Perspective | Judicial Disagreements and Legal Analysis on the Determination of the Employer’s Liability in Labor Fee Disputes in Construction Projects
Published:
2026-01-07
In the field of construction projects, disputes arising from labor costs or wages are frequent. Construction entities (the project owners) at the top of the payment chain are often named as defendants in litigation, being required to assume responsibility for advance payment or settlement within the scope of unpaid project funds. However, judicial practice has yet to establish a unified standard for determining the liability of project owners in such disputes. Different courts—even the same court in different cases—may issue diametrically opposed rulings based on varying emphases on factual findings, legal interpretations, and policy considerations. This article aims to analyze two contrasting typical cases, drawing upon relevant provisions such as the "Regulations on Guaranteeing Payment of Wages to Migrant Workers" (hereinafter referred to as the "Regulations"), to explore the core issues in determining the liability of project owners, the logical framework for applying the law, and the factors considered by judges in reaching their decisions.
In the field of construction engineering, disputes arising from labor costs or wages are frequent. Construction entities (the project owners) at the top of the payment chain are often named as defendants in litigation, being required to assume primary responsibility for advance payment or settlement within the scope of unpaid project funds. However, judicial practice has yet to establish a unified standard for determining the liability of project owners in such disputes. Different courts—even the same court in different cases—may issue diametrically opposed rulings based on varying emphases placed on factual findings, legal interpretations, and policy considerations. This article aims to analyze two contrasting typical cases, drawing upon relevant provisions such as the "Regulations on Guaranteeing Payment of Wages to Migrant Workers" (hereinafter referred to as the "Regulations"), to explore the core issues in determining the liability of project owners, the logical framework for applying the law, and the factors considered by judges in reaching their decisions.
I. Raising the Issue: The Tension Between the Principle of Contractual Relativity and Special Legislative Protections
Traditional civil law adheres to the principle of contractual relativity, under which creditors may only assert their rights against the contractual debtor. In the context of construction projects involving multiple layers of subcontracting and sub-subcontracting, migrant workers (or laborers) who actually provide the labor often enter into contractual relationships only with the lowest-level foremen or labor companies, lacking any direct legal connection with the project owner. To safeguard the survival interests of migrant workers—who constitute a vulnerable group—special provisions such as those contained in the “Regulations” have established liability pathways that break through the principle of contractual relativity, requiring the project entity or general contractor to assume primary payment responsibility under certain conditions. This creates a tension between the principle of strict adherence to contracts and the need to protect special rights and interests, and has become the central source of contention in such cases.
II. Legal Framework: Statutorily Defined Circumstances Under Which the Contracting Party Bears Responsibility
The contracting party may be found liable, primarily based on the following provisions of the Regulations:
Article 29: If the construction unit fails to disburse project payments in a timely manner as stipulated in the contract, resulting in delayed payment of migrant workers’ wages, the construction unit shall advance the payment up to the amount of the outstanding project payments. The core principle underlying the application of this provision is that there must be a causal relationship between the “untimely disbursement of project payments” and the “delayed payment of wages,” and the construction unit bears the burden of proof regarding the “outstanding project payments.”
2. Article 30: If a subcontractor fails to pay wages, the general contractor shall make the payment in advance. This provision generally does not directly apply to the project owner.
3. Article 36: If the project owner or general contractor subcontracts or assigns the project to individuals or entities that lack legal business qualifications, resulting in wage arrears, the project owner or general contractor shall be responsible for settling such arrears. This provision targets illegal subcontracting and assignment practices.
III. Case Analysis: A Typical Illustration of Inconsistent Rulings in Similar Cases
The following two cases both involve the same company as the construction entity, yet their verdicts are completely opposite, vividly illustrating judicial discrepancies.
(1) Case No. 1: Liu et al. v. a certain company—Labor Contract Dispute Case [(2023) Lu 0112 Min Chu 18001]
Basic facts: A certain company subcontracted the project to a general contractor, which in turn sub-subcontracted it to a labor service company. That labor service company further sub-subcontracted the work to an individual who lacked the requisite qualifications. The individual hired the plaintiff and others to perform the construction work and issued promissory notes acknowledging the debt. During the litigation, the company argued that 91% of the project payment had already been made, that the final settlement between the parties had not yet been completed, and that what the plaintiff was claiming was “labor service fees” rather than “wages,” and that the plaintiff was not a “rural migrant worker.”
Court Ruling: The court ruled that a certain company shall bear the responsibility of making advance payments within the scope of the unpaid project funds. The key points of its reasoning are:
1. Qualification of the legal relationship: The case is recognized as a labor contract dispute, but the “Regulations” are applied directly.
2. Causal relationship Reversal of the burden of proof The court held that “Although the defendant company argued that it had paid 91% of the project costs pursuant to the contract signed with the general contractor and that no final settlement had been conducted between the parties, thus absolving the defendant company of liability for any outstanding payment to the general contractor, the court did not accept this argument because the defendant company failed to submit evidence demonstrating that it did not owe any payment to the general contractor.” In this case, the court did not require the plaintiff to provide evidence regarding “the failure to disburse project funds resulting in arrears”; rather, it placed the burden of proof on the defendant company to demonstrate that it had indeed settled all outstanding payments. Since the defendant company only provided evidence of the payment ratio but failed to submit the final settlement documentation proving that all payments had been fully made, its evidence was deemed insufficient.
3. The Equivalence of “Labor Service Fees” and “Wages”: Although the judgment recorded a company’s defense regarding the nature of the payment and the plaintiff’s status, it failed to address or distinguish these points in its reasoning. As a result, the “labor service fees” at issue were effectively treated as equivalent to “wages for migrant workers” protected under the Regulations.
(2) Case No. 2: Wang v. a Certain Company et al.—Labor Contract Dispute Case [(2023) Lu 0105 Min Chu 10862]
Basic facts: The case structure is similar: both involve a project undertaken by a certain company, which, after multiple layers of subcontracting, was ultimately performed by the plaintiff, Wang, who was hired directly by an individual. Like in the previous case, Wang also invoked the Regulations to demand that the company assume the responsibility for advance payment.
Court Ruling: The court ruled against the plaintiff’s claim against a certain company. The reasoning behind this decision stands in stark contrast to that in Case One:
1. Strictly adhere to the elements constituting liability: The court explicitly stated that the plaintiff’s claim for the construction unit’s liability was based on the fact that “the construction unit failed to disburse project payments in a timely manner as stipulated in the contract, thereby causing wage arrears for migrant workers.” The court clearly defined the causal relationship between “the construction unit’s failure to disburse project payments in a timely manner” and “the resulting wage arrears” as the plaintiff’s burden of proof.
2. Proper allocation of the burden of proof: As stated in the judgment, “The plaintiff failed to submit evidence demonstrating that a certain company, as the construction entity, had delayed payment of project funds as agreed, thereby causing wage arrears for migrant workers. Therefore, the court does not support the plaintiff’s claim that Taijia Company should bear the responsibility for advance payment.” This reasoning clearly attributes the adverse consequences of failing to produce sufficient evidence to the plaintiff, representing a fundamental distinction from Case One.
3. Prudent consideration of the nature of the funds: Although in this case the court primarily based its ruling on the burden of proof, the first half of the judgment also analyzed that the plaintiff was not “ Actual contractor “This case is a ‘labor contract dispute,’ which lays a certain foundation for dismissing the plaintiff’s claim against the construction entity.”
IV. The Core of Judicial Disagreements and the Scope for Defense by the Project Owner
By comparing the two cases, we can see that, at the factual level, whether the contracting party bears responsibility often hinges on the status of payment for the project costs. At the legal-application level, however, the key factor lies in the judge’s differing interpretations of the allocation of burden of proof and the conditions for applying Article 29 of the Regulations.
This case exemplifies a judicial tendency that is outcome-oriented and emphasizes tilted protection. In situations where there are multiple layers of subcontracting—particularly when the final subcontractor is an individual—and where it is clearly established that labor payments have been withheld, in order to achieve a substantive resolution of the dispute and ensure payment of labor remuneration, the court may tend to: (1) relax the strict scrutiny applied to the definition of “wages for migrant workers”; (2) place the heavier burden of proof regarding the settlement of project payments on the contracting party, which is better positioned to produce such evidence; and (3) when the contracting party fails to prove that there are “zero outstanding payments,” presume that a risk of unpaid wages exists and hold the contracting party liable accordingly.
Case No. 2 exemplifies a judicial approach characterized by strict adherence to rules. It rigorously follows the principle of "he who asserts must prove," requiring the plaintiff to provide preliminary evidence demonstrating that the construction entity engaged in unlawful conduct (failure to make payments as agreed) and establishing a causal link between such conduct and the resulting damages. This provides the contracting party with a clear path for mounting a defense.
With regard to the company in this case, based on a comprehensive analysis of the aforementioned cases and available materials, its defense strategy should be systematically developed around the following key points:
1. Adhere to the principle of contractual relativity: It is emphasized that there is no contractual relationship whatsoever between the defendant and the plaintiff. The plaintiff’s direct contractual counterpart and employer is either Defendant 3 (the labor service company) or its shareholder.
2. Prerequisites for the precise application of the Regulations:
Nature of the payment: The plaintiff’s complaint explicitly states that the payment is “labor compensation,” which stems from an equal civil labor contract rather than “wages” based on an employment relationship. Moreover, the plaintiff has failed to provide evidence demonstrating that they qualify as a “migrant worker.”
Causation and Burden of Proof: It is emphasized that if the plaintiff invokes Article 29 of the Regulations, they must provide evidence to establish that the “failure of the contracting party to disburse the project funds as agreed” was the direct cause of the delay in payment of their labor costs. The contracting party is not required to prove that it has already paid in full; rather, the plaintiff must first fulfill its initial burden of proof to substantiate its claim.
Illegal subcontracting Non-applicability of the provision: It is pointed out that Article 36 of the Regulations applies to cases where work is contracted to “individuals or unqualified entities.” In this case, however, Defendant 2 subcontracted to Defendant 3—a limited liability company with proper qualifications—so, in principle, this provision does not apply.
3. Properly manage your own evidence: Regarding the payment of project funds, it is essential to carefully evaluate the evidence submission strategy based on factors such as whether settlement has been completed and whether any disputes exist. If you can provide documentation demonstrating that payments were made according to the contractually agreed schedule or that the payment ratio significantly exceeded that in Case 1 (91%), this will strengthen your defense. However, if substantial unpaid project funds do indeed remain outstanding, you should focus on preparing arguments emphasizing that these payments are unrelated to the plaintiff’s labor costs—for example, they may pertain to warranty deposits or claim amounts.
V. Conclusion
In disputes over labor costs in construction projects, the contracting party is not necessarily required to bear primary liability. The determination of its liability is a comprehensive outcome that takes into account fact-finding, legal interpretation, allocation of the burden of proof, and judicial policy considerations. As can be seen from the comparison of these two cases, there are significant divergences in judicial practice: one approach emphasizes substantive dispute resolution and protection of workers’ right to remuneration, potentially lowering the evidentiary threshold for plaintiffs and imposing a heavier burden of proof on the contracting party; the other approach places greater emphasis on the strict application of legal rules, requiring plaintiffs to prove all the factual elements underlying their claims.
Therefore, the litigation strategy adopted by the contracting party should not be singular but rather a multi-layered, targeted defense system. At its core, the strategy involves—on the one hand—actively asserting procedural rights (such as the principle of contractual relativity), and on the other hand—precisely dismantling each and every element required for the application of the special statutory provisions relied upon by the plaintiff, while directing the court’s focus toward pursuing recovery from the direct debtor. Ultimately, the outcome of any given case will still depend on the specific presiding judge’s understanding of the law, their grasp of the evidence, and their balancing of values between “protecting vulnerable groups” and “clarifying commercial rules.”
Key words:
Previous article
Related News
Zhongcheng Qingtai Jinan Region
Address: Floor 55-57, Jinan China Resources Center, 11111 Jingshi Road, Lixia District, Jinan City, Shandong Province
