China: Amendment to the labour contract law

27 February 2013

Grace Chen, Catherine Zhai

On December 28, 2012, the National People’s Congress adopted the Amendment to the PRC Labor Contract Law (the Amendment) with effect from July 1, 2013.  The Amendment focuses on the provisions relating to the dispatch of labor to companies (Labor Users) by labor dispatch agencies (Dispatch Agencies).  Key changes introduced by the Amendment are highlighted below: 

Requirements for Dispatch Agencies

The Amendment now incorporates specific regulatory requirements applicable to Dispatch Agencies.  The minimum registered capital required to establish a Dispatch Agency will increase from RMB 500,000 to RMB 2 million and the Dispatch Agency must fulfill certain conditions relating to the business facilities and management.   Each Dispatch Agency will also be required to apply for an administrative permit from the labor authority before obtaining the company registration, existing Dispatch Agencies will need to retroactively obtain this permit and make a corresponding amendment to their company registration no later than one year after the Amendment takes effect, i.e., July 1, 2014.   A Dispatch Agency that engages in labor dispatch services without a license may be ordered by the Labor Authority to halt the illegal activity and imposed a fine of up to five times the amount of the illegal gains (which will also be confiscated), and if there are no illegal gains, or a fine of up to RMB 50,000.  

Restrictions on use of dispatch arrangements

Prior to this Amendment, the PRC Labor Contract Law provided that labor dispatch arrangements should generally be implemented for temporary, ancillary or substitutive positions.   The Amendment stipulates that labor dispatch arrangements are supplementary arrangements that may only be used only for temporary positions (six months or less), ancillary positions (non-core role that provides services to the core business) or substitutive positions (intended for temporary replacement of a permanent employee who is not able to report to duty for a certain period for reasons such as study leave, or other leaves, etc.).   A Labor User must also ensure that the number of dispatched employees does not exceed a certain percentage of the total number of employees (actual percentages subject to the regulation of the State Council’s Department of Labor Administration).  This restriction has not taken into account the circumstances of foreign company representative offices, which are required to hire all domestic employees through dispatch arrangements with Dispatch Agencies. 

Equal pay for equal work

The Labor Contract Law has always provided for the principle of “equal pay for equal work” with respect to the remuneration of employees that are directly hired by a company or dispatched via a Dispatch Agency. The Amendment emphasizes this point by stating that a dispatched employee must be compensated in a same manner as a directly hired employee and that the remuneration specified in both (i) the labor contract between the Dispatch Agency and the dispatched employee, and (ii) the labor dispatch service agreement between the Dispatch Agency and the Labor User must comply with the above principles. 


The Amendment has strengthened the penalties on Dispatch Agencies for failure to comply with the regulations and made them applicable to Labor Users as well.    Labor Users or Dispatch Agencies in violation of the law may be ordered by the Labor Authority to make the necessary rectifications within a set time period, and if such rectifications are not made within that time period, they may be imposed a fine ranging from RMB 5,000 to RMB 10,000 (up from RMB 1,000 to RMB 5,000) per dispatched staff, and a non-compliant Dispatch Agency may have its administrative permit revoked. 

This article is part of the Asia Employment newsletter for March 2013.