Zhiheng Analysis | employment contract or labor contract? The difference between a word and a world! 2025 The latest judicial interpretation is coming
Author | Attorney Zhu Junping
Introduction
ZHIHENG
A single word makes all the difference in terms of liability! When a client presents a service agreement and insists that no employment relationship exists with the company, can you immediately identify the underlying legal risks? The latest judicial rulings have undergone a significant shift: the principle of “substance over form” is now threatening to unravel many companies’ compliance practices.
This article, in light of the latest judicial interpretations issued in 2025, will provide an in-depth analysis of the three core distinctions between employment contracts and service contracts, one of the most contentious criteria for their classification, and how enterprises can truly achieve compliant labor practices.
Although the two contracts appear similar, they actually face entirely different legal outcomes.
In everyday legal practice, many parties—and even fellow lawyers—often confuse the concepts of “employment contract” and “service contract.” Little do they know that this single-character difference can lead to entirely different legal consequences. The "Interpretation (II) on Several Issues Concerning the Application of Law in the Trial of Labor Dispute Cases," which came into effect on September 1, 2025 (hereinafter referred to as "Interpretation (II)"), has introduced new rules for adjudication. This article will, in light of the latest provisions, analyze the differences between the two and their practical applications.
A single word, a thousand miles apart: the conceptual essence is vastly different.
Although the terms “labor contract” and “service contract” are similar in name, their legal natures are fundamentally different. According to the provisions of the Labor Contract Law, a labor contract isThe employer and the employee establish a labor relationship., an agreement that clearly defines the rights and obligations of both parties.
In contrast, a service contract is an agreement entered into between equal civil subjects regarding the provision of labor and services, and it is governed by the Contract Section of the Civil Code.
Legal statusIn terms of the parties involved, one party to an employment contract must be the employer, while the other party is the employee; in a service contract, both parties may be legal entities, natural persons, or a combination of a legal entity and a natural person.
Legal relationshipIn the employment contract, there exists a relationship between the employee and the employer.Affiliation, must comply with the employer’s rules and regulations and be subject to management; in a service contract, both parties areEqual subjectsThere is no employment relationship; the service provider is only required to complete the work as agreed.
Rights Protection: A Tale of Two Extremes
The two types of contracts differ vastly in terms of rights and obligations. In an employment contract, the employer is obligated to provide for the employee.Pay social security contributions, provideLabor protectionFurthermore, in a service contract, the party providing the services generally assumes the associated risks on its own, and the party receiving the services is typically not obligated to do so.
The dispute resolution mechanisms also differ. Labor contract disputes must first go throughLabor arbitrationOnly if one is dissatisfied with the arbitration decision may a lawsuit be filed with the court; disputes arising from labor contracts may be directly brought before the court.
Most importantly, the labor contract is subject to the mandatory provisions of the Labor Contract Law.Regulatory protectionRegulations such as the minimum wage standard, working hour limits, rest and leave, and economic compensation; whereas labor contracts adhere toPrinciple of autonomy of will, primarily based on the agreement between the two parties.
2025 Judicial New Regulations: Substance Over Form
The issuance of "Interpretation (II)" has brought new perspectives to judicial practice. According to the latest regulations, when determining the nature of a contract, courts apply the principle that substance prevails over form, relying not only on the contract’s title but also on whether its terms reflect the essential characteristics of an employment relationship.
In a real-world case, a technology company entered into a labor cooperation contract with Li before completing its business registration, yet the contract still stipulated details such as the job position, the term of the contract, and the method of remuneration payment. After the company was established, it also affixed its official seal to the contract.
Subsequently, because the company failed to pay his wages in full, Li requested payment of twice the wage difference. The court ultimately determined that the “Labor Service Cooperation Contract” in substance possessed the characteristics of an employment contract and was therefore deemed to constitute a written employment contract.
This judgment reflects the latest judicial perspective: even if a contract is titled a “service contract,” if its content meets the substantive characteristics of an employment relationship, sets out the principal terms and conditions of employment, and clearly establishes a relationship of employer control over the employee, it should be deemed to constitute an employment contract.
Focus of the dispute: Judicial determination of ambiguous boundaries
Article 3 of the "Interpretation (II)" provides clear guidance on the basis for confirming labor relations in cases of mixed employment: "If a worker is employed alternately or simultaneously by multiple entities that have affiliated relationships, and the worker requests confirmation of the labor relationship, the people's court shall handle the matter as follows: (I) If a written employment contract has been concluded, and the worker requests that the labor relationship be confirmed in accordance with the employment contract, the people's court shall support such request in accordance with the law; (II) If no written employment contract has been concluded, the labor relationship shall be confirmed based on the employment management practices, taking into account factors such as working hours, job content, payment of wages, and payment of social insurance contributions."
This provision establishesWritten contracts take precedence over comprehensive assessments.the principle, but in practice, there still exists considerable room for dispute. In particular, when affiliated enterprises engage in the practice of intermingled employment, workers may be employed alternately or simultaneously by multiple entities that are affiliated with one another, and determining the existence of an employment relationship has consistently posed a significant challenge.
Another focal point of contention is the determination of the contractual nature of new forms of employment, such as platform-based work. As employment models become increasingly diverse, new forms of work such as platform-based and flexible employment are continually emerging, leading to a sustained rise in the complexity and contentiousness of labor dispute cases. These new forms of employment often seek to evade labor law obligations by entering into service contracts, while judicial authorities are increasingly inclined to look beyond formalities and focus on the substance of the relationship.Protect the legitimate rights and interests of workers.
Practical Advice: The Path to Compliance for Risk Mitigation
For employers, compliant employment practices are the fundamental strategy for avoiding legal risks. Here are some practical tips:
1. Standardize contract signing:Enter into the appropriate type of contract based on the actual nature of the employment relationship to avoid confusion arising from contracts that are nominally service agreements but in substance constitute labor relationships. If an employment relationship is established, a written employment contract should be concluded.
2. Review of Eligibility:The contracting entity shall establishAccess standards and anAccess review checklist for subcontracting, sub-subcontracting, and shell companies, require its partners to provide documents such as business licenses and industry qualification certificates, and update the records on a regular basis.
3. Substantive Examination:In addition to formal qualifications, it is necessary to verify the partner’s actual operational capabilities, social security contribution records, and compliance with labor laws in past employment practices (e.g., whether there are any records of wage arrears or workplace injury disputes).
4. Avoid misclassification of employment:Affiliated enterprises should avoid cross-hiring employees and ensure that the entities responsible for concluding employment contracts, making social security contributions, and disbursing wages are unified.
5. Dynamic Management Mechanism:Regularly verify the qualifications of partners to mitigate employment risks arising from expired or downgraded qualifications. Conduct regular compliance inspections, randomly audit partners’ payroll vouchers, social security contribution records, and labor contract signing status, and terminate cooperation immediately upon detection of any violations.
For workers, it is also important to carefully determine the nature of the contract, prudently review its terms, and retain relevant evidence such as records of wage payments and communications regarding work assignments, so as to ensure that their labor rights are not adversely affected by issues related to the contract’s form.
Conclusion
The distinction between an employment contract and a service contract is not merely a theoretical issue; it is also a practical matter that directly affects the rights and obligations of the parties involved. With the implementation of "Interpretation (II)," judicial authorities are increasingly inclined to apply the principle of "substance over form" in determining employment relationships, which is of positive significance in curbing employers' attempts to evade statutory obligations.
Author
Introduction
Zhu Junping
Full-time lawyer at
Deputy Secretary-General of the Zhiheng Labor and Human Resources Law Department
Member of the Intellectual Property Committee of
,
Intermediate Trademark Agent, Senior Corporate Compliance Officer, Senior Corporate Legal Counsel
Professional field:Non-litigation and litigation matters related to intellectual property, civil litigation, commercial arbitration, corporate legal counsel, and more.
Dedicated to the theoretical and practical study of civil and commercial law, with unique insights into common legal issues in this field. Possesses in-depth expertise and substantial practical experience in handling civil and commercial disputes, including intellectual property disputes, corporate litigation, and contract-of-sale disputes. He specializes in dispute resolution involving trademark infringement and validity disputes, patent infringement and validity disputes, copyright disputes, and unfair competition disputes. Attorney Zhu Junping also possesses extensive practical experience in areas such as corporate brand strategy and protection, intellectual property transfer and licensing, intellectual property due diligence, copyright protection, trade secret protection, and customs‑based enforcement.
He has provided legal services to numerous domestic and international clients, including leading high-tech companies, renowned food and beverage enterprises, and well-known state-owned enterprises.
This article and its contents are shared by
for informational purposes only and do not constitute legal opinions, advice, or a basis for decision-making provided by the firm or its attorneys. If you require legal advice or a professional legal analysis, please contact the specialized attorneys at
, or send us a private message on our WeChat official account and leave your contact information. If you wish to reprint this article, please contact the official account editor via the backend.
Zhiheng · Introduction