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Be alert to new rules on hiring of mainland labour

The Background

On March 1 this year, the mainland's new Provisional Regulations on Labour Dispatch came into effect. These implement new rules regarding China's estimated 60 million dispatch workers. Companies using dispatch worker labour must be aware of these changes to avoid falling foul of them.

In the 1980s, China imposed restrictions on how representative offices of foreign corporations could hire staff. The offices could only engage a workforce by retaining the services of a government-owned labour-hire agency which employed workers, and contracted them out to work for the offices. This "dispatch labour" is the only way a foreign corporation's representative office can use Chinese nationals.

In July 2013, China's labour contract law was amended to limit the types of roles dispatch workers could perform, and introduce other measures to prevent overuse of dispatch workers.

The Change s

The regulations provide that dispatch workers can make up no more than 10 per cent of a company's workforce. There is a transition period of two years for companies which, as at March 1 2014, exceeded the cap, to comply with it. A company cannot enter into any new labour-dispatch arrangements until it complies with the 10 per cent cap. Companies must also file a report with the local labour authorities outlining the steps they will take to meet the quota.

Dispatch workers can only be hired for posts which are "temporary" (lasting no more than six months), "substitute" (where the original employee is absent for a period) or "auxiliary" (a non-main business position). If a company wants to set up a new auxiliary position for dispatch workers, a staff consultation process is now required to classify it.

Compulsory terms must be included in labour-dispatch agreements between companies and agencies, including working hours, rest and leave, sickness, and health and safety. Firms can no longer discriminate against dispatch workers on employment benefits.

Firms now have new grounds to return dispatch workers to the agency, including major restructuring, severe economic difficulties or liquidation. But certain categories of staff, such as those suffering from a work-related injury or female staff on maternity leave, are protected from being returned. Returned workers are entitled to a minimum wage paid by the agency while not working.

As representative offices of foreign firms are required to use dispatch labour to employ a local workforce, they are not subject to restrictions on the 10 per cent cap, or temporary, auxiliary and substitute role descriptions.

All companies using dispatch labour, including local firms, branches of foreign firms with a local business licence, and representative offices of foreign companies, are subject to restrictions on employment terms and benefits, and the return of dispatch workers.

Companies failing to comply and to remedy the situation face fines of between 5,000 yuan (HK$6,300) and 10,000 yuan per infringing dispatch worker. Agencies may also be fined and, in serious cases, have their licences revoked. If dispatch workers suffer any loss, the employing company and labour-hire agency may be jointly and separately liable for compensation.

The Action Required

Firms should review dispatch-labour arrangements to ensure compliance. If the percentage of dispatch labour staff is more than 10 per cent, tackle this in the two-year grace period ending on February 28, 2016. Firms should review the types of posts such staff hold to ensure they fit one of the three categories. They must also review contracts and dispatch agreements against the new terms and the "equal pay for equal work" requirement to ensure staff are not discriminated against on benefits.

Herbert Smith Freehills has 2,800 lawyers and 460 partners in over 20 offices globally. It advises on dispute resolution and employment, among other areas. Helen Beech is a senior member of the Hong Kong employment practice and has a wide range of experience in employment matters. Karen Ip is a partner of Herbert Smith Freehills in Beijing.

The information contained in this article should not be relied on as legal advice and should not be regarded as a substitute for detailed advice in individual cases. If advice concerning individual problems or other expert assistance is required, the service of a competent professional adviser should be sought.