Key points for reviewing labour dispatch agreements

Labour dispatch services are projects developed by the Chinese talent market to meet social employment demands. Typically, there are three parties – the labour dispatching unit, employing unit and dispatched labourer – and two contracts involved: the labour contract between the labour dispatching unit and the labourer; and the labour dispatch agreement between the labour-dispatching unit and the employing unit.

Drawing on consultancy work, this article summarises key points for reviewing labour dispatch agreements, discussing potential risks that may arise during the agreement signing process.

Legitimacy

It is essential to ascertain whether the labour dispatching unit meets licensing requirements of the labour dispatch industry. Engaging in labour dispatch services requires administrative approval. Failure to obtain the necessary qualifications may lead to confiscation of illicit gains or fines. Therefore, units lacking labour dispatching qualifications should refrain from conducting such business or entering into labour dispatch agreements.

For employing units, signing labour dispatch agreements with units lacking labour dispatching qualifications poses risks. For instance, the employing unit may be deemed to have an actual labour relationship with the dispatched worker.

It is also crucial to review the agreed upon number of dispatched workers. According to the Interim Provisions on Labour Dispatch, employing units must ensure that the number of dispatched workers does not exceed 10% of their total workforce.

Although it may be challenging for the counterpart to provide evidence regarding the proportion of dispatched workers in practice, attention to the issue of dispatched worker numbers remains essential for internal compliance management within employing units.

Reasonableness

To conduct a proper review of rights and obligations in labour dispatch agreements, it is necessary to examine the essence of the contract and distinguish between labour dispatch and labour outsourcing.

Essentially, labour dispatch companies provide dispatched workers, while labour outsourcing provides all labour services for a specific independent project.

Regarding employee liability, if dispatched workers are injured during work in labour dispatching, both the labour dispatching unit and employing unit are jointly liable for compensation.

In contrast, in labour outsourcing services, the outsourcer and contractor’s employees do not have a direct legal relationship. Apart from providing necessary safety production conditions, the outsourcer does not bear any legal responsibility for the contractor’s employees.

For situations where both labour outsourcing and labour dispatching are applicable, outsourcers should prioritise labour outsourcing, as it entails lighter responsibilities towards outsourced workers. If they do possess labour dispatching qualifications, they should thoroughly evaluate factors such as tax costs and employee responsibility to determine whether to accept labour outsourcing.

In summary, clarifying the contract’s essence can help companies select appropriate contract forms, reduce risks, and ensure that the contract content aligns with the chosen model.

Rights and responsibilities

Costs incurred. Labour dispatching units need to pay wages to dispatched workers according to labour contracts, while employing units need to pay dispatch fees to the dispatching unit as agreed in the labour dispatch agreement.

Generally, costs such as wages, overtime pay, performance bonuses, etc., should be borne by the employing unit. Additionally, the method, amount and timing of labour dispatch fee payment should be clearly and reasonably stipulated in the agreement to avoid disputes during the contract performance process.

Responsibility allocation. Labour dispatch agreements need to specify internal responsibility allocation and recovery between the labour dispatching unit and employing unit.

As a labour dispatching unit, it is important to note that if the employing unit fails to pay wages, overtime pay, performance bonuses, and benefits to the dispatched workers on time and in full, the labour dispatching unit will bear joint liability with the employing unit.

Regardless of wage benefits or work injury liability, the labour dispatching unit can also negotiate recovery methods with the employing unit.

Employing units should be aware that the labour dispatching unit is responsible for purchasing social insurance for dispatched workers.

If the dispatching unit fails to do so and its registered location or branch’s location differs from that of the employing unit, the employing unit may face the potential risk of having to purchase social insurance for dispatched workers.

Termination issues. While there are no legal restrictions on employing units and dispatching units agreeing on the reasons for termination of labour dispatch, judicial attitudes towards “agreed terminations” vary.

In the authors’ view, the agreed termination scenario has at least no adverse effects on the employing unit. Additionally, if a dispatched worker meets statutory conditions for termination, the employing unit can terminate directly, and the labour dispatching unit can also terminate the labour contract in accordance with the law.

Although the final decision on contract termination lies with the labour dispatching unit, the decision is based on the reasons and evidence provided by the employing unit.

Therefore, as a labour dispatching unit, it can propose the following clause to safeguard its own interests: “If the judicial authority ultimately confirms that the employing unit’s termination is unlawful and, as a result, the labour dispatching unit’s termination of the labour contract is deemed unlawful, the employing unit should bear corresponding responsibilities such as continuing to perform the contract or paying economic compensation for unlawful termination.”

Takeaway

This article analyses and summarises the common review points in labour dispatch agreements.

During the agreement signing process, labour dispatching units and employing units need to engage in thorough discussions to ensure stable and compliant labour dispatch relationships, efficient utilisation of labour, and smooth operation of the labour dispatching business.

Xiao Jianji is a partner and Chen Jing is a paralegal at ETR Law Firm