Shanghai Revises Judicial Opinion on Open-end Labor Contract

Introduction

With the continuous improvement of labor laws and regulations, open-ended labor contracts, as a form of contract that provides stronger protection for the rights and interests of employees, have attracted increasing attention. In particular, whether employees have the right to demand the signing of open-ended labor contracts after two consecutive fixed-term labor contracts has become a focal point of disputes in practice, due to the varying judgment standards of courts in different regions. This article will provide an in-depth discussion of this issue by combining legal provisions and the latest judicial opinions in Shanghai.

New Trends in Shanghai Court’s Judicial Viewpoint

Article 14 of the Labor Contract Law of the People’s Republic of China stipulates that if an employer and an employee have entered into two consecutive fixed-term labor contracts, and the employee does not fall under the circumstances specified in Article 39 or the first and second paragraphs of Article 40 of the Labor Contract Law, and the employee proposes or agrees to renew or enter into a labor contract, an open-ended labor contract shall be concluded. This clause clearly states that under certain conditions, employees have the right to sign open-ended labor contracts.

In past judicial practice, local courts and arbitration institutions have had differing interpretations of whether an employer has the right to refuse to sign an open-ended labor contract after two consecutive fixed-term labor contracts. In most regions of China (such as Beijing, Guangdong, Zhejiang, Jiangsu & Sichuan, etc.), employees are allowed to demand that the employer renew the labor contract as an open-ended one after two consecutive fixed-term contracts, and the employer shall not refuse. However, previous cases in Shanghai indicated that although employees have the right to request an open-ended third labor contract, this right is contingent upon the employer’s consent to renew the contract. In other words, the employer may refuse to renew.

However, according to the recently circulated Excerpts of Opinions on the Difficult Issues of Law Application in Labor Disputes by the Civil Trial Division of the Shanghai High People’s Court (effective from January 1, 2025), the majority of judicial opinions now hold that after an employer and an employee have concluded two consecutive fixed-term labor contracts, the employee has the right to demand that the employer sign an open-ended labor contract, and the employer may not refuse:

“According to the majority opinion, in this case, if the employee proposes to sign an open-ended labor contract, the employer must sign it. That is, the employer’s willingness to renew the labor contract is not a determining factor. Under Article 14(2)(3) of the Labor Contract Law, in the absence of circumstances specified in Article 39 or the first and second paragraphs of Article 40 that would allow the employer to terminate the labor contract, if the employer and employee have entered into a first fixed-term labor contract, the employer should anticipate the possibility of concluding an open-ended labor contract upon the expiration of the second contract. If the employee has complied with laws and regulations and fulfilled job responsibilities during the fixed-term contracts, they may lawfully request the employer to renew an open-ended labor contract, and the employer should comply. This approach guides employees to work diligently in accordance with the law and aligns with the employer’s interests. Therefore, when the conditions stipulated in Article 14 for concluding an open-ended labor contract are met, the employee’s right to renew such a contract must be protected. If the employer refuses to renew, it shall bear legal consequences in accordance with Article 48 of the Labor Contract Law.”

The shift in the Shanghai courts’ stance reflects enhanced protection of employees’ rights and interests. Signing open-ended labor contracts contributes to the long-term stability of labor relations. Meanwhile, employers should reasonably plan their employment strategies. When the first labor contract with an employee expires, the employer should fully anticipate the potential outcome of contract renewal. Specifically, upon the expiration of the second labor contract, if the employee requests to renew the contract as open-ended, the employer cannot refuse. Otherwise, the employer must compensate the employee with “2N” (twice the statutory economic compensation) under the Labor Contract Law.

Conclusion

The new judicial perspective of the Shanghai courts leans further toward protecting employees’ rights and interests. The conclusion of open-ended labor contracts facilitates long-term stable employment for workers. Employer and employee should proactively plan their employment strategies and manage the renewal of labor contracts in compliance with regulations. We will continue to monitor updates to relevant regulations and the disclosure of subsequent judicial cases to provide the latest developments and practical advice for both employees and employers.