CWS 3.0: October 3, 2012

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Contingents in Asia: Changing Legal Landscape Part 1

Cultural attitudes to temporary staffing provision in Asia vary from those in other parts of the world as do the nature of the services themselves, and companies looking to build programs in that part of the world need to understand the differences. For instance, under the current law, temporary workers in China have to be placed on assignment for a minimum of two years – which is a pretty clear indication that temporary staffing as it operates in that particular country is not quite how we perceive it and utilize it in the West.

Asian staffing markets are relatively immature and quite often lightly regulated. However, the markets are developing quickly, and legislation is evolving to accommodate the growth in demand from employers for more flexible forms of employment. Temporary staffing in Japan was prohibited until the mid-90s yet now the market is two-thirds the size of the U.S. staffing market — even though the working population of Japan is only half that of the U.S. And this rapid growth has been achieved in a country where the concept of a job for life is still an expectation for many workers.

2012 has seen a wave of new regulation sweeping the continent. In what will sound somewhat familiar to those who have had to deal with the Agency Work Directive (AWD) in Europe this year, pay parity with permanent workers is a common theme running through proposed changes to the law in Japan, China and Vietnam.

This week, we’ll cover changes in Japan, and will address China and Vietnam in future issues of Contingent Workforce Strategies 3.0.

New Restrictions Imposed Through Amendments to Japan’s Dispatch Law
The latest amendments to the Dispatch Law passed by the Japanese Diet in March 2012 are intended to reverse the recent trend toward liberalization and instead seek to tighten the regulation of both staffing agencies and the companies that use temporary agency workers. These new amendments, which came into force on Oct. 1, signal a renewed emphasis on restricting the use of temporary agency workers (known as ‘dispatch workers’ in Japan) to situations where their labor is required on a temporary basis, and not as a substitute for permanent employees.

Furthermore, under the amended act, staffing agencies will no longer be permitted to provide temporary workers on short-term contracts of less than 31 days — with a limited exception for certain ‘specialized’ work (to be stipulated by ministerial ordinance). However, some rather vague rules that also grant exceptions for higher paid workers have created uncertainty whether the 31 days will actually prove an obstacle in practice.

Employers will be prevented from engaging any  former employee as a dispatch worker for a period of one year after termination of their employment.

Staffing agencies must also implement a range of measures to improve opportunities, salaries and transparency for temporary workers, namely:

•    supporting permanent employment opportunities by providing opportunities or training;
•    considering the salary level of other employees at the client company when determining the salary to be paid to the temporary worker;
•    informing temporary workers of the fees being paid by the client company for the assignment;
•    reporting a breakdown of temporary worker salaries and the fees paid by client companies (i.e. the agency’s margin) to the Ministry of Health, Labor and Welfare; and
•    taking measures to ensure employment opportunities are found for temporary workers when their assignments are terminated.

For users of temporary agency workers, these new procedures imposed on staffing agencies will result in increased costs given the added administrative burden and the obligation that agencies adhere to the concept of pay parity with permanent workers. But the amendments have other implications as well.

Companies should be aware that new sanctions have been created against employers for breaches of the law, although, unlike other provisions, these sanctions will not come into effect until October 2015. From that date, when a host employer accepts a temporary agency worker knowing that the arrangement is in breach of the Dispatch Act, the employer may be deemed to have offered the temporary worker a permanent employment contract. Lack of knowledge may not prove an exemption to this sanction given that the onus will be on the host employer to ascertain the legality of the arrangement with the relevant authority. As a matter of urgency, companies that use temporary workers in Japan should review their existing contracts and seek appropriate representations and warranties regarding their agencies’ compliance with the act.

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