SPC’s Opinion (II) Series 2: New Updates on Conclusion and Renewal of Employment Contract in China — Key Takeaways from the SPC’s Judicial Opinion (II)

On 1 August 2025, the PRC Supreme People’s Court (“SPC”) released the Opinions (II) on Several Issues Concerning the Application of Law in the Trial of Labor Disputes (the “Judicial Opinion II”) and several typical labor dispute cases. The Judicial Opinion II has taken effect from 1 September 2025.

The Judicial Opinion II consists of 21 Articles in total. They clarified many long-standing controversies in implementing employment law and inconsistencies in judicial practice at different locations. To help companies better understand the practical implications, we will publish four newsletters to interpret the Judicial Opinion II from the following perspectives (i) implementation of non-competition obligations; (ii) conclusion and renewal of employment contracts; (iii) workforce engagement and social insurance issue; (iv) labor disputes. This newsletter focuses on the new updates on conclusion and renewal of employment contract.

The Judicial Opinion II gives more detailed explanations on conclusion and renewal of employment contracts in Article 4, Article7 to Article 12. We would like to summarize as follows:

New updates on conclusion of employment contracts

a) Companies may conclude employment contracts with foreigners holding a PRC Permanent Residence Card directly.

Under PRC law, to work in China, a foreigner must hold a valid work permit and residence permit for work purpose. However, after the Administrative Measures for the Examination and Approval of Permanent Residence of Foreigners in China became effective in 2004, more and more foreigners are holding a PRC Permanent Residence Card. Under PRC law, foreigners holding a PRC Permanent Residence Card shall, in principle, enjoy the same rights and bear the same obligations as Chinese citizens except for political rights and specific rights and obligations provided by law otherwise.

In Article 4 of the Judicial Opinion II, it is clarified that companies can directly conclude employment contracts with foreigners holding a PRC Permanent Residence Card without applying for work permit and residence permit for work purpose for them.

b) Companies will not be deemed as not duly concluding employment contracts with employees in writing under the following circumstances (i) failure to conclude written contract due to force majeure; (ii) failure to conclude written contract due to the employee's intentional misconduct or gross negligence; (iii) other circumstances prescribed by laws or administrative regulations.

Under PRC law, if a company fails to conclude an employment contract with an employee in writing within one month after the employee is on board, for the period from the first day of the following month until the day then the written contract is signed, but at the latest by the end of one year after the employee is on board, the employee is entitled to ask for compensation of additional one monthly salary, i.e. double monthly salary in total.

However, according to Article 7 of the Judicial Opinion II, under the circumstances mentioned above, an employee who fails to conclude an employment contract in writing within one month after being on board shall not be able to ask for double monthly salary from the company.

c) Companies must sign employment contracts with employees in writing upon their requirements even if employees are deemed as having concluded employment contracts according to statutory law.

Under PRC law, if a company fails to sign an employment contract with an employee in writing within one year after the employee has been on-board, it shall be deemed as the employee has concluded an indefinite term contract with the company.

According to Article 9 of the Judicial Opinion II, in the above-mentioned case, if the employee still requires the company to sign a written contract with him/her, the company must do so. However, the employee shall not be able to claim double monthly salary due to the reason that the company did not duly sign written contract with him/her. Please note that such rule also applies to the renewal of employment contracts.

d) When concluding employment contracts, companies can agree with the employees on the service period for provision of special treatment and can claim for damages if any employee breaches the agreement on the service period.

According to PRC law, a company can agree with the employee on a service period if the company provides professional technical training for the employee. If an employee breaches the agreed service period, the company is entitled to claim damages calculated based on the training costs incurred by the company in proportion of the service period which has not been performed by the employee. In practice in the past, except for the situation mentioned above, the agreement between the company and the employee on the service period for special treatment such as obtaining the household registration (“Hukou”) in big cities will be regarded as invalid and unenforceable.

Article 12 in the Judicial Opinion II provides clarification and the judicial rules that, in the future, a company can agree with an employee on the service period for provision of special treatment. Please note that such special treatment shall refer to the benefits in addition to normal salary of the employee. In case the employee unilaterally terminates the employment contract in breach of the agreed service period, except if the termination reason is due to the reason of breach of employment contract or law by the company, the company is entitled to request the employees to compensate losses, which shall be determined by the labor arbitration commission or the People's Court on a comprehensive basis by considering the factors including the actual losses of the company, the degree of employees’ fault, and the duration of agreed service period that has already been performed by the employee. In principle, the same rule as provided by law for liabilities of employees in breach of the agreed service period for professional technical training shall also apply.

New updates on renewal of employment contracts

a) If the fixed term employment contract of an employee is, upon its expiration, further extended automatically due to statutory reasons provided by law, the company is not obliged to renew the written contract with the employee before the extension reason disappears.

According to PRC law, under the following circumstances, the expiring date of a fixed term employment contract of an employee shall automatically be extended until the circumstance disappears:

• where the employee was engaged in operations which expose him/her to occupational hazards and has not undergone a pre-departure occupational health check-up, or is suspected of having contracted an occupational disease and is being diagnosed or under a medical observation period;
• where the employee suffers from an occupational disease or has sustained work-related injuries during the employment, and has been confirmed to have lost fully or partially the capacity to work;
• where the employee is receiving medical treatment for an illness or injury within the period as stipulated by the law;
• where the employee is pregnant, on maternity leave, or nursing a baby;
• where the employee has been working for the company continuously for not less than 15 years and is less than 5 years away from his/her legal retirement age;
• where the employee has agreed on a service period with the company for being provided with professional technical training and such service period has not been fulfilled; and
• where the employee holds the positions of chairman, vice-chairman or committee member at the trade union and the term of his/her office has not expired.

According to Article 8 of the Judicial Opinion II, under the circumstances mentioned above, the employee is not entitled to ask for double monthly salary from the company if no employment contract is renewed with the employee in writing. Further, when the above-mentioned circumstance disappears, the company is still entitled to terminate the employment contract with the employee due to expiration of the contract according to law.

b) Companies are obliged to renew an indefinite-term employment contract with the employee if the employee requires so when his/her fixed term contract expires under the following circumstances:

• where the company and the employee have agreed to extend the term of contract accumulatively for a period of one year or more, and such extended term has expired;
• where the company and the employee have agreed that the contract shall be automatically renewed for a certain period upon expiration, and the renewed term has expired;
• where the employee continues to work at the original workplace and in the original position due to the reason which is not attributable to the employee under a contract where the contracting party has been changed to the other one, but the original contracting party continues to exercise employment management over the employee, and the term of such contract expires; and
• where an employment contract is renewed in the way of circumventing of signing fixed term contract for twice in breach of the principle of good faith, and the term of such employment contract expires.

Under PRC law, when an employment contract is renewed, an indefinite-term employment contract must be entered into, upon the requests of the employee, if two consecutive fixed-term employment contracts have been concluded and the employee does not fulfill one of the termination circumstances as stipulated by law. In the past, some companies have been found to use various means to circumvent the statutory obligation of concluding indefinite-term employment contracts with their employees, thereby infringing upon the legitimate rights and interests of the employees.

Article 10 in the Judicial Opinion II explicitly lists the above-mentioned circumstances that should be recognized as the consecutive conclusion of two fixed-term employment contracts and further emphasizes that companies shall follow the principle of good faith and shall not evade the statutory obligation of establishing indefinite-term employment contracts with employees.

Please specifically note that with the issuance of the Judicial Opinion II, Shanghai changed its special judicial practice which had been implemented for many years about the renewal of employment contracts. In the past in Shanghai, when the fixed-term contract of an employee expired, even if the employee had consecutively signed fixed term contracts with the company for twice, different from the provisions of statutory law, companies located in Shanghai could still decide not to renew the employment contract with the employee at their discretion. Now, all companies in Shanghai must follow the provisions of statutory law, i.e., if an employee has consecutively signed fixed term contracts with the company for twice, when the second fixed term contract expires, upon the requirement of the employee, the company shall not terminate the contract due to expiration but must sign an indefinite term contract with the employee except if the employee fulfills a statutory termination reason which allows the company to terminate the contract with the employee according to law.

c) According to Article 11 of the Judicial Opinion II, if an employee continues to work for the company for more than one month after expiration of the contract, even without renewing the contract in writing, the company shall be deemed as having renewed the contract with the employee, and in case of termination of contract due to expiration of the original term of the contract, the company shall bear legal liabilities of unjustified termination.

This provision is different from the practice in the past where a company could always terminate the employee due to expiration of contract as long as the renewed contract was not signed except if the employee is entitled to renew the contract for indefinite term according to law.

Based on the above, companies must decide whether to renew the employment contract with the employee within one month upon the expiration of contract. If the company decides not to renew the contract, the company must notify the employee about the termination of contract due to expiration within one month.