Shanghai Pudong Labor Dispute Arbitration Commission has judged Siemens (SI) China to be the loser on an appeal in which it sought RMB300,000 in compensation from a former employee who refused to work for the company for three years after a two-year training period.
Siemens China sued Peng Jia, who signed a two-year contract with FESCO Nanjing in 2005 and was dispatched by the FESCO to work in Siemens. Though Peng signed a training agreement with Siemens on July 11, 2005, he didn't want to work for the company after his contract with FESCO Nanjing expired this year. As a result, he was sued by Siemens who asked for compensation. However, SPLDAC believed that the employer of Peng should be FESCO Nanjing instead of Siemens, hence it made this judgment.
This is interesting. In case you don't know, FESCO is a so-called labor service company, which you must use for employing local staff to work in a foreign Representative Office (RO). An RO is an office, but it can't generate revenue or do much else besides marketing/coordination. I assume that we are dealing with an RO here.
The trick here is that when you hire someone through a labor agency, the company signs an agreement with the agency, and then the employee signs a separate agreement with the agency. No labor contract between the RO and the employee exists. This is a problem for a lot of companies that wish to have staff sign complicated employment docs, and often they do this by having staff sign side agreements with the RO. The training agreement would fall under this category.
So Siemens and the employee had an agreement whereby the employee gets training in return for a three-year work commitment. At the same time, the employee has a two-year contract through FESCO. Now the employee fails to renew the labor contract and Siemens sues in labor arbitration.
Result: Siemens is not legally the employer, FESCO is, so they can't sue on the training agreement. As far as I know without having more details, this was the correct result.
How to get a better result? First and best option, of course, is to get FESCO to incorporate the training agreement into the labor contract package it signed with the employee. I assume that this was not possible for some reason.
Second option, Siemens signs a fee-for-service training agreement with the employee, whereby it provides training services to the staff member for a specified fee over a specified period of time (e.g. three years). Employee keeps working for the firm, Siemens never collects, but if the employee quits, Siemens can sue under the service agreement to get payment.
Now, I know what you're thinking — Siemens most likely does not have the proper business scope to allow it to provide training services. Correct, but remember that they don't really expect to get paid for this, so having to account for an unlikely RMB 300,000 service fee is a minor worry at best. Moreover, they could easily outsource this to a local training company anyway that would agree to pursue these folks, so no problem.
So what am I missing here?