I. Case Playback

One day, Mr. Yang, who had been unemployed for many years, went to a talent-recruiting center to participate in a recruiting meeting in search of a gratifying job. He encountered Manager Wang who was in charge of the real estate engineering department of a company. After a conversation, Manager Wang was quite satisfied with his qualifications. The next day, Mr. Yang went directly to Wang’s company.
Manager Wang verbally arranged a work assignment for Mr. Yang to be in charge of business communications and price quoting at the company’s building sites under construction. Mr. Yang was to work under Manager Wang directly.
Mr. Yang received no response when he inquired about signing a labor contract. Although he had some misgivings, he was happy to obtain such a good job after having being unemployed for quite some time and did not insist on investigating the reason. He thought he should first start the job, and when the work was well done the conditions would perhaps be better to discuss the labor contract issue with the company.
Mr. Yang had already worked for five months, yet he had received no wages. Manager Wang avoided discussing the labor contract issue. Mr. Yang began to have doubts about the company’s intentions. He had signed no labor contract; he was not earning the “Four Golden Benefits” (which include senior social security, medical insurance, unemployment insurance and regular social security); and he was not being paid the wages he had already earned.
Frustrated, Mr. Yang finally went to argue with Manager Wang and to demand the company sign a labor contract with him and pay him his back wages. To his surprise, Manager Wang informed him that he was individually employed by Manager Wang, and his job had no relationship with the company and therefore, signing a labor contract with the company was impossible. Obviously, having gone to work every day, Mr. Yang did not understand why his position turned out to be considered individual employment. He refused to accept what the manager told him and sent a letter demanding that the company sign a labor contract, to pay the wages due and to undertake formal employment procedures. With no reply from the company, he brought forth two labor dispute arbitrations separately, one requiring the company to pay the back wages and another for payment of the social insurance premiums.
In the Arbitration Court, Mr. Yang claimed that he had a factual labor relationship with the company. Abiding by the company's arrangement, he had been working for the company and had offered his services in good faith. Although no contract had been signed (due to the company’s delay), the factual labor relationship had already been established. Therefore, the company should pay the back wages and manage the social security formalities. The company contended that they never knew Mr. Yang before the dispute and they had no relationship with him. Only after the dispute, when receiving a copy of the indictment and bringing it to Manager Wang, did the company discover that Mr. Yang was individually employed by Manager Wang. Because, according to the company, there was no labor contract and no factual labor relationship, they didn’t agree with Mr. Yang’s requests. The company asked Manager Wang to testify that there was nothing more than an individual employment relationship between Manager Wang and Mr. Yang.
On one hand, the laborer proposed that he had a factual labor relationship with the company, that the company should pay the back wages and benefits and that the company should begin formal employment procedures. On the other hand, the company indicated that the laborer had an individual employment relationship with a member of its staff, but could claim no relationship with the company itself.

II. Legal Background

An “employment relationship” is a labor relationship where an employee, under the conditions, instruction and surveillance of the employer, uses his own skills to work for the employer in return for wages.  The term “employment relationship” emerged when labor was commoditized and workers began to trade their labor for pay.  Gradually, the “labor relationship” was separated from the “employment relationship”. The Labor Law regulates the labor relationship, and the remaining employment relationships are governed by the Civil Law. However, some ambiguous boundaries between these relationships remain, leading to arguments about the exact definitions of the employment relationship and the labor relationship.
From a historical perspective, the labor relationship developed from the employment relationship, and they have much in common. In the current Chinese legal system, the employment relationship is the umbrella concept that covers the labor relationship. The employment relationship includes five kinds of labor relationships established between legitimate employers and qualified laborers as stipulated by Article 2 of the Labor Law. Only these are regulated by the Labor Law while all other employment relationships are not.
As for the differences between the employment relationship and the labor relationship, there are generally four.
First, the subjects are different. The employer in an employment relationship can be a ‘natural person’ or a ‘legal entity’, but may also be a state agency. The employer in a labor relationship is limited to five subjects: the enterprise, the individual economic organization, the state agency, the public state-run institution and the social organization.
Second, the content of the relationships are different. The labor relationship concerns only the production process, but the employment relationship also includes responsibility for certain personal aspects of the worker’s life.
Third, the forms of the contracts are different. While there is no explicit legal stipulation on the form of the employment relationship contract, the Labor Law explicitly stipulates that the employing unit and the laborer shall conclude a written contract with content regulations.
Finally, the levels of legal protection are different. As mentioned, the employment relationship is not regulated by the Labor Law; it is governed by the Civil Law. However, there are no systematic stipulations regarding the employment relationship in the Civil Law system. The only explicit stipulation about the relationship between the employer and the employee concerns personal compensation and indemnity issues as decided in 2004 by the Judicial Interpretation of the Supreme People's Court on Trying the Case about Personal Damages Compensation. Once a relationship between the employer and employee becomes subject to the Labor Law, numerous laws and guidelines regulate the bilateral relationship and prevent embarrassing legal situations. Moreover, because the Labor Law adopts principles that tend to protect the laborer to a greater extent than the Civil Law, the confirmation of a labor relationship is of vital importance to laborers.
The Article 2 of the Labor Contract Law adds the category of private non-enterprise units to the list of legal employing units, thus expanding the scope of the labor relationship. While this is good news for laborers, all other uncovered relationships continue to be regulated under the terms of an employment relationship.

III. Lawyer Debate

It established a clear apparent agency; it is a labor relationship.
Lawyer Zhang Bin from Shanghai Jun Chen Law Firm in support of Mr. Yang

In my opinion, the relationship constitutes apparent agency, and it should be considered as a labor relationship. The so-called “apparent (or de facto) agency”, according to the Labor Contract Law, is defined as the one with no power of agency, one who exceeds his authority, or one with the terminated right of agency who then concludes a labor contract in the name of the principal with a person who has reasonable cause to believe that he has the right of agency and that the agent’s behavior is legal.
In this case, Manager Wang invited applicants to apply for jobs in the name of the company. At the time, he did not indicate clearly that he was working as an individual employer. The laborer had reason to believe that Manager Wang was taking applications on behalf of his company and he was going to establish a legal labor relationship with the company on behalf of the company. This situation conforms fully to the elements of the “apparent agency” standard. In my opinion, consequently, even if Manager Wang testifies in court that he was individually employing Mr. Yang, it shall be confirmed that a factual labor relationship between the company and Mr. Yang did exist.
Second, the laborer had been working in the company for five months. The company must have known about (or at least should have been aware of) the employment situation, and it indicated no clear opposition to it.
Furthermore, Mr. Yang sent a letter to the company requesting them to sign a labor contract, but the company did not reply. This situation conforms to the Labor Law standard called "no explicit opposing instructions."
Third, the laborer engaged in company-related work on behalf of the company. By all accounts, the laborer has already determined that he worked for the company and, I think, it constitutes the factual labor relationship.

No factual labor relationship exists between the laborer and the company.
Lawyer Zhu Shanwu from Shanghai Latitude and Longitude Law Firm in support of the company

There is no factual labor relationship, I think, between the laborer and the employing unit. Manager Wang is only the company's business management personnel, not a member of the company's human resources personnel. The management department can’t recruit workers without the authorization of the company. Hence, Manager Wang's actions can only be considered individual actions.
Although it is worth sympathizing with the laborer, we should inspect this case from a factual perspective. First, Manager Wang has not been authorized to recruit workers. Next, after employing Mr. Yang, Manager Wang did not report to the company. In this case, the company certainly did not know of Manager Wang's actions or of the existence of Mr. Yang. Third, Mr. Yang believed he was working for the company, but he actually worked for Manager Wang. Fourth, Mr. Yang had worked for five months in the company, but during that period, he had never reported the situation to the relevant leaders of the company.
This case lacks the essential conditions that would confirm a factual labor relationship. Manager Wang's actions were not within the scope of his job duties; taking applications for jobs was beyond his responsibilities. Manager Wang was not authorized by the company at the start, and he did not report to the company afterwards. Therefore, it cannot constitute the standard of ‘apparent agency.’ It should still be considered an individual employment relationship.

VI. Final Judgment

    The Labor Arbitration Committee ruled that it is unable to confirm the existence of a labor relationship between both sides because of lack of essential proof, such as the salary records. They could not support the application of Mr. Yang. Mr. Yang refused to accept the judgment and brought forth a lawsuit appealing the two arbitration rulings. The Court, considering the lack of facts and a legal basis, decided not to support Mr. Yang’s claim either. Yang appealed to a higher court once more, yet after an investigation, the Appeal Court confirmed the original judgment.

V. Expert Evaluation

Should the burden of proof of the employing unit be greater?
Professor Dong Baohua from East China University of Political Science and Law

Regarding the decision of this case, I think it is incorrect. The key to this is whether a labor relationship exists between Mr. Yang and the employing unit. Although they have not signed a labor contract, according to jurisprudence theories, lack of a labor contract does not absolutely mean a labor relationship does not exist. A factual labor relationship might exist. Therefore, the main question in this case is whether a factual labor relationship between Mr. Yang and the employing unit exists.
An “apparent agency” is the performance of both sides of the labor relationship in practice, that is, the laborer and the employing unit. The confirmation of a factual labor relationship rests on the following three criteria: one is that both parties are qualified legal subjects; second is that the laborer is managed by the employing unit and is engaged in gainful work arranged by the employing unit; and last is that the work of the laborer is related to the business services of the employing unit.
Accordingly, in this case, the unemployed Mr. Yang had the necessary qualifications to work. Mr. Wang, who was in charge of the real estate engineering department of the company, appeared at the talent exchange center and employed Mr. Yang. These conditions sufficiently prove that Mr. Wang, on behalf of the company, carried out the employment procedures. Of course, the employing body is also a qualified unit.
Mr. Yang provided regular work; he went to work daily. Manager Wang managed Mr. Yang on behalf of the unit and promised to pay his wages. Afterwards, Mr. Yang, under the supervision of Mr. Wang, worked on company engineering projects, dealing with business communications, materials and price quotes, all of which are obviously a part of the company's services. According to the comprehensive conditions above, it obviously indicates a factual labor relationship between Mr. Yang and the company. The company should assume its legal liability for Mr. Yang.
Since a factual labor relationship exists, why would the Court decide against Mr. Yang in the suit? In this case, the burden of proof for Mr. Yang such as asking him to provide the salary records is too high. Mr. Yang has no salary records, because Manager Wang refused to pay the wages on behalf of the company unit. This higher standard of proof is disadvantageous when it comes to protecting the rights and interests of the weak. The Labor Law is tilted in favor of the laborers. The Labor Law, substantively and procedurally, is advantageous to laborers.
Individual employment is beyond the scope of the Labor Law and belongs to the category of Civil Law. But the Civil Law provides equal protection to both parties. If the employment relationships are regulated by Civil Law, then laborers will lose legal protection and advantages provided by the Labor Law.
With respect to the protections of benefits for the disadvantaged, although Mr. Yang failed to deliver evidence of his pay on the company salary records, a factual labor relationship had already been constituted between Mr. Yang and the unit because the three requirements were satisfied: qualified labor and employment units, management acceptance of the situation, and being engaged in work of the corporate business. As we all know, the laborer is at a disadvantage when collecting evidence. If the Court focuses on the basic facts, instead of making excessive demands on laborers to present sufficient evidence, it would be possible to prove the existence of a factual labor relationship. Conversely, I wonder whether the Court should have a higher burden of proof on the employment unit so as to better protect the rights and interests of laborers.