On January 24, the Ministry of Human Resources and Social Security
issued the Provisional Regulations on Labor Dispatch (“Labor Dispatch
Regulations”), which will take effect on March 1, 2014. Three days later,
it issued a circular providing guidance to lower-level labor authorities on
implementation of the new regulations. The Labor Dispatch Regulations
clarify some important issues on the use of dispatched workers, but also
leave some issues of concern still unclarified. (The term “dispatched
workers” is similar to temp workers, agency workers or contingency
workers as used in other countries.)
• Dispatched Workers Capped at 10% of Total Workforce
The Labor Dispatch Regulations specify that dispatched workers
may not make up more than 10% of an employing unit’s workforce.
When calculating this ratio, the number of dispatched workers
should be divided by the total number of directly employed
employees and dispatched workers at the employing unit.
Companies that use dispatched workers exceeding this maximum
ratio are allowed a two-year grace period expiring February 28,
2016, but they must file a report on how they plan to reduce their
use of dispatched workers with the local labor authorities. Before
reducing its use of dispatched workers to the 10% ratio or below, a
host company is not allowed to hire any new dispatched worker. If
a dispatched worker’s employment contract (signed with a staffing
agency) and the labor dispatch agreement between the staffing
agency and the host company was signed prior to December 28,
2012 (the promulgation date of the new Employment Contract
Law or “ECL”), such contracts/agreements may continue to be
performed in accordance with their terms until expiration, even
beyond February 28, 2016.
• Employee Consultation Required to Determine “Auxiliary Positions”
Labor dispatch is only permitted to be used in positions that are
temporary, auxiliary or substitute in nature. An “auxiliary position”
is defined in the ECL as a non-core position that provides services
to the company’s main business. However, the ECL was not
clear about how to determine what constitutes a company’s main
business and non-core business.
The Labor Dispatch Regulations now stipulate that a company
can determine which positions are auxiliary through employee
consultation procedures in accordance with Article 4 of the ECL.
Art.4 procedures require consultations with all employees or an
employee representative council as well as the union (if there
is one), but the company does not need to reach an agreement
with employees. This effectively means that management
within reason has discretion in determining for which positions
dispatched workers may be hired, subject to complying with certain
consultation formalities and the overall 10% cap. If a company fails
to go through the consultation procedures, the labor authorities
may order rectification and give a warning, and if there are any
damages caused to any dispatched worker, the company is also
required to pay compensation.
• Additional Grounds for Return of Dispatched Worker
In addition to the situations specified in the ECL where a host
company may return a dispatched worker to the staffing agency, the
Labor Dispatch Regulations clarify that a host company may also
return a dispatched worker to the staffing agency when: (i) the host
company undergoes a major change of objective circumstances
or conducts a mass layoff, (ii) the host company goes bankrupt,
dissolves, has its business license revoked, or is ordered to shut
down, etc., or (iii) the labor dispatch agreement between the staffing
agency and the host company expires. During the time when the
returned worker does not have work to do, the staffing agency only
needs to pay the returned worker the local minimum wage.
However, the host company is not allowed to unilaterally return a
dispatched worker who is protected from unilateral termination by
law (e.g., the employee is still in the statutory medical treatment
period, or is pregnant or in her nursing period, etc.).
• Equal Pay for Equal Work
The Labor Dispatch Regulations simply state that there should
be no discrimination against dispatched workers in relation to
any benefits related to a job position, but do not provide further
guidance as to the exact scope of this requirement or how it should
be interpreted / implemented.
• Applicability of Open-Term Contract Entitlement to Dispatched
Workers Still Unclear
The Labor Dispatch Regulations remain silent on the issue whether
the open-term contract rules also apply to dispatched workers.
Normal employees are entitled to an open-term contract after
completing two fixed-term contracts with the same employer
or after serving 10 years with the same employer. It is not clear
whether a dispatched worker in these situations would be entitled
to an open-term employment contract with the agency, as well as
an open-term dispatch term with the host company. Open-term
contracts provide job security potentially up to retirement.
This issue is now left to the courts to decide, which may lead to
different interpretations locally.
• Employee Right to Claim De Facto Employment Still Unclear
A provision in the original draft regulations stated that dispatched
workers hired outside the allowable scope could claim for de facto
employment with the host entity, but this provision has been left
out of the final Labor Dispatch Regulations. Dispatched workers
now have no clear legal basis to raise such a claim. However, they
can submit complaints to the local labor bureau, which can order
rectification and then impose a fine if the violation is not rectified
within the deadline specified by the labor bureau.
Employees may still try to make de facto claims in court, which
again may lead to different practices locally.
• No Clear Definition of “Outsourcing”
Given the strict rules on labor dispatch, many companies are
changing their hiring methods from labor dispatch to outsourcing.
However, there remains no clear definition of “outsourcing” under
PRC law (a provision in the draft regulations on this issue was
left out of the final version), and this would remain an issue to
be determined by the courts based on both employment law and
contract/civil law principles.