The big picture: China's Supreme People's Court (SPC) has issued new interpretations and illustrative cases clarifying how employment relationships are confirmed and contract obligations enforced, even without a written agreement. These updates significantly impact how courts will assess labor disputes and employer responsibilities across various scenarios.Two new sets of guidance from the SPC and the Ministry of Human Resources and Social Security aim to standardize the confirmation of employment relationships and contract enforcement. This includes addressing situations without written contracts and expanding the scope of entities that can be held liable in labor disputes.

Why it matters: For companies operating in China, particularly those with complex group structures, cross-border secondments, or reliance on contractors, these clarifications demand immediate attention to HR and compliance practices. The new rules increase the risk of employment relationships being recognized beyond the named employing entity and broaden liability.

Between the lines:

• Courts will confirm employment based on factual indicators (working hours, duties, remuneration, social insurance) if no written contract exists, creating risk of unintended employment recognition.
• Affiliated companies may face joint liability for unpaid wages and benefits if an employee requests it and no written contract is present.
• Representative offices of foreign companies, though not separate legal entities, can now be named as parties in labor disputes, potentially bringing in the foreign parent company.The SPC's Interpretation (II) clarifies that employment can be established without a written contract, relying on factual indicators like working hours and social insurance contributions.
• Affiliated companies can be held jointly liable for labor obligations if no written contract exists.
• Representative offices of foreign companies can now be named as parties in labor disputes, potentially extending liability to the foreign parent company.
• Contractors and principal companies face affirmed liability for labor remuneration and injury benefits if services are assigned to unqualified organizations or individuals.

Staffing & HR impact: Staffing agencies and HR departments must meticulously review contract practices, especially for contingent workers and inter-company secondments, to mitigate risks of unintended employment relationships and joint liability. Enhanced compliance checks are crucial to avoid unforeseen financial and legal exposure in China's evolving labor landscape.Staffing and HR leaders must immediately review their contracting practices, especially concerning contingent workers, affiliated company arrangements, and foreign representative offices, to ensure compliance. The expanded scope of liability means a heightened focus on due diligence and robust HR policies is critical to avoid significant financial and legal repercussions.

The bottom line: The new judicial interpretations underscore a clear trend towards greater worker protection and expanded employer accountability in China, requiring proactive and thorough HR compliance.Companies must proactively audit their employment contracts and labor practices to align with these stricter interpretations, or face increased litigation risk and potential liabilities.The new rules signal a stricter enforcement environment, making robust HR compliance and clear contractual frameworks non-negotiable for all employers in China.

The bottom line: Companies operating in China must immediately review and update their HR and contracting practices to align with these new, stricter interpretations, or face increased litigation risk and potential liabilities.