The Shantou Special Economic Zone, a city area located in Guangdong Province with many foreign-invested factories, issued its own Employee Rights Protection Regulations (“ Shantou Regulations ”), which came into effect on October 1, 2015.  The Shantou Regulations require a host company to enter into an employment contract directly with a dispatch worker in certain circumstances, such as where the host company is deemed to have formed an employment relationship with the dispatch worker.

According to the Shantou Regulations, a host company will be deemed to have established an employment relationship with a dispatch worker and hence will be required to sign an employment contract with that dispatch worker, if any of the following circumstances occur:

  1. In the absence of renewal of a labor dispatch agreement, the host company continues to use the dispatch worker one month after the end of the employment contract of the dispatch worker;
  2. the host company uses the dispatch worker in a job position that does not fall within the criteria of being a temporary, auxiliary or a substitute position;
  3. the host company uses the dispatch worker in a temporary job position for more than six months;
  4. the dispatch worker is dispatched to the host company (or its subordinate unit) by the labor dispatch agency that is funded by, or established in a partnership with, the host company or its subordinate unit;
  5. the host company continues to use the dispatch worker where the dispatch worker’s employment contract has come to an end or is terminated as a result of the shutdown or bankruptcy of the labor service agency or other reasons; or
  6. any circumstance that is prohibited by the labor dispatch rules occurs.

The Shantou Regulations follow the Employment Contract Law and define temporary job positions as those that do not exist for more than six months, auxiliary job positions as those that are not engaged in core business activities but provide supportive functions for the core business, and substitute job positions as those where the employee may be replaced by others when the employee is absent from work due to study, leave or other reasons.

Key Take-Away Points 

The Shantou Regulations are significant because this may be the first time (or at least one of the first instances) where legislation explicitly states that illegal use of labor dispatch may result in a de facto employment relationship with the host entity.  An earlier draft of the national labor dispatch regulations had included a similar provision, but this was taken out of the final version.  Also, some other cities may take a different view of this issue; for example, Shanghai authorities seem to take the opposite position of Shantou (please refer to our Newsletter of February 2015 ).  In any event, companies should carefully monitor their use of dispatch workers, not only to avoid a finding that they are deemed a de facto employer, but also to avoid fines from the labor bureau based on national laws and regulations.