In December 2013, the People’s Court of Linmu County, Shandong Province, reportedly ruled that a de facto employment relationship existed between a construction company and a worker of a subcontractor who died on the construction company’s project site.

In 2012, a construction company, as the general contractor, undertook a project to build residential housing. The construction company subcontracted the moulding and carpentry work to an individual, who in turn subcontracted the work to three other individuals. One of the individuals further sub-contracted some work to Mr. Wang (not his real name). In October 2012, Mr. Wang died on the project site. The construction company paid RMB 100,000 in funeral expenses to the family of Mr. Wang. In December 2012, the Wang family filed for arbitration claiming a de facto employment relationship existed between Mr. Wang and the construction company (the report did not go into detail on the exact remedies claimed, though the family assumedly demanded work injury benefits from the construction company). In March 2013, the labour arbitration committee ruled in favor of the family. The construction company challenged the arbitration award in the local people’s court and argued that since Mr. Wang was recruited, managed and paid by the sub subcontractor, no employment relationship existed between Mr. Wang and the construction company.

The local people’s court affirmed the arbitration award and ruled that a de facto employment relationship did exist between Mr. Wang and the construction company because the construction company subcontracted construction work to individuals who were not licensed contractors. Neither the subcontractor nor the sub-subcontractors had the legal capacity to hire employees. According to a notice issued by the Ministry of Human Resources and Social Security in 2005, if an entity, such as a construction or mining entity, contracts work to an unlicensed organization or individual who does not have the legal capacity to hire employees, then the construction or mining entity assumes employer responsibilities for any worker recruited by such organization or individual to complete the work.

Companies, especially construction and mining enterprises, should be selective when subcontracting work to a third party. Otherwise, the company could inadvertently establish de facto employment relationships with workers recruited by a subcontractor that do not have the legal capacity to hire employees.