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David Wang
Zhong Lun Law Firm, Shanghai
davidwang@zhonglun.com

 

April Yan
Zhong Lun Law Firm, Shanghai
yanjingan@zhonglun.com

 

Enya Yang
Zhong Lun Law Firm, Shanghai
yangningning@zhonglun.com

 

In recent years, with the transformation and development of economic structures and the continued emergence of new economic forms, employment patterns of Chinese enterprises have become even more diverse and flexible. The rapid development of on-demand enterprises operated via internet platforms such as Didi, Ele.me or Meituan has led to the employment of vast numbers of individuals in task-based, highly flexible, service-based jobs, sometimes referred to as the ‘gig economy’. This transformation has led to an increase in litigation as parties attempt to clarify their rights within this new economic landscape.

As China’s government has not yet promulgated any national legislation to regulate this issue, we have studied 15 cases which ruled on whether a labour relationship existed between a rider and the platform enterprise. The analysis in these judgments shows how the relationship between the individual and the platform enterprise differs from traditional labour relationships, and the diverging attitudes toward this issue held by different courts.

The operating and hiring model for food delivery services

Taking two major food delivery service providers in China as examples, their operating and hiring model is as follows:

It is apparent from this chart that riders are normally hired by regional agents (Agent Company), instead of directly by the platform operator. In practice, the Agent Company normally signs service agreements with riders. The terms offered by the Agent Company are typically inferior to those normally offered to an employee by their employer, making riders more like service personnel and less like employees.

The riders will take orders through the food delivery service platform and be paid by the Agent Company based on the number of orders they complete. The platform serves as the intermediary between rider and customer. Therefore, most labour disputes arise between the Agent Company and its riders.

Flexible staffing (ie, hiring individuals through service agreements instead of employment contracts) is predicted to be adopted by a growing number of companies in the next few years. The advantages of this model are that it offers companies lower labour costs and greater staffing flexibility, especially when it comes to manipulating staff numbers to manage short-term or cyclical economic considerations.

Case study: what do the courts say?

According to the Notice Concerning the Establishment of Employment Relations released by the previous Ministry of Labour and Social Security in 2005 ('Notice'), absent the conclusion of a written employment contract, a de facto employment relationship shall be deemed to exist should all three of the following conditions be met:

1. the employer and employee must fulfil the legal requirements to enter into an employment relationship as proscribed by relevant laws and regulations (for example, a high school student or a retired person is not qualified to enter into an employment relationship);
2. the labour rules and regulations formulated by the employer are applicable to the employee, who is subject to labour management by the employer and engages in remunerative services assigned by the employer; and
3. the labour services provided by the employee constitute an integral part of the employer’s business operations.

Under the People's Republic of China (PRC) employment law system, this Notice is the main legal basis for the identification of employment relationships and are referred to by almost all courts when tackling such labour disputes.

Among the 15 cases we studied, six cases (40 per cent) support the existence of an employment relationship, whereas nine cases (60 per cent) came to the opposite conclusion.

 

The six key elements examined by the courts can be characterised as the following.

A detailed individual analysis of each element is set out below.

Subject qualification

Among the 15 cases, only three mentioned that both the rider and the Agent Company are persons qualified to establish a de facto employment relationship. It is our understanding that where both the employer and the employee meet the relevant minimum qualifications, they will not be the key factor in determining whether an employment relationship exists.

Main business scope

Looking at the scope of the examined Agent Companies businesses, food delivery or distribution was found to be their primary operation. Five out of the 15 cases concluded that a de facto employment relationship existed because the delivery services provided by the rider, were the main business operations of the Agent Companies.

Using the ‘main business’ criterion to determine the existence of labour relationships may be effective under traditional settings, but when applying it to a new platform enterprise scenario, the standard is of diminishing persuasive value. Flexible staffing obviously calls for a more innovative relationship identification criterion. At the end of 2015, the PRC Supreme Court indicated the court's intention to clarify the boundaries between employment and service relationships by considering both legal and practical factors, avoiding generalisations about employment relationships and by refraining from unnecessarily extending the scope of employment relationships.

Personal attachment

From the traditional employment law perspective, a stable and sustainable employment relationship will feature employees who are subordinate to their employer, that are subject to their employer’s continuous management (even when there is no actual task) and are bound by their employer in terms of workplace, tasks, methods and process.

Six out of the 15 cases considered ruled that there is no employment relationship between the rider and the Agent Company. This was largely because the rider had no fixed workplace and was flexible in deciding how to deliver their services. For instance, both the Baicheng Intermediate People’s Court and Weihai Intermediate People’s Court considered the fact that the rider needs to prepare a vehicle independently and takes orders via the platform, means the rider is not directed by an employer in the traditional sense, but instead has the autonomy to determine what and how tasks are completed. Additionally, the rider has total discretion in determining their work, so there is no tight affiliation between the rider and the Agent Company. In our opinion, such detailed analysis is of high practical value as it provides guidance on potential judicial scrutiny of the facts in future cases.

Labour management

Labour management is a recurring theme in disputes over the identification of employment relationships and is reviewed in 87 per cent of the 15 target cases. However, judges frequently disagreed in how they characterised labour management. The two competing viewpoints are:

viewpoint one

In the cases where employment relations were established, the Agent Company had assigned tasks directly to the rider. The judge explained that, although task distribution is not in the form of individual orders from a manager to a worker, directing a stream of tasks to a worker from a platform is fundamentally the same as operators being assigned tasks on a traditional production line.

viewpoint two

In the cases where employment relations were not established, the judge focused on the ‘flexibility’ or ‘autonomy’ enjoyed by the riders. It was noted that the Agent Company had not formulated any specific rules or regulations applicable to the riders. No regular attendance was required, and the Agent Company placed more emphasis on outcomes rather than the process.

When assessing the method of labour management, judgments have frequently been in opposition to each other. To some extent this may be a product of differing key facts across the various cases. However, as courts deliver more cases, a dominant view of labour management may crystallise, providing clarity in this area of the law.

Salary payment method

PRC employment law creates protections for salary payments to uphold employees’ rights and prevent employers from deducting or delaying salary payments. Examples of such protections include the minimum wage and maximum monthly deductible amount. However, under these new staffing arrangements, the method for paying salaries has significantly changed. The rider is basically paid per delivery, without the protection of any base or fixed wage. Of the 15 cases examined, 93 per cent featured judicial examination of the salary payment method. However, there was geographic variation in the views adopted by courts, with the most common views in direct opposition to each other.

viewpoint one

In the cases where an employment relationship was established, judges noted that the rider was paid on a monthly basis for remunerative work arranged by the Agent Company, which is consistent with their being an employment relationship.

viewpoint two

In the cases where an employment relationship was not established, judges focused more on the differences between the rider’s remuneration and a traditional salary. For instance, one court stated that the rider’s remuneration was determined by the actual workload completed, rather than the number of days worked.

viewpoint three

One Intermediate People’s Court found that because the Agent Company paid its riders according to how many orders were completed, without a base or minimum wage, there was no employment relationship. The lack of a minimum wage distinguished the case from the standard employment arrangement. We would treat this ruling with caution as the court’s logic appears to be inverted. A common reason to litigate these cases is to determine if the rider is entitled to the full suite of labour protection (including a minimum wage) afforded to those in an employment relationship. Using the lack of a minimum wage as evidence of there not being an employment relationship turns a potential violation of one’s labour benefits into a reason to deny the entitlement at all. As such we have doubts about the long-term viability of this somewhat circular logic, especially considering it forms the basis of the ruling.

Intention to establishing employment relationship

According to the PRC Employment Contract Law, written employment contracts shall be concluded in order to indicate the consensus of both parties on the establishment of an employment relationship.

In nine of the cases where employment relationships were not established, five courts held that since a service contract and not an employment contract had been concluded between the regional agent and the rider, there was no consensus on establishing an employment relationship.

The development of local regulations on relationship identification

To adapt to this socio-economic development, several local governments have developed specific measures to identify employment relationships in light of the flexible staffing arrangements of recent years. These local regulations have attempted to reform traditional indications and provide a more balanced standard to identify labour relationships.

Jiangsu Province

On 3 July 2017, Jiangsu Province released the Summary of the Seminar on Difficult Cases of Labour Disputes, which states that:

‘the arbitration committee shall distinguish employment relationships and service relationships by comprehensively taking into account the following factors to keep the balance between protecting the rights and interests of workers and promoting the flexibility of the workforce. These include: the operation method of the internet platform; the employment status of the workers; the degree of labour management of the workers by the internet platform; the income distribution method; whether the workers bear operational risks independently, etc. If the internet platform only plays the role of intermediary, no employment relationship shall be regarded as established between the platform and the workers. Where the employee has not reached a labour contract with the internet platform enterprise, but signs an entrustment agreement, or a work-for-hire contract, the legal relationship shall be determined by the type of agreement reached by the parties, unless the parties satisfy the requirements of a de facto employment relationship.’

Chongqing City

On 25 September 2018, Chongqing High People’s Court, together with five other departments, issued the 4th Meeting Minutes on the Law’s Application in Trials Concerning Labour Disputes. Article 8 of these Meeting Minutes states that either an employment relationship or a non-employment relationship may exist between Agent Companies and riders, and is to be determined on a case-by-case basis.

Yantai City, Shandong Province

On 28 June 2019, Yantai made it clear that where the platform operator concludes contractor, lease, or operation contracts with riders, and the two sides have established a risk-sharing and benefit-sharing mechanism, the agreement should be carried out according to the terms of the contract between the two parties, and shall not be deemed to be an employment relationship.

Zhejiang Province

On 30 October 2019, Zhejiang Province issued the Guiding Opinions on Stabilising Labour and Employment under New Economic Patterns, which encourages enterprises involved in new economic patterns (such as enterprises in the industries of e-commerce, ride-sharing and online food delivery) to use a diverse range of staffing methods to fill job vacancies. Targeted enterprises are encouraged to make use of methods such as outsourcing, collaboration and other cooperative relationships to introduce greater flexibility into the labour market.

Based on the above local regulations, we can see that local governments are moving to accept or even embrace flexible staffing and are promoting its development through loosening relevant legislative controls.