Cap on dispatched workers
Employee consultation to determine auxiliary positions
Additional grounds for return of dispatched worker
Equal pay for equal work
Open-term contract entitlement for dispatched workers
Employee right to claim de facto employment
No clear definition of 'outsourcing'


On January 24 2014 the Ministry of Human Resources and Social Security issued the Provisional Regulations on Labour Dispatch, which took effect on March 1 2014. Three days later, the ministry issued a circular providing guidance to lower-level labour authorities on implementation of the new regulations. The regulations clarify important issues on the use of dispatched workers, but also leave other issues of concern unclarified. The term 'dispatched worker' is similar to the terms 'temp worker', 'agency worker' and 'contingency worker' as used in other countries.

Cap on dispatched workers

The new 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 on February 28 2016, but must file a report with the local labour authorities on how they plan to reduce their use of dispatched workers. Before reducing its use of dispatched workers to the 10% ratio or below, a host company must hire no new dispatched workers. If a dispatched worker's employment contract (signed with a staffing agency) and the labour dispatch agreement between the staffing agency and the host company was signed before December 28 2012 (the promulgation date of the new Employment Contract Law), such contracts and agreements may continue to be performed in accordance with their terms until expiration, even beyond February 28 2016.

Employee consultation to determine auxiliary positions

Labour dispatch can be used only for positions that are temporary, auxiliary or substitute in nature. An 'auxiliary position' is defined in the Employment Contract Law as a non-core position that provides services to the company's main business. However, the law is unclear about how to determine what constitutes a company's main business and non-core business.

The new regulations stipulate that a company can determine which positions are auxiliary through employee consultation procedures in accordance with Article 4 of the Employment Contract Law. Article 4 requires 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 the management has discretion, within reason, to determine the positions that may be filled by dispatched workers, subject to compliance with certain consultation formalities and the overall 10% cap. If a company fails to follow the consultation procedures, the labour authorities may order rectification and give a warning. If any damages are 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 Employment Contract Law where a host company may return a dispatched worker to the staffing agency, the new regulations clarify that a host company may also return a dispatched worker to the staffing agency where:

  • the host company undergoes a major change of objective circumstances or conducts mass layoffs;
  • the host company goes bankrupt, dissolves, has its business licence revoked or is ordered to shut down; or
  • the labour dispatch agreement between the staffing agency and the host company expires.

While the returned worker has no work to do, the staffing agency need only pay the returned worker the local minimum wage. However, the host company is not allowed to return unilaterally a dispatched worker who is protected from unilateral termination by law (eg, an employee who is still in the statutory medical treatment period, or is pregnant or in her nursing period).

Equal pay for equal work

The regulations state that there should be no discrimination against dispatched workers in relation to any benefits related to a job position, but provide no further guidance as to the exact scope of this requirement or how it should be interpreted and implemented.

Open-term contract entitlement for dispatched workers

The regulations remain silent on 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 unclear 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

A provision in the original draft regulations stated that dispatched workers hired outside the allowable scope could claim de facto employment with the host entity, but this provision has been left out of the final labour dispatch regulations. Dispatched workers now have no clear legal basis to raise such a claim. However, they can submit complaints to the local labour bureau, which can order rectification and then impose a fine if the violation is not rectified within the timeframe specified by the labour bureau. Employees may still try to make de facto claims in court, which again may lead to different local practices.

No clear definition of 'outsourcing'

Given the strict rules on labour dispatch, many companies are changing their hiring methods from labour dispatch to outsourcing. However, there remains no clear definition of 'outsourcing' under Chinese law (a provision in the draft regulations on this issue was left out of the final version), and this will remain an issue to be determined by the courts based on both employment law and contract/civil law principles.

For further information on this topic please contact Andreas Lauffs or Jonathan Isaacs at Baker & McKenzie's Hong Kong office by telephone (+852 2846 1888), fax (+852 2845 0476) or email (andreas.lauffs@bakermckenzie.com or jonathan.isaacs@bakermckenzie.com). The Baker & McKenzie website can be accessed at www.bakermckenzie.com.