Amendments to the Labor Contract Law on Labor Dispatch Services Take Effect July 1, 2013

by Davis Wright Tremaine LLP
Contact

On Dec. 28, 2012, China's Standing Committee of the National People's Congress (the “NPC’s Standing Committee”) promulgated the Amendments to China’s Labor Contract Law (the “Amendments”). The Amendments will take effect July 1, 2013. Pursuant to the Amendments, it is likely that the use of labor dispatch services will be a less attractive means of maintaining a more flexible workforce.

Highlights of the Amendments include:

Higher requirements for labor dispatch companies (amendments to Article 57 of LCL)

  • The registered capital of a labor dispatch company is required to be at least RMB 2 million, while the current requirement under China’s Labor Contract Law (“LCL”) is RMB 500,000. Companies currently providing such services will have to increase their registered capital in order to continue to provide labor dispatch services in the future.
  • A labor dispatch company must have permanent business premises and facilities that are suitable for the conduct of their business. It is unclear exactly what this will mean in practice. Any existing dispatch service provider would be wise to keep the new requirements in mind before renewing their leases.
  • A labor dispatch company must have its labor dispatch management system meet the requirements stipulated by laws and regulations.
  • Companies which intend to provide labor dispatch services must apply to labor authorities for permits. Without such permits, the companies are not allowed to conduct relevant registration. The LCL did not include a permit requirement.

“Equal pay for equal work” principle (amendments to Article 63 of LCL)

  • Article 63 of the LCL provides that the dispatched employees shall have the right of “equal pay for equal work”. The Amendments further explicitly provide that “equal pay for equal work” shall be a principle, and the dispatched employees shall receive the same pay as that received by employees of the accepting entity at similar positions.
  • The pay to a dispatched employee under the labor contract between the employee and the labor dispatch company, or under the labor dispatch agreement between the labor dispatch company and the accepting entity, must satisfy the above requirement.

Stricter limitation to range of positions for engaging dispatched workers (amendments to Article 66 of LCL)

  • The Amendments emphasize the supplemental nature of labor dispatch and are aimed at preventing it from being a substitute for direct employment.
  • The LCL has stipulated that workers can be dispatched only for “temporary, auxiliary or substitute positions,” but it is unclear under the LCL what kinds of positions are meant by this. The current rules are generally taken to permit long-term dispatch relationships in a wide variety of positions. The Amendments define the “temporary, auxiliary or substitute positions” as follows:
    • Temporary positions cannot be for longer than six months;
    • Auxiliary positions are those that support the main business line, rather than positions that belong to the main business of the company; and
    • Substitute positions are for covering employees on vacations or study leaves.

According to a senior official at the NPC’s Standing Committee, the dispatched positions only need to meet any one of these requirements. Importantly, the number of dispatched employees engaged by an employer may not exceed a certain percentage of its total number of employees. The exact percentage, however, has yet to be stipulated by the labor administrative authority under the State Council.

More severe punishments for labor dispatch companies (amendments to Article 92 of the LCL)

  • If a company provides labor dispatch services without a permit, the labor authorities will confiscate all illegal gains and impose a fine of no less than the amount of the gain but no more than five times the illegal gain. In the event of no illegal gains, a fine of no more than RMB 50,000 will be imposed
  • Employers and dispatch agencies violating the law may be fined between RMB 5,000 and RMB 10,000 per dispatched worker if they fail to correct the violations within the time period specified by the relevant labor bureau. For labor dispatch companies, their labor dispatch business permit may be revoked.

Transitional provisions

  • Existing labor contracts and labor dispatch agreements are valid until they expire, but any provisions which violate the provisions on “equal pay for equal work” under the Amendments must be modified.
  • A labor dispatch company established before July 1, 2013 will be required to obtain a labor dispatch permit and conduct company change registration by July 1, 2014 (with a one-year grace period) in order to take up new labor dispatch business.

Conclusion

The use of labor dispatch services will likely be a less attractive means of maintaining a more flexible workforce.  For labor dispatch companies, it is now more difficult to qualify to provide labor dispatch services, and qualified companies may have more capability to make compensation to dispatched employees (if necessary). For the accepting entity, any costs that might have been saved by labor dispatch under the LCL may not be saved under the Amendments, and for most positions, the accepting entity does not have the right to use dispatched employees.

The accepting entities may have to establish employment relationships with the currently dispatched employees whose proportion has exceeded the legal percentage, otherwise their relationship may be determined as an employment relationship in labor supervision or labor dispute resolution procedures—and administrative punishment might follow suit. For the dispatched employees not on the “temporary, auxiliary or substitute positions,” their relationship with accepting entities may also be determined as an employment relationship in labor supervision or labor dispute resolution procedures, with administrative punishment also possible.

Notably, there will likely be new implementation rules between now and July 1, 2013.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Davis Wright Tremaine LLP | Attorney Advertising

Written by:

Davis Wright Tremaine LLP
Contact
more
less

Davis Wright Tremaine LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.