By Fatim Kurji

Tackling The Triangular Trap

On December 28th 2012, the Standing Committee of the National People’s Congress passed a new piece of legislation that tightens the use of agency workers in China. The Decision on Amendments to the People’s Republic of China Labour Contract Law (the “Amendment”) takes effect from the 1st July 2013, and serves to close the gap between agency workers and employees. The intention is to ensure that the former receive the same working conditions as their employed counterparts.

International perspective

The use of agency workers is a worldwide phenomenon and has attracted much debate between businesses, unions and employee groups. On the one hand, workers are often out of the scope of collective agreements and see a disparity in pay and benefits as compared with employees. On the other, agency workers allow employers the flexibility to fill short-term labour shortages caused by employee absence or attrition. Recent trends have shown that the use of agency workers is on the increase; an October 2012 study by IndustriALL Global Union reported that ‘according to the global agency industry body, the International Confederation of Private Employment Agencies (CIETT), the industry’s global annual sales revenue increased from €83 billion in 1996 to €203 billion in 2009 and the number of agency workers has more than doubled over the same period’.

New law in China

In 2008 the Standing Committee of the National People’s Congress passed the Labour Contract Law (“LCL”). This law requires employers to pay for health insurance, double overtime wages and social security benefits for their employees, but does not extend its reach to agency workers. Chapter 5, Section 2 of the LCL deals specifically with agency workers (referred to as ‘dispatched labour’) and Article 66 states:

“The labour dispatching of labourers shall generally be practiced for temporary, auxiliary or substitute job positions.”

In addition, Article 63 enshrined the principle of equal pay:

“Dispatched labourers shall have the right to receive equal pay for equal work as other labourers in the Unit. If a Unit to which a labourer has been dispatched has no other labourer in the same position, the labour remuneration shall be determined with reference to the labour remuneration of labourers in the same or similar position where the Unit is located’.

Although the LCL intended to raise the working standards of labourers, the wording of Article 66 presented employers with a get out of jail free card; so long as the work was being performed by an agency worker rather than an employee, the obligations did not bite. Added to this, employers construed Article 63 to only impose upon them an obligation to provide equal pay to like categories of workers: agency workers received pay equal to that of another agency workers, not employees. It is perhaps not surprising, therefore, that since the enactment of the LCL, the use of agency workers in China increased exponentially. IndustriALL estimates that there are ’60 million labour dispatch temporary workers in China, fully one fifth of China’s urban employees’

The Amendment seeks to address these anomalies; perhaps the most significant change imposed by it is the deletion of the word ‘generally’ in Article 66. By closing the loophole, the Amendment underlines the principle that the usual form of labour engagement in China should be through direct employment rather than the use of third party agencies.

Definition of agency workers

Further detail is also found in the Amendment as to the definition of the categories of temporary, auxiliary and substitute jobs. ‘Temporary’ workers may only be employed for a period of six months (although the law is silent as to renewals), ‘auxiliary’ workers may only be placed into roles which provide supporting services the primary function of the business, and ‘substitute’ jobs are those that are temporarily vacant for particular reasons (e.g. maternity leave or sickness absence). 

In addition, the Amendment reiterates firmly the right of agency workers to be paid ‘equal pay for equal work’ by expressly referencing employees; agency workers are entitled to the same remuneration as an employee performing the same role. This may be interpreted to mean that although the agency is the worker’s contractual employer, the company will still have a duty to look at the terms and conditions offered, and ensure that they are harmonised with those of employed staff insofar as far as wages and other payments are concerned.

Other issues

The total number of agency workers that may be employed by a business has also come under review: the Ministry of Human Resources and Social Security intends to set fixed percentages, capping the proportion that agency workers form of the total work population in an organisation. 

In order to overcome the criticism leveled at the LCL that it was toothless, and lacked any real enforcement power, employers found violating the new law will face fines ranging from RMB5,000 to RMB10,000 for each agency worker deployed in contravention of the Amendment.

As part of a two-pronged approach, employment agencies have also received attention in the Amendment. The minimum registered capital of agencies has been increased from RMB500,000 to RMB 2 million, and the agency must have a fixed business address with facilities ‘appropriate’ to the function they perform. Further, all employment agencies must obtain a license to operate (those currently in operation will have until July 2014 to obtain their license). Agencies found violating the Amendment will also see its teeth: penalties include an order for cessation of business, confiscation and fines calculated at up to 5 times the profit received.

Some implications

These changes will, in theory, make it more difficult for employers to engage agency workers, but are they enough of a disincentive to really impact upon the numbers? There is a very real concern that with regions in China competing for investment from foreign companies, some may not enforce the penalties as strictly as others. The fact that no single countrywide cap has been set suggests a level of fluidity that weakens the commitment to reducing the number of agency workers. Visibly absent from the Amendment are the more radical changes proposed by China Labour Bulletin, a workers’ rights organization, whose suggestions included restricting the type of commercial activities performed by employment agencies, an express requirement for employment agencies to pay workers’ social insurance premiums, extending the definition of equal pay to include social insurance benefits and setting a 5% cap on the number of employees.

The Amendment also fails to address to problem of continuous agency work. As mentioned above, while ‘temporary’ is defined as a period of six months, the issue of renewal is not addressed. This leaves open the proposition of employers engaging agency workers on unlimited consecutive ‘temporary’ contracts. A formal requirement to move agency workers over to an employment relationship after a fixed period of time (for example 12 months) would have addressed this lacuna. As it stands, this uncertainty, coupled with the fact that Article 62(5) still states “in cases of continuous labour dispatching, implement a normal wage adjustment mechanism” suggest that temporary may not actually mean temporary and that employers may yet find a way out of direct employment relationships.

Overall, the Amendment reaffirms the view LCL’s position that agency work should be the exception rather than the rule in China, but its changes are modest. It has avoided the more dramatic measurers that are necessary if agency worker numbers are to be significantly reduced. The impact, as always, remains to be seen.

By Fatim Kurji