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 labor disputes.
In the Judicial Opinion II, Article 5 to Article 7, Article 16 to Article 18 and Article 20 are related to companies’ handling of labor disputes with employees. We would like to explain their practical implications for companies as follows:
1. A representative office of a foreign enterprise or even a foreign enterprise can become a concerned party to a labor dispute litigation.
Under PRC employment law, a foreign enterprise and its representative office in China are not qualified as employers to hire Chinese employees. A representative office of foreign enterprise in China can only engage Chinese employees through local labor dispatch agencies. Therefore, in the past, a foreign enterprise could not become a concerned party to a labor dispute litigation in China. A representative office of foreign enterprise in China, in case a labor dispute was raised by a dispatched employee, could not be the only defendant but could be a joint defendant together with the labor dispatch agency in the labor arbitration/litigation proceedings.
However, according to Article 5 of the Judicial Opinion II, the representative office of a foreign enterprise can be a concerned party to a labor dispute case, and if it is applied for by the employee and approved by the court, then the foreign enterprise can also be required to attend the litigation case as a concerned party. For the time being, it is still unclear under what circumstances the foreign enterprise itself can become a concerned party to a labor dispute litigation.
2. Companies will be required to pay to the employees double monthly salary calculated based on months for not duly concluding employment contracts with employees in writing, except if the statutory law provides otherwise.
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 when 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.
Article 6 of the Judicial Opinion II provides the detailed rules about how to calculate such double monthly salary, i.e., it shall be calculated based on months; for periods of less than one month, it shall be calculated based on the actual number of working days in that month.
Article 7 of the Judicial Opinion II further provides the statutory circumstances where companies shall not be deemed as not duly concluding employment contracts with employees in writing, i.e. (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.
3. Companies can arrange those employees who were engaged in operations exposing them to occupational hazards to do occupational health checks as a remedy prior to the end of the court debate during the litigation proceedings for the first instance to support their defense on justified termination.
According to Article 42 of the PRC Employment Contract Law, an employee who was engaged in operations exposing him/her to occupational hazards shall not be dismissed by mass lay-off or due to illness, incompetence or the change of objective circumstances before he/she has not undergone a pre-departure occupational health check. According to the law, an employee who has been dismissed by the company is entitled to ask for reinstatement of the employment relationship due to the reason that the company failed to provide him/her with the pre-departure occupational health check according to the law.
In such a case, the company may, according to Article 17 of the Judicial Opinion II, arrange the employee to do an occupational health check prior to the end of the court debate during the litigation proceedings for the first instance. If the employee refuses the above-mentioned occupational health check as arranged by the company without proper reasons, according to the regulation, it shall be deemed as that the company has fulfilled its statutory obligations. As a result, the court will not support the claim of reinstatement of employment relationship raised by the employee due to such reason.
For the interests of companies, if an employee is dismissed by mass lay-off or due to illness, incompetence or the change of objective circumstances, the company shall duly check if such employee was engaged in operations exposing him/her to occupational hazards and if he/she has undergone an occupational health check before employment termination. If not, the company shall promptly arrange the occupational health check for the employee at the latest before the end of the court debate during the litigation proceedings for the first instance. Otherwise, the company might face the legal risk of being required to reinstate the employment relationship with the employee, if the employee requires so.
4. Companies must evaluate the legal risk of reinstatement of employment relationships before unilaterally terminating the employment contract with the employee.
According to Article 48 of the PRC Employment Contract Law, where an employer terminates an employment contract without a legal ground, and the employee requests continued performance of the employment contract, the employer shall do so except if the employee does not request the continued performance, or the employment contract can no longer be performed. In such a case where continued performance of employment contract is not applied, the employer shall pay economic compensation to the employee in the amount of double statutory severance payments for unjustified termination.
In practice in the past, the claims of employees for reinstatement of employment relationship were not commonly supported by the courts mainly because there were no uniform standards about the circumstances defined as that the employment contract can no longer be performed. Many companies had the impression that if they were willing to pay double statutory severance payments, they could unilaterally terminate the employment contract with the employees without statutory reasons. But such practice will be changed in the future.
Article 16 of the Judicial Opinion II clarifies the circumstances where an employment contract can no longer be performed if it is terminated without legal ground as follows:
(1) The employment contract expires during the labor arbitration or litigation proceedings, and there are no statutory circumstances under which the employment contract must be renewed or extended;
(2) The employee has started to enjoy pension benefits in accordance with the law;
(3) The employer has been declared bankrupt;
(4) The employer has been dissolved except for the purpose of merger or division;
(5) The employee has established an employment relationship with another employer, which seriously impedes the completion of work tasks for the original employer, or the employee refuses to terminate the employment contract with the other employer upon request by the original employer; and
(6) Other circumstances exist where the employment contract is objectively incapable of being further performed.
Please especially note according to the above Item (5), even if the employee has already found a new job, he/she still has a chance to go back to the original employer if his/her reinstatement claim is supported. This is completely different from the past practice.
Further, according to Article 18 of the Judicial Opinion II, if the claim of an employee is supported by the court, in addition to reinstating the employment relationship of the employee, the original employer must retroactively pay the salaries of the employee in the amount as if he/she would have provided normal work for the period from the date of dismissal until the date before the employment relationship is reinstated. However, Article 18 further provides that if both the employer and the employee are at fault for the termination of the employment contract, each party shall bear corresponding labilities.
It is expected that in the future, more reinstatement claims will be supported by the court for unjustified termination. Companies will have to face more legal risks when unilaterally terminating employment contracts with employees. If a company is required to reinstate the employment relationship with a dismissed employee, the potential impacts that can be brought to the company will be quite severe, not only for daily management but also for economic losses because the total amount of the salaries to be paid retroactively for the entire period of legal proceedings for labor dispute (which always take a long time) can be much more than double statutory severance payments.
To mitigate the legal risks, companies may wish to evaluate the legal consequences of employment termination with a higher level of caution before conducting unilateral termination, and companies shall also strictly fulfill all the statutory termination requirements according to law.
5. Companies must actively raise the argument of statute of limitation in labor disputes in the labor arbitration proceedings, otherwise, companies may lose the opportunities on making defense in this regard.
According to the PRC Law on Mediation and Arbitration of Labor Disputes, the general statute of limitations for filing a labor arbitration in labor disputes is one year, starting from the date the party knew or should have known that their rights were infringed. The claims raised by employees for underpaid labor remuneration during employment are not subject to the one-year statute of limitation, but such claims must be filed within one year from the date of employment termination.
According to Article 20 of the Judicial Opinion II, a party must raise a statute of limitation defense during the labor arbitration proceedings, except if it fails to do so not due to its own reasons or it has new evidence to prove the expiration of statute of limitation during the litigation proceedings for the first instance or second instance. Further, according to Article 20, where a party fails to raise a statute of limitation defense during the labor arbitration proceedings, then applies for retrial or raises a retrial defense at the court on the ground that the statute of limitation has expired, the court shall not uphold it.
Based on the above, in case of labor disputes, companies may wish to promptly check if the statute of limitation of such labor dispute has expired and duly make the defense based on expiration of statute of limitation during the labor arbitration proceedings.
