China permits only the following three categories of “dispatched” employees to be hired by a labor dispatch agency:
- Temporary employees with a term of no longer than 6 months.
- Auxiliary employees who provide supporting services that are not central to the employer’s core business.
- Substitute employees who perform tasks in replacement of permanent employees during a period when permanent employees are unable to work due to off-the-job training, vacation, maternity leave, etc.
The PRC Labor Contract Law and the PRC Interim Provisions on Labor Dispatch require dispatch agencies and dispatched employees to enter into a labor contract for a fixed term of no shorter than two years. It should be noted that the labor dispatch agency is for legal purposes treated as the employer in this relationship.
China’s labor law mandates that an employee is entitled to an open-term contract after having executed two consecutive fixed-term labor contracts (unless grounds for termination exists). So if a labor dispatch agency has consecutively executed two fixed-term labor contracts with an employee, will the employee be entitled to an open-term contract? In other words, will a dispatched employee be treated the same as a regular employee under this circumstance? China’s labor law clearly states that at the time of renewal or execution of the labor contract, unless the employee requests a fixed-term labor contract, an open-term labor contract must be concluded.
Consider two recent cases in Beijing (I have simplified both for purposes of this post). In the first case, after having executed two consecutive fixed-term contracts, the employee requested an open-term labor contract, however, the labor dispatch agency ultimately refused and served the employee with a termination notice. The labor dispatch agency argued that the law on open-term labor contracts does not equally apply to dispatched employees. The employee sued and the Second Intermediate People’s Court of Beijing ruled against the labor dispatch agency and instead held that China’s law regarding open-term labor contracts does apply to dispatched employees. And then, just as would have been the case had the employee worked for any other company in China, the Court required the dispatch agency pay the employee double the employee’s monthly wage and forced it to enter into an open-term contract with that employee and pay that employee damages for wrongful termination. And here’s the kicker: the company that retained the labor dispatch agency and used the employee was deemed jointly liable for both of those amounts (the wages and the damages), meaning it too was on the hook for payment.
In another case involving a dispatched employee, the Xicheng District People’s Court also concluded that China’s labor law applies with equal force to labor dispatch agencies. This court reasoned that even though the PRC Labor Contract Law states that a labor dispatch agency and a dispatched employee must enter into a labor contract for a fixed term of no less than two years, this provision does not preclude such a labor contract from being a regular labor contract. The court also discussed how since the law treats a labor dispatch agency as an employer for legal purposes, this means the labor dispatch agency is subject to the same responsibilities as an ordinary China employer, including the obligation to execute an open-term contract when conditions for being required to do so have been met. The Court went on to make clear that the general intent of China’s Labor Contract Law is to protect employees, and allowing a labor dispatch agency to be exempt from this requirement on open-term contracts would be contrary to that intent.
Though it is true that Beijing tends to be a pro-employee municipality and the above cases are not necessarily conclusive regarding how similar cases would turn out in other municipalities, this does reinforce the Chinese government’s generally negative view of labor dispatch situations. For how China’s on the ground labor law can vary from city to city, check out China Employment Law: Local and Not So Simple
The bottom line here is the same as the bottom line when doing just about anything regarding China employment law:
1. Assume the Chinese courts will favor the employee.
2. Figure out the laws and rules, and especially the local rules and cases, before proceeding.
3. Know that China does not generally like the hiring of workers via third party hiring agencies and its distaste for such arrangements is growing.
4. There is a widespread belief that using a hiring agency eliminates any legal responsibility for the workers employed. This is just flat out wrong. The company that retains a third party hiring agency and uses the workers provided by the third party hiring agency can be held liable and hit with damages for the misfeasance of your third party hiring agency.
5. If you will be using workers from a third party hiring agency, you should make sure you have a good contract with that third party hiring agency and that the third party hiring agency has a good contract with those who will be working for you.