Rapid development of new enterprises operating via mobile app platforms (“New Enterprises”) proved the huge potential market demand. On Jan 11, 2016, DIDI announced that a total of 1.43 trillion orders were placed across all its platforms in 2015. It could not be denied that innovative concept of new enterprises, such as DIDI, has changed the operational pattern of the traditional market. Employing O2O (Online to offline) model as a core, mobile internet as a carrier, the new operational pattern is quickly occupying the market. However, labor management is almost every new enterprise’s Achilles' heel. 

On account of workers’ mobility and flexibility in New Enterprises, and that they rarely execute an employment contract or pay social insurance premiums, workers are not covered for any work-related injuries or overtime pay and so on. With the New Enterprises expanding, labor disputes are growing at the same time. 

Under such circumstances, does the relationship between New Enterprises and their workers constitute employment? Is the traditional thinking of ascertaining an employment relationship still applicable, or shall innovations be made in the new era? This article will discuss these issues based on the New Enterprise’s characteristics, national policy and Chinese and foreign cases.

1. Encouragement and Promotion for New Enterprises in China

On June 11, 2015, State Council published “Opinions of the State Council on Several Policy Measures for Vigorously Promoting Public Entrepreneurship and Innovation” (“Opinions”). The Opinions clearly stated that “the target is to eliminate all kinds of constraints and shackles on the development of entrepreneurship and innovation and foster start-up companies”, and “we shall rely on ‘Internet+’ and big data to propel commercial innovation in all industries.”

Moreover, when Premier Li Keqiang praised the network platform of Quanzhou Pinshang e-commerce Company, he said: “the unknown of ‘internet+’ is greater than the known. The potential of ‘internet+’ is infinite. Every step counts and eventually it’ll have a profound impact on the traditional pattern of industries.”

It could be discerned from the above that government is overall supportive of the innovation of New Enterprises. New Enterprises continuously incentivize workers to open online stores, provide door-to-door services. They not only significantly alleviate employment pressure, but also stimulate public consumption by offering convenient and efficient services, which merit governmental support.

2. Conflicts Between the Revolutionary Way of Employment and the Traditional Way of Ascertaining Employment Relationship

With the encouragement of development of the New Enterprises in China, we cannot afford to ignore the impact of the revolutionary way of employment. The new way of employment of the New Enterprises is not the traditional “Company + Employee” but “Platform + Individual”. Under this innovative model, the “platform” provides technology service and the resources allocation service. “Individuals”, rather than a company, replaced the role of company and became subject in the market economy. Taking the Online Car Booking Application as an example, DiDi does not own any taxi, and instead, it only provides a technology platform that spans over drivers and the customers, to satisfy the demands of the customers.

Compared with the rapid rising of the “Platform + Individual”, the ascertainment of employment relationship seems to be still conventional in China. The ascertainment of employment relationship is still conducted pursuant to the “Circular of the Ministry of Labor and Social Security Concerning the Establishment of Labor Relationship” (“Circular”) promulgated in 2005. The promulgation of the Circular is for protecting the employees’ rights and interest and promoting the society's harmony and stability. However, under the current “Platform + Individual” innovative model, it is pivotal whether the Circular could still satisfy the purpose of protecting employees’ rights and interest and, whether the way of ascertaining the employment relationship is still applicable after a decade of market changes, which are key to solving the problem of ascertainment of employment relationship in the new enterprises. This article will explore the cases in judicial practice.

3. Domestic and Foreign Cases on Ascertainment of Employment Relationship in New Enterprises

In domestic judicial practice, disputes have already emerged in ascertaining the employment relationship in New Enterprises. Court is still adopting the “Three Factors” to ascertain the employment relationship according to the Circular. “Employment relationship shall be deemed to have been established when meeting the following conditions:

  • The employers and employees are qualified according to laws and regulations;
  • The various labor regulations provided by the employers are applicable to the employees. The employees are subjected to the labor management of the employers and engage in paid work arranged by the employers; 
  • The work provided by the employees is part of the business of the employers.”

In fact, it is usually difficult for the relation between New Enterprises and their workers to meet all the “Three Factors” and consequently, the court could not establish that an employment relationship has been established.

In Wang Zheshuan v. Beijing Yixin Yixing Automotive Technical Development Service Co., Ltd. (Labor Dispute Appeal Case), the plaintiff is a designated driver of the defendant, a company providing designated driving services. Since the company refused to sign the employment contract with him or contribute social insurance for him, the plaintiff claimed to ascertain that their employment relationship has been established. The court ruled that the relationship between them does not meet the standard of establishing employment relationship, and an employment relationship did not exist between them.

In Guo Lingdi v. Beijing Helijia Information Technology Limited Company and Han Kaiyun (Tort Dispute), since the plaintiff booked door-to-door eyelash beauty service from the Helijia application and suffered personal injury, she asserted that the two defendants shall bear the liability of compensation jointly. The court held that, document evidence is not enough to ascertain that an employment relationship has been established between Helijia and its beautician, and Helijia should pay the compensation of 30% of the joint liability.

Foreign judicial practice is also faced with similar disputes, all of which still remain outstanding. In the United Kingdom and the United States, the disputed employment relationship between Uber and its drivers is the focus of the controversy. Uber drivers in the U.S. and the representatives of British Uber drivers are filing class actions against defendant Uber Technologies, Inc. respectively and it remains to be seen whether employment relationship will be ascertained.

4. Three Possible Solutions for New Enterprises’ Labor Management Problem

a) Employ the traditional way to ascertain employment relationship

The first possible solution is trying to ascertain the employment relationship according to the “Three Factors” in the Circular and, however, the tendency is that employment relationship will be deemed as having been established between the New Enterprises and their workers in the process of ascertainment. Such a way would benefit standardized administration of New Enterprises in that, by employing the traditional way, workers would likely become employees and their rights and interest could then be better protected.

b) Employ the traditional way with a different purpose

The second possible solution, though the process of ascertainment being the same according to the Circular, the tendency is that employment relationship does not exist between New Enterprises and their workers. This approach will not impede the development of the New Enterprises, but the current situation of New Enterprises’ labor management will stay unchanged and workers are responsible for their own social security. 

c) Leave behind the traditional way and employ innovative thinking 

The third possible solution is to break the traditional thinking of ascertaining employment relationship and employ innovative thinking, which entails making the workers of New Enterprises independent without solely relying on any company and acknowledging their independent status in the market economy. In the meantime, the quality of service and products provided by the internet platform should be supervised in accordance with industrial regulations and workers’ occupational health and safety and their social security should be guaranteed. Moreover, responsibility of supervision and the individual workers should be made clear. For instance, workers can only achieve independent status after they have contributed to social insurance. Such workers are more likely to be engaged by online platforms. Otherwise, if a worker engages in employment activities with a New Enterprise before he or she becomes independent, employment relationship will likely be established between the worker and the enterprise. Under the circumstance of innovative thinking, online platforms should examine the workers’ qualifications and bear joint or supplementary liability if a tort dispute rises.

5. Conclusion

The development of New Enterprises coincides with the market demand, and we need to face the headwinds and changes it brings along. Since New Enterprises represent the future trend of market development, instead of restraining, we shall contemplate a route of making them and their workers develop in the market in a reasonable way while improving supervision and management. With regard to the ascertainment of employment relationship, we should bear in mind that the aim of ascertainment should be both enhancing the benefits of social security of the workers and not restraining the development of New Enterprises. In other words, under the background of “Internet+”, the aim is to relieve pressure from employment for New Enterprises and expedite the development of Chinese economy.