Jurisdiction - China
China – New Draft Amendment To Labour Contract Law.

14 August, 2012


Legal News & Analysis – Asia Pacific – China – Labour & Employment


The National People's Congress ("NPC") has released the Draft Amendment to the PRC Labour Contract Law for collection of public opinions until 5 August 2012.
Due to the abuse and excessive use of the labour dispatch arrangement since the implementation of the PRC Labour Contract Law (which came into effect on 1 January 2008), the Draft Amendment intends to further protect employees' interests by strengthening the regulation regarding labour dispatch arrangement. The major proposed amendments are highlighted below:
Strict Restriction on Use of Labour Dispatch Arrangement
According to Article 66 of the PRC Labour Contract Law, labour dispatch arrangement shall in general apply to temporary, ancillary or substitutable positions. From the literal interpretation of the provision, there is no strict prohibition for using labour dispatch arrangement in other positions. As a result, labour dispatch arrangement continues to be extensively used in many industries across China.
The Draft Amendment now clearly stipulates that labour dispatch arrangement shall only be applied to temporary, ancillary or substitutable positions and further sets out the definitions of the aforesaid three positions. Temporary position refers to position which lasts for not exceeding 6 months; ancillary position refers to position which provides services to the core business; and substitutable position refers to position which is in substitution of an employee who is not able to report to duty for a period of time for reasons like going on study or leaves etc. For the first time it is made clear that labour dispatch arrangement shall not be used in other positions.
Sanctions for Breach of Labour Dispatch Provisions
The Draft Amendment sets out the consequences of breach where the entity using labour dispatch services in violation of the law may (i) be ordered by the labour authority to rectify; (ii) in a serious case be subject to a fine ranging from RMB 5,000 to RMB 10,000 per dispatched staff; and (iii) bear joint liability together with the labour dispatch services provider (e.g. FESCO) in case damages are caused to the dispatched staff.
Minimum Registered Capital of Labour Dispatch Services Provider Increased
According to the Draft Amendment, the minimum registered capital of a labour dispatch services provider is proposed to be increased from RMB 500,000 to RMB 1,000,000. From a legislative point of view, the Draft Amendment lays down a higher threshold for labour dispatch services which can be regarded as an attempt to restrict the increasing trend of using labour dispatch arrangement.
It is uncertain when the Draft Amendment will be formally promulgated and whether the final version will be the same as the current version of the Draft Amendment. However, it is advisable to pay attention to the development while starting to review the current employment structure and prepare for changing the employment arrangement in order to comply with the latest legal requirements.


For further information, please contact:
Franki Cheung, Partner, Deacons



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