September 2025
Part I of the Analysis of the Interpretation on the Application of Law in the Trial of Labor Dispute Cases (II) (Mainland China)
On August 1, 2025, the Supreme People's Court issued the Interpretation on the Application of Law in the Trial of Labor Dispute Cases (II) (hereinafter “Interpretation (II)”). This judicial interpretation, consisting of 21 articles, provides clear provisions on the hot and difficult issues in labor dispute cases in recent years, such as the responsibility of the employer in subcontracting, mixed employment, and non-compete restrictions. While refining rules and unifying judicial standards, it also provides clear guidance for the compliance management of employers. This series of articles aims to analyze the regulations that have a significant impact on employers and provide relevant compliance recommendations for reference.
I. Clearer delineation of employer liability boundaries (with regard to full or partial subcontracting, and affiliation arrangements
Articles 1 and 2 of Interpretation (II) clarify that when a contractor with legal business qualifications subcontracts or assigns business to an organization or individual without such qualifications, or when the latter operates externally under an affiliation arrangement with the former, the contractor or affiliated entity shall bear the employer's primary responsibility for the workers actually hired by the subcontractor or the party affiliating with the other entity. This includes responsibilities such as the payment of wages and work-related injury insurance benefits. This reflects the law's adoption of a "piercing-the-veil" review principle, meaning that even in the absence of a direct contractual relationship between the employer and the actual worker, the employer may still be held jointly and severally liable due to negligence in selecting business partners. Furthermore, the scope of liability may not be limited to the items explicitly listed in the provisions (i.e., wages and work injury compensation). In practice, the inclusion of terms like “etc.” in the legal text may allow for an expanded interpretation of employer responsibilities.
Compliance advice:
A. Strict review of partner’s qualifications: When contracting projects or businesses, it is necessary to conduct a strict review of the legal business qualifications (such as business licenses and relevant administrative permits) of contractors and subcontractors, and keep copies of the relevant certificates and licenses. Please avoid collaborating with organizations or individuals who do not have legal business qualifications.
B. Improve the terms of the agreement: In the agreement with the contractor, subcontractor, or party affiliating with another entity, it should clearly stipulate the commitment and guarantee of their employment compliance, as well as the right of recourse and penalty clauses for the employer or affiliated party who bears responsibility for their illegal employment.
II. Responsibility determination under mixed employment
Article 3 of Interpretation (II) regulates the recognition of labor relations and responsibility in the case of "mixed employment" of affiliated enterprises. Article 3 stipulates that if a worker is employed alternately or simultaneously by multiple units with related relationships, and requests confirmation of the labor relationship, the people's court shall handle it according to the following circumstances: (1) If a written labor contract has been concluded and the worker requests confirmation of the labor relationship according to the labor contract, the people's court shall support it in accordance with the law; (2) For those who have not entered into a written labor contract, the labor relationship shall be confirmed based on the employment management behavior, taking into account factors such as working hours, job content, payment of labor remuneration, and payment of social insurance premiums. If an employee requests affiliated units that meet the conditions specified in the second item of the preceding paragraph to jointly assume the responsibility of paying labor remuneration, welfare benefits, etc., the people's court shall support it in accordance with the law, except for cases where the affiliated units have made agreements on the labor remuneration, welfare benefits, etc., of the employee in accordance with the law and have obtained the consent of the employee.
The above regulations clarify that in the absence of a written labor contract, the court will comprehensively determine the labor relationship based on actual employment management behaviors (such as job content, salary payment, payment of social insurance premiums, etc.). Affiliated units may need to bear joint responsibility for employees, which undoubtedly increases the legal risk of arbitrary employee transfers between affiliated enterprises.
Compliance advice:
A. Standardize employment between affiliated enterprises: Affiliated enterprises should try to avoid mixed employment as much as possible. If it is necessary to borrow employees, the rights and obligations of all parties should be clarified through secondment agreements and other means, and it is best to inform the employees and obtain their consent.
B. Unification of "personnel, signature, salary, and insurance": Please ensure that the employee remains consistent relationship with the employer who signed the labor contract, and that the employer pays the salary and social insurance; ensure that the employee accepts the management of the employer, and avoid the chaotic management of "one team, multiple brands".
C. Clear agreement: If there is indeed mixed employment and it is difficult to completely avoid it, affiliated enterprises should make clear agreements (preferably with the knowledge or consent of the employees) regarding the management subject and cost allocation of specific workers, in order to use them as evidence in disputes.
III. Exception to doubling the salary without a written labor contract
Article 7 of Interpretation (II) specifies the exceptions for employers to pay double the wages of unsigned labor contracts: (1) those that were not concluded due to force majeure; （2） Due to the intentional or gross negligence of the worker, the agreement was not established; （3） Other circumstances stipulated by laws and administrative regulations. This changes the previous practice of "one size fits all" support for double wages, introduces the principle of fault liability, provides effective defense reasons for employers, and helps to curb the dishonest behavior of individual workers.
Compliance advice:
A. Strengthen the management process of labor contracts: Please establish a standardized process for signing and renewing labor contracts, and fix and preserve relevant evidence. For example, the employer should notify the employee in writing to sign the contract and retain proof of delivery (such as a signed receipt, email, SMS, etc.). The employer should provide training to human resources personnel responsible for signing contracts and standardize their operations.
B. Pay attention to retaining evidence: If an employee refuses to sign a contract or intentionally fails to sign by taking advantage of their authority, the employer must retain relevant evidence, such as a written waiver statement from the employee, communication records, testimony from other witnesses, etc., to prove that it is "the employee's own intention or gross negligence".
C. Timely termination of labor relationship: For workers, who refuse to sign labor contracts, they shall be notified in writing within the legally prescribed period (usually within one month from the date of employment) to terminate the labor relationship and be paid the actual remuneration for the working period, avoiding the risk of paying double wages.
The issuance of Interpretation (II) further strengthens the compliance requirements of labor laws. Some ambiguous "application of laws" in the past were clearly prohibited or regulated, which may increase labor management costs in the short term. However, in the long run, unifying the judgment standard and clarifying the boundaries of rules are beneficial for employers to build stable and harmonious labor relations. Employers can also avoid the huge uncertainty and potential losses caused by labor disputes. We hope that the interpretation and suggestions in this series of articles can help employers better understand Interpretation (II) and effectively avoid risks in practice.
I. Clearer delineation of employer liability boundaries (with regard to full or partial subcontracting, and affiliation arrangements
Articles 1 and 2 of Interpretation (II) clarify that when a contractor with legal business qualifications subcontracts or assigns business to an organization or individual without such qualifications, or when the latter operates externally under an affiliation arrangement with the former, the contractor or affiliated entity shall bear the employer's primary responsibility for the workers actually hired by the subcontractor or the party affiliating with the other entity. This includes responsibilities such as the payment of wages and work-related injury insurance benefits. This reflects the law's adoption of a "piercing-the-veil" review principle, meaning that even in the absence of a direct contractual relationship between the employer and the actual worker, the employer may still be held jointly and severally liable due to negligence in selecting business partners. Furthermore, the scope of liability may not be limited to the items explicitly listed in the provisions (i.e., wages and work injury compensation). In practice, the inclusion of terms like “etc.” in the legal text may allow for an expanded interpretation of employer responsibilities.
Compliance advice:
A. Strict review of partner’s qualifications: When contracting projects or businesses, it is necessary to conduct a strict review of the legal business qualifications (such as business licenses and relevant administrative permits) of contractors and subcontractors, and keep copies of the relevant certificates and licenses. Please avoid collaborating with organizations or individuals who do not have legal business qualifications.
B. Improve the terms of the agreement: In the agreement with the contractor, subcontractor, or party affiliating with another entity, it should clearly stipulate the commitment and guarantee of their employment compliance, as well as the right of recourse and penalty clauses for the employer or affiliated party who bears responsibility for their illegal employment.
II. Responsibility determination under mixed employment
Article 3 of Interpretation (II) regulates the recognition of labor relations and responsibility in the case of "mixed employment" of affiliated enterprises. Article 3 stipulates that if a worker is employed alternately or simultaneously by multiple units with related relationships, and requests confirmation of the labor relationship, the people's court shall handle it according to the following circumstances: (1) If a written labor contract has been concluded and the worker requests confirmation of the labor relationship according to the labor contract, the people's court shall support it in accordance with the law; (2) For those who have not entered into a written labor contract, the labor relationship shall be confirmed based on the employment management behavior, taking into account factors such as working hours, job content, payment of labor remuneration, and payment of social insurance premiums. If an employee requests affiliated units that meet the conditions specified in the second item of the preceding paragraph to jointly assume the responsibility of paying labor remuneration, welfare benefits, etc., the people's court shall support it in accordance with the law, except for cases where the affiliated units have made agreements on the labor remuneration, welfare benefits, etc., of the employee in accordance with the law and have obtained the consent of the employee.
The above regulations clarify that in the absence of a written labor contract, the court will comprehensively determine the labor relationship based on actual employment management behaviors (such as job content, salary payment, payment of social insurance premiums, etc.). Affiliated units may need to bear joint responsibility for employees, which undoubtedly increases the legal risk of arbitrary employee transfers between affiliated enterprises.
Compliance advice:
A. Standardize employment between affiliated enterprises: Affiliated enterprises should try to avoid mixed employment as much as possible. If it is necessary to borrow employees, the rights and obligations of all parties should be clarified through secondment agreements and other means, and it is best to inform the employees and obtain their consent.
B. Unification of "personnel, signature, salary, and insurance": Please ensure that the employee remains consistent relationship with the employer who signed the labor contract, and that the employer pays the salary and social insurance; ensure that the employee accepts the management of the employer, and avoid the chaotic management of "one team, multiple brands".
C. Clear agreement: If there is indeed mixed employment and it is difficult to completely avoid it, affiliated enterprises should make clear agreements (preferably with the knowledge or consent of the employees) regarding the management subject and cost allocation of specific workers, in order to use them as evidence in disputes.
III. Exception to doubling the salary without a written labor contract
Article 7 of Interpretation (II) specifies the exceptions for employers to pay double the wages of unsigned labor contracts: (1) those that were not concluded due to force majeure; （2） Due to the intentional or gross negligence of the worker, the agreement was not established; （3） Other circumstances stipulated by laws and administrative regulations. This changes the previous practice of "one size fits all" support for double wages, introduces the principle of fault liability, provides effective defense reasons for employers, and helps to curb the dishonest behavior of individual workers.
Compliance advice:
A. Strengthen the management process of labor contracts: Please establish a standardized process for signing and renewing labor contracts, and fix and preserve relevant evidence. For example, the employer should notify the employee in writing to sign the contract and retain proof of delivery (such as a signed receipt, email, SMS, etc.). The employer should provide training to human resources personnel responsible for signing contracts and standardize their operations.
B. Pay attention to retaining evidence: If an employee refuses to sign a contract or intentionally fails to sign by taking advantage of their authority, the employer must retain relevant evidence, such as a written waiver statement from the employee, communication records, testimony from other witnesses, etc., to prove that it is "the employee's own intention or gross negligence".
C. Timely termination of labor relationship: For workers, who refuse to sign labor contracts, they shall be notified in writing within the legally prescribed period (usually within one month from the date of employment) to terminate the labor relationship and be paid the actual remuneration for the working period, avoiding the risk of paying double wages.
The issuance of Interpretation (II) further strengthens the compliance requirements of labor laws. Some ambiguous "application of laws" in the past were clearly prohibited or regulated, which may increase labor management costs in the short term. However, in the long run, unifying the judgment standard and clarifying the boundaries of rules are beneficial for employers to build stable and harmonious labor relations. Employers can also avoid the huge uncertainty and potential losses caused by labor disputes. We hope that the interpretation and suggestions in this series of articles can help employers better understand Interpretation (II) and effectively avoid risks in practice.
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