According to Chinese media reports, the National People’s Congress (NPC) is currently drafting amendments to the Employment Contract Law (ECL) in order to further restrict the use of labour dispatch hiring arrangements—where employees are hired through staffing agencies and dispatched/seconded to a host company; this is similar to temp agency hiring arrangements in other jurisdictions.
According to such reports, the NPC has completed a draft set of amendments and circulated the draft to various governmental departments and legal experts for comment, though the draft has not been issued to the public for comment. In particular, the reported amendments would:
- more strictly limit the use of labour dispatch arrangements to only temporary, auxiliary and substitute job positions—the current ECL only states that labour dispatch should “generally” be used for such positions;
- provide definitions for the terms “temporary, auxiliary and substitute job positions”—the current ECL provides no definition for these terms; and
- impose fines on host entities of up to RMB 10,000 for each dispatched staff hired beyond the allowable scope.
It remains to be seen, whether and in what form the amendments will be passed. However, companies that rely heavily on the use of dispatched labour should be prepared for legislative restrictions.
National regulations push for ‘Democratic Management’ of all enterprises
The Regulations on the Democratic Management of Enterprises (Democratic Management Regulations), issued in February 2012, provide that employee representative councils (ERCs) shall (yingdang) be established in enterprises to carry out democratic management of the enterprise.
While in the past, ERCs were mandatory only in state-owned enterprises, this is the first time national regulations expand this requirement to all enterprises, presumably also foreign-invested enterprises (FIEs). However, the Democratic Management Regulations do not appear to put the burden of establishment of ERCs on enterprise management, nor do they stipulate any penalty for the failure to form an ERC.
An ERC has the right to be informed on various management matters and to be consulted on employee-related matters. Further, collective contract drafts must be approved by the ERC.
The Democratic Management Regulations were issued by six high-level government, Communist Party and quasi-governmental bodies. However, they were not endorsed by the State Council, nor by the Ministry of Commerce or the Ministry of Human Resources and Social Security. This may be the reason why the Democratic Management Regulations call for implementation at the local level. Some cities, such as Shanghai, have already enacted ERC-related legislation, and it remains to be seen whether they will now start to enforce them.
Until national or local implementing regulations are passed and in the absence of court rulings on whether decisions taken without proper involvement of the ERC can be legally challenged, it is unlikely that the Democratic Management Regulations will have a significant impact on the operations of FIEs. However, companies that have established an ERC already should consider closer collaboration with the ERC. Companies without an ERC should consider the pros and cons of ERCs, as long as they are not forced to establish ERCs. Procedures for the establishment and operation of ERCs, recently published in an All-China Federation of Trade Unions document, should be followed, even though they may not be strictly binding.
For more information, please contact:
Andreas Lauffs (852) 2846 1964
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Jonathan Isaacs (852) 2846 2411
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Paul Arkwright
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