Mr. Xu was working in Company A. He was baffled when he was informed that his labor contract with Company B had been terminated. When he was being dismissed from Company A, Mr. Xu requested that Company A pay wages and economic compensation, but he was informed by Company A that because he was the staff of Company B, he should file the compensation claim against Company B. Mr. Xu, who had worked in Company A for 11 years, could not accept the situation and filed a lawsuit. Who should bear the liability: Company A or Company B?

I. Case Playback

   Mr. Xu was employed as a warehouseman of Company A. After Mr. Xu had worked in the unit for ten years, Company A posted a notice saying that a labor dispatching company (hereinafter referred to as “Company B”) would pay the staff wages and social insurance premiums. They had to conclude labor contracts with Company B or they would be dismissed from Company A. Mr. Xu found this strange. The employees were working in Company A, so why would they have to conclude a labor contract with Company B whose address they did not even know? Taking into consideration the fact that, if he did not conclude the new labor contract, he would lose his job, Mr. Xu finally signed on to this new contract.
One day while distributing goods, Mr. Xu was tired and forgot to attach some labels. He was dismissed from Company A for “disobeying Goods Selection and Operating Regulations.” Mr. Xu claimed Company A owed him compensation and required Company A to pay his October wages, economic compensation for early contract dissolution and 50% of an additional RMB 20,000 economic compensation. However, Company A told Mr. Xu that he was not on staff at the company; he should negotiate with Company B if he had problems or concerns. Mr. Xu applied to the Labor Arbitration Committee, but his petition was refused. Then, Mr. Xu instituted a lawsuit in the Local Court.
 Mr. Xu contended that he had worked in Company A for 11 years. Although they never concluded a written labor contract, the company identification card, employment service certificate and so on all could prove the existence of the factual labor relationship. At the very outset, he was intimidated into concluding this contract with Company B. According to laws and regulations, a contract concluded under threat of dismissal is invalid. Mr. Xu never accepted training from or worked in Company B. Additionally, Mr. Xu contended there was an agent relationship between Company A and Company B, rather than a dispatching relationship. Although Company B paid the wages and social insurance contributions, all the expenses were taken on by Company A. At the very least, even if the dispatching relationship was legitimate, when Company A required the original staff to conclude new labor contracts with Company B, Company A was technically dissolving the labor relationship between the staff and Company A should have paid the staff relevant compensation according to their number of years working for Company A.
   Company A’s argument emphasized that the labor contract was concluded between Mr. Xu and Company B two years prior. Company A had only used Mr. Xu according to the labor service contract. The three sides had formed a labor dispatching relationship. Company A suggested that Mr. Xu be returned to Company B and Company B agreed. Company B dissolved the labor relationship with Mr. Xu the next day, which had nothing to do with Company A. Therefore, Mr. Xu should file a claim against Company B for his compensation.
   Which company did Mr. Xu have a labor relationship with? Who should he sue to claim his rights?

II. Legal Background

 Labor dispatching is defined as the conclusion of a labor contract between the dispatching unit and dispatched laborer first, and then the dispatched laborer is sent to the labor-using unit and works in the labor-using unit. The most outstanding characteristic of labor dispatching is the separation of employment and labor-using. The labor relationship of a dispatched laborer is established with the original dispatching unit. The dispatching unit and the labor-using unit conclude a labor dispatching contract in which the dispatching unit transfers the rights of supervision to the labor-using unit. Because the relevant laws have lacked the relevant stipulations, it has been difficult to confirm the relationships and the rights and obligations among the three sides.
   The Labor Contract Law includes a specific section to regulate the labor dispatching system. As for the dispatched laborer, there are two units taking on the employing unit obligations previously held by one unit: the dispatching unit and the labor-using unit. Article 58 of the Labor Contract Law directly stipulates that the dispatching unit is defined as the employing unit. It shall take on the obligations of the employing unit and conclude the labor contract with the laborer. It is also stipulated by the Law that the dispatching unit shall conclude a labor contract with the laborer with a term of no less than 2 years.
   As for the labor-using unit, Article 62 of the Labor Contract Law stipulates that the labor-using unit shall take on the following obligations, including: 1. implement national labor standards and provide corresponding working conditions and labor protections; 2. inform dispatched laborers of the job requirements and labor remuneration; 3. pay overtime pay and performance bonuses and provide benefits appropriate for the job positions; 4. provide dispatched laborers who are on the job with the training necessary for their job positions; and 5. in case of continuous labor dispatching, implement a normal wage adjustment mechanism. Furthermore, Article 63 stipulates that a dispatched laborer shall enjoy the right to have equal pay for equal work compared to other laborers in the labor-using unit. If a unit within which a laborer has been dispatched has no other laborer in the same position, the labor remuneration shall be determined with reference to the labor remuneration of laborers in the same or similar position where the unit is located. The stipulations above require the labor-using unit to partially perform the obligations of the employing unit.
   In addition to the responsibility the unit shall bear for the laborer, the Law also stipulates the right of a dispatched laborer to join the labor union and the condition that the labor-using unit shall return the dispatched laborer to his/her point of origin. Article 64 of the Labor Contract Law states that a dispatched laborer is entitled to join or organize a labor union in the dispatching unit or the labor-using unit to protect his/her legitimate rights and interests. Article 65 stipulates that the labor-using unit may repatriate a dispatched laborer back to the dispatching unit when the dispatched laborer commits a violation which leads to non-fault dissolution, and, in turn, the dispatching unit may dissolve the labor contract with a dispatched laborer according to the relevant stipulations of this Law.
In terms of liability, the Labor Contract Law requires the labor-using unit and the dispatching unit bear joint and several legal liabilities for losses imposed upon laborers due to illegal labor-using.
By all accounts, it is not difficult to see that the treatment of the dispatched laborer is of a higher standard than that of the common employee, but in terms of flexibility in hiring, the standards are actually lower that those applied to common employees.

III. Lawyer Debate

The employing unit should bear the relevant liability.
Lawyer Pang Chunyun from Peking Guang Sheng Law Office on behalf of the laborer

In my opinion, the focus of this case depends on which company should take responsibility for a dispatched laborer in these kinds of labor dispatching relationships.
Article 25 of the Shanghai Labor Contract Regulation stipulates that if the unit concluding the labor contract is not the same as the actual labor-using unit, the employing unit may reach an agreement with the actual labor-using unit in which the actual labor-using unit takes on all or a part of the obligations for the dispatched laborer. If the actual labor-using unit and the employing unit reach no agreement on this responsibility for the dispatched laborer, the employing unit shall bear the full obligation for the laborer.
There is a very important fact in this case: Mr. Xu had been working for Company A although he had concluded a labor contract with the dispatching unit. All the important characteristics of a labor relationship, such as providing labor, paying wages, labor management, company badge, etc. existed between Mr. Xu and Company A, even the labor contract was dissolved by Company A citing Mr. Xu’s violation of “Goods Selection and Operating Regulations.” Therefore, it should be remembered that Company A was in fact using Mr. Xu when establishing the labor relationship. Company A was the actual labor-using unit in this case. Thus, I think the Court should support Mr. Xu’s claim and the actual labor-using unit, Company A, should take on the relevant obligations.

Mr. Xu should file a claim against Company B.
Lawyer Lu Ying from Shanghai Hui Ye Law Office on behalf of Company A

There is no labor relationship between Mr. Xu and Company A. Although Mr. Xu has said that there were threats and coercion when concluding the contract, he has yet to prove it with evidence. Otherwise, the contract should be legitimate and valid. In the light of the Labor Law in our country, a labor contract is the necessary and sufficient condition for the establishment of a labor relationship. Now that the labor contract between Company B and Mr. Xu is legitimate and valid and has in fact been performed, a labor relationship exists between the two.
If Company A’s dissolution of the labor contract was illegal, Mr. Xu would have been fully justified in protecting his rights through an arbitration hearing or lawsuit. Company A would not have prevailed and the “threat” would have been eliminated. If it was a legitimate dissolution, Company A’s conduct would not constitute a threat. To say the least, even if Company A’s conduct was improper, it did not affect the contract between Company B and Mr. Xu; Company A was just the third party.
And referring to the argument about a factual labor relationship, it is still in doubt whether the series of certificates, such as a company badge and staff certification or even the actual work done in the unit, wages paid and management accepted are enough to prove the existence of a labor relationship. According to the stipulations of the Ministry of Labor, when there is no labor contract, the existence of a labor relationship can be proven with the above evidence. But in this case, Mr. Xu had a signed labor contract with Company B, so these regulations do not apply. Therefore, Mr. Xu must lodge his claim against Company B which is the other party to his labor contract.

IV. Final Judgment
  
   After the trial of this case, the Court ruled that there was no factual labor relationship between Mr. Xu and Company A. The relationship between them was a labor dispatching relationship. Furthermore, Mr. Xu’s claim of coercion and threats when concluding the contract are not relevant to the scope of this case. Consequently, Mr. Xu’s claim was rejected by the Court.

From LexisNexis