On December 28, 2012, the Standing Committee of the National People’s Congress passed an amendment to the Employment Contract Law (“ECL”), under which companies will no longer be allowed to hire staff through staffing agencies (such as FESCO, CIIC, China Start, etc.) except in very narrow circumstances. The amendments will take effect on July 1, 2013.

Important Changes Made:

A few key important changes are set out below:

  • Companies should hire most employees directly, and may use labor dispatch “only” for temporary, auxiliary and substitute job positions. The original ECL only stated that labor dispatch should “generally” be used for such job positions.
  • Host companies will be limited to only hiring a certain number or percentage of their workforce through labor dispatch, though the exact threshold will be specified in later regulations issued by the Ministry of Human Resources and Social Security. As an indication, under draft Guangdong rules, no more than 30 percent of the total workforce may be hired through agencies.
  • Legally hired dispatch staff must be paid the same compensation as directly hired employees in the same position.
  • If host companies violate the provisions on labor dispatch, they can be fined up to RMB 10,000 (double the previous fine) for each staff member hired through labor dispatch. Under the amended ECL, hiring dispatched staff outside the allowable scope would now more clearly be subject to this fine.