Keep the mixed employment by affiliated enterprises in the right track

In practice, many affiliated enterprises engage in mixed employment. Typical scenarios of mixed employment include two situations: 1. Workers provide labor for two or more affiliated enterprises simultaneously. For example, A serves as the legal counsel for a group company and, due to the lack of legal staff in a subsidiary, A also undertakes legal work for the subsidiary. 2. Workers provide labor alternately for two or more affiliated enterprises. For example, A, an engineer, was assigned to work on a project for a Beijing-based affiliate, and after completing the project, is reassigned to a Guangzhou-based affiliate for another project.

From the perspective as an employer, improper mixed employment carries multiple potential risks. For instance, inappropriate cost allocation among affiliated companies may trigger special tax adjustments. Additionally, if a worker makes a mistake at work causing losses to an affiliated company rather than his employer, his employer may struggle to impose penalties based on internal rules and regulations.

In order to clarify the rights, obligations, and responsibilities of relevant parties, and finally reduce relevant risks, we recommend enterprises to take the following measures.

Firstly, to clarify the real employer, which means that affiliated companies should clarify the real employer and sign agreement to state the name of the real employer in accordance with local judicial rules and trends.

In judicial practice, there is controversy over the basis for determining labor relations in mixed employment cases. There are 3 mainstream opinions: (1) “Priority of labor contracts”. Beijing, Shaanxi, Jilin, and Shenzhen adopt this viewpoint and have issued corresponding local guidelines. (2) “Priority of labor facts”. Anhui adopts this viewpoint in its local guidelines. Although Shanghai has no stated this viewpoint in its local regulations, many cases in Shanghai could represent that this viewpoint has been adopted in judicial practice. And (3) “Priority of the worker’s choice”. Shandong adopts this viewpoint in its local guidelines. Cases in Tianjin and Chongqing could represent that this viewpoint has been adopted in judicial practice.

To be noted that the Supreme People’s Court has planned to issue a rule regarding the mixed employment. On December 12, 2023, the Supreme People’s Court released the “Supreme People’s Court Interpretation on the Application of Law in the Trial of Labor Dispute Cases (II) (Draft for Comment)”, in which, article 9 states that, “For workers employed alternately or simultaneously by multiple employers who request confirmation of labor relations, the following rules shall be applied: (1) Where a written labor contract has been concluded and the worker requests to confirm the labor relation in accordance with the contract, the court shall support the request; (2) Where no written labor contract has been concluded and the worker requests to confirm the labor relation, the court may determine the relationship based on factors such as labor management, working hours, job content, payment of wages, and social insurance contributions. The worker’s request for the employers to jointly assume liability shall be supported, except where the employers have lawfully agreed on the worker’s wages, benefits, etc., and the worker has consented.” Although this draft has not yet taken effect, it signals a trend toward unified standards for determining labor relations in mixed employment cases and reflects potential future judicial perspectives.

In addition, the job responsibilities are very important. Taking A’s case in the beginning for example, if the job responsibilities of the group’s legal counsel explicitly include work for subsidiaries, normally such arrangement would not be considered as mixed employment. Therefore, appropriate arrangements should be made based on the enterprise’s needs and actual circumstances.

Secondly, well arrange the cost and risk relationships between affiliated companies arising from mixed employment. Article 10 of the *Regulations for the Implementation of the Labor Contract Law* stipulates that when an employer assigns an employee to a new unit, the years of service may be combined into the new unit’s calculation. Therefore, if it is possible, it would be better to terminate the original labor contract and sign a new one with the new unit, by which costs and risks arising from mixed employment between affiliated companies could be eliminated. However, if there is a management relationship between affiliated companies, or affiliated companies do not want to alter labor relations, or the worker refuses to transfer his labor relation to the new unit, it is recommended to resolve cost and risk allocation issues by signing a service agreement or other agreement between affiliated companies.