China: Employer Liability Insurance — Legal Relationships, Compensation Frameworks, and Risk Allocation

1. Introduction

In modern business management, employer liability risk has become a critical issue that cannot be overlooked. Employer liability insurance is designed to cover the insured’s legal liability for personal injury, death, or occupational disease suffered by employees during the course of employment, as required by law. However, significant differences exist in the rules governing liability determination, compensation standards, and legal bases across various types of employment relationships. Many employer liability insurance products currently available on the market apply broadly generalized policy terms that cover multiple types of employment relationships without clearly distinguishing between them.

Against this background, this article aims to systematically examine the types of legal relationships that may exist between employers and employees, analyze the scope of liability, legal basis, and liability boundaries applicable under each relationship, and, on that basis, compare the structure of existing employer liability insurance provisions and propose targeted recommendations for improvement.

2. Legal Relationships Between Employers and Employees and the Basis for Compensation

The author considers that the legal relationships between employers and employees primarily fall into the following categories.

(1) Employment Relationships (Labor Relationships)

1. Determination of Employment Relationships

Under an employment relationship, the employer refers to the employing entity, and the employee refers to the individual providing labor services under that relationship.

Employment relationships refer to the social and economic relationships formed between employees and employers in the course of providing labor and are governed by specialized legislation, including the Labor Law and the Labor Contract Law. Employment relationships may include both standard employment relationships established through written labor contracts and de facto employment relationships formed in the absence of a written contract.

According to the Notice on Matters Concerning the Establishment of Labor Relations, a de facto employment relationship may be established where the following conditions are satisfied:

• The employer and employee meet the legal qualification requirements prescribed by law
• The employee is subject to the employer’s labor management rules and regulations
• The labor provided by the employee constitutes an integral part of the employer’s business operations [1]

2. Employer Legal Liability Under Employment Relationships

Within an employment relationship, where an employee suffers personal injury or death arising out of and in the course of employment, the employer is liable in accordance with applicable law if the injury is recognized as a work-related injury under Articles 14 and 15 of the Regulations on Work-Related Injury Insurance. Employer liability typically includes both work-related injury insurance liability and supplementary medical expense liability.

2.1 Work-Related Injury Insurance Liability

Work-related injury insurance liability is generally based on a no-fault principle. Under Article 2 of the Regulations on Work-Related Injury Insurance, employers are required to participate in work-related injury insurance and pay the applicable insurance premiums for employees, who are then entitled to receive benefits in accordance with statutory provisions.

Where an employee suffers a work-related injury, the allocation of liability depends on whether the employer has complied with its obligation to contribute to the work-related injury insurance fund.

Scenario 1: Employer Has Paid Work-Related Injury Insurance Premiums

Where the employer has complied with its legal obligation to contribute to work-related injury insurance, compensation is allocated between the work-related injury insurance fund and the employer according to statutory provisions.

The work-related injury insurance fund generally covers major expenses, including:

• Medical expenses and rehabilitation costs related to treatment of the injury
• Hospital meal subsidies
• Transportation, accommodation, and subsistence expenses incurred when seeking treatment outside the relevant jurisdiction
• Lump-sum disability benefits, typically ranging from seven to twenty-seven months’ salary depending on the degree of disability
• Monthly disability allowances for employees classified as Grade 1 to Grade 4 disabilities, generally ranging from 75% to 90% of the employee’s salary
• Lump-sum medical subsidies payable upon termination of employment for employees classified as Grade 5 to Grade 10 disabilities

The employer is typically responsible for the following:

1. Salary and benefits payable during the statutory work stoppage period [2]
2. Nursing expenses incurred during the work stoppage period [3]
3. Disability allowances payable to employees classified as Grade 5 or Grade 6 disabilities where suitable work cannot be arranged [4]
4. Lump-sum disability employment subsidies payable where employees classified as Grade 5 to Grade 10 disabilities terminate employment [5]

Generally, the paid work stoppage period does not exceed twelve months. In cases involving serious injury or special circumstances, the period may be extended by the relevant labor capacity appraisal authority, but the extension may not exceed an additional twelve months.

Scenario 2: Employer Has Failed to Pay Work-Related Injury Insurance Premiums

Where the employer fails to contribute to work-related injury insurance as required by law, Article 62(2) of the Regulations on Work-Related Injury Insurance provides that the employer must independently bear the full amount of compensation that would otherwise have been paid by the work-related injury insurance fund. In such circumstances, the employer’s financial exposure is significantly increased. [6]

Scenario 3: Retired and Rehired Personnel

The legal classification of retired and rehired personnel remains subject to evolving judicial interpretation. Article 32 of the Supreme People’s Court Interpretation on the Application of Law in the Trial of Labor Dispute Cases (I) previously characterized the relationship between employers and rehired retirees as a service relationship rather than an employment relationship. However, this provision has since been repealed under subsequent judicial interpretations.

Recent legislative developments, including the Measures of the State Council on Gradually Delaying the Statutory Retirement Age, indicate an increasing emphasis on protecting the legal rights of rehired retirees. According to guidance issued by the Ministry of Human Resources and Social Security, where employers contribute to work-related injury insurance for rehired retirees, the protections provided under the Regulations on Work-Related Injury Insurance may apply to such individuals. [7][8]

2.2 Supplementary Medical Expense Liability

Article 30 of the Regulations on Work-Related Injury Insurance provides that medical expenses included within the official reimbursement catalog are covered by the work-related injury insurance fund. However, the allocation of responsibility for medical expenses falling outside the reimbursement catalog is not expressly defined.

Although Article 1179 of the Civil Code allows recovery of reasonable treatment and rehabilitation expenses under general tort principles, this provision is based on fault liability and may conflict with the no-fault structure of the work-related injury insurance system.

Local regulations vary considerably. For example:

• Jilin Province provides that medical expenses falling outside the reimbursement catalog are shared equally between employer and employee [9]
• Zhejiang Province generally provides that such expenses are not borne by the employer unless the employer has expressly approved the treatment [10]

Accordingly, whether employers are required to cover medical expenses outside the reimbursement catalog depends on applicable local regulations and judicial practice and must be assessed on a case-by-case basis.

(2) Service Relationships (Labor Service Relationships)

1. Determination of Service Relationships

Within a service relationship, the employer refers to the party receiving services, while the individual providing services acts as an independent service provider.

Service relationships are civil law relationships established between equal parties, under which one party provides services and the other pays remuneration. Unlike employment relationships, service relationships are characterized by the absence of subordination or dependency between the parties.

Service relationships commonly arise in connection with short-term engagements, temporary personnel, seasonal workers, or other arrangements that do not satisfy the legal criteria for employment relationships.

2. Employer Liability Under Service Relationships

China’s work-related injury insurance system primarily protects individuals who have established formal employment relationships with employers. Individuals providing services under service relationships are generally not included within the statutory work-related injury insurance framework.

Accordingly:

• Employers are not legally required to contribute work-related injury insurance premiums for service providers
• Service providers are generally not entitled to work-related injury insurance benefits

Where a service provider suffers personal injury or death in connection with services rendered, liability is determined under the Tort Liability provisions of the Civil Code and relevant judicial interpretations, including the Interpretation of the Supreme People’s Court on Personal Injury Compensation (2022 Amendment).

Service relationships may generally be categorized into the following scenarios.

2.1 Service Relationships Between Individuals

Article 1192(1) of the Civil Code provides that where a service provider suffers damage in the course of providing services, liability shall be allocated according to the degree of fault of each party.

Accordingly, in service relationships between individuals, liability is fault-based rather than no-fault. Employers are generally liable only where fault can be demonstrated, such as failures in safety management, equipment provision, or training.

Where injury is caused by a third party, the employer may bear supplementary liability, while the injured individual retains the right to pursue compensation directly from the third party responsible for the injury.

2.2 Service Relationships Between Individuals and Legal Entities or Unincorporated Organizations

The Civil Code does not explicitly address service relationships formed between individuals and legal entities or unincorporated organizations, and judicial practice reflects differing approaches.

One line of cases applies fault-based liability by analogy to service relationships between individuals, reasoning that both relationships fall within the broader category of civil service arrangements.

Another line of cases applies a stricter standard analogous to employment relationships, on the basis that legal entities are typically in a stronger bargaining position and derive commercial benefit from the services provided.

As illustrated by cases including (2025) Shaanxi 07 Min Zhong No. 833, (2025) Chuan 1324 Min Chu No. 5304, (2025) E 0606 Min Chu No. 893, and (2023) Hu 01 Min Zhong No. 6028, judicial approaches remain inconsistent, and no unified standard has yet been established.

The above analysis of employer liability under employment relationships and service relationships provides the core legal framework relevant to the design of employer liability insurance clauses. A comparative analysis of employer liability insurance structures and policy drafting considerations will be addressed in the next article.

Anjie Broad, China, a Transatlantic Law International Affiliated Firm.  

For further information or for any assistance please contact china@transatlanticlaw.com

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