The recognition of employment relationship under ‘Internet Plus’

On 6 June 2018, the People’s Court of Haidian District posted a labour dispute case on its official social media platform that aroused wide public concern. The dispute involved the operating entity of the Shansong Express platform and a delivery man, and the core legal issue was whether an employment relationship was established between them. Haidian Court ruled that an employment relationship had been established.

In the context of ‘Internet Plus’, this judgment attracted widespread attention from a multitude of internet companies. Is there an employment relationship between an internet company like Shansong and an individual who provides services via the platform? And to what extent should an internet company assume legal and social responsibilities?

In the case, tried by Haidian Court, an individual signed up on Shansong platform as a deliverer, and the two parties signed a co-operation agreement, stipulating that: (1) a business relationship rather than labour relationship is created between the parties; (2) Shansong procures commercial insurance for the delivery man; and (3) the delivery man has to prepare their own vehicle and can decide on their own whether to take orders or not.

However, once an order is taken, the delivery man has to abide by the work standards specified by Shansong. During the course of actual performance of the co-operation agreement, the delivery man provides services for Shansong exclusively and receives remuneration from Shansong as their main source of income. In the co-operation agreement, Shansong also prohibits the delivery man from providing services for any other platforms.

Haidian Court held that: (1) the performance of the contract between the parties was in line with the characteristics of a de facto employment relationship, so the parties could not exclude the application of the PRC labour law by agreeing on a co-operative relationship; (2) Shansong benefited from the services provided by the delivery man and thus should take corresponding legal and social responsibilities; and (3) the court could not deny the employee’s basic rights only because the corresponding supporting system that was supposed to be there was not yet built up well.

The authors believe that any enterprise should assume relevant legal and social responsibilities for its business operations, regardless of its business model. However, in this case, it is debatable whether Shansong should have assumed employer’s responsibilities in accordance with the labour law.

First of all, in the current judicial practice, in the absence of written employment contracts, the Notice on Matters Regarding the Establishment of Labour Relationship, promulgated by the former Ministry of Social and Labour Security, applies when it comes to the issue of whether or not a de facto employment relationship is established. Meanwhile, three factors will be taken into account, i.e., the eligibility of the two parties, whether an individual is a subordinate to entity, and the nature of the services provided by the individual. In terms of this case, the key lies in the latter two factors.

Subordination. It is the authors’ opinion that the service standards specified by the network platform are actually warranties on the quality of services provided to the service recipients, and are not designed to implement daily management on the delivery men in the same way as its employees. Under the labour law, subordination mainly refers to the instruction and management on working hours, place of work, and the application of internal policies on the employee. However, in this case, the outstanding point is the delivery man was able to decide on his own whether or not, when, and where to take orders.

Nature of services. The Shansong platform provides information services instead of delivery services. It makes profit from agency fees by bringing together the service recipients and the deliverers. As such, the delivery services provided by the delivery men should not fall within the scope of services provided by Shansong.

Additionally, judging from past judicial practice, the tendency is not to consider such a relationship as an employment relationship. The authors obtained 13 search results by searching the key words “City-wide Response”, the registered legal name of Shansong’s operation entity, on the website of China Court Judgments Online.

These cases shared the same legal issue in the dispute, and all courts held that Shansong and the delivery man did not establish an employment relationship. Although China is not a case law country, precedents are still of important reference value for the identification of similar facts and legal relationships, the interpretation of the connotation and extension of relevant legal provisions, and the uniform application of law.

Meanwhile, in the establishment of an employment relationship, it is critical that the parties have the intention to build up such an employment relationship, and that in particular, the employees are willing to consider themselves as employees.

In this case, Shansong had never agreed to establish an employment relationship. The delivery man was also aware that the relationship with Shansong was not an employment relationship when he voluntarily downloaded the software and signed up, and he had never claimed an employment relationship before he had the traffic accident. Therefore, it could be interpreted that there was no intention between the parties to establish an employment relationship at the beginning.

It is open to discussion whether there existed an employment relationship between Shansong and the delivery man. The authors believe that in order to balance the interest of network platform operators and individuals who provide services via the platforms, maybe the labour law does not necessarily apply, as relevant civil laws may also apply to regulate such relationships. Of course, in order to unify and clarify the application of law, further regulation of the new types of relationships under ‘Internet Plus’, by means of law or judicial interpretation, is urgently needed.

In early September 2018, the authors noted that Shansong and the delivery man reached a mediation agreement during the second instance of trial. Mediation is probably the most ideal way for Shansong to close the case. Considering the increasing volume of services under “Internet Plus”, similar disputes will inevitably arise again in the future, and the authors will continue to pay close attention to any change in judicial practices, or laws and regulations.

Video is in Mandarin

Qin Wen is a partner, and Ivy Zhang is a senior associate at Rui Bai Law Firm. Rui Bai and Xin Bai are both members of the PwC global network of frms