Our legal flash published in August 2013 refers to the draft Several Provisions on Labor Dispatch (the “Draft”) formulated by the MHRSS. With further developments based on the Draft, the Provisions are recognized as the first comprehensive rules standardizing labor dispatch activities in China.

The Provisions illustrate the three characteristics of labor dispatch positions. Employers are only allowed to use labor dispatch for temporary, auxiliary and substitut ive positions. However, representative offices of foreign enterprises, representative offices of foreign financial institutions, and employers of sailors are not subject to this restriction on dispatched workers’ positions.

The Provisions establish the maximum ratio for dispatched employees at 10% of the total number of employees. They also define the total number of employees as the sum of employees that directly enter into labor contracts with employers plus the dispatched workers.

The Provisions remove the general penalty for non-compliance of between RMB 5,000 and RMB 10,000 per dispatched worker as proposed by the Draft. Any violation of the obligations under the Provisions shall be subject to the corresponding penalties specified under the Employment Contract Law (“ECL”) and the Implementing Measures of Administration of Labor Dispatch License.

Under the Provisions, companies receiving labor dispatch are subject to most obligations and liabilities of the regular employees as specified under the ECL. The Provisions for the first time prohibit the company from returning the labor dispatched workers to the labor dispatching entity if any of the circumstances specified under article 42 of the ECL are met: (1) if workers engaged in activities exposing them to occupational hazards were not given a pre-departure occupational health examination or are suspected of having contracted an occupational illness and are being diagnosed or under medical observation; (2) if workers contracted occupational illnesses or sustained work-related injuries and it has been confirmed that those workers have lost full or partial capacity to work; (3) if workers contracted illnesses or sustained non-work-related injuries and the period established for medical treatment has not expired; (4) if workers are female employees in pregnancy, maternity leave or nursing period; (5) if workers have been working for the company for at least 15 consecutive years and are within five years of statuto ry retirement age (in practice, this latter circumstance would occur on exceptional cases only).

Under the Provisions, employers have a two-year grace period to bring their employment structure in line with the ECL and the Provisions, and they are not all owed to recruit new dispatched workers until they comply with the 10% ratio ceiling.

Nonetheless the above, the Provisions allow employment contracts or labor dispatch agreements to be carried out until these contracts expire if their expiry dates are mo re than two years after the effective date of the Provisions.

Date of issue: January 24, 2014. Effective date: March 1, 2014.