Draft Provisions limit placed workers to 10%

“This is what I was expecting the percentage to be. If it is too high, the effects of the regulation will be minimal,” said Zhou Bo, an employment lawyer with Fangda Partners in Shanghai.

Some practitioners had speculated that the percentage would be much higher around 30% to 40%. Such a low percentage shows that the authorities are making good on their promise to eliminate excessive use of placed workers.

“From a business perspective, the 10% limit can be shocking, especially if you are a company where the majority of your workforce are placed workers. But from a social policy perspective, this is not at all surprising and reflects how the government has been looking to tackle labour dispatch arrangements,” said Cheng.

“The Draft Provisions are more detailed than I expected. Not only do they provide the percentage and define auxiliary positions, but they go further by discussing termination rights and other open matters in the original 2008 Employment Contract Law,” he added.

There were also questions over whether a national percentage should be in place or one that differed by region depending on local needs.

“If there is not a national standard in place, there would be too many percentages differing by region, which would make it almost impossible to comply with for companies that have business operations across China,” said Zhou.

Auxiliary positions

Under the Employment Contract Law there are three types of placed workers: auxiliary, temporary and substitute. Temporary are positions that last no longer than six month and substitute are those which must be temporarily filled when an employee is on full-time study or leave.

Auxiliary has always been the most difficult to define as the Law states they are to be treated as supporting positions and not related to the core-business within the company. Under the Draft Provisions, companies have been asked to create a list of positions that fit within the auxiliary category.

This list has to be discussed with a trade union or at a workers' representative meeting before being released to the public. While this move has been praised as companies can define their own auxiliary positions based on their needs, issues still remain.

“The Draft Provisions require companies to discuss the positions with the trade union or at a workers' representative meeting, but what if a company does not have either of these?” said Zhou, who believes that many companies are without either of these organisations.

It is hoped this requirement will change when the final version of the Provisions is released. It could be amended to include a discussion with all employees or the requirement could be completely removed.

“Employers only have to go through consultation with the trade union or workers' representative congress and it is not likely that these bodies have any veto rights. By setting the 10% limit, the government has effectively limited any potential abuses of discretionary auxiliary positions,” said Cheng.

Sub-contractors

The Draft Provisions have also included sub-contracted workers in the 10% cap on placed workers, if employers take direct control and manage the sub-contracted worker.

“When the amendment to the Law was promulgated, some agencies proposed sub-contracting as a means to circumvent the cap on placed workers – this is why it has been included in the Draft Provisions,” said Zhou.

There is a difference between sub-contracting and placed workers. As long as companies actually fully outsource or sub-contract part of their business to a third-party and do not take over any management function – the percentage will not apply.

This requirement was first seen in legislation from Jiangsu province after the amended Employment Contract Law came out. The MOHRSS has simply repeated Jiangsu's initiative by making it a national standard.

Moving forward

It is thought that many multinational companies have already switched from placed workers to direct hires. However, any hold-outs who were expecting the percentage to be higher should take notice of the 10% and act accordingly.

Zhou explains that there has been little news of any state-owned enterprises (SOEs) that have switched to direct hires, so the effects of the Draft Provisions, when promulgated, might be felt the most by the SOEs.

It is unclear when the final version of the Provisions will be released. In the past, if Draft Provisions have proved controversial there can be a long wait before the final legislation is released.

By David Tring

Further reading:

Employment Contract Law: loopholes revealed

PRC Employment Contract Law (Revised)

Opinion: How to deal with trade unions

Why representative office placement does not work