By Labor Law Department of Global Law Office

Subsequent to the promulgation and effectiveness off our amendments to the Labor Contract Law of the People's Republic of China (Hereunder referred to as “Labor Contract Law”)on July 1, 2013, the Ministry of Human Resources and Social Security adopted the Interim Provisions on Labor Dispatching Activities (Hereunder referred to as “Interim Provisions”) on December 20, 2013, and which shall come into effect on March 1, 2014.

Labor dispatch has been a unique problem in the enforcement of Labor Contract Law. Once the Labor Contract Law came into effect, there was a marked increase in businesses specializing in labor dispatch, and eventually became excessive.  Some employers even began to use labor dispatch services as their primary means of employment.  In the view of the Chinese officials who ultimately designed the Labor Contract Law to provide more protection for employees, this abuse of labor dispatch arrangements has had the ultimate effect of damaging the legitimate rights of the dispatched workers.

The Interim Provisions represent an effort by the PRC government to address the apparent abuse of labor dispatch arrangements by narrowing the circumstances under which labor dispatch arrangements can be used, by specifying the rights and regulations of labor dispatching entities, employers, dispatched workers, and by protecting the legitimate rights of dispatched workers and promoting the employers to establish the harmonious and stable labor relationship.

Key point 1: Specify the cap of dispatched workers’ percentage and the interim period arrangement

The Interim Provision restrict the number of dispatched workers used by an employer shall not exceed 10% of the number of its total employees.  The number of total employees shall refer to the sum of the number of employees who have signed labor contracts with the employer and the number of dispatched workers used by the contracts.  Meanwhile, the Interim Provisions give a 2-year interim period for employers whose current percentage of dispatched workers exceed 10% of the number of its total employees before Interim Provisions come into effect, provided that i) they gradually lower the proportion of their dispatched employees to the stipulated 10%within 2 years upon the promulgation of Interim Provisions, and ii) they do not add new dispatched workers prior to achieving the regulated proportion.

Key point 2: Specify the procedure of establishing the auxiliary positions

The Interim Provisions specifies that proposals for auxiliary employment positions, which are primary employment positions in which dispatched workers may be engaged, must first be submitted to the worker's congress or to all employees for discussion and adoption, and then made public.  The aim of this new procedure is to give employees who are involved in the day-to-day work of the employer’s business some input on whether such auxiliary position would actually be an appropriate position for dispatched labor.

Key point 3: Exemptions from temporary, auxiliary or back-up positions and the percentage restriction

Some specific types of employment situations are exempted from the force of the Interim Provisions.  Resident representative offices of foreign enterprises, China-based foreign diplomatic representative agencies, representative offices of foreign financial institutions in China, and employers who use International ocean-going seamen by labor dispatch are not bound by the requirements on using dispatched workers only for temporary, auxiliary or back-up positions and the percentage of dispatched workers when using dispatched workers.

Key point 4：Extension of the dispatching workers’ legitimate rights of equal pay for equal work to include compensation and benefits which are normally enjoyed by directly hired employees

The Interim Provisions require that the legitimate rights of equal pay for equal work to dispatched workers’ are extended to compensation and benefits; namely, dispatched workers are entitled to the relevant compensation and benefit of their job positions as if they were directly hired workers.

Key point 5: Further clarity on the handling of social insurance for Cross-regional Labor dispatching

Where a labor dispatching entity dispatches workers to regions outside its place of registration, the dispatched workers’ social insurance shall be enrolled in the domiciles of the relevant employers and the dispatched workers shall also be entitled to social insurance.

Where a labor dispatching entity has set up a branch or subsidiary in the domicile of an employer, the branch or subsidiary shall enroll the workers in social insurance, and pay the insurance fee.

Key point 6: Clarification of the obligations of an employer to assist the labor dispatching entity with work-related injuries, occupational disease diagnosis, identification procedure of dispatched workers

The Interim Provisions specify that where a dispatched worker suffers from work-related injuries while working for the relevant employer, the labor dispatching entity concerned shall be the applicant for handling the recognition of work-related injuries, and the employer must assist the investigation and handling. The labor dispatch entity shall bear the corresponding compensation liability; however it is entitled to negotiate with the relevant employer for the compensation.

Note: The issues of whether the compensation mentioned hereof is the lawful obligation and the limitation of compensation liability of the employer still need further legislation or clarification in juridical practice.

The employer shall be responsible for the handling of occupational disease diagnosis, identification issues when dispatched workers apply for the occupational disease diagnosis and the employer shall provide the documents needed for the diagnosis and identification.

Key point 7: Clarifications on the circumstances under which an employer may return dispatched workers

Interim Provisions specifies that under any of the following circumstances, an employer may return a dispatched worker to the dispatching entity:

(1) Due to the change of circumstances prescribed in Article 40 or the economic redundancy in Article 41 of the Labor Contract Law;

(2) Due to the employer’s declaration of bankruptcy, business license revocation, an order to close down, cancellation or early dissolution, or because the operation period expires; or

(3) Due to that the labor dispatching agreement has expired

The employer is not entitled to return the dispatched worker to the dispatching entity according to Article 40 and Article 41 of Labor Contract Law before the dispatching period expires if he or she falls under the circumstances of being diagnosed for occupational disease , being injured at work and the worker is confirmed to have totally or partially lost the ability to work, being in the period of medical treatment for illness or the worker is during the pregnant, puerperal or breast-feeding stage in Article 42 of the Labor Contract Law;  And the worker could only be returned after those situations have been resolved and the dispatching period has expired.

Key point 8: Clarification of the circumstances of the dispatched worker’s labor contract termination, and his or her proper placement

A dispatched worker may terminate the labor contract by giving a written notice to the relevant labor dispatching entity 30 days in advance. During the probation period, a dispatched worker may terminate the labor contract by notifying the relevant labor dispatching entity 3 days in advance.

Some new provisions address the rights of a labor dispatching entity in situations where the manner in which a dispatched worker is to be used by the employer has changed after the dispatched employee has been returned and is to be re-dispatched for a similar position.  Under circumstances where a dispatched worker has been returned and the labor dispatching entity maintains or raises the terms of the relevant labor contract when re-dispatching the dispatched worker to a new employer, the labor dispatching entity is entitled to terminate the labor contract if the dispatched worker objects to the new assignment.  Under circumstances where a dispatched worker has been returned and the labor dispatching entity lowers the terms of the relevant labor contract with a new employer, the labor dispatching entity may not terminate the labor contract on the grounds that the dispatched worker objects to the new assignment unless the dispatched worker propose to terminate the contract.

Where a labor dispatching entity is declared bankrupt, has its business license revoked, is ordered to close down, is cancelled, decides to conduct early dissolution or because the operation period expires, the original labor contracts concluded thereby shall be terminated.  The employer and the labor dispatching entity shall negotiate for the proper placement of dispatched workers.  However, please note that further legislation and clarification is still necessary in resolving the issues of whether the proper placement of dispatched workers then becomes the lawful obligation of the employer, and how to properly place the dispatched workers under those facts since the interim Provisions are still unclear on this point.

Key point 9: Clarification of the circumstances under which the dispatching entities shall pay financial compensation to the dispatched workers

The dispatching entity shall pay financial compensation to the dispatched workers under following circumstances.

(1) According to article 46 of Labor Contract Law, dispatched worker terminate the labor contract due to employer’s unilateral mistake, due to the change of circumstances of employer etc.;

(2) According to the Interim Provisions, the contracts terminate due to that the labor dispatching entity and the labor dispatching workers could not reach agreement on the return decision or the due to that a labor dispatching entity is declared bankrupt, has its business license revoked, is ordered to close down, is cancelled, decides to conduct early dissolution or because the operation period expires.