China of late has been trying harder to protect its workers. These efforts date to 2008, when a law took effect requiring, among other things, that companies buy workers insurance, pay double wages for overtime, and pay severance depending on an employee’s years of service.
There’s a way to get around these regulations, though, and many Chinese and foreign companies are taking advantage of it. “Labor dispatch” companies recruit workers and send them as temporary staff to factories in need. Of China’s more than 300 million urban employees, an estimated one-fifth—or 60 million—are labor dispatch workers, up more than twofold since the promulgation of the stringent 2008 law, according to estimates by the All-China Federation of Trade Unions. The plant owners pay the dispatchers, who in turn are supposed to compensate the temps, who pay a fee of 200 yuan ($30) or so to the dispatchers for landing them a job. The number of temps is likely to grow another 30 percent to 50 percent this year as companies scramble to cut costs in the face of rising minimum wages, says Wang Kan, a professor at the Beijing-based Institute of Industrial Relations, a school run by China’s trade union. “All these workers are the same,” says Wang. “They are temporary employees with a lack of protections and no commitment from their employers.”
According to China’s Labor Contract Law, companies are supposed to use dispatch labor to fill “temporary, auxiliary, or substitute job positions.” Many factories instead use the workers to make up much of their head count and keep them for long periods of time, leaving the temps in a precarious position. “If a worker doesn’t obey orders, then they can just get rid of them,” says Zhang Zhiru, director of the Shenzhen Chunfeng Labor Dispute Service. And although required to by law, labor dispatchers often do not provide social welfare insurance, which can make up as much as 40 percent of a full-fledged employee’s cost, according to Martin Ma, China director of Solidaridad Network, a Dutch nonprofit that works to improve factory conditions in China. Labor dispatch companies also drag their feet on paying overtime to their temps, says Li Qiang, executive director of New York-based nonprofit China Labor Watch. Dispatch companies contacted by Bloomberg Businessweek were unwilling to talk in detail for this story.
Big Western companies also use the labor dispatchers. In the Nancheng district of the Pearl River Delta city of Dongguan, thousands labor in a sprawling Nokia (NOK) mobile-phone factory. Everywhere one looks in the bustling streets, young men and women are clad in the white-and-blue shirts that Nokia employees wear worldwide. A sign by the factory dormitory gates identifies the neighborhood as the “Nokia Life District.”
Speak to the blue-smocked legions and you soon discover that many aren’t full-fledged employees of Nokia. Instead they’re dispatch workers who assemble phones for shifts as long as 16 hours, six days a week, according to five workers Bloomberg Businessweek interviewed in a neighborhood coffee shop. They are paid about three-quarters the wage earned by direct Nokia hires doing the same work, can’t live in the Nokia dormitory or join the official union, and are regularly threatened with dismissal, says Liang Bing, a 20-year-old temp worker from Hunan. “Nokia just wants to save money and avoid responsibility. We are just a force they abuse,” he says. Nokia says it audited its Dongguan facility in late 2011 and found it “clean, properly managed with the respect of employees, and free from any discrimination,” according to an e-mail from Anna Shipley, director of China communications. She says 30 percent of Nokia’s China workforce is contract labor; she would not specify the percentage at the Dongguan plant.
China’s official union and the Ministry of Labor and Social Security have been pushing to regulate the abuses in the labor dispatch industry. To date, their efforts have been stymied by the lobbying of the powerful State-owned Assets Supervision and Administration Commission. That agency controls China’s largest government companies, including Sinopec (SNP) and China Telecom (CHA), which rely on temporary workers for up to 70 percent of their workforces, estimates the Industrial Institute’s Wang. The commission, Sinopec, and China Telecom would not comment.
Apple (AAPL) highlighted the risks of suppliers using labor dispatch agencies in its 2011 Supplier Responsibility Progress Report. It hired the Fair Labor Association, a Washington monitoring group, to help improve conditions in its factories.
Other companies, however, may be turning a blind eye. “Some brands look at contract workers as labor agency employees, and outside the scope of their compliance programs. They don’t review what they are paid,” says Bob Bainbridge, president of Supplier Responsibility Solutions, which figures out ways to improve worker conditions for corporate clients. “This makes them lost people.”