In order to further regulate labour dispatch arrangements, the Ministry of Human Resources and Social Security promulgated the Tentative Provisions on Labour Dispatch ("Provisions") which came into effect on 1 March 2014.

The Provisions clarify and elaborate certain ambiguous or incomplete points relating to labour dispatch arrangements in the PRC Labour Contract Law in furtherance of the implementation thereof, though some questions and doubts still remain. Below is a summary of the salient points of the Provisions which may give you a general idea of what has been laid down in the Provisions:

Scope of Targeted Employers

  • The Provisions mainly target employers which are legally entitled to employ staff directly in their own capacity, including PRC domestic enterprises and foreign invested enterprises. While the Provisions have made it clear that partnership organizations such as accounting firms and law firms, foundations and private non-enterprise organizations shall like ordinary enterprises, comply with the Provisions in using the dispatched staff, they leave governmental bodies, institutions and social organizations which may employ staff according to the PRC Labour Contract Law out of their jurisdiction.

Restrictions on Positions and Percentage for Use of Dispatched Staff

  • The Provisions reinstate that an employer may use dispatched staff only for temporary, ancillary or substitutable positions as defined under thePRC Labour Contract Law. They, however, require the ancillary positions to be discussed at the meeting of employees' representatives or with all the employees, determined through negotiation between the employer and the trade union or the employees' representatives on an equal basis, and then announced internally within the employer's organization.  
  • The Provisions have made it clear that an employer shall control the number of dispatched staff to be within 10% of its "total workforce". They have further defined the "total workforce" as the sum of the number of the employees having a labour contract with the employer and the number of the dispatched staff used by the employer.  
  • Those employers with dispatched staff accounting for more than 10% of their total workforce before the Provisions take effect shall develop an employment adjustment scheme for reducing the proportion to the statutory limit within 2 years from the effective date of the Provisions (i.e. before 1 March 2016). However, this requirement should not affect those labour contracts and labour dispatch agreements concluded prior to the release of the amendment to the PRC Labour Contract Law concerning labour dispatch (i.e. before 28 December 2012) with a term expiring after 2 years of the effective date of the Provisions, which may continue to be performed till their expiry dates. The adjustment scheme above is required to be filed to the local labour authority for record. An employer is not allowed to use any new dispatched staff until it has brought down the proportion of its dispatched staff to the statutory limit.  
  • The Provisions expressly exempt the use of the dispatched staff by a representative office of a foreign enterprise or financial institution in China and the use of international ocean sailors by a seaman employing unit from the above restrictions on the applicable positions and the 10% threshold.

Probation Period

  • The Provisions stipulate that a labour dispatch unit may agree on a probation period with a dispatched staff member for only one time. This means that if a labour dispatch unit dispatches the same dispatched staff member to a second employer, the second employer would not be given the chance to make use of probation period to test the staff member's suitability.

Return of Dispatched Staff

  • The PRC Labour Contract Law is silent on whether an employer may return a dispatched staff member under certain circumstances (such as redundancy) where the employment of an employee under such circumstances may be terminated, or whether an employee shall not return a staff member in certain situations (such as being in the statutory medical period, or pregnant, on maternity leave or in lactation period) where the employment of an employee in such situations may not be terminated. The Provisions have filled this lacuna by further specifying the circumstances under which an employer may or may not return a dispatched staff member to a labour dispatch unit, which coupled with the situations already prescribed by the PRC Labour Contract Law, mirror those under which an employer may or may not terminate the labour contract of an employee according to the PRC Labour Contract Law and thus give equal treatment to the directly hired employees and the dispatched staff.

Dispatch in Disguise

  • The Provisions stipulate that the use of employees by an employer in the form of labour dispatch disguised as contracting, outsourcing etc. shall be regarded as labour dispatch and dealt with according to the Provisions. This may to some extent curb the abuse of outsourcing to get around the statutory restrictions on the labour dispatch.

Sanctions for Violations of Labour Dispatch Provisions

  • The Provisions generally apply the penalties prescribed under the PRC Labour Contract Law to the various violations of the Provisions, and additionally impose order for rectification, warning and compensation for loss suffered by the dispatched staff, if any, on violation of the procedures for determining ancillary positions (such as failure to discuss such positions at the meeting of employees' representatives or with all the employees).

While the Provisions are expected to facilitate the implementation of the legal framework for labour dispatch under the PRC Labour Contract Law with more clarity and details, certain issues remain unclear or untouched upon. For example, it is not clear as to when an employer with excessive dispatched staff shall file an employment adjustment scheme, what if the employer does not file it or fails to meet the statutory limit within the prescribed period and whether renewal of the use of dispatched staff will be regarded as the use of new dispatched staff. Therefore, it is advisable to pay close attention to the further developments and implementation of the Provisions and implement and/or adjust the employment arrangements as necessary and appropriate.