Labor Contract Law Amended

The Labor Contract Law was amended on December 28, 2012 to restrict the use of dispatch labor and to regulate companies that provide labor dispatch services. 

The amendment, which was approved by the Standing Committee of the National People's Congress, takes effect on July 1, 2013.

The key points of the amendment for employers are the following: 

• Dispatch labor is intended to be a supplementary form of employment. The fundamental form of employment is for employees to be employed directly by the entities that use the employees. 

• The Labor Contract Law originally provided that labor dispatch was “generally” permitted only for “temporary, auxiliary, or substitute job positions”. The amendment deletes the word “generally”, thereby limiting the use of labor dispatch to the three types of positions.

The amendment defines the three types of permitted positions as follows:

–“temporary” means a position with a duration of a maximum of six months; 

–“auxiliary” means a position that is not engaged in the principal business of the employer;

–“substitute” means a position that replaces another employee who cannot work for a certain period of time due to off-the-job study, leave or “other reasons”. 

• The amendment clarifies that the principle of “equal pay for equal work” should be implemented by applying the same compensation standards for dispatched employees and directly-hired employees who hold the same positions. 

• Labor dispatch arrangements entered into before December 28, 2012 are permitted to continue until their dates of expiration, provided that requirements for “equal pay for equal work” are satisfied. 

• The maximum fines on employers who violate rules regarding dispatch labor are increased from RMB 5,000 to RMB 10,000 per employee. 

• The minimum registered capital of a labor dispatch agency was increased from RMB 500,000 to RMB 2 million. An agency is required to have a fixed business place and facilities. 

• Labor dispatch agencies established before July 1, 2013 must obtain licenses before July 1, 2014.