Li, employed by a labor dispatch service provider, has been working at Company A for over 9 years. However, he only works at the accepting company as a dispatched employee, whose wage and remuneration are quite different from the ones of regular staffs.

On December 28, 2012, the Decision Regarding the Modification of Employment Contract Law (the "Decision") was passed by the Standing Committee of the National People's Congress, which will be implemented on July 1, 2013. From then, Li's life will be significantly improved.

This modification concerns the issue of labor dispatch in the Employment Contract Law of People's Republic of China (the "Employment Contract Law"), which explicitly specifies the qualification of labor dispatch service providers, the administrative license of labor dispatch service, the principle of "equal pay for equal work" to the dispatched employee compared with regular staffs, and three required natures of the position applicable to the labor dispatch service.

Article No. 57 of the Employment Contract Law, as modified by the Decision, set out the requirements of the qualification of labor dispatch service provider, as follows: labor dispatch service providers should have (1) the registered capital of no less than RMB 2,000,000, increased from the original amount of RMB 500,000; (2) a service-related place of business and facilities; (3) the management system of labor dispatch service that is subject to related laws and administrative regulations; and (4) other conditions required by laws and administrative regulations.

Dispatch service providers shall apply for and obtain an administrative license in accordance with the relevant regulations from a local labor administrative department; if approved, it shall apply for business registration subject to related laws and regulations; if not, no company or individual is allowed to provide labor dispatch service. The company that has been providing labor dispatch service before the date of implementation of the Decision shall obtain the administrative license and apply for the change of business registration before June 30, 2014.

The Employment Contract Law originally stipulates that the dispatched employee shall be relocated to a temporary, ancillary and replaceable position without giving any specific definition. Article No. 66 of the Employment Contract Law, as modified by the Decision, emphasizes that "the regular employment form in our country is the form of employment contract. The form of labor dispatch shall be supplementary, only applicable to those positions which are temporary, ancillary and replaceable".

"The prescribed temporary position means that the position shall exist no more than six months; the ancillary position specifies that the position provides a subordinate function to the core business; and the replaceable position dictates that the function of this position can be performed by another staff during the period in which the original can not fulfill his/her duties due to full-time study, vacation or any other reason. The accepting company shall strictly control the number of dispatched employees to a certain ratio of its total staffs, subject to specific regulations issued by the labor administrative department of State Council."

In our case, Li has been dispatched to Company A for over 9 years, far beyond the required six-month period in accordance with the regulation of the Decision. Li's dispatch service contract should be updated after the law is implemented.

Meanwhile, the Decision once again specifies the "equal pay for equal work" principle to the dispatched employee compared with regular staffs. Article No. 63 of the Employment Contract Law as modified stipulates that "the dispatched employee is entitled to enjoy the same rights as regular staffs at the accepting company". Specifically, in accordance with the principle, "the same method of labor remuneration distribution shall be carried out to the dispatched employee as the one to the regular staff who takes a similar position. If the similar position is not available at the accepting company, the labor remuneration should be compared with the one of the same or similar position at the place where the accepting company locates."

The remuneration agreed in an employment contract between the labor dispatch service provider and the dispatched employee, and/or fixed in a labor service agreement between the labor dispatch service provider and the accepting company shall comply with the "equal pay for equal work" principle required by the Decision.

Last but not the least, the Decision increases the legal responsibility and liability of the labor dispatch service provider and the accepting company. Article No. 92 of the Employment Contract Law as modified states that "in violation of the provisions of this law, any unauthorized labor dispatch service shall be ceased, the illegal income shall be confiscated and a fine of not less than the amount of and not more than five times shall be imposed by the labor administrative department."

KWM Suggestion: It is advised that the labor dispatch service provider and the accepting company shall pay close attention to these amendments and any change of relevant local judicial practices. The structure of employment shall be adjusted in order to avoid any violation of laws and regulations.

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.