Cracking down on illegal employment

Defining illegal employment

From the official website of the NPC, it can be seen that the second draft introduced new topics such as a visa category for foreign talent, a unified record system for exit and entry management, clarification of what constitutes illegal employment and harsher punishments for non-compliance. In the third draft, the major changes included a minimum 90-day stay for work-based residence certificates, introduced mandatory requirements for work permit and work-based residence certificates for foreigners and categorised ordinary visas.

In drafting the new Exit-entry Law, one of the most difficult issues proved to be defining illegal employment. The first draft provided that illegal employment occurs when a foreigner is employed by a Chinese entity or engages in other activities to receive remuneration without a work permit and work-based residence certificate. In practice though, it is hard to determine whether a foreigner is receiving remuneration or not. The employer and employed foreigner could argue that the payments are allowances instead of remuneration. Accordingly, the final draft adopted the definition of illegal employment as foreigners working in China without a work permit and work-based residence certificate.

Key articles

Categories and guidance catalogue

Article 12 of the new Law categorises visas into four types: diplomatic, courtesy, service and ordinary.

In accordance with Article 42, various related departments under the State Council will periodically formulate and adjust the Industries and Occupations Guidance Catalogue. The Catalogue regards foreigners working in China according to economic and social development needs. It will also consider the supply and demand of human resources.

Article 42 of the new Law originates from the Outline of State Plans for Medium- and Long-term Development of Quality Human Resources (2010-2020) (国家中长期人才发展规划纲要 2010-2020年), which was issued by State Council in June 2010. The Guidelines are aimed at attracting high calibre candidates to work in China by applying less stringent entry requirements to obtain permission to work. It is anticipated that Article 42 will identify particular occupations that the government prohibits foreigners from taking up, encourage foreigners to take up and jobs that may only be taken or filled by foreigners. Only a couple of local governments like Guangdong and Jiangsu have made an attempt to similarly set out and categorise prohibited, restricted or encouraged foreigner occupations.

Generally, China has fewer categories of visas than many other jurisdictions. For example, foreigners who work for start-up companies or hope to engage in freelance work always face problems when obtaining work permits in China. The new exit-entry Law has taken a step forward by including the talent import visa and tackles this issue to some extent. In addition, the government will offer more concessions for highly skilled and professional foreigners to work and live in China.

Stay and residence

The new Exit-entry Law distinguishes the concepts of stay and residence. Article 20 stipulates that where the period of stay as set out on a visa is fewer than 180 days, the visa holder shall only be permitted to stay in China for the period stipulated on the visa.

Article 30 provides that if a foreign national's visa requires a residence permit to be obtained after entry into China, the foreign national should apply to the competent authority for this permit. Foreigners' work-based residence permits will be valid for a minimum of 90 days and a maximum of five years, while non-work-based residences permits will be valid for a minimum of 180 days and a maximum of five years. Contrastingly, under the current law, a residence permit is valid for a minimum of one year and a maximum of five years. An extension of stay and residence application is subject to the approval of the competent authority.

The new Law also broadens the scope of a visa-free stopover and further completes the temporary entry rules and the China green card policy, which accommodates increasing international travel and foreigner visits to China.

The Three Illegals

Chinese government officials often talk of the “Three Illegals” – illegal entry, residence and employment. A foreigner who works illegally in China will be subject to a fine of Rmb5,000 to 20,000 ($750 to $3,000), which is a significant increase from the previous maximum fine of Rmb1,000 ($150). In the case of a serious violation, imprisonment of between five to 15 days may be imposed. A warning will be given to foreigners illegally residing in China and a serious breach will lead to a fine of Rmb500 ($75) per day, which is capped at Rmb10,000 ($1,500), doubling the previous cap of Rmb5,000, or imprisonment of five to 15 days, up from the previous three to 10 days.

Employers who illegally employ foreigners may be penalised with a fine of Rmb10,000 for each employee, up to a maximum of Rmb100,000, while the previous equivalent fine ranged from Rmb5,000 to Rmb50,000. Additionally, any revenue arising from illegal employment will be forfeited.

All individuals and organisations must report any illegal entry, residence or employment to the relevant local public security authority. Any individuals or organisations that assist those who break the Law may be subject to fines or even imprisonment.

Enforcement

One of the goals of the new Exit-entry Law is to prevent the Three Illegals and impose harsher penalties for non-compliance. Accordingly, there is a widespread concern that China is becoming less welcoming to foreigners, which contradicts one of the main purposes of the new Law – to better facilitate the entry and exit of foreigners.

Enforcement against illegal entry, residence and employment has been a long-term problem in China. A major impediment has been the lack of a unified system to record and document foreigners' visa and entry and exit records. The new Law will introduce a unified exit-entry information administration system, with the aim of sharing such information among relevant government organisations. However, setting up a nation-wide system will be complex and time-consuming.

It is expected that a set of implementation rules will be enacted or issued by various ministries, departments and local governments before the effective date of July 1 2013. During this one-year period before the new Law becomes effective, employers and foreigners are advised to familiarise themselves with the Law. They should also monitor the progress of any implementation rules enacted by ministries across China.

Pattie Walsh and Wang Ying, DLA Piper