China curbs its enthusiasm for the new Labour Contract Law

20 June 2013

When China’s Labour Contract Law was implemented in 2008, it created quite a bang. The newly revised Labour Contract Law, which will go into effect on 1 July this year, is creating little more than a whimper.

The original legislation was the subject of intense debate both inside and outside China, with business lobbyists predicting the end of China’s economic competitiveness if it became law. That clearly did not happen, and this time the business community does not seem overly concerned that the revisions to the law will impact its bottom line. Neither are the workers the law is supposed to protect particularly enthusiastic about it.

Perhaps the reason no one seems to be making a big fuss about the revised law is because no one really thinks it will do what it is supposed to do; namely end abuses of the employment agency system in China and ensure that all employees working in the same business get equal pay for equal work.

Ever since the Labour Contract Law went to effect five years ago, companies have been trying to get around its provisions and cut costs by hiring workers from employment agencies or even creating their own employment agency and reassigning employees to it. The worst offenders are the big state-owned enterprises (SOEs) which offer substantial benefits to regular employees and thus have the most to gain by using agency labour. In some cases, more than two thirds of fulltime employees working at SOEs are actually agency workers.

The All-China Federation of Trade Unions (ACFTU) estimated in 2011 that there were around 60 million agency workers in China but the actual number could be a lot higher. Agency employees usually do the same job and work the same hours as regular employees but are paid less, have lower benefits and less job security. This frequently gives rise to protests from workers who have been or are about to be reassigned as agency workers, such as the case of workers at state-owned Yanlian Petroleum in Shanxi late last year.

The revised Labour Contract Law seeks to clarify the three situations in which labour agency workers can legitimately be used and thus prevent employers exploiting loopholes in the original law. Under the revised law: “temporary” positions cannot be extended beyond six months; “auxiliary” positions must be unrelated to the core business of the company; and “substitute” positions can only be filled when a directly contracted employee is away from work for a certain period of time due to training, leave, etc. The revised law also requires that the minimum registered capital of employment agencies be raised from 500,000 yuan to two million yuan, and it increases fines for violations of provisions of the law.

While these changes are certainly welcome, many observers doubt the revised law will be effective. A Shenzhen-based lawyer said: “It’s difficult to reach a conclusion at the present stage as to whether the revised law will help curb labour agency abuses or whether employers will find new ways to dodge the law.”

Many provisions of the revised law are still open to interpretation, the lawyer said. The definition of what exactly an “auxiliary” position is remains a controversial point and employers could easily claim that many positions in their company are not related to its core business. And with regard to “temporary positions,” employers might still be able to release agency workers after six months and simply hire someone else.

Despite the fact that the law’s implementing regulations will stipulate the maximum percentage of labour agency workers in a company’s total workforce, businesses might still be able to get around this limit by subcontracting work to another company rather than hire agency labour or sign contracts directly with the workers. This is precisely what a Guangzhou hospital is planning to do, according to about 20 security guards who have been working at the hospital for the last two to three years as agency employees. The security guards, who have been staging protests for over a month, are paid less than guards directly employed by the hospital and claim the hospital now plans to subcontract out the work done by the remaining directly employed guards before the revised Labour Contract Law goes into effect on 1 July.

The real litmus test of the revised law will come in the next year or so as workers file lawsuits against employers who violate the new provisions related to agency labour. As with most labour legislation, it is often up to the aggrieved parties themselves to enforce the law in arbitration committees and civil courts rather than rely on the local authorities to ensure regulations are adhered to in the first place. However, workers might find employment agency cases more difficult to prove than routine abuses of labour law because much of the evidence regarding hiring practices and staff positions would remain in the hands of the employer.

Moreover, the Shenzhen lawyer warned, the judiciary is sometimes reluctant to rule on employment agency cases because of their complexity and lack of clear guidelines. He cited the recent case in which a worker was sacked from a foreign-owned electronics factory in Guangzhou after protesting the company’s abuse of the labour agency system. The unfair dismissal case has already gone through arbitration, civil trial and appeal, but the courts continually refused to discuss the worker’s specific complaint about company’s use of the agency labour.

The ACFTU, which was one of the prime movers behind the revision of the Labour Contract Law, claims it is trying to unionize labour agency workers. Many regional union federations have set ambitious unionization targets in labour agencies of up to 85 percent. However, as with the ACFTUs unionization drive in other enterprises, there is little evidence the unions established in employment agencies will be able to effectively represent the rights and interests of their members.

Additional reporting by Jennifer Cheung

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