China Employment Law Update

Executive Summary

1. Local minimum wages have been increased in Beijing and Hebei provinces.
2. The Human Resources and Social Security Bureau has issued a circular on promoting random inspections.
3. The Chinese-French "Thousand Intern Plan" has been put into action with the first Foreign Employment Licenses issued.
4. Shanghai Lekuai Information Technology Co., Ltd. has been sued over labour contracts for cooks that could be hired through their application.

Updates to local minimum wages

Since our last newsletter in June 2016, Hebei Province and Beijing have announced increases in local minimum wages, to be implemented on September 1st 2016.

* Class A/B/C/D depends on different area of Hebei.

Nationwide random inspection for labour law compliance

In a circular issued on August 10th (the "Circular"), the Human Resources and Social Security Ministry set out to implement comprehensive random inspections by the end of 2017. The Circular sets out six strategic elements which are necessary to achieve this goal. This includes the setting up and improving of a double random inspection mechanism and the disclosure of inspection results, as well as linking the results to the social credit system.

These random inspections will investigate the compliance of companies with a diverse range of regulations, including laws, inter alia, on labour contracts, labour dispatch, work permits for foreigners, child labour, protection of female workers and holiday, and over time compensation.

This plan to increase and maintain random inspection requirements demonstrates that the Chinese government is enforcing its stance on labour issues and is willing to ensure the compliance of the employers with the regulations set up to protect the workforce.

First Foreign Employment License for interns has been issued in Shanghai

On June 20th 2016, the first Foreign Employment License designated "Intern" was issued in Shanghai by the Human Resources and Social Security Bureau following the "Thousand Intern Plan" signed between the governments of China and France last November. The goal of the plan is to improve international interaction and strengthen economic ties as well as giving French students, who must meet certain qualifications, the possibility to attain a six month working permit in China. Several other applications are currently on their way, with hope of a swift increase in the numbers of interns both in Shanghai and other cities all over China.

APP based service model faces trial in Beijing: employees or independent contractors?

In a case reminiscent of the law suit against Uber in California that was filed last year, Shanghai Lekuai Technology Co., Ltd. ("Lekuai") who operated an App called "Good Chef" was sued in a Beijing court by several individuals who had provided their services through the App. At the heart of the case lies the issue of whether the contract with Lekuai constitutes a labour relationship or not.

Lekuai, through its App, offered the services of chefs to customers, in that the chefs would visit the private homes of the customers and cook there, based on the customer's needs. The chefs entered a "cooperation agreement" with Lekuai, which, according to the plaintiffs, set out strict rules for the worker. Furthermore, they stated, that Lekuai provided work clothes, training for the chefs and handled payment aspects with the customers.

The plaintiffs claimed the chefs were paid a fixed monthly fee, and that additional payments for overtime or holidays were agreed upon orally but not honoured by Lekuai. Also Lekuai did not pay social insurance for the chefs that had entered into the "cooperation agreements".

When the contracts were terminated, the workers demanded severance payment, as they deemed their relationship to be a labour relationship according to PRC labour laws. This was based on the fact that the chefs had to maintain strict schedules for Lekuai and were using material provided by Lekuai as well as that all money handling went through Lekuai.

Lekuai maintains that there was no labour relationship between them and the plaintiffs. All services rendered were solely as facilitator between the customers and the plaintiffs. As such, they claim, PRC labour laws are not applicable.

The labour dispute arbitration in Beijing Chaoyang District failed. As a consequence, the workers are now seeking 400'000 RMB damages in the district court, including back pay and missed social insurance payments as well as punitive damages.

The hearings have just begun, but this case will be of interest as it will shape the understanding of labour relations in a more App-centric service world. It will become necessary to be able to delineate between true facilitating Apps, with entrepreneurs acting on the same level as the provider, and Apps in which a severe power discrepancy exists, where the cooperating partners may be in a position no different than employees.