On July 31, 2025, the Supreme People’s Court issued and implemented the Interpretation (II) of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Labor Dispute Cases (“Judicial Interpretation (II)”), which came into effect on September 1, 2025. Article 5 of this Interpretation provides that “a lawfully established representative office of a foreign enterprise may serve as a party in labor dispute cases. Where a party applies to add the foreign enterprise as a co-defendant, the People’s Court shall grant support in accordance with the law.” This provision marks the first time that the litigation capacity of foreign enterprises’ representative offices (“representative offices”) in labor dispute cases has been explicitly recognized. It also establishes a clear legal basis for employees to request the joinder of foreign parent companies as co-defendants. This development not only signifies the further improvement of China’s labor law system concerning foreign-related matters but also imposes higher compliance requirements on multinational enterprises operating in China.
- Legislative Background and Purpose
As China continues to deepen reform and expand its opening-up, cross-border mobility has increased, with more foreigners living and working in China. To balance employee protection with administrative convenience for foreign enterprises, the state has gradually refined regulations governing foreigners’ employment and the management of representative offices. According to Article 2 of the Regulations on the Administration of Registration of Resident Representative Offices of Foreign Enterprises (2024 Revision) and Article 11 of the Interim Provisions on the Administration of Resident Representative Offices of Foreign Enterprises, representative offices are non-profit administrative entities established by foreign enterprises in China to engage in activities related to their parent companies. These offices do not possess legal person status, cannot directly employ staff, and must hire personnel through foreign affairs service units or designated domestic agencies.
In practice, when disputes arise between staff providing services to representative offices and those offices, the foreign affairs service unit entrusted by the office is often recognized as the employer. However, where the representative office directly hires personnel without engaging such a service unit, the relationship between the two is generally regarded as an employment rather than a labor relationship. In reality, the employee’s job responsibilities, salary, performance evaluation, and benefits are often determined by the representative office itself. The service unit’s role in employment management tends to be minimal, making it difficult for it to fulfill substantive employer obligations. Consequently, in labor disputes, employees can typically only sue the nominal employing entity, allowing representative offices and their parent companies to evade liability and leaving employees without effective remedies.
Article 5 of the Judicial Interpretation (II) addresses this gap by allowing representative offices to serve as defendants in labor disputes and supporting employees’ applications to add foreign parent companies as co-defendants, thereby strengthening protection of employees’ lawful rights.
- Potential Impacts of This Provision
- Representative Offices Become “Suing Entities”
Previously, representative offices could not be sued because they lacked legal person status, forcing employees to file against service agencies instead. The Judicial Interpretation (II) now expressly grants representative offices litigation capacity, allowing employees to bring them directly to court. The office’s assets in China may also become subject to judicial enforcement.
As to whether adding a foreign parent company might violate the “mandatory arbitration before litigation” principle, the Supreme People’s Court clarified that once a dispute has passed through arbitration and entered the litigation stage, adding necessary parties (such as foreign enterprises) falls within judicial review and does not constitute a procedural violation. This approach promotes efficiency and prevents duplicated proceedings.
- Foreign Parent Companies May Be Added as Co-Defendants
Article 5 further provides that courts shall support applications to add foreign enterprises to ongoing litigation. This means that courts are both authorized and obligated to accept such applications. Where a foreign parent company directly participates in management, salary payment, or personnel decisions for its representative office, it may be recognized as the actual employer and could even bear joint liability.
- Stronger Enforcement of Judgments
In many foreign-related labor disputes, even if employees win, judgments remain unenforceable due to the limited assets of representative offices and the refusal of parent companies to comply. The new provision enables courts to include foreign parent companies or affiliated entities as enforcement targets, ensuring that judgments can be meaningfully executed through property preservation or enforcement measures against assets in China.
- Expansion of Risk to Parent Companies
From a corporate governance standpoint, foreign parent companies can no longer avoid liability by claiming that their representative offices operate independently. Non-compliant acts—such as unlawful termination, social insurance violations, or discriminatory conduct—by representative offices may expose parent companies to legal and reputational risks, potentially affecting ESG ratings and global compliance evaluations.
III. How Enterprises Should Respond
The essence of Article 5 and related provisions lies in the blurred boundaries between representative offices and their parent companies, which create compliance risks. Enterprises should proactively strengthen their compliance frameworks in response.
- Standardize Employment Structures to Avoid De Facto Labor Relationships
Representative offices must not directly sign labor contracts or issue payroll. Employment should occur via legally qualified foreign affairs or labor dispatch agencies. If employment structures require adjustment, documentation of contractual, payment, and managerial responsibilities should be retained, ensuring clear separation from the parent company.
- Maintain Financial Independence Between Parent and Representative Offices
The parent company and its representative office must manage accounts separately and ensure all fund transfers have legitimate business purposes with full supporting records. Avoiding “commingled funds” or “direct management of employees by the parent company” can prevent courts from identifying a de facto employment relationship and imposing joint liability.
- Conduct Labor Compliance Audits and Training
Multinational enterprises should regularly audit compliance regarding recruitment, evaluation, and dismissal practices. Additionally, foreign executives and managers in China should receive training on Chinese labor law and workplace culture to prevent disputes involving discrimination or harassment.
- Strengthen Internal Dispute Resolution and Early-Stage Prevention
Companies should establish clear internal complaint channels and investigation mechanisms to address issues early. For disputes likely to escalate, timely consultation with local legal professionals can facilitate mediation and negotiation to reduce risk.
Article 5 of the Judicial Interpretation (II) represents a major breakthrough in recognizing the litigation capacity of foreign enterprises’ representative offices, making judicial relief for employees more effective while urging multinational corporations to reassess their employment and compliance structures in China. Going forward, foreign enterprises should pay closer attention to labor compliance, continuously monitor updates to Chinese labor law, and strengthen training and internal policy systems. Parent companies should implement regular compliance audits and integrate representative offices’ compliance performance into group governance mechanisms. Moreover, establishing rapid-response dispute resolution processes will help contain labor risks and protect corporate reputation. Through sound institutional design and proactive management, multinational enterprises can better achieve both compliance and sustainable development amid China’s evolving labor law landscape.
Appendix: Relevant Laws and Regulations
Regulations on the Administration of Registration of Resident Representative Offices of Foreign Enterprises, Article 2: Representative offices established in China by foreign enterprises for non-profit activities related to their business shall not possess legal person status.
Interim Provisions on the Administration of Resident Representative Offices of Foreign Enterprises, Article 11: Representative offices must entrust local foreign affairs service units or other designated entities to lease premises and hire staff.
Judicial Interpretation (II), Article 4: Where a foreign national with permanent residence, a valid work permit, or other lawful documentation requests confirmation of a labor relationship, the court shall grant support.
Civil Procedure Law, Article 5: Foreigners, stateless persons, foreign enterprises, and organizations have equal procedural rights and obligations as Chinese citizens and legal persons.
Reply of the Supreme People’s Court on the Validity of Guarantees Issued by Foreign Enterprises’ Representative Offices: All business activities conducted by representative offices in China shall be legally borne by the foreign enterprises they represent.
Labor Dispute Mediation and Arbitration Law, Article 22(2): Where both a labor dispatch agency and an employing entity are involved in a labor dispute, they shall be joint parties to the case.
Originally Published by PW & Partners Law Firm