Foreign Labor Employment | Legal Risks of Overseas Employment by Chinese Enterprises
Author | Chen Liu Hua
Through diversified employment models, both domestic and international workers can seamlessly integrate into the global labor market, while their legitimate rights and interests are fully protected. However, in practice, some enterprises may, in an effort to streamline management or evade responsibility, resort to various non-compliant workarounds. These practices not only may violate domestic and international labor laws and regulations, but also could seriously damage a company’s international reputation and business prospects, and therefore warrant the attention of senior management.
1. Visa and Residence Permit Risks
Employees working overseas on relevant assignments must obtain a valid visa in advance; otherwise, they risk being deemed to be engaged in illegal employment or overstaying their permitted period of stay. Visa application procedures and processing times vary by country and region, typically ranging from a few weeks to several months. Improper handling can result in employees being unable to take up their positions or complete their assigned tasks on time.
2. Risks associated with labor supervision regulations
Labor laws and related regulatory frameworks vary significantly across countries, and companies operating overseas may inadvertently violate local regulations due to a lack of familiarity with them. Violations of labor laws may result in administrative fines, employee strikes, legal proceedings, and even damage to the company’s reputation.
3. Risks related to employment contracts and employment relationships
The terms of the employment contract must comply with local laws; otherwise, the contract may be deemed invalid or give rise to disputes. The definition of the employment relationship must also be clarified to avoid unnecessary labor disputes.
4. Compensation Standards and Tax Risks
Compensation must align with local standards and employee expectations; otherwise, it may adversely affect employee retention and motivation. Furthermore, tax regulations vary significantly across countries and are of paramount importance; companies must ensure compliance in their tax filings and payments to avoid tax violations.
5. Risks related to social insurance and employee benefits
The payment of employees’ social insurance and the provision of benefits must comply with local regulations, including those addressing special needs related to religious beliefs, which may lead to employee dissatisfaction and legal disputes.
6. Risks of Dismissal and Layoffs
The dismissal or layoff process must strictly comply with local labor laws and regulations—particularly the legally permissible grounds for termination and the prescribed procedures; otherwise, it may result in legal action and substantial compensation liabilities. Improper handling of dismissals or layoffs can also damage the company’s reputation and undermine employee morale. In Malaysia, lawful dismissal of an employee generally requires at least four weeks’ notice. Failure to comply with the provisions of the Employment Act 1955 upon dismissal may result in a fine of up to tens of thousands of Malaysian ringgit.
7. Risks related to trade secrets and non-compete restrictions
Some overseas core employees may have access to the company’s core technologies and trade secrets, posing a risk of disclosure. Enterprises should strengthen intellectual property protection by establishing stringent confidentiality agreements and management systems, duly signing confidentiality and non-compete agreements with relevant employees, and specifying the corresponding liabilities for breach of contract. With respect to Malaysia, pursuant to Section 28 of the Contracts Act 1950, any agreement that restricts trade is void.
Therefore, in Malaysia, it is relatively difficult to enforce non-compete clauses, as such provisions are often regarded as restrictions on trade. To manage risks, it is advisable for companies operating overseas to include in their employment contracts provisions prohibiting former employees from disclosing any confidential information acquired during their employment or from interfering with their former employer’s business and/or workforce. Such clauses are more flexible than non-compete agreements and are more likely to be upheld and enforced under local law.
8. Cross-cultural and language communication risks
Different cultural backgrounds and language habits can lead to communication barriers and misunderstandings. Companies expanding overseas need to provide cross-cultural training to foster effective communication and collaboration between Chinese employees and local staff.
In the tide of anti-globalization, Chinese enterprises face complex and evolving legal risks in their overseas workforce management. From the differences in labor laws to the reconciliation of cultural conflicts, every step must be taken with great care. Shifting away from a domestic mindset, studying and respecting local labor laws and regulations, and safeguarding the rights and interests of overseas employees are essential lessons for Chinese companies expanding abroad.
In the course of overseas employment, it is often unavoidable that Chinese enterprises may face unfair treatment from local employees or government authorities. In such situations, they should make effective use of international rules and the legal remedies available under the host country’s laws to safeguard their own rights and interests—essentially, “learning the strengths of others to counter them.”
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Zhiheng Original | Common Employment Models for Chinese Companies Expanding Overseas
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Introduction
Attorney Chen Liuhua
Partner at Guangdong Zhiheng (Dongguan) Law Firm
Corporate compliance officer, court-appointed mediator
In-service postgraduate program in Business Administration at the University of International Business and Economics
Tiachanlawyer@163.com
Working language:
Chinese (Mandarin, Cantonese), English
Professional field:
Civil and commercial litigation and arbitration (including cross-border matters), labor and human resources compliance (including cross-border matters), corporate equity, corporate legal advisory services, corporate self-liquidation, international trade, and other related areas.
Social positions:
Emerging Talents in Foreign-related Legal Practice in Guangdong Province
Member of the Dongguan Municipal Association for Research on the Rule of Law in Foreign-related Affairs
Special Invited Mediator of the No. 1 People’s Court of Dongguan City
Member of the Dongguan Private Enterprise Lawyers’ Service Group
Deputy Head of the Malaysia Specialized Group of the Dongguan Foreign-related Lawyers Service Team
Personal Honors:
During my university years, I was awarded the “National Scholarship” by the Ministry of Education of the People’s Republic of China.
First Prize, Outstanding Case in Foreign-related Legal Services, Dongguan City, 2024
Top Ten Labor and Social Insurance Dispute Cases of Dongguan City for 2023
Dongguan City’s 2023 “Call for and Selection of Outstanding Achievements in Foreign-related Legal Services” – Finalist Award
Dongguan City’s 2022 “Becoming a Good Lawyer Satisfying to the Party and the People” Themed Speech Contest – Excellence Award
Excellent Award, Finals of the 2022 Dongguan Youth Lawyers’ Innovative Legal Education Skills Competition
Second Prize, Dongguan City 2021 Young Lawyers’ Professional Skills Competition
Second Prize, Adult Category, Dongguan City Chashan Town 2020 Public Speaking Competition
Research findings:
Research and Recommendations on the Protection of Labor Rights in Free Trade Ports (Zones)
The Current Status and Policy Recommendations for the Development of Cross-Border E-Commerce under the Belt and Road Initiative: A Perspective from the Guangdong-Hong Kong-Macao Greater Bay Area
"Drivers, Compliance Risks, and Policy Recommendations for Dongguan Pre-Prepared Food Enterprises Expanding Overseas"
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