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China – Labor Contract Law Amendments On Dispatch Employees Come Into Effect – Implementation Details Still Uncertain.

27 August, 2013


On July 1, 2013, the Decision on Amending the Labor Contract Law of the People’s Republic of China (the “Amendments”) came into effect. The Amendments primarily modify the labor dispatch regime, which has been used by many employers to reduce and/or avoid their employer obligations under the Labor Contract Law. The Amendments: (1) set more and higher requirements for conducting labor dispatch business to raise the threshold for market entry; for example, the registered capital should be no less than RMB 2,000,000; (2) emphasize the principle of “equal pay for equal work,” and provide that the compensation for a dispatched employee, as specified or agreed upon in the relevant contracts, should be consistent with the stipulations relating to “equal pay for equal work”; (3) specify that labor dispatch “can only” be used for temporary, ancillary or alternative positions and provide clear definitions of “temporary positions,” “ancillary positions” and “alternative positions”; and (4) impose more severe penalties upon entities in violation of the stipulations.


On August 7, 2013, the Ministry of Human Resources and Social Security issued a notice to solicit public comments on the Several Provisions of the Labor Dispatching (the “Draft Provisions”) with a feedback deadline of September 7, 2013. Among other matters, the Draft Provisions provide the proportion of employment through labor dispatching in an enterprise, i.e. the number of the dispatched workers used by an employer at the supporting posts shall not exceed the 10 percent of the total number of employees. Employers who use a large proportion of dispatch employees should start reviewing their employment arrangements now to minimize any potential disruption to their business.


In addition, the Draft Provisions provide for circumstances where the foreign-related institutions are not subject to temporary, supporting and substitutable post restrictions for employment of dispatch workers. The most important exception for most foreign companies is for representative offices. Representative offices of foreign companies cannot, under current law hire Chinese nationals except through dispatch agencies. The Draft Provisions seem to indicate that this situation will continue.


It is not known when the Provisions will be finalized or what changes will be made to the Draft Provisions.


Orrick

 

For further information, please contact:

 

Elizabeth Cole, Partner, Orrick
ecole@orrick.com


Mark Weeks, Partner, Orrick
mweeks@orrick.com


Yumiko Ohta, Orrick
yohta@orrick.com

 

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