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Proposed Amendments to the Chinese Labour Contract Law Regarding Employment of Dispatched Workers
1 January 2013

Introduction

Labour dispatching is a common method used by foreign invested enterprises in China to employ workers through labour dispatch agencies (“Agencies”) e.g. FESCO or CIIC. The Agencies will sign service contracts with the foreign invested enterprises for labour referral services and then separately sign labour contracts with workers who will then work for the foreign invested enterprises as their dispatched workers. In essence, the workers do not have any direct employment relationships with the foreign invested enterprises.

Section 2, Chapter 5 of the Labour Contract Law 2008 (“Labour Law”) provides regulations for the setting up requirements of Agencies and labour dispatching arrangements. Despite these provisions, many dispatched workers are being exploited, they earn less than permanent workers on the same positions, have little job prospects and many of them are denied employee benefits. Therefore on 6 July 2012, the Standing Committee of the National People’s Congress of China released a Draft Amendments to the Labour Law (the “Draft”) for public consultation which amendments are aimed at stricter administration of the Agencies and to increase protection for dispatched workers.

Main Changes

Some of the main amendments proposed by the Draft are as follows :-

1. Increase in capital requirement of the Agencies

Article 57 stipulates that Agencies shall be established in accordance with the Company Law and shall have no less than RMB500,000 registered capital. The Draft increases the capital requirement to RMB1,000,000, imposes registration and licensing requirements on the Agencies with the relevant labour authorities and also mandates that the Agencies are required to establish labour dispatch management systems.

2. Enforcing the “equal pay for equal work” principle

Article 63 stipulates that dispatched workers should have the same pay as their co-workers of similar positions; where no similar positions exist, their pay should be determined with reference to similar positions in the locality where the foreign invested enterprises are based. The Draft mandates (i) all labour contracts between dispatched workers and Agencies and (ii) all service contracts between Agencies and foreign invested enterprises to expressly specify that the pay of dispatched workers must comply with the “equal pay for equal work” principle.

3. Clear definitions and better scopes of “temporary, assistant or substitute positions”

Article 66 stipulates that dispatched workers shall be employed for “temporary, assistant or substitute” positions. The Draft elaborates “temporary positions” to mean positions that would only exist for 6 months; “assistant positions” are positions that perform backup and support to the main business of the foreign invested enterprises and finally “substitute positions” are positions that can be performed by dispatched workers only when permanent workers are on holiday, study leave or maternity leave.

4. Heavier sanctions for non-compliance

Article 92 provides that in case of breach of the provisions of the Labour Law, relevant authorities shall order the Agencies or the foreign invested enterprises to rectify the breach. If there is severe breach, a fine between RMB1,000 and RMB5,000 per dispatched worker shall be imposed and the Agencies’ business license will be revoked. If the dispatched workers suffer any damage, the Agencies and foreign invested enterprises will be jointly and severally liable for their compensations. The Draft increases the fine to the range of RMB5,000 and RMB10,000 per dispatched worker. Further penalty is also introduced to punish unlicensed Agencies. In such a case, the authorities can order the Agencies to cease operation, confiscate their illegal earnings and impose a fine up to 5 times of their illegal earnings or a fine up to RMB50,000 if there are no illegal earnings.

Impact for foreign invested enterprises

The Draft, once implemented, will tighten control over the setting up and operations of Agencies, and thus service fees payable by the foreign invested enterprises to the Agencies will likely increase. To comply with the Draft, foreign invested enterprises should review their service agreements with the Agencies. The legal risks for foreign invested enterprises will increase as the Draft will significantly increase the penalties for breach of the Labour Law. It may be advisable for foreign invested enterprises to review their labour dispatch arrangements and develop a viable adjustment plan in due course (e.g to employ their dispatched workers directly as permanent workers).

We will provide updates on the development of the Draft from time to time. If you have any question on the above e-News, our lawyers will be happy to assist you with any queries you may have.

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