Restrictions on Labour Dispatch in China

The term labour dispatch refers to the practice of hiring employees through a labour dispatch service agency, as opposed to direct employment. There is a triangular relationship among the labour dispatch agency, the actual employer and the dispatched employees, where the actual employer enters into a labour dispatch service contract with a labour dispatch service agency and the agency enters into a labour contract with the employee and then dispatches the employee to work for the actual employer.

As a tool for flexible headcount, labour dispatch used to be a mainstream employment arrangement in China. However, in practice, the abuse of labour dispatch arrangements has damaged the legitimate rights of the dispatched employees. In order to regulate the use of labour dispatch arrangements and offer better protection to dispatched employees, China has issued a serial of new regulations on labour dispatch. The current effective regulations include the revised Labour Contract Law of the PRC and the Interim Provisions on Labour Dispatch which became effective on 1 March 2014. The key points for the use of labour dispatch arrangements that employers shall be well aware of are as follows:

Use of Dispatched Employees

An employer shall only use dispatched employees in temporary, auxiliary or substitute job positions.

A temporary job position refers to a job position that survives for no longer than 6 months, an auxiliary job position refers to a non-main business job position that provides services for main business, and a substitute job position refers to a job position that can be taken by other workers instead as a result that an employee of an employer fails to work due to full-time study, leave and so on over a certain period of time.

Before an employer determines an auxiliary position in which dispatched workers will be employed, its employees’ congress or all employees shall hold discussions and provide proposals and opinions, and the employer shall negotiate with the labour union or employees’ representatives on an equal basis, and the matters concerned shall be announced internally.

Proportion of Dispatched Employees

An employer shall strictly control the number of dispatched employees it used, which shall not exceed 10% of the total number of employees. The total number of employees include the number of direct hired employees with normal labour contracts and the number of dispatched employees it used.

Dispatch Term

The labour dispatch agency shall conclude a written labour contract with the employee to be dispatched for a fixed term of not less than two years. The dispatch term to the actual employer shall be the same as the labour contract.

Equal Pay for Equal Work

The principle of Equal Pay for Equal Work shall be applied to dispatched employees. The actual employer shall apply the same remuneration distribution measures to the dispatched employees as it applies to other employees for the same work. If there is no such employee taking the same position in the company, the remuneration shall be decided with reference to the remuneration paid to employees in the same or similar position in the region where the actual employer is located.

Exemptions

Resident representative offices of foreign enterprises, China-based foreign diplomatic representative agencies, representative offices of foreign financial institutions in China, and employers who use international oceangoing seamen by labour dispatch are not bound by the requirements on using dispatched employees only for temporary, auxiliary or substitute positions and the maximum percentage rule of dispatched employees.

Penalty for Non-compliance

Under Article 92 of the Labour Contract Law of the PRC, where any labour dispatch agency or the actual employer breaches the law relating to labour dispatch, it may be ordered by the Labour Authority to rectify the situation within a certain time limit; if the order is not complied with, it will be fined at a rate of not less than RMB5,000 but not more than RMB 10,000 per person dispatched. The labour dispatch agency and the actual employer shall be jointly and severally liable for the damages suffered by the dispatched employees.