On July 8, 2013, the Shenzhen Luohu District Employment Disputes Arbitration Committee dismissed a dispatched employee’s claim for a direct employment relationship with the host company.

The dispatched employee, who was seconded in succession by two staffing agencies to an e-commerce company during the period from August 30, 2011, to December 14, 2012, brought a suit to the employment disputes arbitration committee at the end of last year claiming that his labor dispatch arrangement was unlawful and therefore void, and that he should be deemed to have a direct employment relationship with the e-commerce company. The dispatched employee’s main arguments were (i) his job position falls outside the allowable statutory scope for labor dispatch (i.e. temporary, auxiliary and substitute job positions), which was in violation of the Employment Contract Law (“ECL”); and (ii) the dispatch agreement was void under the Contract Law because it intended to conceal an illegitimate purpose under the guise of a legitimate act.

However, the employment disputes arbitration committee dismissed the dispatched employee’s claim. The arbitration committee opined that before the amendment of the ECL took effect on July 1, 2013, the original ECL only stated that labor dispatch should “generally” be used for temporary, auxiliary and substitute job positions (as opposed to the amended ECL, which more strictly restricts the use of labor dispatch to only being used for these job positions). Therefore, before the amendment of the ECL officially took effect, it was legitimate to use labor dispatch for job positions that were not temporary, auxiliary or substitute, and the labor dispatch arrangement between the dispatched employee and the e-commerce company (host company) was valid. The arbitration decision was silent on the dispatched employee’s second argument regarding the Contract Law. The dispatched employee has now reportedly brought this case to the Shenzhen Luohu District People’s Court, but the judgement is still pending.

In this case, the labor dispatch arrangement was established and ended before the amendment to the ECL took effect on July 1, 2013. This case shows that at least with regards to labor dispatch arrangements prior to July 1, 2013, there is little risk that the relationship between the dispatched employee and the host company could be deemed as a de facto employment relationship with the host company. The document officially announcing the amendment (the “Decision”), which was issued December last year, provides that employment contracts and labor dispatch agreements legally established before the “promulgation” of the Decision shall continue being performed until their expiry. In light of this, it is still not clear whether a labor dispatch arrangement that commenced prior to July 1, 2013 but continues after that date and which falls outside the allowable scope for labor dispatch would face the risk of a de facto employment relationship.

In a separate development related to labor dispatch, a department head at the national Ministry of Human Resources and Social Security has recently publicly opined that the “equal pay for equal work” principle stipulated in the ECL does not cover benefits (the official did not elaborate on what were the “benefits” he was referring to). Although the recent amendment to the ECL emphasizes that companies should provide “equal pay for equal work” to both directly hired employees and dispatch personnel who work in the same type of positions, the exact scope of this principle has still not been clarified through implementing regulations or guiding court opinions and has been a source of much debate. It should be emphasized that the above public statement is simply the opinion of an official, and arbitrators and courts may not necessarily share the same view.