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Decision on Revising the Labor Contract Law of the People's Republic of China Adopted by the NPC


On December 28, 2012, the Standing Committee of the 11th National People's Congress adopted the Decision of the Standing Committee of the National People's Congress on Amending the Labor Contract Law of the People’s Republic of China, to go into effect on July 1, 2013.

The revision covers four topics and focuses on protecting and defending the legal rights of dispatched workers.
1. Providing further regulation of the labor dispatch business operations.
According to the Decision, enterprises engaging in the labor dispatch business shall meet the following requirements:
    1). Registered capital of no less than CNY2,000,000;
    2). Fixed place of business and appropriate facilities;
    3). A labor dispatch management system that complies with the provisions of applicable statutes and administrative regulations; and
    4). Other conditions imposed by statutes and administrative regulations.
Enterprises engaging in the labor dispatch business shall apply with the Labor Administration Department for an administrative license; and shall complete formalities for corresponding company registration after obtaining their license. No entity or individual may engage in the labor dispatch business without a license.

2. Ensuring dispatched workers’ right to "equal pay for equal work" under the law.
According to the Decision, dispatched workers are entitled to equal pay for performing the same work as direct employees of the same employer. The employer must institute labor remuneration allocation methods with respect to dispatched workers that are equivalent to those applicable to direct employees occupying the same position, in accordance with the principle of “equal pay for equal work”. Where the employer has no direct employee in the same position, it shall determine pay with reference to the labor remuneration of workers of the same or similar positions in the local area.
The labor remuneration payable to dispatched worker as stated or agreed to in the labor contract concluded between the dispatching entity and the dispatched worker or the labor dispatch agreement concluded between the dispatching entity and the employer shall conform to the provisions of the preceding provision.

3. Limiting the number of dispatched workers.
According to Decision, labor contract employment is the basic form of employment for enterprises in China. Labor dispatch employment is a supplementary form that can only be adopted for temporary, auxiliary or alternative positions.
For the purposes of the preceding provision, the term "temporary position" refers to a position with a term of no longer than six months; the term "auxiliary position" refers to a non-primary business position aimed at providing services to a primary business position; and "alternative position" refers to a position that is filled on a substitute basis to replace a regular employee who cannot work for a given period due to full-time study, vacation or some other reason.
The employer must strictly limit the number of dispatched workers, and dispatched workers may not exceed a certain percentage of its total number of workers as stipulated by the Labor Administration Department of the State Council.

4. Imposing stricter penalties on unlawful labor dispatch practices.
According to the Decision, if an enterprise violates the Labor Contract Law by engaging in the labor dispatch business without a license, the Labor Administration Department shall order the offending entity to cease its illegal acts, confiscate all illegal gains and shall impose a fine of between 100% and 500% of the amount of such illegal gains. If there are no illegal gains, a fine of not more than CNY50, 000 shall be imposed.
Where the dispatching unit or the employer violates the Labor Contract Law provisions on labor dispatch, the Labor Administration Department shall order it to remedy its violation within a prescribed time limit. If such violation is not remedied within the prescribed time limit, the Labor Administration Department shall impose a fine of CNY5, 000 - 10,000 per improperly dispatched worker, and the labor dispatch license of the dispatching unit shall be revoked. Where the employer causes losses to the dispatched worker, the dispatching unit and the employer unit shall be jointly and severally liable for the payment of compensation.

The new law is expected to provide more effective and better protection to workers. According to the All-China Federation of Trade Unions, in 2011, there were about 37 million dispatched workers in China, accounting for 13.1 percent of all urban employees, and long-term labor dispatch arrangements are seen in a wide variety of positions, especially at state-owned enterprises and government agencies.

Implementing the rule of "equal pay for equal work" for temp workers is seen as a must for income distribution reform. However, analysts point out that as the new amendments do not include detailed rules for implementing the rule, the future for full implementation of the rule remains quite vague.

In practice, to evade responsibilities, many companies sign labor dispatching contracts with their employees whose wages are in fact paid by dispatching agencies.This kind of "fake dispatch, true employment" is rampant. The amended law is expected to help standardize such practices regarding temporary workers by upgrading the qualification criteria of dispatching agencies.

Experts point out that many employers favor dispatch workers to avoid risks and lower labor costs. The new amendments encourage enterprises to adopt permanent employment to create a fairer and more reasonable work environment by limiting the employment scope of dispatching labor.

As the implementation of the amended labor contract law is expected to add labor costs to companies, it may trigger a large number of dispatch laborers being laid off.