China Third Party Hiring Agencies: Are You Talking to Me?

One of our China lawyers got an email the other day that cited to a super old post we did on using third party hiring agencies in China. The reader then went on to essentially excoriate us for getting it wrong on China third party hiring. The email (modified a bit to protect the guilty) was as follows:

First of all congratulation for your blog, there is some great content on it. However i am very skeptical about the reasons you give for recommending labor dispatch services in China.

I have been studying this topic for quiet a while as my company initially needed to dispatch a staff in China to setup supply chain management in a Shanghai factory.

On your blog you mention there is the possibility of doing third party employment in China. However after checking with wo local China lawyers it appears this practice is illegal — it works so long as the government does not look into it.

A rew companies like _____ and ________ are openly illegally providing these third party employment services (I spoke with them). They offered to hire my staff upon payment of a monthly fee under their company name  and in fact the hiring would not even be done through their company, but rather through some third party Chinese company bearing an unrelated Chinese company name.

If a foreign company wants to setup operation in China for a long term staff through a third party hiring agency the only “legal” way is with a WOFE or a Rep office or a Joint Venture, but even then it is limited to only Chinese staff and only for six months  or  less 

I would invite you to clarify this or modify your view on this.

I was a nice as I could be with this person, but it was difficult, for the following reasons:

1. The post he cited to claim that we recommend using a third party hiring agency was about ten years old and it did NOT recommend using a third party hiring agency. It merely mentioned doing so as a possibility.

2. Since that post ten years ago, we have right here on this blog (and on many occasions) written how China is cracking down on  third party agency hiring. For instance, in early 2014, we did a post, titled, Getting Your China Employee Into Your WFOE From A Third Party Agency that began with this: “As China inexorably continues increasing its restrictions on hiring personnel via third party employment agencies (sometimes referred to as FESCO companies or as staffing agencies), our China lawyers are more and more being tasked with helping clients move their personnel from the third party hiring company to a newly formed (or even existing) WFOE.” Then later in 2014, in China Labor Dispatch Rules. Almost Fresh Off The Presses we reiterated the limitations of third party hiring agencies (again, in the very first sentence of the post): “China is continually tightening its requirements for proper usage of workers through third party hiring agencies and this is causing all sorts of confusion for foreign companies doing business in China or seeking to do business there.” Most

3. I got the strong sense that the person who emailed me was at least as concerned with our China labor lawyers giving his company free advice than he was with what our blog said.  My response to him was as follows:

Not sure even what you are talking about because we most certainly do not recommend that. Just the other day in fact I wrote the following to someone:

We mostly stopped working with third party hiring companies at least five years ago when it became illegal 98 times out of 100 and half of the other two times it is ill-advised. Then when you add in that many of the companies that claim to do this are themselves operating illegally and are mere brokers, you can see why we stopped writing about this industry.

The big flaws in using even a legal third party hiring agency to do your hiring legally is the cost of making sure it is legal and the lack of intellectual property protection. How will you protect the information you reveal to “your” non-employees hired by third parties? Chinese companies search out these non-employees and poach them specifically for the unprotected trade secrets they can reveal.

We now use various other work-arounds for our clients who want someone on the ground for them in China and yet want to avoid the cost and expense of forming a WFOE or a Joint Venture.Just to be clear, I do not know your situation and it is possible it is the two in one hundred. This area of China employment law is incredibly complicated and there is still room for third party hiring agencies to do this legally and the law might even vary depending on the jurisdiction. So it is impossible to know what is legal and what isn’t without really digging deeply into the facts and the applicable laws to determine. Which is why I list this as another reason why using third party hiring agencies typically oftentimes does not make sense, but sometimes it does.

Last year, our lead China employment lawyer, Grace Yang, did a post on the new rules for third party employment agencies in China, titled, China Labor Dispatch Rules: Why Did You Ever Think It Would Be Easy? In that post, Grace set out the three categories of “dispatched” employees China still allows to be hired by a labor dispatch agency:

1. Temporary employees with a term of no longer than 6 months.
2. Auxiliary employees who provide supporting services that are not central to the employer’s core business.
3. Substitute employees who perform tasks in replacement of permanent employees during a period when permanent employees are unable to work due to off-the-job training, vacation, maternity leave, etc.

She then went on to describe the additional requirements for third party hiring within these three categories.

So, yes, it is still possible, but it is not easy and we never said it was.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.