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Last year, the PRC Labor Contract Law was amended, providing for stricter control of the use of seconded employees. The amendments became effective on 1 July 2013 (Amended LCL). For details, please see our newsletter of 14 January 2013. However, since the Amended LCL did not expressly specify a limitation on the number of seconded employees, many companies did not take any action, instead waiting for the announcement of detailed regulations by the State Council.
On 24 January 2014, the Interim Regulations on Labor Secondment (Interim Regulations) were issued by the Ministry of Human Resources and Social Security. They came into effect on 1 March 2014. The Interim Regulations provide more detailed requirements on the use of seconded employees and put forward a schedule for ratification. It is high time now for companies using seconded employees in China to re-evaluate their employment methods and make adjustments if necessary.
The following actions need to be taken into consideration to comply with the Interim Regulations:
If a company fails to use its seconded employees in compliance with the Amended LCL and the Interim Regulations, the labor authority can order the company to rectify the issue within a prescribed time limit. If the company still fails to rectify the issue, a penalty from RMB 5,000 to RMB 10,000 may be imposed on the company for each seconded employee.
In addition to the administrative liabilities, legally speaking, seconded employees who are on work positions which are not temporary, auxiliary or substituting can raise claims for the confirmation of a factual employment relationship directly with the company. Although the relevant regulations, which originally were part of the draft Interim Regulations for public discussion, were deleted from the final version, however, the labor arbitration commissions or the People's Courts in various locations may still confirm such factual employment relationships. This brings a further legal risk for companies using seconded employees without complying with the above requirements.
Please note that the restrictions on the work position on which the seconded employees can be used and the limitation on the percentage of the use of seconded employees do not apply to representative offices of foreign companies and shipping companies using international seamen. However, these entities still need to comply with other requirements such as "equal pay for equal work" and use of HR agencies holding a Labor Dispatch Operation Permit.