Companies in Shanghai should consider what key developments mean for their business.

China Employment and HR

Maarten Roos and Stacy Wu Your Author LinkedIn Connections

The PRC Labor Contract Law states that an open-term contract must be offered after two consecutive fixed-term contracts, unless the employee opts for another fixed term. Across China, this is interpreted to mean that employers cannot refuse renewal after the second term and must switch to an open-term contract. As a result, an employer can unilaterally decide to terminate after expiry of the first fixed-term contract only.

Shanghai labor arbitration tribunals and courts have generally interpreted the law differently: the requirement to offer an open-term contract only applies if the employer intends to renew. As a result, Shanghai employers can decide to terminate the employment contract at the end of the second or any subsequent fixed term, without automatic conversion (subject to payment of severance).

This interpretation is now under debate. Starting 1 January 2025, the Shanghai Higher People's Court's Opinions on Difficult Labour Disputes present two views:

• The majority view: If an employee requests an open-term contract after two terms, the employer must comply.

• The minority view: Employers can still decide not to renew.

So far, we have seen one case where a local court in Minhang District ruled the employer's refusal to renew as unlawful, ordering economic compensation (instead of severance)....

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