Non-fixed-Term Labor Contract in China: Rules Further Clarified Under Judicial Interpretation II

Posted by Written by Qian Zhou Reading Time: 12 minutes

Non-fixed-term labor contracts in China offer employees strong job security, but they pose unique challenges for employers. Unlike fixed-term agreements, these contracts have no expiration date and can only be terminated under specific legal conditions. This article explains what triggers a non-fixed-term labor contract, recent judicial clarifications, and practical risk mitigation strategies.

Under China’s Labor Contract Law (last amended in 2012), which serves as one of the primary sources of employment regulation, employers can enter into three main types of labor contracts:

  • Fixed-term contract: Establishes an employment relationship for a specified duration.
  • Non-fixed-term contract (also known as an open-term or non-fixed-term labor contract): With no set expiration date and limited grounds for termination, this type of labor contract offers employees significant job security, sometimes until retirement.
  • Job contract: Tied to the completion of a specific task or project rather than a time frame.
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Unlike fixed-term contracts, non-fixed-term contracts cannot simply end upon reaching an expiry date. Termination is only allowed under specific circumstances, such as immediate dismissal for cause, dismissal with 30 days’ notice, or inclusion in a legally compliant mass layoff. This makes ending the employment relationship more challenging, so companies tend to exercise caution when considering this type of agreement.

In this article, we explore what triggers a non-fixed-term labor contract, key clarifications introduced by the latest judicial interpretation II, and practical strategies for employers to mitigate associated risks.

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What triggers a non-fixed-term contract under the labor contract law

In China, while non-fixed-term labor contracts can be established through mutual consent between employer and employee, Article 14 of the Labor Contract Law specifies situations where an employee has the right to request – or the employer must offer – a non-fixed-term contract, unless the employee requests a fixed-term contract. These include:

  • 10 years of continuous service: The employee has worked for the same employer for at least 10 consecutive years.
  • Approaching retirement after long service: When the employer first adopts the labor contract system or restructures a state-owned enterprise, and the employee has served for 10 consecutive years and is less than 10 years away from the statutory retirement age.
  • Two consecutive fixed-term contracts: The employee has signed two fixed-term contracts in succession and does not fall under the exceptions outlined in Article 39 of the Labor Contract Law, which covers grounds for immediate dismissal, or items (1) and (2) of Article 40, which address termination with 30 days’ notice.

Moreover, if an employer fails to sign a written contract with an employee within one year of the employee’s start date, the law deems that the parties have entered into a non-fixed-term labor contract.

Article 39 of the Labor Contract Law (Grounds for immediate dismissal)

Under any of the following circumstances, the employer may rescind the labor contract:

(1) where it is proven during the probationary period that the worker does not satisfy the employment criteria;

(2) where the worker has committed a serious breach of the employer’s rules and system;

(3) where the worker is guilty of serious dereliction of duties and corruption and causes the employer to suffer significant damages;

(4) where the worker holds a labor relationship with another employer concurrently, which has a severe impact on his/her performance of work tasks assigned by the employer, or refuses to make correction as demanded by the employer;

(5) where the labor contract is rendered void under the circumstances stipulated in item (1) of the first paragraph of Article 26; or

(6) where criminal prosecution is instituted against the worker pursuant to the law.

Article 40 of the Labor Contract Law (Termination with 30 days’ notice)

Under any of the following circumstances, the employer may rescind the labor contract by giving the worker a written notice 30 days in advance or by making an additional payment of one month’s wage to the worker:

(1) where the worker suffers from an illness or a non-work-related injury and is unable to undertake the original job duties or other job duties arranged by the employer following completion of the stipulated medical treatment period;

(2) where the worker cannot perform his/her duties and remains to be incapable of performing the job duties after training or job transfer; …

Clarities provided in the Judicial Interpretation II

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Article 14 of the Labor Contract Law was designed to stabilize employment relationships and protect long-serving workers through a “mandatory contract conclusion” obligation. In practice, however, some employers have sought to circumvent this requirement by resorting to tactics such as negotiating short extensions upon contract expiry, agreeing to automatic renewals, or alternating contract signatures through affiliated companies. These practices have blurred the criteria for determining when “two consecutive fixed-term contracts” have been formed, resulting in inconsistent judicial judgments across regions.

On August 1, 2025, China’s Supreme People’s Court (SPC) released the long-awaited Judicial Interpretation II on the Application of Law in Labor Dispute Cases (Fa Shi [2025] No. 12, hereinafter “Judicial Interpretation II on Labor Disputes” or “Judicial Interpretation II”), along with a set of illustrative cases. Both will take effect on September 1, 2025.

Article 10 of Judicial Interpretation II was issued precisely to resolve this uncertainty. By expressly enumerating four common avoidance behaviors and treating them as constituting “two consecutive fixed-term labor contracts,” the Interpretation significantly narrows employers’ room for circumvention and brings much-needed clarity to enforcement.

Article 10 of Judicial Interpretation II

Any of the following circumstances shall be deemed by the people’s court as meeting the requirements of item (3), Paragraph 2, Article 14 of the Labor Contract Law, i.e., “consecutively concluding two fixed-term labor contracts”:

(1) The employer and the laborer have agreed to extend the term of the labor contract for a cumulative period of one year or more, and the extension period has expired;

(2) The employer and the laborer have agreed that the labor contract shall be automatically extended upon expiration, and the extension period has expired;

(3) The laborer, for reasons not attributable to himself/herself, continues to work at the original workplace and position, and the employer changes the contracting entity but continues to manage the laborer, and the contract period has expired;

(4) The labor contract is re-concluded by other acts in violation of the principle of good faith to evade the law, and the contract period has expired.

Accumulated mutual-agreed extensions of one year or more

One of the most notable innovations of Judicial Interpretation II is its explicit inclusion of “accumulated negotiated extensions of one year or more” as constituting a new fixed-term contract for the purpose of determining “two consecutive contracts.” For the first time, a national-level judicial interpretation establishes that negotiated extensions, under certain conditions, should be treated not as a mere modification of the original contract but as a new contractual cycle.

For a negotiated extension to amount to one “new signing,” Article 10(1) of Judicial Interpretation II requires the following three elements to be met simultaneously:

  • Mutual consent: The extension must be the result of genuine, voluntary agreement between the employer and the employee. Consent may be evidenced in various forms, such as supplementary written agreements, email exchanges, WeChat messages, meeting minutes, and other records showing genuine negotiation.
  • Accumulation: The total length of all negotiated extensions must reach at least one year. “Accumulated” means that multiple extensions may be added together. For example, if the parties first extend for six months and later extend for seven months, the total of 13 months satisfies the requirement. A single extension of more than one year naturally qualifies.
  • Expiry: The extended term must have already expired. If the extension agreement is still being carried out (for example, the parties agreed on a fifteen-month extension but only six months have elapsed), it does not yet count as one contractual cycle

Before Judicial Interpretation II, courts across China adopted significantly different approaches when determining whether a negotiated extension should be treated as a contract renewal. Three main judicial patterns existed:

Pattern Example Regions Core View Legal basis / Cases
“Extension equals renewal” Beijing, Shandong Any extension that lengthens the total contract performance period is deemed a renewal of a new fixed-term contract. Beijing High Court Q&A (I), Art. 85; Shandong Labor Contract Regulation, Art. 16
“Extensions over six months count as renewal” Jiangsu, Shenzhen, Zhengzhou, Hefei Accumulated extensions of more than six months constitute a renewal; shorter extensions are treated as modifications to the original contract. Jiangsu Labor Contract Regulation, Art. 17; Shenzhen Regulation on Harmonious Labor Relations, Art. 18
“Comprehensive assessment” Shanghai No explicit rule; courts examine formal elements (whether a new contract was signed), substantive performance changes (position, pay), and employer intent (whether intended to circumvent the law). (2020) Hu 01 Min Zhong No. 4338, etc.

While Article 10(1) of the Judicial Interpretation II does not invalidate local rules but establishes a nationwide baseline: whenever “negotiated extensions accumulate to one year or more,” they must be recognized as a new contractual cycle.

Based on our understanding, we think this means:

  • For regions like Beijing and Shandong (“any extension counts as renewal”) and Jiangsu or Shenzhen (“extensions over six months count as renewal”), local standards remain stricter and can continue to operate alongside the national baseline.
  • For regions like Shanghai without clear rules, the “one-year threshold” becomes a key reference point, offering a more predictable basis for adjudication.

Expiry of an automatic extension clause

The second circumstance recognized under Judicial Interpretation II concerns situations where the parties have agreed in advance that the employment contract will automatically extend upon expiry unless either party raises an objection. When such an automatic extension has already run its course, the Interpretation treats it as a new fixed-term contract for the purpose of determining “two consecutive contracts.”

For an automatic extension to be counted as one renewal, three requirements must be satisfied:

  • A valid and specific prior agreement: The original employment contract must clearly include an automatic extension clause. For example: “Upon expiry, if neither party raises a written objection, this contract shall automatically extend for one year.” The clause must be definite and specific in terms of duration and conditions.
  • Expiry of the extended term: The fixed term generated by the automatic extension must have already expired. If the extension is still ongoing, it does not yet constitute one contractual cycle.
  • No substantive change to rights and obligations: During the automatic extension period, the employee’s core working conditions, such as position, remuneration, and work location, should remain consistent with the original contract. If the employer uses the extension as an opportunity to make substantial changes, the arrangement may instead be deemed a newly negotiated contract rather than a true automatic extension.

Comparison of “Automatic Extension”, Negotiated Renewal”, and “Statutory Continuation”
Item Automatic extension Negotiated renewal Statutory continuation
Triggering basis Prior agreement between both parties New mutual consent upon expiry Mandatory statutory provisions (e.g., medical treatment period, pregnancy, maternity leave, breastfeeding period)
Core characteristic Passive continuation of the original contract; terms remain unchanged Active formation of a new contract; terms may be modified (or kept the same) Compulsory continuation of the original contract; no consent required
Legal consequence Counts as one contractual cycle Counts as one contractual cycle Does not count as a contractual cycle
Written requirement Based on the original clause; no new document required Usually requires signing a new contract document No additional written documentation needed

Changing the contracting entity while labor management continues

This scenario primarily targets situations in which an employer attempts to “reset” the count of consecutive contracts by switching the contracting entity, often through affiliated companies or even unrelated entities, while the employee’s actual work remains unchanged. Such “shell-switching” arrangements are treated as a new fixed-term contract for the purpose of determining “two consecutive contracts” under Judicial Interpretation II.

For a change of contracting entity to be deemed one fixed-term contract cycle, the following elements must be present:

  • Not caused by the employee: The change of employer must be imposed on the employee, such as due to corporate restructuring, business transfers, or arrangements among affiliated companies.
  • No change to worksite or job duties: The employee’s actual work content and work location must remain substantially the same before and after the change of entity, indicating continuity of the employment relationship.
  • Change of legal contracting entity: There must be an actual legal change in the party signing the employment contract.
  • Continuity of labor management: The new or previous entity must have carried out labor management, such as work assignment, attendance control, performance assessment, and salary payment in a continuous, uninterrupted manner.
  • Expiry of the new entity’s contract term: The fixed-term contract signed with the new contracting entity must have reached its expiry.

In short, the Interpretation adopts a substantive review principle. Even if the nominal contracting entity changes, as long as the core elements, non-employee-initiated change, unchanged job duties, and continuous labor management are met, the arrangement constitutes “two consecutive contracts.” This unifies judicial standards and significantly strengthens employee protection. Attempts by employers to avoid a non-fixed-term labor contract obligation by rotating entities have, in effect, been neutralized.

Other circumvention behaviors violating the principle of good faith

This is a catch-all provision granting courts discretionary authority to address new or sophisticated avoidance tactics that may emerge in practice. Where an employer’s conduct violates the principle of good faith, such as artificially fragmenting work periods, manipulating contract timelines, or using other indirect mechanisms to evade renewal obligations, the court may treat such behavior as constituting continuous contracting.

Evolving judicial views in Shanghai

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For many years, the mainstream position across most regions in China has been consistent: once an employer and employee have entered into two or more consecutive fixed-term labor contracts, the employee acquires a unilateral right to demand the conclusion of a non-fixed-term labor contract. Shanghai, however, long stood out as an exception. The city’s judicial and arbitration bodies had historically taken the view that even after two consecutive fixed-term contracts, an employer could still lawfully terminate the employment relationship upon expiry of the second term, without being compelled to offer a non-fixed-term labor contract. This “Shanghai exception” made the region unique in its interpretation of Article 14 of the Labor Contract Law.

Nevertheless, since 2025, this position has undergone a notable shift. According to the Compilation of Judicial Opinions of the Shanghai High People’s Court (Opinion No. 5), when an employer and employee have signed two or more consecutive fixed-term contracts and the last one expires, most judges now hold that if the employee requests a non-fixed-term labor contract, the employer must agree, regardless of whether the employer wishes to renew the employment relationship. The guidance further explains that when an employer enters into a second fixed-term contract, it should reasonably anticipate the possibility of a non-fixed-term labor contract at the end of that term. If the employee has complied with company rules and performed the job competently, the employee is entitled to require a non-fixed-term labor contract, and the employer should not refuse. Protecting this right, the court notes, encourages compliance, rewards stable performance, and ultimately aligns with employers’ long-term interests.

This development reflects a broader policy trend: the state is increasingly intervening to promote stable employment, safeguards against arbitrary termination, and the long-term formalization of labor relationships. Shanghai’s shift, from an outlier to alignment with national practice, signals a nationwide move toward strengthening employee protection and narrowing employers’ room to rely on contract expiry as a termination pathway.

Practical compliance adjustments from an HR management perspective

From an employer’s human resources (HR) management standpoint, Judicial Interpretation II requires a fundamental shift toward more compliant and strategically planned labor management. The following adjustments can help employers align with the new judicial landscape.

Making full use of contract-term arrangements

Shorter first terms and longer renewals: When entering into the first employment contract, employers should consider setting a relatively short initial term to assess the employee’s suitability. Employees found unsuitable should be terminated upon expiry. For renewals, employers should differentiate by job category: for core or strategic positions, adopting longer renewal terms helps avoid unintentionally triggering the mandatory non-fixed-term labor contract requirement within a short period.

Aligning job tenure terms with contract terms: Employers may specify the tenure of the initial job assignment within the fixed-term contract. Internal job rotation, through competitive selection or reassignment, can then be used to create flexibility in personnel management while maintaining coherence between job tenure and contract tenure.

Handling the expiry of fixed-term contracts with caution

Act early before expiry: Before a fixed-term contract expires, employers should conduct a timely and thorough assessment of the employee’s suitability for continued employment. If renewal is intended, the process should be initiated promptly, with clear notice to the employee, especially where the employee has become entitled to a non-fixed-term labor contract.

Use extensions carefully: Negotiated extensions or automatic extensions should not be used casually. Where an extension is necessary, employers must accurately calculate the cumulative duration, as exceeding one year may be deemed a new contractual cycle and counted toward the “two consecutive fixed-term contracts” threshold.

Manage non-fixed-term labor contract obligations proactively: When an employee qualifies for a non-fixed-term labor contract, the employer should clearly communicate its intention to conclude one within a reasonable time before expiry. A non-fixed-term labor contract is not inherently risky: the grounds for lawful termination under Articles 39 and 40 remain fully available, except that the employer can no longer rely on expiry as an exit mechanism. In practice, once a second fixed-term contract has been completed, the possibility of ending employment purely by non-renewal becomes minimal.

Build compliant exit pathways through internal management: Given the reduced reliance on expiry, employers should ensure their internal management systems support lawful termination where necessary. This includes:

  • enforcing disciplinary termination through well-drafted rules, transparent procedures, and consistent implementation; and
  • maintaining rigorous performance management to establish “incompetence” as a lawful ground for termination under Article 40(2).

Attempting to use expiry to end employment when a non-fixed-term labor contract is legally required is highly risky. Employers intending to rely on the exceptions in Article 39 or Article 40(1) – (2) must prepare early and secure sufficient evidence before exercising termination rights.

Using “mutual agreement” in consecutive fixed-term renewals

When an employer wishes to continue signing fixed-term contracts beyond the second term, it is essential to keep evidence that the employee initiated or agreed to the continued use of fixed-term contracts. Employers may prepare supplementary documents, such as a fixed-term contract application, a written consent form, or a statement waiving the right to a non-fixed-term labor contract, signed by the employee. These documents clarify that the decision to maintain a fixed term is initiated by the employee and mutually agreed upon.

 Managing internal mobility appropriately

For older employees, employers may consider mutually agreed adjustments to lower-intensity positions or early internal retirement arrangements. Such adjustments can help avoid future situations where termination becomes extremely difficult or expensive.

In the case of workforce movement within a corporate group or between affiliated companies, employers should ensure that termination and re-engagement procedures are properly completed when switching contracting entities. When signing contracts or related documents, employers should acknowledge continuous service years while also explicitly stating the independence of each contracting entity. This helps prevent unintended “commingled employment” findings that could result in contract-cycle counting across multiple entities.

Monitoring local judicial practices and adjusting HR policies dynamically

Although Judicial Interpretation II establishes a unified national baseline, regional variations in judicial practice remain both significant and highly consequential for employers. Certain jurisdictions, such as Jiangsu with its six-month standard for determining “continuity”, apply more detailed or stringent rules that can materially affect the calculation of contract cycles, the assessment of “non-voluntary” transfers, or the recognition of management continuity.

To maintain compliance and minimize labor dispute risks, employers should adopt a dynamic monitoring mechanism that tracks developments in local judicial and arbitration practice. This includes regularly reviewing:

  • guiding opinions and policy documents from provincial high courts;
  • typical or model cases published by labor arbitration commissions; and
  • publicly available judgments that reveal local interpretive trends on contract renewal, non-fixed-term labor contract triggers, and employer behavioral thresholds.

Internal HR policies should then be adjusted proactively to reflect these localized interpretations. For example, enterprises operating across multiple provinces may need differentiated contract-management strategies or standardized documentation practices tailored to the strictest applicable regional rules. Cross-regional HR teams should also maintain close communication to identify early divergences and update employment practices accordingly.

By integrating ongoing judicial trend monitoring into routine HR governance, employers can better predict litigation risks, ensure the defensibility of management actions, and align day-to-day employment decisions with evolving local adjudication standards.

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