A labour dispatching arrangement in the People’s Republic of China (PRC) is essentially a method for indirectly engaging staff via an employment agency (commonly termed a dispatching agent). It is regulated by the PRC Employment Contract Law (the ECL).
A typical dispatching arrangement involves three parties (i.e. the employee, the dispatching agent and the employing unit) and is normally governed by (i) an employment contract between the employee and the dispatching agent; and (ii) a dispatching service agreement between the dispatching agent and the employing unit. Under the dispatching arrangement, the employee is employed by the dispatching agent and dispatched to the employing unit to provide services.
Due to stringent restrictions on the termination of an employment relationship by the employer under PRC law, the dispatching arrangement provides flexibility to the employing unit to terminate the employee’s service without having to satisfy any of the statutory grounds for termination of an employment relationship. Instead, the employing unit can return the employee to the dispatching agent, who may dispatch the employee to another employing unit or simply retain the employee (normally by paying him/her the local minimum monthly salary). It should be noted that fees will generally be payable by the employing unit to return employees to the dispatching agent. It also provides a method for a company to engage employees in a city where the company has no business presence.
However, the cost of using a dispatching arrangement is higher than direct employment since an agency fee is payable in addition to all the usual costs and expenses of employment that the dispatching agent needs to pay to the employee. The employing unit and the dispatching agent will be jointly and severally liable to the employee for any acts or omissions resulting in a liability to the employee.
Due to the flexibility provided by dispatching arrangements, they are widely used in practice, although the ECL requires that a dispatching arrangement should only be used for “temporary”, “assistant” or “replacement” positions. Consequently, amendments to the ECL (the Amendments) were promulgated at the end of 2012 to tighten the restrictions on dispatching arrangements as follows:
(i) to increase the requirements for establishing a labour dispatching company. In particular, the Amendments require each dispatching agent to obtain a permit to engage in labour dispatching business.
(ii) to enforce the right of dispatched employees to receive the same remuneration as other employees of the same position.
(iii) to clarify the definition of “temporary”, “assistant” and “replacement” positions as follows:
A. a “temporary” position means a position that exists for no more than six months;
B. an ”assistant” position means a position for non-core business which provides supporting services to the core business positions; and
C. a “replacement” position means a position replacing an employee who is unable to work for a certain period due to study or other leave.
(iv) to impose a maximum limit on the proportion of the total workforce of an employer that may comprise dispatched employees.
The Amendments came into force on 1 July 2013. The Ministry of Human Resources and Social Security of China promulgated the Implementation Measures on Administrative Permit for Labour Dispatching (劳务派遣行政许可实施办法) (Implementation Measures) on 20 June 2013, which took effect on the same day as the Amendments. Further supplementary rules in light of the Amendments are expected to be released by various government authorities in the near future. The Chinese versions of the Amendments and the Implementation Measures may be accessed from the links below:
It is also worth noting that under PRC law, a representative office of a foreign enterprise in China is not permitted to employ any PRC nationals directly. Such an office must engage PRC nationals through a dispatching arrangement even if their positions do not fall within any of the three categories as set out in the ECL and the Amendments.