Asia-Pacific: Governments crack down on the use of agency and temporary workers

In the last year, we have seen governments across the Asia-Pacific region tightening their laws and regulations relating to the use of agency (dispatch) and temporary workers. At least in some cases, this is in response to a perceived over-reliance by companies on agency and temporary workers, which has led to allegations of abuse.

For example in a high-profile case in China, Gucci was criticised for using a large number of agency workers in its retail stores in China following allegations of "abuse", including allegations that pregnant women workers had miscarried because of the highly stressful working environment on the shop floor.

Changes to outsourcing and agency worker arrangements have taken place in Japan, Korea, Australia, China, Vietnam and Indonesia and are summarised below.

Japan

Changes to the Labour Standards Act meant that from 1 April 2013, a statutory limit on the number of permitted renewals for fixed- and limited-period contracts was introduced. Employees whose total period of continuous employment exceeds 5 years are entitled to apply for an indefinite-term employment contract.

Korea

From August 2012, Korea’s Ministry of Employment and Labour was granted the right directly to investigate and correct perceived abuses of temporary workers in the absence of workers' complaints. In addition, from August 2013, an amendment to the Act on the Protection Etc of Dispatched Workers will come into effect, which outlines areas where discriminatory treatment of dispatched workers is explicitly prohibited. Areas include wages, bonuses paid on a regular basis, performance bonuses and other matters relating to working conditions and benefit packages.

Australia

In Australia, there has been a renewed regulatory focus on ‘sham contracting’ arrangements, in light of the recent Full Federal Court decision in Ace Insurance Limited v Trifunovski. In that decision, the Court held that five insurance sales agents purportedly engaged as independent contractors were actually employees. The Court held that key factors indicative of an employment relationship include a lack of capacity for the worker to delegate to a third party and payment for time worked rather than outcome-based remuneration. Therefore, the parties’ characterisation of the relationship is not a determinative factor.

China

China’s National People’s Congress adopted the Decision on Revising the Labor Contract Law on the People’s Republic of China (the "Labor Contract Law Amendment"), which took effect on 1 July 2013. The Labor Contract Law Amendment imposes restrictions on China’s labour dispatch regime, as many believe the current labour dispatch regime is lenient on employers, allowing them to evade liabilities, resulting in dispatched employees having less protection than regular employees. Now, labour dispatch is to be used only for ‘temporary, auxiliary or substitute positions’, which are defined. Additionally, there is an ‘equal pay for equal work’ requirement, where any non-compliance in the existing labour contracts and labour dispatch agreements will be corrected so that they are in line with the principle of equal pay. The number of dispatched employees has also been limited, so that the number of dispatched employees engaged by an employer may not exceed a certain percentage of its total number of employees, with the specific percentage to be proclaimed by the State Council.

Finally, the Labor Contract Law Amendment establishes that non-compliance with the labour dispatch regime will be subject to more severe penalties, ranging from RMB5,000 to RMB10,000 per dispatched employee, where there is a failure to comply with the regime within the specific time frame.

Vietnam

In Vietnam, from 1 May 2013, the Labor Code amendments have introduced, for the first time, provisions recognising the legal basis for outsourcing. ‘Outsourcing’ refers to a situation where an employee is employed by an enterprise licensed to provide outsourcing services, but works for another company and is subject to its management whilst the employment relationship with the outsourcing service provider remains in place. The minimum length of outsourcing arrangements will be 12 months, with outsourcing providers required to pay a deposit and obtain a licence to provide outsourcing services. An outsourced employee must receive a salary not less than that of a regular employee of the outsourcing company who is at the same level, doing the same or an equivalent job.

Indonesia

In November 2012, the Minister of Manpower for Indonesia enacted Regulation Number 19 of 2012 on the Terms to Outsource Work to Another Company ("Regulation 19"). Regulation 19 restricts the occupations in which outsourcing activities may be implemented to a few industries such as cleaning services, catering, security guard services, transportation services and supporting services in the mining and oil sectors.

This update, authored by Tara Grossman and Julia Williams, senior associates, was first published in the Herbert Smith Freehills Consumer Products Update - Summer 2013.