As the on-demand economy takes over China, landmark labor case hits Beijing courts

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O2O (online-to-offline) may be a stupid acronym, but it’s a way of life in modern urban China. Almost any service you might want – meals, cars, massages, home repair, etc. – can be booked online through a platform that links you up with a local professional who’ll come right to your door. For the consumer, the convenience factor is immense.

For the professional, things are a bit less clear. If, for example, you’re an Uber driver, are you an employee or an independent contractor? That’s a question that drivers and other on-demand platform service workers the world over have been asking, and courts across the world have been slowly hashing out. Now, that question is being put to Beijing’s legal system for the first time via the case of a chef named Sun.

An employee or just a chef-for-hire?

In April of 2014, Sun became an on-demand private chef for a chef-booking all called Haochushi (“Good Chef”). The app, which is operated by Shanghai Lekuai IT Ltd., agreed to pay Sun a monthly wage of US$750 and asked him to work from 10 to 6 daily. Sun says he didn’t sign an employment contract with Haochushi, and the company didn’t pay social security on his behalf, pay for overtime hours, or offer any vacation time. When Sun was fired in late 2015, he began labor arbitration, claiming that his rights as an employee had been violated and that Haochushi broke the law by not pay social security, overtime, or offering vacation.

This case could a precedent that determines the future of the on-demand industry.

But, like most platform operators have in these sorts of disputes, Haochushi argues that Sun was an independent contractor, not an employee, and that he had control over his own hours and work schedule by way of choosing which orders from the platform he accepted.

A Beijing arbitration committee rejected Sun’s claims, but Sun appealed the decision by suing Haochishi in Beijing court. Court proceedings in the case began yesterday in a Chaoyang district court that has agreed to consider Sun’s case and six other similar cases simultaneously.

Why it matters

The court case is ongoing, and a final ruling could certainly be appealed further up the totem pole of China’s court system. But whatever the court decides could have serious implications for O2O businesses across the entire country, as it could set a strong precedent one way or the other in determining whether service providers like Didi Chuxing’s 14 million drivers are independent contractors or employees.

On-demand platform operators everywhere will be hoping that the court maintains the status quo, ruling that these workers are independent contractors and thus not entitled to the benefits and protections owed to employees under Chinese labor law. Drivers, chefs, masseuses, and a lot of other on-demand workers will be cheering for Sun and the other plaintiffs.

The situation is complicated by the fact that any change to the status quo could damage China’s now-massive O2O industry, pushing profitability even further away for everyone from startups to giants like Didi. If that happens, the resulting market contractions and layoffs could prove even worse for O2O employees than the status quo. But is that a reason to deny de-facto employees the rights and benefits they are afforded under the law? And if O2O service providers aren’t employees, what exactly are they? Those are questions that the Beijing court will need to answer. When it does, it could set a precedent that determines the future of the O2O industry.