China: New Labour Dispatch Regulations

New Provisional Regulations on Labour Dispatch were issued by the Ministry of Human Resources and Social Security on 24 January 2014. Labour dispatch practices, which involve a business choosing to outsource workers from third-party dispatch agencies rather than directly employing the workers, are already regulated by China’s Labour Contract Law. The new regulations take effect on 1 March 2014 and give further guidance to companies with respect to dispatch labour requirements. In particular, after an initial grace period dispatched workers must not comprise more than 10 per cent of a company’s total workforce.

Background

China's Labour Contract Law was amended as of 1 July 2013. Those changes introduced a less flexible approach to labour dispatch, including specific limits on the range of positions for which dispatched workers can be engaged, detailed approval procedures for labour dispatch permits, an increased registered capital requirement for labour dispatch agencies and other measures aimed at preventing the overuse of labour dispatch. See our January 2013 e-bulletin for further information regarding these changes.

New provisions

The new Provisional Regulations on Labour Dispatch (“Regulations”) will take effect on and from 1 March 2014. The Regulations introduce the following changes:

Dispatched workers may comprise no more than 10 per cent of a company’s total workforce. However, there will be a grace period of two years in the application of that requirement for companies that have previously used dispatched workers.

Representative offices will be exempt from (i) the above 10 per cent requirement, and (ii) the requirement that dispatched workers can only be engaged for temporary, substitute and auxiliary positions. (Under Chinese law, representative offices cannot directly employ Chinese nationals.)

In order for a job position to be defined as “auxiliary” (one of three permissible forms of labour dispatch, together with “temporary” and “substitute” labour), an employee consultation process is now required.

Companies will have the flexibility to return dispatched workers to the labour dispatch agency in the event of major restructuring, severe economic difficulties or liquidation. A returned worker who is not immediately redeployed by the agency must be paid a minimum wage by the agency while he/she is not working.

It will not be possible for "fake" outsourcing arrangements to be used to circumvent the restrictions in the Regulations. This means, for example, that the Regulations are likely to apply to arrangements in which a company outsources certain business functions that are then performed by contractors working in the company's premises or directly managed by the company.

Further to the principle of “equal pay for equal work”, which is already set out in the Labour Contract Law, companies now cannot discriminate against dispatched workers with respect to employment benefits.

Take away points

Companies should review dispatch worker arrangements in light of the Regulations. In particular, companies may need to consider directly employing more workers to ensure compliance with the 10 per cent dispatch worker ratio mentioned above. In addition, existing labour contracts and labour dispatch agreements should be reviewed in light of the “equal pay for equal work” requirement as it relates to benefits.

Further information

Companies not complying with the Regulations may be ordered to comply within a fixed period or be subject to fines of between RMB5,000 and RMB10,000 per infringing dispatched worker. Labour dispatch agencies that violate the law may also be fined and, in serious cases, have their labour dispatch licence revoked. In addition, the employing company and the labour dispatch agency may be jointly and severally liable to dispatched workers for any losses they suffer.