Multinational companies' Chinese subsidiaries, known as
foreign invested entities or "FIEs," have two basic
options when hiring employees. They can either hire them directly
("Employment Model"), or they can "lease" them
from temporary placement agencies ("Dispatched Model").
Traditionally the Dispatched Model is used by FIEs to lower labor
employment risks. However, Chinese professionals are confused by
this approach and often resent it because they view themselves as
"employees" rather than "contract/leased
workers". To resolve these issues, the Chinese government
recently enacted amendments to the Labor Contract Law
("Amendments") to restrict companies from using the
Dispatched Model to engage long-term and core personnel.
I. The Disappearing Dispatched Model
The Amendments limit the use of the Dispatched Model only to
"temporary, auxiliary or alternative" job
positions.1 The wording also eliminates a major
advantage of the Dispatched Model: the freedom beyond the Chinese
Labor Contract Law to "indirectly" terminate workers by
returning them to the dispatching agencies (viz. FESCO, CIIC and
The table below lays out a comparison between (1) the previous
Dispatched Model, (2) the new Dispatched Model after the Amendments
and (3) the Employment Model.
II. Transition Period and Recommendations
Understanding that it will take some time for the Amendments to
completely play out, the Chinese labor authority allows the
following transitional measures in terms of pre-existing dispatched
Dispatching contracts executed prior to December 28, 2012 may
continue in force until their expiration.
Dispatching contracts executed after December 28, 2012, must
respect and be compliant with the Amendments.
The labor authority is expected to release further
implementation details early next year. In the meantime, we
recommend that FIEs review and revise their Chinese employee
handbook and HR policies, as well as their agreements with
dispatching agencies, to stay in compliance with the
1 According to the Amendment, "temporary, auxiliary
or alternative" means:
"Temporary" means less than six
"Auxiliary" means non-core business
"Alternative means "filling in" when the
permanent employee is unable to attend due to her/his vacation,
leave or study.
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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