- The Draft Law seeks to tighten regulations and address concerns regarding the widespread use of dispatch workers in the PRC.
- It imposes more severe penalties for breach of the law by labour dispatch businesses and extends liability in certain cases to enterprises using dispatch workers.
- Labour dispatch businesses and enterprises using dispatch workers will need to review existing arrangements and make adjustments to deal with the likely impact of the Draft Law.
Many companies use labour dispatch arrangements to engage workers in the PRC. Labour dispatch providers, such as FESCO and CIIC, act as the direct employer of the individuals and then supply those workers pursuant to the terms of a commercial agreement with the company.
The PRC government has indicated that it has concerns about the way in which labour dispatch arrangements are operating in practice and the Draft Law seeks to address concerns regarding:
- sub-standard labour dispatch businesses,
- use of dispatch workers for long term positions or as a primary source of labour, and
- disparity in benefits enjoyed by dispatch workers and direct employees.
Public comment has been invited by 5 August 2012.
The two key proposed amendments likely to impact upon companies who use labour dispatch arrangements to engage workers in the PRC are not surprising, and indeed expand upon existing provisions of the PRC Labour Contract Law.
Restrictions on use of dispatch workers
Article 66 of the PRC Labour Contract Law currently deals with the permitted use of labour dispatch arrangements. Loosely translated, the Chinese version of Art 66 uses the words ‘generally speaking’ in its prescription that dispatch workers should only be used for ‘temporary, auxiliary or substitute positions’. These terms are currently undefined.
In practice in the PRC, many companies do currently engage staff through labour dispatch arrangements in all manner of positions, not limited to those that are ‘temporary, auxiliary or substitute’. To our knowledge, this has not so far caused major problems with relevant government authorities. However, the proposed changes to the Draft Law make clear that the government intends to tighten up these restrictions moving forward, by defining each of these terms as follows:
- temporary – for a term not exceeding 6 months,
- auxiliary – services in support of the company’s core business, and
- substitute – to cover temporary employee absences.
Equal pay for equal work
Article 63 currently provides for the principle of equal pay for equal work when the entitlements of direct employees and dispatch workers are compared. The Draft Law proposes to further tighten up and clarify this requirement.
The other proposed amendments impact primarily upon labour dispatch providers. They include new minimum capital and permit requirements.
Penalties for non-compliance by companies using dispatch workers and by labour dispatch providers are proposed to be increased. In certain circumstances, labour dispatch providers may also face additional fines, deregistration, permit revocation and / or confiscation of illegal gains.
Implications for employers
Companies currently using labour dispatch arrangements in the PRC may wish to revise the Draft Law and consider providing comment upon it, ahead of the 5 August 2012 deadline.
In anticipation of the likely implementation of the Draft Law, companies may wish to undertake an audit of their use of dispatch workers in the PRC to determine whether:
- dispatch workers are currently used for positions which are not temporary, auxiliary or substitute in nature, and
- dispatch workers receive equal pay and benefits to equivalent directly employed workers.
If not, it will be important to follow closely the progress of the Draft Law and be prepared to make changes to the existing arrangements if it is implemented in its current form.