Can I get sued in China if I use an EOR? The Shocking Truth!

Yes. Using an Employer of Record does not make a foreign company immune from legal claims in China.

For a structured review before hiring, see EOR risks in China.

The EOR is normally the employee’s formal employer. It signs the Chinese labor contract, processes payroll, withholds individual income tax, and administers statutory contributions.

However, the client company typically selects the employee, assigns work, sets objectives, controls systems, and supervises daily performance. Those actions can create legal, contractual, regulatory, or practical exposure.

Whether the client, EOR, or both can be held responsible depends on:

• The employment contract
• The EOR service agreement
• The actual operating relationship
• The employee’s duties
• Which party made the disputed decision
• Whether the structure resembles regulated labor dispatch
• The location and type of claim
• The harm or loss allegedly caused

The correct question is therefore not simply, “Can I be sued?” It is: “What could create liability, who would be named, and how should the risk be controlled?”

How a China EOR Relationship Works

A typical EOR arrangement has three parties:

1. The employee working in China
2. The EOR’s Chinese employing entity
3. The overseas client company

The EOR is generally responsible for the formal employment layer, including:

• The written labor contract
• Payroll
• Individual income tax withholding
• Social insurance
• Housing provident fund
• Employment records
• Statutory leave administration
• Formal employee notices
• Lawful offboarding

The client generally controls the commercial and operational layer:

• Candidate selection
• Job duties
• Reporting lines
• Daily instructions
• Performance expectations
• Workplace systems
• Equipment
• Business travel
• Expenses
• Access to confidential information

HROne’s China EOR guide explains this responsibility split in detail.

A dispute often develops when the documents identify the EOR as the employer but the client makes employment decisions without involving it.

Who Can an Employee Bring a Claim Against?

In a straightforward EOR employment arrangement, the employee will usually direct contractual employment claims against the Chinese entity named in the labor contract.

Claims may involve:

• Unpaid wages
• Overtime
• Bonuses or commission
• Social-insurance contributions
• Leave
• Contract renewal
• Unlawful termination
• Economic compensation
• Workplace injury
• Discrimination
• Personal-information handling

However, the client may also become involved.

Depending on the facts and legal characterization, the client could be:

• Named as a party
• Joined as an interested third party
• Treated as a receiving entity in a dispatch-like relationship
• Asked to provide documents or witness evidence
• Subject to a separate contractual claim
• Subject to a civil or tort claim
• Investigated by an administrative authority
• Required to reimburse or indemnify the EOR

China’s Labor-dispute Mediation and Arbitration Law provides that, in a labor-dispatch dispute, the dispatching and receiving entities can be joint parties.

Whether an EOR arrangement is treated in the same way depends on its legal structure and actual operation. “EOR” is a commercial service description, not a blanket statutory exemption from China’s labor-dispatch or employment rules.

How Labor Claims Proceed in China

Most ordinary labor disputes do not begin with a lawsuit filed directly in court.

The usual sequence is:

1. Internal consultation or settlement
2. Mediation, where used
3. Labor arbitration
4. Court proceedings where permitted
5. Enforcement of a final award, settlement, or judgment

Labor arbitration generally covers disputes concerning:

• Confirmation of the employment relationship
• Labor-contract formation and performance
• Contract modification
• Resignation or dismissal
• Working hours
• Rest and leave
• Social insurance
• Employee benefits
• Wages
• Work-injury expenses
• Economic compensation
• Damages

Under the national law, the ordinary limitation period for applying for labor arbitration is generally one year from when the party knew or should have known that its rights were infringed. Special treatment can apply to wage claims during continuing employment.

Employers should not assume that a dispute has disappeared simply because the employee has stopped complaining.

When Can the Client Company Face Risk?

1. The client makes an unlawful termination decision

The client may decide that an employee should be removed immediately. It then disables the employee’s system access, announces the departure, or tells the employee not to return before the EOR has reviewed the legal basis.

This can create serious problems.

In China, terminating employment generally requires:

• A legally valid ground
• Supporting evidence
• The correct procedure
• Appropriate notice where required
• Payment of compensation where applicable
• Correct documentation
• Formal action by the legal employer

If the termination is unlawful, potential outcomes can include reinstatement or statutory damages, depending on the employee’s claim and circumstances.

The client should never describe a termination as final before the EOR has reviewed and approved the process. See HROne’s guide to Employer of Record risks in China for related controls.

2. The client controls working time but records are missing

The EOR may process payroll, but the client often controls the employee’s daily schedule.

Risk increases when the client:

• Requires unrecorded overtime
• Sends instructions outside normal hours
• Approves weekend work informally
• Fails to track attendance
• Treats foreign headquarters’ holidays as Chinese holidays
• Uses an “all-inclusive salary” without reviewing overtime rules

If an employee brings a claim, payroll records alone may not show what actually happened.

The client and EOR should maintain consistent attendance, leave, overtime, approval, and payroll records.

3. Bonuses and commission are handled inconsistently

Disputes frequently arise when offer letters, commission plans, manager messages, and payroll records do not match.

A bonus described as discretionary may still create a dispute if:

• A formula was communicated to the employee.
• Targets were met.
• Comparable employees were paid.
• Payment had become a consistent practice.
• The employee was terminated shortly before payment.
• The company changed the rules after performance occurred.

The service agreement should specify how the client approves variable compensation and when the EOR must be informed.

4. The arrangement resembles labor dispatch

China regulates labor dispatch under the Labor Contract Law.

Labor-dispatch rules address matters including:

• The qualifications of the dispatching entity
• The employment contract
• The dispatch agreement
• Equal pay
• Working conditions
• Employment responsibilities
• The permitted use of dispatched workers
• Potential liability between dispatching and receiving entities

Dispatch positions are generally intended to be temporary, auxiliary, or substitute positions. Additional restrictions and local practices can also apply.

Article 92 provides that where violations cause harm to dispatched workers, the dispatching and receiving entities may face joint and several liability.

Companies should therefore examine how their EOR model is legally implemented in the relevant city rather than relying only on the provider’s marketing terminology.

5. A worker or third party is injured

A workplace accident can involve:

• Work-injury insurance
• Medical treatment
• Occupational safety
• Employer obligations
• Site-control responsibilities
• Third-party civil liability

If the client controls the workplace, equipment, travel, safety procedures, or daily instructions, it may have direct responsibilities even though the EOR runs payroll.

The Civil Code also contains rules concerning harm caused by employees while performing work. In a labor-dispatch setting, the receiving entity may bear tort liability for damage caused by a dispatched worker, while a dispatching entity at fault may bear corresponding liability.

Appropriate insurance should be confirmed before the employee begins work.

6. The employee mishandles data or intellectual property

The employee may access:

• Customer records
• Source code
• Product designs
• Supplier pricing
• Trade secrets
• Financial systems
• Personal information
• Overseas databases

The EOR labor contract should address confidentiality and intellectual property. The client should also implement practical controls covering:

• System access
• Data classification
• Password management
• Device security
• Cross-border data transfers
• Confidentiality acknowledgements
• Invention records
• Return of property
• Account closure

An EOR contract alone will not protect confidential information if the client gives broad, uncontrolled access.

7. The employee performs unauthorized business activities

An EOR provides an employment structure. It does not automatically authorize the overseas company to conduct every type of business in China.

Separate exposure can arise if employees:

• Sign customer contracts
• Collect local revenue
• Issue invoices
• Conduct licensed activities
• Import or export goods
• Hold inventory
• Operate a fixed business location
• Regularly conclude contracts for the foreign company
• Create a taxable or permanent presence

These matters can generate corporate, tax, licensing, customs, or regulatory claims unrelated to the employee’s labor contract.

Can the EOR Sue the Client?

Yes. The EOR and client normally have a commercial service agreement.

The EOR may bring a contractual claim concerning:

• Unpaid service fees
• Unfunded payroll
• Unpaid statutory contributions
• Termination costs
• Employee compensation
• Breach of the service agreement
• Inaccurate client information
• Unauthorized employment decisions
• Data breaches
• Indemnification obligations

The dispute forum may be a court or commercial arbitration body, depending on the agreement.

Before signing, the client should review:

• Governing law
• Dispute-resolution venue
• Payment obligations
• Deposit terms
• Indemnities
• Liability limitations
• Insurance
• Termination rights
• Emergency funding obligations
• Employee-transfer costs

A broad indemnity can require the client to reimburse the EOR even when the employee’s formal claim is brought only against the EOR.

Does the Service Agreement Protect the Client?

A good service agreement reduces uncertainty, but it cannot eliminate statutory rights or prevent third parties from making claims.

The agreement should clearly allocate responsibility for:

The written allocation must also match daily practice.

How to Reduce EOR Litigation Risk

Before appointing the EOR

Confirm:

• The identity of the Chinese employing entity
• Its business scope and relevant qualifications
• The city where employment will be administered
• How the arrangement is legally structured
• Who signs the labor contract
• Where social insurance will be paid
• Which local policies will apply
• The provider’s dispute history and response process
• Whether appropriate insurance is maintained
• Whether employee funds are segregated and protected

Before hiring

Document:

• The employee’s actual duties
• Work location
• Reporting line
• Salary
• Bonuses and commission
• Benefits
• Working hours
• Overtime approval
• Leave process
• Equipment
• Expense rules
• Confidentiality
• Intellectual-property ownership
• Data access
• Proposed start date

During employment

Maintain:

• Attendance records
• Leave approvals
• Payroll instructions
• Bonus calculations
• Performance evidence
• Written warnings
• Employee complaints
• Workplace-injury records
• Salary-change approvals
• Updated job descriptions

The employer generally controls much of the evidence relevant to a labor dispute. Under China’s arbitration rules, failing to produce employer-controlled evidence can result in unfavorable consequences.

Before termination

Do not:

• Announce the termination prematurely.
• Block access without preserving evidence.
• ask the employee to resign under pressure.
• Promise severance without authorization.
• Deduct disputed amounts from final pay.
• Backdate documents.
• Treat the client’s global policy as sufficient legal grounds.

Instead:

1. Gather the facts.
2. Preserve evidence.
3. Review the proposed legal basis.
4. Calculate potential payments.
5. Involve the EOR before communicating.
6. Prepare the formal documents.
7. Plan system access and property return.
8. Record final payments and handover.

Warning Signs When Choosing an EOR

Exercise caution if a provider:

• Will not identify the employing entity.
• Cannot explain its legal operating model.
• Promises that the client has “zero liability.”
• Guarantees that no employee can sue.
• Treats all positions as suitable for the same structure.
• Cannot explain local social-insurance registration.
• Encourages informal termination.
• Has no written dispute-escalation process.
• Uses vague liability or indemnity terms.
• Cannot produce payroll and contribution evidence.
• Avoids discussing labor-dispatch restrictions.
• Cannot explain how employee data is protected.

A credible provider should explain both what the model solves and what remains the client’s responsibility.

Frequently Asked Questions

Does using an EOR prevent employee lawsuits?

No. It creates a formal employer and compliance process, but employees retain their statutory dispute rights.

Will the employee sue only the EOR?

Not necessarily. The EOR will often be the primary employment party, but the client may be joined, investigated, or exposed through labor-dispatch, tort, contract, or other rules.

Can an overseas company be required to provide evidence?

Depending on the case and procedure, the client may need to provide messages, attendance records, performance evidence, policies, or other documents through the EOR or legal representatives.

Who pays if the termination is unlawful?

The employee may claim against the legal employer, but the service agreement may require the client to reimburse the EOR where the client requested or caused the unlawful action.

Can an indemnity eliminate liability?

No. An indemnity allocates financial responsibility between the EOR and client. It does not normally remove an employee’s statutory rights or bind a third party.

Is EOR safer than hiring someone as a contractor?

It can provide a more appropriate structure when the person functions as an employee. A contractor label can create misclassification risk if the company controls the individual like an employee.

Final Takeaway

You can face legal exposure in China while using an EOR.

The EOR should carry the formal employer responsibilities, but the client remains responsible for its own instructions, workplace, business activities, data practices, funding, and employment decisions.

The safest approach is to:

• Select a properly structured provider.
• Define responsibilities in writing.
• Keep the documents consistent with reality.
• Preserve employment evidence.
• Involve the EOR before making material decisions.
• Obtain legal advice for disputes, termination, regulated activities, and unusual roles.

For a complete overview, read the China Employer of Record guide or explore HROne’s China EOR services.

This article provides general information and does not constitute legal advice. Liability depends on the contractual structure, location, operating facts, claims, parties and applicable Chinese law.