The Future of the Employer-Employee Relationship

Mobile commerce and car-hailing apps push the limits of the law

By Jiang Junlu and Liu Chang

The employment relationship between car booking service providers and the drivers who use online car reservation platforms is being discussed all over the world. With the online car reservation industry rapidly developing, the same discussion is also in the public eye in China.

Potential legal issue

In China, the existence of an employment relationship between car booking service providers, such as Uber, Didi Kuaidi and Yidao, and their drivers will have a substantial impact on both parties. Questions such as whether drivers should be entitled to social insurance and housing fund benefits provided by employers, liability sharing in car accidents and how tax is applied are at the core of this problem

Criteria for employment under PRC laws

In the US, several factors given by case law, such as whether the car booking service provider maintained control over the drivers’ discretion for work and whether the driving service was an integral part of the car booking service provider’s business, were examined by courts and labor commissions. Although US cases have gone into more detail, there are similarities between the criteria under US case law and China’s regulations on defining what constitutes an employment relationship.

As provided by Article 1 of the Circular on Relevant Issues of Establishment of Employment Relationship, the three factors for ascertaining an employment relationship under PRC laws are: 1) the employer and the employee should meet the qualifications provided by the PRC laws and regulations, 2) the employee is under the employer's management and is engaged in remunerated labor, and 3) the labor provided by the employee is an integral part of the employer’s business.

In practice, there are myriad forms of employment used by the car booking service industry in China, and four parties are usually involved:

  • Car booking app companies that provide a neutral technology platform
  • Individuals who provide services and their own cars
  • Labor dispatch companies, which enter into an employment/service contract with individuals

Car rental companies, which possess mandatory transportation permits under which individuals could register their cars An agreement with four parties can produce complex legal relationships and cause problems in practice, as individuals may not possess required permits, and drivers may sign up to more than one car booking platform at the same time. Hence, we should analyze in each case the existence of an employment relationship between the driver and the car booking platform in question.

Legal status for car booking in China

The development of car booking platforms in China coincides with the national policy of encouraging innovative commerce, especially Internet commerce. However, car booking platforms need to develop in a way that also protects the public interest, meaning the legal system needs to adapt quickly to be able to regulate such innovations efficiently.

In terms of legislation, China’s Ministry of Transport recently published two early drafts for comments that, for the first time, clarified the requirements for providing car booking services. These include the qualifications of car booking providers, conditions of operation, cars and personnel. As stipulated by the regulation (see Article 18 of the Interim Measures for the Administration of Online Taxis Reservation [Draft for Solicitation of Public Opinions]), car booking service providers should execute employment contracts with the drivers. However, such a provision is a double-edged sword in terms of protecting the drivers on one hand and on the other hand pushing up the costs and, in that sense, hindering the development of the industry of online car reservation.

Jiang Junlu is a Senior Partner at King & Wood Mallesons and specializes in labor laws, labor union laws and social security laws. He holds a Ph.D. in labor law. Liu Chang is a Legal Assistant at King & Wood Mallesons, specializing in labor and employment law.