New employment pattern offers opportunities but can be a two-edged sword

The amended Labour Code for the first time recognizes the practice of labour dispatch, where workers are employed by one company and ”dispatched” to work in another company. Chief Technical Advisor on Industrial Relations of ILO Viet Nam, Yoon Youngmo, analyzes the significant changes this will bring to the labour market.

Analysis | 23 April 2013

Yoon Youngmo
Viet Nam’s labour market will see some significant changes when the amended Labour Code takes effect in May, recognizing the practice of labour dispatch, where workers are employed by one company and ”dispatched” to work in another company, as a new pattern of employment.

The new law, together with the accompanying implementation decree, is expected to pave the way for the growth of a business and type of employment that are already widely practiced in the developed world and many other developing countries.

Worker dispatching is seen globally as a flexible way of securing labour, and opportunity for employment, particularly temporary jobs. A study of 34 countries, mostly in Europe and America, by the International Confederation of Private Employment Agencies (CIETT) showed that the number of dispatch workers doubled from 1998 to 2008. In the UK, for instance, dispatch workers account for about 4 per cent of the total workforce with 80 per cent of them in service and public sector.

This employment practice has also been in Viet Nam for a while, although the law is only now coming to recognize it. Limited scale surveys conducted by the Ministry of Labour, Invalids and Social Affairs (MoLISA) in collaboration with the International Labour Organization (ILO) in Viet Nam showed that labour subleasing exits not only in manual work but also among professional and skilled workers. Types of jobs vary from security guards, domestic workers, restaurant services, ship crews, porters, low-skilled production workers to interpreters, tax report accountants, marketing and sales staff, personnel managers and electric engineers.

Employment through labour subleasing is quite common in the southern industrialized provinces, while it was introduced to Hanoi and other northern provinces more recently. According to the surveys, HCM City leads the country with 59 enterprises engaged in this business, some of which have up to 2,000 employees. The service fees range between 15-25 per cent of employee’s wages.

The inclusion of labour subleasing in the amended Labour Code is an indispensable move due to the need to put in place appropriate regulation for a practice that is already widespread and likely to increase, given the global trend, and the specific needs and preference of employers.

The increase in the use of dispatched labour stems from two corporate behaviors. Many foreign enterprises in Viet Nam already made this type of employment an important part of their business practice in other countries. This is especially the case for those which experience a large difference in production volume in different periods of the year. Most of these companies also have a global strategy of keeping the workers they employ directly to the minimum, relying on short term dispatched labour during the peak production periods.

Another source of demand for this employment practice comes from short-term vacancies or work which does not require companies to maintain regular staff. The examples of accounting services for tax reporting or translators are typical cases.

The introduction of new regulations will provide clear criteria and guidelines for the establishment and operation of “labour dispatch” business, as well as rights and obligations of employers and workers.

The market might see a merger process of the existing small labour subleasing companies as the law only allows “bigger” enterprises with starting capital of VND2 billion (US$95,200) and VND1 billion ($47,600) in deposit. Existing companies which do not meet this requirement may be forced to be closed.

The new regulations also provide clear relationship of rights and responsibilities between a labour dispatch company and the company that uses dispatched labour, between the labour dispatch company and the employees [who will be dispatched to work for another company], and between the “user company” and the dispatched workers. The labour dispatch company will be responsible for the basic employer obligations towards the workers as set out in the Labour Code. The labour dispatch company and the user-company will share responsibilities for occupational safety and health issues and compensations.

Legalising this new employment pattern can help many employers meet their needs, especially their plans for the flexible use of labour, allowing easy adjustment in staff needs at short notice, and for saving recruitment and administration costs.

It is also regarded as a solution for some low-skilled workers to join the labour market, work experience, learn skills, and use it as a useful stepping stone towards direct employment.

More detailed regulations are included in the implementation decree, which will be soon announced. It is anticipated that the decree will restrict labour subleasing initially to 17 occupation groups, such as interpreters, secretaries, drivers, security guards, cleaners and sales staff. The Government has opted to start the new practice in a cautious way at a small scale, recognizing that labour dispatch poses potential problems for decent work, especially given the limited enforcement and inspection capacity.

Due to the special characteristics of this type of employment relationship, dispatch workers are vulnerable to exploitation and abuse, lack of social and employment security, and have fewer opportunities for job training than direct employees. In many other Asian countries, they have low wages (much lower than the regular employees doing the same kind of jobs), poor working conditions and face discrimination at the workplace.

The surveys in Viet Nam already found some real problems in labour subleasing services, including the timely payment of wage, overtime, working hours, leaves, social insurance, which neither sending nor user companies want to take responsibility.

However, the Government may be able to expand it to other types of jobs in the future, once it gains confidence following the first few years of introduction, especially as many companies are already calling for wider application. But knowing well the difficulties caused by this kind of practice in neighbouring countries, like Japan, South Korea, China, and Indonesia, it is likely to remain cautious, to ensure the rights of workers and employers are properly protected.