Since the PRC Labor Contract Law came into effect on 1 January 2008, many Chinese companies have used a large number of seconded employees i.e. employees that are hired by a labor agency and then seconded to work for the companies. This has been in order to circumvent the requirements of the law on signing indefinite employment contracts with employees under certain conditions and to make employment more flexible. However, this kind of special employment has caused a number of problems in recent years. For example, many seconded employees did not get pay commensurate with their work. Also health and safety rights of seconded employees were not always well protected.

Now the PRC Government wants to alter the current predicament. On 6 July 2012, a draft of the Amendments to the PRC Labor Contract Law, discussed at the 27th Conference of the Standing Committee of the PRC People’s Congress, was published for public discussion ("Draft Amendments").

According to the Draft Amendments, seconded employees can only be employed in work positions which are temporary, auxiliary or substituting in nature. Currently Article 66 of the PRC Labor Contract Law already has similar stipulations. However, such requirements on the nature of the work positions were not mandatory. The Draft Amendments aim to change this.

The Draft Amendments also define the terms "temporary", "auxiliary" and "substituting" work positions. A "temporary" work position refers to a position which lasts no longer than six months. An "auxiliary" work position refers to a position which provides services to those carrying out work inherent to the enterprise. A "substituting" work position refers to a position which is temporarily vacant due to an employee taking leave or study, etc. This means that in future, no Chinese employers will be allowed to use seconded employees for their principal business activities for an extended term.

The PRC Peoples’ Congress will further discuss the Draft Amendments in their next session and the amendments are expected to be passed before the end of the year. Therefore, foreign invested companies using seconded employees may wish to pay attention to such coming changes and to make some arrangements in advance if necessary.

Please note that the above restriction on the use of seconded employees should not apply to representative offices which are established by foreign companies in China. Representative offices of foreign companies are not independent legal entities under PRC law and therefore, are not allowed to hire Chinese employees directly but must hire them through a labor agency.