued that there was no real labor relationship between them despite the labor contract they had concluded. Mike was appointed and paid by the American parent company and was directly responsible to the parent company rather than the Chinese company. The labor contract reached between the two parties was no more than a form of employment certification between Chinese units and foreign employees. It is a compulsory formality for foreigners working in China with Chinese companies, according to the regulations of the local administration department which manages the employment of foreign employees. Therefore, there was no real labor relationship between them and then the Chinese subsidiary had no obligation to pay Mike.
In this case, with which company does Mike have a real labor relationship, the American company, the Singaporean company or the Chinese company? Should the Chinese company pay Mike the nine months’ salary?

II. Legal Background
Statistics show that, since 2001, there has been a 20% increase in the number of foreigners who come to work in China. Currently, certain regulations concerning the employment of foreigners’ are mainly found in Regulations for the Administration of Employment of Foreigners Working in China. This regulation, however, is not applicable to every foreigner working in China.
There are three types of the relationships between Chinese employers and foreign employees in China: foreigners form a direct labor relationship with Chinese enterprises, foreigners are dispatched to a certain Chinese enterprise after they form a labor relationship with the dispatching unit, or foreigners are sent to a subsidiary company in China after a labor relationship is formed with an overseas parent company.
Article 3 in the Regulations for the Administration of Employment of Foreigners Working in China stipulates: “These Regulations apply to foreigners employed inside the People's Republic of China and employing units inside the People's Republic of China which employ foreigners.” Thus, we may discover that the regulations only deal with foreigners who form labor relationships inside China, namely the first two of the above types of relationships. According to Article 26 of the Regulation, “Labor disputes which arise between the employing unit and the foreign employee shall be handled in accordance with the Labor Law and the Enterprises Labor Disputes Regulations.” Though regulated by the Labor Law, those foreign employees in China are not treated the same as Chinese employees in many respects.
     Foreigners with relationships of the third type described above are not regulated and protected by the Labor Law or the Regulations for the Administration of Employment of Foreigners Working in China because their labor relationship was formed with the overseas parent company which is a labor relationship based outside China; they only form service contracts with affiliated companies inside China. There are no special regulations concerning foreign employees in China in the new Labor Contract Law.

III. Lawyer Debate
The contract is valid which proves that a labor relationship was formed.
Lawyer Dong Yueying from Shanghai branch office of the Beijing Yue Cheng Law Firm in support of Mike
Mike signed a labor contract with the Chinese company, thus there is real labor relationship between the two parties
First, the contract between Mike and the Chinese company is real, legal and valid based on the mutual declaration of true will. Moreover, no illegal circumstances were found during the signing such as fraud or intimidation, and there were no discrepancies or misunderstandings about the contract articles. Thus, it is not tenable for the unit to claim that the contract signing was just a formal procedure required for the employment license application.
Second, both parties actually fulfilled the contract after conclusion. Mike, as the finance director of the Chinese company, had already performed the contract. Whether the contract was actually fulfilled depends on the nature of the labor services performed. In this case, as the finance director in the Chinese company, Mike did provide a labor service for the Chinese company; he had the obligation to supervise the company finances. Therefore, in fact, there was concrete performance of the contract.
Third, I hold the view that the dispatching letter in this case is special and should be viewed as a recommendation letter. The Chinese company is a subsidiary company with independent legal status and a valid right to employ unlike a branch company. In this respect, the nature of the dispatching letter is the same as a recommendation letter. Though Mike was directly responsible to the American parent company, as far as I know, it is just a special requirement for the finance director, which does not prove that Mike was employed by the American company. Of course, from the perspective of the affiliated companies, I believe that the Chinese subsidiary has the right to decide whether to accept Mike.

Providing labor is not equivalent to forming a labor relationship.
Lawyer Luyin from Shanghai Huiye law firm in support of the unit
There was no labor relationship between the Chinese company and Mike because Mike had a labor relationship with the American company.
The first point is the validity of the contract. Based on the legal evidence, the contract is real. I think the contract is real in the sense that the contract was signed with the purpose of facilitating Mike’s employment registration with the relevant department. Meanwhile, the contract can be used as proof that Mike was working in China upon arrival when he completed the entrance procedures. However, the validity of the contract and the real labor relationship are two different issues.
Second, although there is no doubt about the basic fact that Mike worked in the Chinese subsidiary for nine months, I believe, working in China and forming a labor relationship are two different things. There are ways of providing labor like labor dispatching and labor outsourcing that are distinctly different from establishing a labor relationship. In this case, Mike was simply ordered to provide labor and assume a position in the Chinese company rather than sent to establish an extra labor relationship. Mike himself should know this very well. Thus, there is a labor relationship between Mike and the American company, not the Chinese subsidiary.
Third, I hold that the nature of the dispatching letter should be defined based on the substantive content rather than the literal language. The question is whether the dispatching letter has mandatory binding power over the Chinese company. Apparently, in this case, the Chinese company had no voice in deciding whether to accept Mike. Thus, I hold that this case is not a typical labor dispatching situation but rather a dispatching agreement made between affiliated companies. The Chinese subsidiary does not need to pay Mike.

IV. Final Judgment
    After the trial, the Court ruled that the employment registration, license approval and the labor contract between the two parties prove that there was a labor contract relationship between Mike and the Chinese subsidiary. Moreover, whether or not a labor relationship exists does not determine whether or not the unit should pay Mike the salary. The Court finally ruled that the Chinese company should pay all of the nine months’ back salary at $10,000 per month.

V. Expert Evaluation
We shall respect the real declaration of will of the two parties.
Professor Dong Baohua from East China University of Political Science and Law
     A dispatching relationship refers to the triangular relationship in which, after establishing a labor relationship with a company, laborers are sent to work in another distinct unit. The real labor relationship exists between the original company and the laborer while, in fact, the laborer works in another company. This causes a situation where the labor relationship of the laborer is separated from their actual unit. The dispatch relationship is trilateral while a labor relationship is bilateral.
 In this case, both lawyers agree that the contract between Mike and the Chinese company is real and valid while they disagree about whether the contract was specifically fulfilled. I disagree with the ruling of the Court. The key point is the declaration of true will, namely which relationship among the three parties is the real labor relationship.
Under the current legal framework, a conflict occurred between form and content. Based on the form of the evidence, the ruling of the Court exactly followed the fact that a labor relationship was formed between Chinese company and Mike. This was proven by all the legal documents like the employment application, the labor contract relationship and the employment license registration. However, based on the content of this case, we can see that both Mike and the Chinese company had no intention of signing a labor contract; they signed a contract to meet the requirements for getting employment approval for foreigners working in China.
We call the labor relationship a kind of subordinate relationship which is decided by determining who has the right to hire and employ. In this case, the American parent company had the right to hire and employ because the position of finance director is a special position which is proven by the fact that Mike was directly responsible to and paid by the American company. In addition, during the nine months Mike worked in China, both parties had no dispute about the salary. The dispute arose after Mike was dismissed by the American parent company nine months later because of incompetence. As a whole, looking at the series of facts - initial establishment of the labor relationship, job responsibility and salary payment and the final dispute - these all arose between Mike and the American company. Thus, substantively, the actual and valid labor relationship exists between Mike and the American company.
Then, how to define the nature of the relationship when there is conflict between form and content? If the ruling in this case is based only on the evidence, the results of this case show just how ridiculous the judgment could be. This is         obviously unjust from the point of view of social fairness. But, if a ruling is only based on the content of the case, other problems arise because contracts similar to the type concluded between Mike and the Chinese company are required by the Government Registration Department. They are regulated and supervised by relevant government authorities although the contracts were not signed with the genuine intention of the two parties. Under such circumstances, I propose that the Court should stress the analysis of the declaration of true will between the two parties. As shown in this case, the actual labor relationship existed between Mike and the American parent company.

 From LexisNexis