Discussion of Legal Issues Arising from Abolition of the Employment Pass for People from Taiwan, Hong Kong and Macao

The Employment Pass for people from Taiwan, Macao and Hong Kong (“Employment Pass”) was a government measure to regulate employment of such people in mainland China with prior administrative approval. The administrative approval for the Employment Pass was abolished in the second half of last year. Change has to be made in legal relationship involving Hong Kong, Macao and Taiwan residents working in mainland China and the way of thinking about their employment contracts at the macro level. Issues relating to the application of new and old laws, the effect of employment contracts, etc. have arisen. Wang Hongliang, paralegal of DeBund Law Offices gave his opinions on these issues based on his practical experience and studies of laws and rules.
2019-06-27 10:14:40

The Employment Pass for people from Taiwan, Macao and Hong Kong (“Employment Pass”) ①was a government measure to regulate employment of such people in mainland China with prior administrative approval. According to the labor contract law and relevant regulations such as legal interpretation of the Employment Pass②, Taiwan, Macao or Hong Kong residents who haven’t obtained the Employment Pass cannot establish employment relationship with employers in mainland China and any employment agreement signed by them should be deemed as invalid due to breach of administrative laws③.

On 28 July 2018 the State Council published the Decision to Remove Several Items from the List of Matters that Require Administrative Approval (G.F.[2018] No.28) to abolish the work permit for people from Taiwan, Hong Kong and Macao. On 23 August 2018 the Human Resources and Social Security Department promulgated the Decision to Abolish the Regulations on Employment of Taiwan, Hong Kong and Macao Residents Working in Mainland China (“Decision”), further clarifying matters relating to the Employment Pass with the aim to reduce work and employment costs of people from Hong Kong, Macao and Taiwan and employers in mainland China and promote sustainable circulation of human resources between the regions. According to the Decision, Hong Kong, Macao and Taiwan residents are entitled to the same treatment as residents of mainland China and no longer need the Employment Pass to be employed and work in mainland China. 

Change has to be made in legal relationship involving Hong Kong, Macao and Taiwan residents working in mainland China and the way of thinking about their employment contracts at the macro level. It is more than six months since the Decision was published. During this period issues relating to the application of new and old laws, the effect of employment contracts, etc. have arisen since the Decision was promulgated. This article discusses several of these issues and actions business should take to cope with them.    

 

1. Could an employment contract decided as invalid on the ground of not having obtained the Employment Pass become valid after abolition of the Employment Pass?

As stated above, before the Employment Pass was abolished, employment contracts signed by Hong Kong, Macao or Taiwan residents with no Employment Pass are invalid. As the Employment Pass has been abolished, could the employment contract sentenced to “death” become “alive”?

In my opinion, the answer to this question depends on whether the Decision is retrospective and whether an invalid employment contract could become valid.  

Regarding retroactivity,“no law is retrospective” is the most basic rule on legal effect of time, without which the foreseeability of law and the finalization of legal decisions would be adversely affected. Therefore, the Decision could not have any effect on acts done before its promulgation. Employment contracts signed by people without the Employment Pass before the Decision remain invalid.

As to the issue of whether an invalid contract could become valid, I believe that contracts that are invalid are different from contracts that are revocable or whose validity has not been decided. Invalid contracts are absolutely, perpetually and irrevocably invalid.

According to professor Liang Huixing, “a contract whose subject matter was prohibited by law could not become valid even when law is amended to lift the prohibition in future”④. If we apply it to the issue discussed in this article, contracts that were found as invalid by law then in effect could not become valid even if the Employment Pass is abolished afterwards.

Based on the above two points, I believe that contracts that were valid due to a lack of the Employment Pass are impossible to “revive” and remain invalid.

 

2. How about legal relationship between Hong Kong, Macao and Taiwan workers and their employers after the abolition of the Employment Pass?

Abolition of the Employment Pass means that residents in Hong Kong, Macao, Taiwan and mainland China are treated equally when working in mainland China. Obtaining the Employment Pass is no longer a prerequisite for establishing employment relationship. In principle, in this case, provision that “the employment relationship should be deemed to have established since the employment date” under the Labor Contract Law can apply.

As for legal relationship, it is obvious that employment created after promulgation of the Decision is connected with employment relationship. In case of a labour relationship that has started before and continued since the Decision was promulgated, the period of time for which the labour relationship has existed should be divided into different spans to decide if there is employment relationship. In other words, legal relationship relating to employment before promulgation of the Decision should be decided under the Employment Pass rules, and that after promulgation of the Decision should be deemed as employment relationship as long as it meets the conditions for employment relationship under labor law.

 

3. How to deal with legal issues arising from abolition of the Employment Pass rules

As stated above, abolition of the Employment Pass could not bring invalid employment contracts back to “life”. The employment relationship has resumed between people from Hong Kong, Macao and Taiwan and their employers after promulgation of the Decision. If the duration of an employment relationship spans the date of the Decision, different criteria will apply. In this case how can employers deal with issues arising from the Decision such as transition and change?

a. With the Employment Pass

If the employee had obtained the Employment Pass and signed an employment agreement which was then filed by his or her employer with the administrative authority before the Decision was promulgated, the underlying employment relationship between them would not change after the Decision was promulgated and the employment agreement between them is valid. In this case they may sign “two different employment agreements”, including one filed with the authority and the other agreed by them to perform (“implied agreement”). In this case, the agreement that they agree to perform represents their true intention. The implied agreement may be made in one of the following two ways.

i. The implied agreement gives more advantages to the employee than labor laws by, for example, giving more paid annual leave, more severance pay for termination of the employment agreement, which do not violate mandatory labor laws and therefore should be deemed as valid and due to be further performed by the employer.

ii. For employees, the implied agreement are stricter than those of labor law. For example, the implied agreement allows unconditional employment termination and non-payment for overtime work, which are in contrary to mandatory labor rules and therefore invalid.       

b. Without the Employment Pass

People employed without the Employment Pass but with an employment contract are treated differently from people employed without the Employment Pass and an employment contract.

An employment contract signed without the Employment Pass is invalid ab initio. Thanks to the Decision taken, the employment relationship is fully regulated by labor law and rules. For businesses, however, the Decision is far from enough. Award and punishment, attendance, disciplinary, non-compete, confidentiality and other rules included in employment contracts are necessary to bind employee acts and meet the purpose of business administration. The invalidity of the original employment contract means this purpose could not be met. The business should sign a new employment contract with the employee in a prompt manner in order to be able to take appropriate action when any dispute arises during the existence of the employment relationship and avoid the risks involved in the invalidity of the employment contract.  

If there is no employment contract from the beginning, it is likely that the employer be required to pay double salaries or take legal liability of entering into an open ended employment agreement. In this case entering into a written employment agreement is the first priority.

Laws of mainland China change very frequently. As laws are complicated and updated from time to time, it is important for businesses to keep learning new knowledge and understand various risks.




①Regulations on Employment of Taiwan, Hong Kong and Macao Residents Working in Mainland China (No.26 Order of the Labor and Social Security Department)

Article 4 People from Taiwan, Hong Kong and Macao should obtain the work permit before working in mainland China. Employers intending to employ or accept people from Taiwan, Hong Kong or Macao should apply for the Employment Pass for People from Taiwan, Hong Kong or Macao (hereinafter “Employment Pass”) on their behalf; people from Taiwan, Hong Kong or Macao intending to run a sole proprietorship in mainland China should apply for the Employment Pass by themselves. People from Taiwan, Hong Kong or Macao working in mainland China with official permission and the Employment Pass are protected by law. Employers intending to employ or accept people from Taiwan, Hong Kong or Macao should complete relevant registration formalities.

②Interpretation (IV) of Several Issues Relating to Applicable Laws on Dealing with Labor Cases by the Supreme People’s Court

Article 14.1: “with respect to foreigners and people with no nationality who signed an employment agreement with an employer in China before legally obtaining the Employment Pass and Hong Kong, Macao and Taiwan residents who signed an employment agreement with an employer in mainland China before legally obtaining the Employment Pass, if they request for confirmation of the labor relationship with the employer, the court should not approve their request”.

③Labor Contract Law of the People’s Republic of China

Article 26: The employment agreement should be deemed as invalid or partially invalid if it:

(iii) breaches mandatory law or administrative rules

④Invalidity means having absolutely no legal effect. Invalid legal actions have no legal effect from their establishment and will have absolutely no legal effect in future, which means they have been decided as invalid and are different from legal actions that have not been decided as valid and may take effect by correction, for example, the representative’s act of signing a contract out of the bounds of its representation right that if accepted by the principal, will be in full effect. Invalid legal acts, for example, signing a contract for a transaction prohibited by law will never become valid even when such transaction is permitted by law in future”. (pp. 146 and 147 of Teaching Materials of General Provisions of the Civil Law, by Liang Huixing, published by the Law Press)

⑤Labor Contract Law of the People’s Republic of China

Article 14 If the employer fails to make a written employment agreement with the employee one year from the employment date, the employer should be deemed to have made an open-ended employment agreement with the employee.

Article 82 If the employer fails to make a written employment agreement with the employee more than one month and less than one year from the employment date, the employer should pay double monthly salary to the employee each month.