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China – Further Restrictions On Labour Dispatch Practice Implemented.

7 April 2014

 

Labour dispatch is not a tool for flexibility of workforce arrangement in China. As of 1 March 2014, China has implemented the new Interim Regulations on Labour Dispatch (“Regulations“) to further regulate the labour dispatch practice. A number of companies have reportedly been undertaking employment restructuring to ensure compliance with the new rules.

 

Restriction On Applicable Positions

 

The Regulations re-affirm that employees may only be dispatched to three types of positions, i.e., temporary, auxiliary and substitutable positions:

 

  • Temporary positions refer to those existing for a period of no more than six months
  • Auxiliary positions refer to positions which serve for non-primary business and support positions conducting main business
  • Substitutable positions mean positions which may be taken by other employees during the period when an employee of the labour accepting entity is absent for study, vacation or other reasons

 

While the above definition of the positions as provided by the Labour Contract is repeated, the Regulations require a labour accepting entity to conduct collective consultation when it defines the auxiliary positions. The collective consultation procedure includes gathering comments and suggestions raised by employee representative congress or from all the employees, confirming the positions with the in-house trade union or employee representatives and publishing the final decision.

 

If the collective consultation procedure fails to be completed, the labour accepting entity will receive administrative warning and be ordered to make rectification; in case a dispatched employee suffers damage, the labour accepting entity will be required to make compensation.

 

Cap On The Number Of The Dispatched Employees

 

The Regulations cap the number of dispatched employees at 10% of the total headcount of the labour accepting entity (including non-dispatched and dispatched employees). A grace period of two years is provided to the labour accepting entities for reducing the current ratio down to the cap. Before the actual ratio is reduced down to the cap, a labour accepting entity is not allowed to accept new dispatch employees.

 

Social Insurance For Cross-Region Labour Dispatch

 

It is clarified that the social insurance contributions shall be made at the place where the labour accepting entity is located. If the labour dispatch firm has a branch at the place where the labour accepting entity is located, the local branch of labour dispatch firm will be responsible for the relevant formalities; if no such local branch, the labour accepting entity shall hand the formalities.

 

Restriction On Return And Termination

 

In general, only under the limited statutory situations, a labour accepting entity may return a dispatched employee to a labour dispatch firm. The Regulations provide the new situations supplementary to those provided by the Labour Contract Law.

 

Under the Labour Contract Law and the new Regulations, a labour accepting entity is permitted to return a dispatched employees if one of the statutory grounds for individual and mass dismissal under direct employment structure applies. New situations provided by the new Regulations for return include closure of a labour accepting entity (due to bankruptcy, liquidation or revocation of business license, etc.), substantial change of objective circumstances, statutory situations for mass lay-off, expiration of a labour dispatch service agreement. However, if any of the statutory situations prohibiting dismissal as provided by the Labour Contract Law applies to a dispatched employee (e.g., a female employee in her statutory maternity leave), the dispatched employee may not be returned based on some of the statutory reasons (e.g. substantial change of objective circumstances) and the labour accepting entity has to maintain the employee until such situation ceases to exist.

 

Moreover, a return does not necessarily justify dismissal of a dispatched employee by a labour dispatch firm. Under some of the conditions for return (e.g., closure of a labour accepting entity), dismissal is not allowed. The labour dispatch firm will have to keep the returned employee until the employment contract expires unless the dispatched employee disagrees on being dispatched to a new labour accepting entity with the same or better terms and conditions of the existing employment contract.

 

Comments

 

With the implementation of the Regulations, the direct employment structure is expected to be promoted. Companies are advised to conduct internal checks in order to ensure that positions taken by dispatched staff conform to the new rules. Direct employment provides for a clear structure as well as minimizes risks of de facto employment claims. If a company does not have delegated HRs, outsourcing HR work to a service provider may prove to be a cost-efficient solution.

 

Clyde & Co

 

For further information, please contact:

 

Iris Duchetsmann, Partner, Clyde & Co

[email protected]

 

Homegrown Labour & Employment Law Firms in China

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