Proposed Amendments To The PRC Employment Contract Law - Impact On Labour Dispatch Companies (Part 2) - Contract of Employment

Keywords: PRC, Employment Contract Law, Labour Dispatch Companies, Employment Contract Law, ECL

Headline

November 2012: Anticipated changes to PRC Employment Contract Law this month will affect labour dispatch companies, if approved. Changes are likely to be retroactive and will, therefore, impact all existing, as well as new, labour dispatch companies.

This is the final part in our 2-part series addressing the changes to the PRC's laws regarding labour dispatch companies. In part 1, we considered the national legal changes to the Employment Contract Law (ECL) and how they impact labour dispatch companies. In this part we, consider the recent changes made to local labour dispatch regulations in Chongqing, Jilin, Guangdong, Shanghai and Tianjin, and address some of the practical matters left unanswered by the draft ECL amendment.

In Brief

1. Summary of Local Labour Dispatch Regulations

Chongqing: Chongqing Regulation on the Protection of the Rights and Interests of Employees
Shanghai: Guidance on Regulating the Administration of Labour Dispatch in Shanghai Municipality and Several Opinions on Regulating the Administration of Labour Dispatch in Shanghai Municipality
Tianjin: Regulations on the Administration of Labour Dispatch of Tianjin Municipality
Jilin: Regulations on the Administration of Labour Dispatch of Jilin Municipality
Guangdong: Regulations on the Administration of Labour Dispatch of Guangdong Province

2. Practical Matters Left Unanswered by the Draft EC L Amendment

In Detail

1. Overview of Local Regulations Relating to Labour Dispatch Issued in Recent Years

In addition to the national ECL law, various rules and regulations (or drafts) relating to labour dispatch (the "Local Regulations") have been issued successively at a local level in Chongqing, Jilin, Guangdong, Shanghai and Tianjin since the beginning of 2011.

Even after the proposed amendments to the national-level ELC law come into effect, certain provisions in the Local Regulations will remain effective, provided there is no conflict.

Below is a summary of the Local Regulations relating to labour dispatch as of November 2012:

Chongqing: Chongqing Regulation on the Protection of the Rights and Interests of Employees (adopted on 25 March 2011 and effective as of 1 July 2011)

This Regulation provides that an employer accepting dispatched employees shall make a filing with the competent labour authority when the percentage of dispatched employees in the company is higher than 30% of its entire body of employees; and such percentage shall not exceed 50%. If an employer violates these provisions, it shall be deemed that a direct employment relationship has been established between the dispatched employees and itself.

This Regulation also provides that:

"temporary" positions refer to those with a term not longer than one year;
"auxiliary" positions refer to those that provide supporting services to the core business of the company;
"replaceable" positions refer to those that can be performed by dispatched employees in replacement of permanent employees during the period when those employees are away from work due to vacations, training, military service or work-related injuries, etc.; and
the principle of "equal pay for equal work " will apply. That is, a dispatched employee shall be entitled to the same remuneration and benefits as a non-dispatched employee performing the same or similar job at the same or similar level of performance.

Shanghai: Guidance on Regulating the Administration of Labour Dispatch in Shanghai Municipality (jointly issued by Shanghai Human Resources and Social Security Bureau, Shanghai Federation of Trade Unions, Shanghai Association of Enterprises and Shanghai Federation of Industry and Commerce on 26 May 2011), and Several Opinions on Regulating the Administration of Labour Dispatch in Shanghai Municipality (for Trial Implementation) (issued in February 2012)

The Guidance' points out that the enterprises shall, by way of "collective consultation", identify the scope of "temporary, auxiliary and replaceable" positions applicable to labour dispatch positions; while the Trial Opinions' prescribe that the labour dispatch companies and the working units shall contribute to the social insurance premiums for the employees dispatched in Shanghai, and shall enforce the principle of "equal pay and equal social insurance for equal work".

Tianjin: Regulations on the Administration of Labour Dispatch of Tianjin Municipality (jointly issued by Tianjin Human Resources and Social Security Bureau and Tianjin Administration for Industry & Commerce on 16 September 2011)

This Regulation sets out the legal requirements for registering and filing for labour dispatch companies, labour dispatch service agreement, and the principle "equal pay and social insurance for equal work".

Jilin: Regulations on the Administration of Labour Dispatch of Jilin Municipality (issued by Jilin Provincial Department of Human Resources and Social Security on 22 November 2011 and effective on 1 January 2012)

This Regulation places strict limits on the scope of "temporary, auxiliary and substitute" positions. It also contains some provisions akin to the Chongqing Regulation. There is, however, no limitation on the number or percentage of dispatched employees that can be used by each working unit under this Regulation.

However, it does explicitly provide that Article 14 of the ECL (i.e., the provisions regarding the compulsory conclusion of a labour contract with an indefinite term), shall not apply to labour contracts entered into by and between the dispatch company and its dispatched employees, unless both parties agree to include such a clause.

Guangdong: Regulations on the Administration of Labour Dispatch of Guangdong Province (Solicitation for Public Comments) (promulgated on the official website of the Legislative Affairs Office of the Guangdong Provincial People's Government, February 2012)

This Regulation covers a wider range of topics relating to labour dispatch and is the strictest one, compared with the other Regulations discussed here.

First, it restricts the number and percentage of dispatched employees used by a company. Where the dispatched employees exceed 20 in number and account for over 10% of total employees (including employees and dispatched employees of the receiving company), the receiving company shall report it to the competent labour authority for record. The percentage of labour dispatch workers shall not exceed 30%. In case of any violation, the receiving company shall be ordered to rectify the situation by the local labour authority, and will have a fine imposed in the amount of RMB100- RMB300 per month for each dispatched employee who exceeds the maximum number or percentage permitted.

Second, this Regulation strictly defines:

"temporary positions" as those with a term of no longer than six months;
"auxiliary positions" as those that provide supporting services to the core business of the company;
"replaceable positions" as those roles that can be performed by dispatched employees of the receiving company who are unable to continue to work due to sick leave, maternity leave or off-the-job training, military service or medical treatment for work-related injury.

Last, it provides for social insurance premium contributions under the arrangement of "off-site dispatch". It stipulates that where a labour dispatch company dispatches its employees to a locality beyond where it is located, it shall establish a branch company with a business license in the place where the receiving company is located, so that the dispatched employees can make social insurance premium contributions through the branch company.

2. Practical Matters Left Unanswered by the Draft Amendment to the EC L

The draft ECL amendment leaves unresolved the following practical matters relating to labour dispatch :

There is no definition of "pay" in the expression "equal pay for equal work" (in practice, the biggest controversy about the "equal pay" is whether the term means, in addition to the salary, all other related welfare benefits and social security entitlements, and even sometimes the right to democratic management and the opportunity for promotion);
There is no definition of "labour dispatch". The Draft Amendment does not explicitly state whether or not "labour dispatch" includes the "arrangement of secondment" between the affiliated entities of the same group company (including domestic and cross-border arrangements), and/or the assignment of employees to work in a client company under a service agreement (i.e., "services outsourcing" or "personnel borrowing");
A lack of clarity around whether and how "labour dispatch" referred to in the ECL differs from the employment of Chinese employees by a representative office established by a foreign company in China through a domestic qualified foreign services intermediary (such as FESCO and CIIC) pursuant to relevant legal requirements provided in the applicable law;
There is no indication as to whether the circumstances provided in Article 14 of the ECL shall apply to dispatched employees and to dispatch companies or to the accepting company. This is important for determining whether a labour contract with an indefinite term shall be concluded by the dispatch company and dispatched employees when the statutory conditions are satisfied (e.g., the labour contract with definite term has been consecutively concluded twice); and
A lack of certainty around the circumstances in which a receiving unit may return dispatched employees to the dispatch company. Under current laws, the right of return is subject to the terms and conditions provided in the labour dispatch service agreement entered into by and between the dispatch company and the receiving unit.

Previously published on 23 November 2012.

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