Construction Company Held Liable for Subcontractor’s Unpaid Wages in Eastern China Labor Dispute

Construction Company Held Liable for Subcontractor’s Unpaid Wages in Eastern China Labor Dispute

CASE OVERVIEW
A construction company in Eastern China was ordered by a civil court to pay wages of 5,000 RMB to a migrant worker after attempting to shift liability to its subcontractors. The court applied the principle that a general contractor with legal capacity bears employer responsibility when it subcontracts work to entities or individuals without legal personality. The ruling reinforces protections for workers in multi-tier subcontracting arrangements.

CASE BACKGROUND AND FACTS
The plaintiff, a construction company, won the bid to build a residential project in Eastern China. In August 2009, the company entered into an internal contract with a third party, Mr. Dong, who acted as the project manager. Under this arrangement, Mr. Dong was authorized to manage the project using the company’s name. Later that month, Mr. Dong, acting on behalf of the company’s project department, signed two subcontracts. One subcontract for steel reinforcement work was given to Mr. Xiang. The other subcontract for scaffolding work was given to Mr. He. Both subcontracts were on a labor-and-materials basis. The defendant, Mr. Xie, was a scaffolder hired by Mr. He to work on the project. In May 2010, construction halted. Mr. Xie and 15 other workers had not received their full wages. An arbitration tribunal ruled that the company, Mr. Xiang, and Mr. He were jointly liable for the unpaid wages. The company disagreed and filed a lawsuit seeking a declaration that it was not responsible for Mr. Xie’s wages.

COURT PROCEEDINGS AND EVIDENCE
The court held hearings in December 2010 and January 2011. The company argued that it had no direct employment relationship with Mr. Xie, as he was hired by Mr. He, who was an independent subcontractor. The company claimed that Mr. Dong, Mr. Xiang, and Mr. He should bear the wage liability. Mr. Xie argued that the company, as the general contractor, was the proper employer. He noted that the company had subcontracted work to individuals who lacked legal capacity to hire workers. Mr. Dong testified that he paid workers on behalf of the company and was not the true employer. Mr. Xiang and Mr. He also denied direct responsibility. The court reviewed seven sets of evidence submitted by the company, including subcontract agreements, payment records, and an internal responsibility contract. It also reviewed evidence from Mr. Xie, including wage lists. After cross-examination, the court found that the parties agreed Mr. Xie was owed 5,000 RMB in unpaid wages.

COURT FINDINGS AND JUDGMENT
The court held that the company was the proper party to bear employer responsibility. It found that Mr. Dong, the internal project manager, conducted all activities in the company’s name. The internal contract between the company and Mr. Dong did not shield the company from external liability. The court cited the Notice on Establishing Labor Relations, which states that when a construction company subcontracts work to an entity or individual without legal personality, the company bears employer responsibility for workers hired by that entity or individual. The court also noted that Mr. Xie was a scaffolder, not a steel worker, so his claim was separate from disputes involving other subcontractors. The court ordered the company to pay Mr. Xie 5,000 RMB within three days of the judgment taking effect. It dismissed the company’s lawsuit seeking to avoid this liability. The court also imposed court costs of 5 RMB on the company.

KEY LEGAL PRINCIPLES
This case applies the principle that employer responsibility follows the party with legal capacity to hire workers. Under Chinese labor law, a general contractor cannot avoid wage liability by subcontracting to individuals or unregistered entities. The internal allocation of responsibility between a contractor and its project manager does not affect the contractor’s external obligation to workers. The case also confirms that wage claims are separate from contractual disputes between the contractor and its subcontractors.

PRACTICAL INSIGHTS
Construction companies should verify that all subcontractors have proper legal status and the capacity to hire workers independently. Using internal contracts or project managers does not eliminate the company’s liability for unpaid wages. Companies should also maintain clear records of direct wage payments to workers to avoid disputes. Workers should note that they can claim unpaid wages directly from the general contractor, even if they were hired by a subcontractor.

LEGAL REFERENCES
Labor Law of the People’s Republic of China, Article 50
Notice of the Ministry of Labor and Social Security on Issues Concerning the Establishment of Labor Relations, Article 5
Civil Procedure Law of the People’s Republic of China, Article 64

DISCLAIMER
This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified attorney for advice on specific legal matters.