What to Know About Outsourcing in Mongolia



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In recent years, in Mongolia outsourcing is becoming a common practice that enables small, medium and sometimes even large businesses to get access to skills and services that they would otherwise find hard to achieve either because of manpower or financial restrictions. So, let’s look into what outsourcing is.

Outsourcing is a business practice of hiring services of another company or individual, either internationally or domestically to perform tasks, handle operations or provide services for your business. The outside company, which is the service provider or a third-party provider, arranges for its own workers and resources to perform the tasks or services either on site at the hiring company’s facilities or at external locations. Outsourcing can also involve hiring individual independent contractors, temporary office workers and freelancers.

There are several models of outsourcing, and depending on the process, one may be preferable over another. Broadly there are three models based on the distance between the hiring company and the third-party provider. These are onshore, offshore and nearshore outsourcing. Onshore outsourcing is when the third-party provider resides in the same country as the hiring company. Offshore outsourcing is opposite of onshore outsourcing, which means the third-party provider resides in another country. Nearshore outsourcing is to hire a third-party provider that resides in neighboring countries or bordering regions.

Companies can outsource a number of tasks and services. Many companies often outsource information technology services, such as software development, infrastructure solutions, software support, as well as technical support. Also, many companies frequently outsource HR tasks, tax accounting and bookkeeping, legal services, customer service and call service, and delivery service (food and goods). For certain processes, like programming, content creation or translation, hiring freelancers on job-to-job basis is becoming more appropriate option.

Companies often outsource as a way to lower costs and improve efficiencies. Companies that decide to outsource rely on the third-party providers’ expertise or innovative technologies, that they don’t have in-house, in performing the outsourced tasks or services to gain such benefits. The underlying principle is that because the third-party provider focuses on that particular task or service, it is able to do it better, faster and cheaper than the hiring company could. Given such benefits, companies often decide to outsource supporting functions within their businesses so they can focus their resources more specifically on their core activities or the areas of the business that are most critical, thereby helping them gain competitive advantages in the market.

Outsourcing, however, can produce challenges and drawbacks for companies. For instance, companies that outsource could face heightened security risks, as they exchange with their third-party providers the company’s proprietary information or sensitive data that could be misused, mishandled or inadvertently exposed by the outsource provider. So, for a company to effectively outsource tasks and services, it is important to focus on the business partnership as much as the logistics. Maintaining and securing a trusted partnership relationship is essential in outsourcing. Therefore, companies engaged in outsourcing must adequately manage their agreements and their ongoing relationships with third-party providers to ensure success. Some might find that the resources devoted to managing those relationships rivals the resources devoted to the tasks that were outsourced, thereby possibly negating many, if not all, of the benefits sought by outsourcing.

There are some important things to remember when drafting an outsourcing agreement. Having the right legal agreement is the central core of a good outsourcing agreement, so seeking expert legal advice ahead of time might be a smart decision. The agreement needs to be fair and clear from the start, in addition to clearly defining what services are being outsourced. While they can be complex, good outsourcing agreements should contain following important information: detailed description of outsourced tasks and services, deliverables/service expectations, payment schedule, terms and conditions, inspection and acceptance, any potential penalties and/or awards, expected timeframe, and potential exit strategies. Formally agreed-upon targets, like service levels, can be a list that is as long or short as the business requires. They should be formed using detailed schedules so neither side has confusion or doubt about what is required of the service provider.  It is important for companies to know when the contractual agreement inevitably times out and ensure that the involved parties fulfill their obligations and stick around until the agreement is up. Therefore, good termination clauses or exit strategies should be in place from the start and continue after the end of the agreement.

There is a variety of other sections a good outsourcing agreement should include: confidentiality clause, independent contractor clause (if the third-party provider is independent contractor or freelancer), warranties, insurance requirements, force majeure, severability, dispute resolution, and governing law (if offshore or nearshore outsourcing). The agreement should discuss retained rights and the fact that each party retains all rights, interest, and title to its own pre-existing intellectual property. The provider should not use pre-existing intellectual property unless it has the right. Also, the clause on confidentiality should be detailed and discuss what constitutes confidential information and how sensitive information is to be handled. It should include specific details on customers’ confidential information and what is not to be disclosed to third parties.

Mongolia Transitions to Digital Public Services



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It is becoming imperative for governments to digitize public services, as private sector already has outstripped. So, governments are undergoing digital transformation in order to deliver government services and programs more efficiently, transparently, and cost-effectively. Especially when COVID-19 pandemic hit the world, it became more in demand. Well Mongolia is not lagging far behind.

On October 1st 2020, Communications and Information Technology Authority officially launched and introduced “E-Mongolia” system, an integrated digital system for public services. “E-Mongolia” system allows citizens and legal entities to get government services they need via web portal www.e-mongolia.mn and “E-Mongolia” mobile application at any time, from home or work, from overseas, and without the need to visit government organization (sadly not in all cases). At its launch “E-Mongolia” system offered about 181 types of services from 23 government bodies. Now one year later it is offering over 450 types of services from more than 35 government bodies. But this is not the first-time that digital platform for public services has been introduced. Previously, several government bodies already have separately launched and still continue to operate digital platforms for their services. For example, in early 2000s General Tax Authority initiated and subsequently launched digital system for tax filing, then in 2016 separately launched online VAT incentive system (links can be found on https://mta.mn/). With launch of “E-Mongolia” system all previous public services digital platforms that operated separately are being integrated into one coherent, inter-connected system. Accordingly, this will speed up the exchange of information between government bodies and speed up the decision-making process. As a result, public services will be transparent, fast, hassle-free and accessible to public. However, “E-Mongolia” system is not fully developed yet, and continues to being developed.

Currently the system offers services that are most frequently and widely used by public, such as obtaining various referral statements, getting a passport, a driver’s license, paying various taxes and duties, etc. At first sight it may look like the system offers more services that are geared towards individuals, but there are available many public services for legal entities as well. For example, registering amendments to statutory documents with state registration authority, obtaining a permit to operate a hotel or a tourist camp, obtaining a license to conduct auditing activities, obtaining various referral statements from relevant government bodies, etc. However, public services with more complex nature, like obtaining a land use certificate or an immovable property certificate, or obtaining a construction permit, are still provided in an “old-fashioned” manner. So let’s hope that all public services will be available online very soon.

Resolving Individual Labor Disputes Under the New Labor Law of Mongolia



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In the previous post, we mentioned that under the newly revised Labour Law labor disputes in Mongolia may be classified as individual labor rights disputes or collective interest labor disputes. The revised Labour Law introduced significant changes in the mechanisms and procedures for resolution for various types of labour dispute. Here we will describe the new mechanisms put in place for the resolution of individual labor disputes.

Under new Labor Law, legal entities with 20 or more employees are required to establish a permanent part-time Labor Dispute Resolution Commission (“Commission”) which shall manage the conciliation process for individual labor rights disputes. This requirement comes into effect on January 1, 2022. For companies with less than 20 employees, the revised Labour Law establishment of such Commission to resolve disputes at the company level is optional.

For each company the Commission shall be composed of representatives of the employer and the trade union of the business entity or organization, or in the absence of a trade union, an equal number of employees elected by the general meeting of employees.

The Commission is primarily responsible for the preliminary resolution of labor disputes, in particularly individual rights disputes arising in the organization. The disputing party shall have the right to apply to the Commission for resolution of the labor rights dispute within 90 days from the date when he / she knew or should have known about an alleged violation of his / her rights.

For those companies which have not established a “Commission”, or in disputes between “individuals”, the dispute shall be submitted for “conciliation” procedure to the local Tripartite Labour Rights Dispute Settlement Committee at the soum and district level. In the event the disputing parties do not agree with the decision of the Tripartite Settlement Committee, they may file a lawsuit at Civil court (“Court“) within 10 working days from receiving the decision.

In some cases, the court shall have authority to hear the case and decide directly without going through a preliminary conciliation settlement process. These include:

  • claims for damages to the life and health of employees in the performance of their duties;
  • An employee’s complaint that the employer’s illegal decision to terminate the employment agreement, and transfer or reassign the workers position.

Under the new Mongolia Labor Law, detailed rules and regulations are expected to be adopted for implementing the mechanisms for the conciliation procedures and pre-trial settlement of labor disputes.

Resolving Collective Labour Disputes



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The revised Labour Law introduces major changes in the procedures and mechanisms for resolution of various types of labour disputes. In the case of a collective labour disputes, the new law requires the parties to first negotiate toward an agreement and make every effort to resolve the dispute by amicable way.

If no agreement can be reached, the dispute shall be settled with the support of a Labour Mediator. If parties cannot reach the decision on appointment of a Labour Mediator, the General Authority for Labour is able to appoint a Labour Mediator.

If a labor dispute cannot be resolved with the participation of the Labour Mediator, the disputing party is able to apply to the Tripartite Labour and Social Partnership Committee to resolve the dispute through formal Labour Arbitration. The relevant Tripartite Labour and Social Partnership Committee shall establish a Labour Arbitration panel consisting of three arbitrators to consider the dispute. The decision of the Labour Arbitration shall be final with no opportunity to appeal. The disputing party shall not appeal to the court unless there is cause for concern that the Labour Arbitration procedure has been violated.

Disputing parties in collective action employment disputes are required to participate in the Labour Mediation and Labour Arbitration procedures described in the law, and are specifically not permitted to engage in coordinated industrial actions such as labor strikes and lock-outs.

Labor Disputes



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This week, we will introduce new regulations regarding the the settlement of labor disputes in Mongolia under the new Labor Law of Mongolia.

The previous Labor Law classified labor disputes as either individual or collective disputes, and the centralization of the power to resolve labor disputes in the courts was time consuming and limited in the ability of parties to reach an agreement, which was a problem for both the employee and the employer.

Therefore, in order to solve the above-mentioned difficulties, the new Mongolian Labor Law classifies labor disputes as either “Labor Interest” or “Labor Rights” disputes and establishes a mechanism for settlement of such disputes before the litigation stage.

In the law, “Labor Rights Dispute” means a dispute between the parties related to the implementation or interpretation of labor legislation, all types of collective agreements, collective bargaining agreements, employment contracts and internal labor norms, while a “Labor Interest Dispute” means a dispute concerning with establishing the collective bargaining, and all types of collective agreements, collective bargaining agreements, and amendments to employment contracts.

Labor Rights Disputes are to be resolved by the newly established Labor Rights Dispute Resolution Commission (“Commission”) which is established in all types of business entity and organization  and Tripartite labor dispute resolution committee in the local soum or district (“Committee”), or the court. As for Labor Interests Disputes, the law provides for a procedure for resolving disputes of interest by consensus, at the next stage through labor mediators and labor arbitration, and as a last resort, organizing strikes.

Under the new law, the implementation of a pre-trial conciliation and pre-trial settlement mechanism will enable employees and employers to resolve disputes quickly and reduce the current workload of the courts.

Restriction on Forced Labor



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On July 2, 2021, the Parliament of Mongolia approved a new Labor law. The law will come into force on January 1, 2022. Therefore, we are preparing to introduce the regulation of forced labor which is one of new and specific regulations of the law.

In Mongolia, the forced labor is prohibited. The new law introduces the term of forced labor. The law set forth that “Forced labor is that the performance of work or service against the will of a person through intimidation, the use of force or the threat of use of force, with the imposition of fines and penalties.”

However, the law states that the following works and services do not apply to the forced labor. These include:

  • working for basic education;
  • performing the military work and services by conscripts;
  • light landscaping and cleaning work for residents of the territory, cities, villages and settlements;
  • work and services to be performed under the direction and supervision of a government agency or official while performing community service or serving a sentence in accordance with a valid court decision. It shall be prohibited to employ or transfer a convict to any individual, business entity or organization;
  • work and services related to the defense of the country, the protection of human life and health, the prevention of disasters, catastrophes and accidents, and the immediate elimination of their consequences;

A person or legal entity that engages in forced labor, mediates or organizes forced labor is subject to a fine of MNT 5,400,000 to MNT 17 million or imprisonment for a term of 1 to 5 years in accordance with Criminal Code.

Employer Initiated Termination



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Employer mistakes or misunderstanding of the law is a common cause of disputes related to employment termination. A recent review of employment issues found that it is common for employers in Mongolia to make process errors when terminating an employment contract.

In particular, this type of dispute is common due to procedural errors in decision-making on the grounds of redundancies, reducing number of staff, and incompetence in terms of occupations/position, skills, and health.
In light of recent changes to the Labor Law of Mongolia we will review key provisions of the old Labor Law and compare with the new provisions of the 2021 Labor Law.

Under the 1999 Labor Law, an employer terminated an employment contract on one of the following grounds.

  1. liquidation of the employer` s business entity or organization, branch or unit thereof, abolition of the job or position within it, or reducing the number of employees;
  2. it has been determined that the employee fails to meet the requirements of the job or position due to the lack of professional qualifications or skill, or health reasons;
  3. an employee has attained 60 years of age and is eligible to receive a pension;
  4. repeated breach by the employee of the labor disciplinary rules or commission or a serious breach for which the employment agreement specifically provides termination of the labor relations;
  5. it has been determined that an employee who is responsible for assets or money has lost the trust of the employer due to an act or omission;
  6. an employee is elected or appointed to another salaried work;
  7. arising on the grounds set forth in the contract.

Under the 2021 Labor Law, most of these termination grounds remain in place, However # (6) and (7) are excluded. The new regulation provides grounds for termination of employment if an employee is found to have forged documents proving his / her education, profession and qualifications at the time of hiring.

Additionally, (2) profession, qualification level, and health are separated and given as two separate grounds.  In terms of profession and qualification level, the precondition was set in law to warn the employee on the grounds that he / she is found to be incompetent in terms of profession and qualification and to provide them possible time to improve their profession and qualification level and performance of work. A medical condition must determine by a decision of the hospital’s labor inspection commission.

(4) Labor disciplinary: For repeated disciplinary violations.

In practice, the most common legal grounds used by an employer to terminate an employment contract are (1) and (2). Common mistakes made by employers are not giving notice within the legal timeframe, not being signed and certified by the employee when issuing termination notice, issue dismissal/termination order without waiting for the notice period to expire, failure to allow to perform the employee’s duties without issuing termination order, and hand over timeframe not being included in the termination order.

An employee’s failure to qualify for a work in terms of profession, skills, or health is often mistaken for dismissal at the discretion of the director or head of the company and organization without a formal decision from the industry or organization’s qualification commission or attestation and medical labor verification commission.

In order to correct above mistakes, if employer follows the following steps when terminating an employee’s employment agreement pursuant to 1999 Labor law:


a) The termination of an employment contract shall be notified 30 days in advance, a 45-day notice shall be given in the event of a mass dismissal, and a 60-day notice shall be given if the contract is terminated.
b) Upon receipt of the notice, the employee shall sign a copy thereof. One copy is kept by the employee and the other by the employer
c) Provide the employee with the opportunity to perform his or her duties during the notice period.
d) Employer should pay a severance pay in an amount equal to employee’s average salary for 1 month or more if employee who has been dismissed on the grounds that employee acted for military service, a business entity or branch has been liquidated, position demolished, reducing number of employees, disqualified for work in terms of profession or health. In connection with severance pay there is no upper limit, but 1 month severance pay meets legal requirement. In the event of a mass dismissal, the amount of the severance pay shall be determined in consultation with the employee’s representatives.
e) Termination/dismissal order shall be issued. This order shall specify the legal grounds for termination and the deadline for hand over the work.
f) The employer must make a complete record in the social and health insurance book and provide the termination order, social and health insurance book, and severance pay on the last day of dismissal/termination.

The 2021 Labor Law has not made any significant changes to the termination process and will follow the above- mentioned process by labor law 1999. As for the change, it is not necessary to allow an employee during the period of termination notice and it is possible to dismiss him / her after payment including notice period. Massive dismissal lasts 90 days. Massive dismissal is determined that the number of employees in an organization with a certain number of employees is fired.


If the employee has been terminated on the grounds of the employer has transferred ownership, the business entity or organization has been liquidated, position demolished, reducing number of employees, disqualified for work in terms of profession and health, following a severance pay amount shall be paid. Severance pay has to be paid in equal amount of basic salary as follows.


a) If worked for 6-2 years, 1 month or more basic salary
b) If worked for 2-5 years, 2 months or more of basic salary
c) If worked for 5-10 years, equivalent to 3 months or more of basic salary
d) If worked for 10 or more years, 4 or more months basic salary

In the event of a mass dismissal, the employer shall negotiate with the employee’s representatives, but the amount of the severance pay shall not be less than that specified above.


The termination order shall be issued in writing prior to the handover and shall be presented to the employee and a copy of the decision shall be handed over. If the employee refuses to accept the decision, it shall be deemed that the decision has been sent by mail to his / her place of residence.


Upon the employee’s request, the employer is obliged to provide a reference within 5 days.

Avoid Risks in Foreign-Mongolian Cooperation Agreements



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Our Mongolian Lawyers regularly assist foreign investors in various forms of joint ventures and business cooperation with Mongolian partners. These partnerships are sometimes necessary to allow a foreign investor to participate where Mongolia law restrictions direct foreign ownership. For example, Mongolian law has certain restrictions on entities with foreign investment owning and using land. One client the firm has worked with, a European party engaged in property development entered into one such arrangement with a Mongolian partner for the development of land located in a special restricted zone of Ulaanbaatar.

The European side, and the Mongolian side entered into a “Cooperation Agreement” which described a cooperative business arrangement in which the European party contributed funding, while the Mongolian party contributed access to the land targeted for development. This type of cooperation, is common in Mongolia between foreign investors and Mongolian property owners, and has been upheld by Mongolian courts.

However, when entering into such an arrangement, a foreign investor should be aware of risks.  A few years into the partnership, relations broke down between the Mongolian party and the foreign investor resulting in extensive litigation over the validity of the Cooperation Agreement and ownership of the land.

Foreign participants in this kind of Cooperation Agreement should engage independent Mongolian legal counsel to review the agreement for compliance with Mongolian law, and to ensure the foreign party is protected. The agreement should be clear about the nature of the cooperation, and the contributions of each party. It is important specify that legal ownership of the land remains with the Mongolian party. To eliminate confusion, there are certain key phrases which should be avoided when describing the foreign investor’s relationship to the land. If the language of the Agreement is ambiguous the Mongolian side may latter attempt to challenge the validity of the Agreement alleging violation of Mongolian law.

Customs Processing and Temporary Warehousing



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Our Mongolian lawyers often work with foreign clients and local trading companies involved in import of product into Mongolia. Products entering Mongolia often require short term storage as the products are inspected by Customs. Importers are able to utilize temporary warehousing solutions for these goods for the duration the products are under Customs control yet not yet cleared.

Temporary Customs warehousing may be open for the public, or limited access. Goods are typically placed in temporary storage upon decision by Customs that the goods be stored pending the Customs inspection process. Goods seized by Customs or detained on suspicions of violations of import regulations are also stored in the temporary warehouse.

When goods are placed in temporary storage, a copy of the manifest and other documentation relating to the shipment is kept on file. In normal circumstances storage in temporary warehouses is permitted for a period of up to 2 months from the date of entry. Customs has the option to extent this period for an additional month. For perishable or hazardous goods, storage may be for 2 weeks, with a possible one week extension.

Storage of petroleum products is permitted in a limited access facility operated a licensed fuel importer. Third parties and those not having the necessary import license will not be permitted to store products in such facility.

A party with product in temporary storage may not transfer title to a third party until customs inspection and clearance is completed.

Seizure of Infringing Product by Mongolia Customs



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We have written previously about the legal mechanisms for registration of intellectual property rights in the Mongolia Customs database for preventing the intellectual property infringement in Mongolia. In this post we will go more in-depth regarding processes for seizure and detention of suspected counterfeit products by Customs at import or export, which has proven to be effective to fight against the infringement of intellectual property rights in the country.

In general, a holder of intellectual property rights is able to submit an application to Mongolia Customs authorities to take measures to prevent infringing & counterfeit goods from entering into Mongolia when there is evidence known or suspected illegal or counterfeit products are in transit through Customs. An application must contain information about the IP holder, the relevant intellectual property itself; and detailed information about the products requested to be seized.

Upon identifying target goods transiting Customs, authorities may require a cash deposit by the IP rights holder equal to the total value of the seized products (or MNT 1,500,000 if the total value is not possible to determine in advance). Alternatively, the IP rights holder may provide a bank guarantee to cover the deposit value.

This deposit serve as guarantee that the applicant will not cause any undue harm to the exporter or importer of the goods, and if any damage is caused due to false information, the deposit will be used to pay for damages.

The Customs authority will make a decision within 30 working days after receiving the application in accordance with the relevant laws and regulations. If the relevant customs authority decides to detain goods related to intellectual property rights pursuant to an application, it shall notify the Intellectual Property Office and the applicant.