Due to the recent proliferation of labour dispatch arrangements in China, in May 2011 the Shanghai Municipal Human Resources and Social Security Bureau, together with the Shanghai chapter of the All-China Federation of Trade Unions, the Shanghai Enterprise Federation and the Shanghai Chamber of Commerce and Industry, issued a guiding opinion to regulate the use of labour dispatch in Shanghai. The term 'labour dispatch' refers to the practice of hiring employees through an employment service agency (eg, Foreign Enterprise Human Resources Service Co Ltd or China International Intellectech Corporation), as opposed to direct employment.
In practice, many companies have used labour dispatch as their main or only method for hiring employees based on the belief that hiring through dispatch agencies could mitigate or avoid employer liability. Against this backdrop, the Employment Contract Law, which came into effect on January 1 2008, attempted to address this practice by mandating equal rights for employees hired through labour dispatch and "generally" restricting the use of labour dispatch only for "temporary, auxiliary and substitute" jobs. However, employment service agencies have seized on the term "generally" in the law and the vagueness of the terms "temporary, auxiliary and substitute" to argue that there is no real restriction on the use of labour dispatch; as a result, the use of labour dispatch by companies increased rather than decreased. This is contrary to the legislative intent of the law.
The opinion is intended to improve the use of labour dispatch arrangements in three main areas:
- gradually restricting the use of labour dispatch to "temporary, auxiliary and substitute" positions;
- achieving "equal pay for equal work" for dispatched employees in relation to directly hired employees; and
- including dispatched employees in the company's democratic management process (ie, recruiting them to join the company's labour union and employee representative council, and including them in the collective bargaining process).
The bureau is entrusted with the task of supervising and investigating the use of labour dispatch arrangements. If the bureau determines that there has been a misuse of such an arrangement, it may order the company to correct the staffing arrangement (although it is unclear whether 'correction' means converting the dispatched employees into directly hired employees, and it is also unclear what would happen to the employees' existing contract with the agency). While the opinion has not specified any penalties for the misuse of labour dispatch, the general trend appears to be that the regulation of labour dispatch is being tightened up.
Similarly, in May 2011 the labour authorities in Hubei Province conducted a survey on the use of labour dispatch arrangements and the treatment of dispatched employees within the province. The goal was to rectify any illegal labour dispatch arrangements (including labour dispatch by companies that do not have the business scope to dispatch employees) and correct any unequal treatment (in salary, benefits or social insurance contributions) of dispatched employees.
These efforts are consistent with the overall approach of the Ministry of Human Resources and Social Security at the national level, which is to regulate further and closely supervise the use of labour dispatch arrangements due to their overuse and the unequal treatment of dispatched employees. National regulations regarding labour dispatch are reportedly being drafted, although there is no indication as to when they will be passed.
For further information on this topic please contact Andreas Lauffs or Jonathan Isaacs at Baker & McKenzie's Hong Kong office by telephone (+852 2846 1888), fax (+852 2845 0476) or email ([email protected] or [email protected]).