20 November 2013
What does a "labour dispatch" mean in the PRC?
A "labour dispatch" arrangement under the PRC Labour Contract Law impliedly refers to an employment arrangement whereby a licensed labour dispatch service provider or staffing agency (e.g., CIIC and FESCO), operating as a for-profit business, employs and then seconds its staff to work for a host entity, which can be a legal entity (such as a limited company) or a representative office of a foreign company.
A similar definition is explicitly provided in the Circular of the Ministry of Human Resources and Social Security on Seeking Public Comments on the Several Provisions on Labour Dispatch (Draft for Comments) ("Draft Provisions"), which was issued on 7 August 2013 and may come into force soon.
Although the staffing agency acts as the employer of the labour dispatch staff, the work is usually directly managed by the host entity in accordance with the labour dispatch service agreement between the staffing agency and the host entity.
Who can be a labour service provider in a labour dispatch arrangement?
According to the Amendments to the PRC Labour Contract Law ("Amendment"), a labour dispatch service provider must:
- be a company incorporated under the PRC Company Law;
- be licensed with the Labour Authority before registering with the local Administration of Industry and Commerce (i.e., including it into its business scope); and
- have registered capital of at least RMB2 million.
Where a labour dispatch company was in operation before the effective date of the Amendment (i.e., 1 July 2013), there is a grace period. That is, it must obtain an administrative licence and apply for a variation of company registration before 30 June 2014.
What are the special legal requirements for a labour dispatch arrangement?
- A labour dispatch arrangement is permissible only in respect of "temporary, auxiliary or replaceable positions". A "temporary position" refers to a position with a term of no longer than six months; while an "auxiliary position" refers to a position that serves the main or core business of the company. A "replaceable position" refers to a position that can be performed by a dispatched employee in place of a permanent employee during the period when that employee is away from work for study, vacation or other reasons.
- According to the Draft Provisions, an "auxiliary" position refers to a position which involves only non-core business and provides service to core business-related position.
Limited proportion of labour dispatch staff to total number of host entity employees:
- A company using dispatched employees must ensure that the number of dispatched employees does not exceed a certain percentage of the total number of its employees.
- The percentage is regulated by the Labour Administrative Department of the State Council. The Draft Provisions provide that such maximum percentage is 10 percent. That said, the number of dispatched staff in "auxiliary" positions must not exceed 10 percent of the total number of the workforce. The total workforce refers to the aggregate of the direct hires and the labour dispatch staff in the "auxiliary" positions of the host entity. The above maximum percentage rule may not apply to the Chinese representative offices of foreign companies.
Equal pay for equal work:
- A dispatched employee will have the same right to "equal pay for equal work" as other regular employees. The remuneration specified in (a) the labour contract between the labour dispatch company and the dispatched employee, and (b) the labour dispatch service agreement between the dispatch company and the host company, must comply with the above principle.
- However, the current law is unclear about what should be considered as "equal pay" here, such as whether benefits and welfare are included.
What are the legal consequences of non-compliance for a labour dispatch arrangement?
Where any labour dispatch company or host company breaches the above law relating to labour dispatch, it may be ordered by the Labour Authority to rectify the situation within a certain time limit. If the order is not complied with, then it will be fined at a rate of not less than RMB5,000 but not more than RMB10,000 per dispatched staff involved.
For the labour dispatch company, its administrative licence may be revoked. If any loss is incurred by any dispatched employee, the labour dispatch company and the host entity involved will bear joint and several liability for his/her compensation.