China: Back-to-Basics: past and present life of labor dispatch

Last Updated: 5 March 2014
Article by Jiang Junlu

At the end of 2013, the Interim Regulation on Labor Dispatch was adopted in the ministerial conference of the Ministry of Human Resources and Social Security. This regulation was promulgated before the Lunar New Year and became effective on March 1, 2014, which is expected to preclude the readjustment of labor dispatch.

  1. The Emergence and Early Development of Labor Dispatch in China

Labor dispatch emerged in China during 1980s.

At that age, China had just launched its opening-up policy and successfully attracted foreign investors. Foreign companies with an optimistic perspective started to set up Foreign-invested Enterprises in China, while the companies being relatively conservative adopted the approach of setting up representative offices (the "Rep Offices") to enter the Chinese market.

In 1980, the State Council formulated the Interim Provisions concerning the Administration for Residential Representative Offices Established by Alien Enterprises (the "Provisions"), stipulating that the Rep Offices are permitted, but their development restricted. Restrictions are imposed not only on business and operation but also on the premises leasing and employment.

In the aspect of employment, the Provisions stipulate that Rep Offices must engage government-affiliated service agencies for foreign affairs to hire employees, which are Beijing FESCO, CIIC, etc. These agencies hired employees and dispatched them to Rep Offices thereafter — this is the origin of Chinese labor dispatch.

Because of the limited number of Rep Offices and fewer dispatched employees involved, labor dispatch at its early stage did not cause much public concern.

After transformation from Rep Offices to Foreign-invested Enterprises, labor dispatch and HR agencies are still used due to the usual practice of original management policies. Such a practice extends the reign of labor dispatch from Rep Offices to enterprises, public institutions, or even governmental organs.

  1. A "Great Leap" for Labor Dispatch

The practice of engaging manpower under labor dispatch by enterprises, public institutions and governmental organs has never attracted much attention from the public for a period over 20 years. Despite a steadily growing number of people involved, labor dispatch remained unfocused by legislators.

In 2006, as the Employment Contract Law was drafting, labor dispatch came into view of the legislators. As an approach of using manpower, labor dispatch has outstood with its flexibility and seasonality. However, the discrimination on treatment of dispatched employees (compared with directly-hired employees,) as well as the abuse of labor dispatch was increasingly being concerned. In light of the above, the Employment Contract Law, effective as of 2008, permits the existence of labor dispatch, however confined to particular positions which are temporary, auxiliary or substitutable.

Going against the legislator's expectation, the restrictions set forth in the Employment Contract Law did not limit labor dispatch, instead, stimulated the growth and development of labor dispatch.

The reason is that the Employment Contract Law is completely different from the 1995 Labor Law . The Labor Law provides a lot of protections on employees, for example dismissal protection, however, it is undoubted for employers to sign short-term employment contracts so as to evade those measures. More broadly, the practice of signing short-term employment contracts basically disabled these dismissal protections. On the contrary, the Employment Contract Law strengthens the power of long-term employment contracts and makes protections on employees practicable by closing implementing loopholes, meanwhile reducing the employers' leverage on employment. At this very moment, labor dispatch stood out with its magnified employment flexibility. Furthermore, since the vagueness of restrictions imposed by Employment Contract Law, judicial practices could be difficult. Consequently, labor dispatch has achieved its "Great Leap".

  1. A New Round of Restrictions on Labor Dispatch

Within the first 5 years the Employment Contract Law being effective, the major channel for engaging employees, i.e. contract-based employment, has been severely undermined by the boost of labor dispatch. However, the legislation presented a slow response on this matter.

Laws are designed to solve social contradictions. For example, if cohabiting were popular in daily life, the legislation regarding cohabiting should be formulated to resolve possible relevant problems on property, offspring, fostering, inheriting, etc. Specifically here, when labor dispatch becomes an employee-engaging channel, the legislator shall take action to pass regulations on labor dispatch, with the purpose of solving surrounding issues in connection with discrimination, abuse of labor dispatch, trade union membership of dispatched employees, compensation for damages, etc.

In response, the Standing Committee of NPC promulgated the Decision on the Amendment to Employment Contract Law on December 28, 2012.

At the end of 2013, the Interim Regulation on Labor Dispatch was adopted in the ministerial conference of the Ministry of Human Resources and Social Security. This regulation was promulgated before the Lunar New Year and became effective on March 1, 2014, which is expected to prelude the readjustment of labor dispatch.

In my opinion, labor dispatch backs to basics by this readjustment. Considering its emergence and development history, labor dispatch as a supplementary channel should not outweigh contract-based employment. However, under the demand of flexibility in employment and the employer's desire to circumvent the law, labor dispatch has experienced a rapid expansion, tending to margin (or even replace) the major channel for engaging employees. Under such a situation, the new regulations are expected to remove the heat and flaws and purify the nature of labor dispatch, so as to accomplish corrective action.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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