Navigating Shanghai’s Changing Labor Laws: Challenges in Fixed-Term Employment Contracts

Introduction

In 2025, the most concerned judicial development in the field of labor law practice is the adjustment of the adjudication standards in Shanghai on the right to terminate a second fixed-term employment contract. This dynamic is not only reflected in the controversial record of “supporting the right to terminate the enterprise” and “tending to protect the employee’s right to renewal” in the relevant clauses in the “Excerpt of Views on Difficult Issues in the Application of Labor Dispute Law” (“Excerpt of Opinions”) of the Civil Trial Division of the Shanghai High People’s Court, which has been circulated on the Internet, but also reflects the judgment results made by the grassroots judicial organs in Shanghai that have been circulating recently, which has the same reference value for the change in the caliber of judgment. Based on the trend of judicial perspective, this article will further analyze the risk transmission effect of rule changes on enterprise employment management, and analyze the derivative disputes in scenarios such as the renewal and termination of labor contracts, in order to provide compliance guidance for enterprises.

Q1: When the second fixed-term labor contract expires, can the enterprise legally terminate it on the grounds of non-renewal?

According to the previous view in Shanghai, according to Article 4 of the Opinions on Several Issues Concerning the Application of the Labor Contract Law (Hu Gao Fa [2009] No. 73) issued by the Shanghai High People’s Court in 2009, when the contract is renewed for the third time, if the employee proposes to sign an indefinite labor contract, the enterprise has a mandatory obligation to conclude the contract. In other words, when the second fixed-term employment contract expires, the enterprise still has the option to renew it, and if the enterprise expressly states that it will not renew it, the original employment contract will be legally terminated, and there is no need to sign an indefinite-term employment contract with the employee. Over the past 16 years, labor arbitration institutions and courts at all levels in Shanghai have also adhered to the interpretation of the above-mentioned documents, confirming that enterprises have the right to terminate when the second contract expires.

However, this caliber has changed in the controversy over “Question 5” of the Excerpts of Opinions, and the practice of the past 16 years has become a “minority opinion”, while the majority opinion holds that “in this case, if the employee proposes to sign an indefinite-term employment contract, the employer must sign an indefinite-term employment contract, that is, whether the employer is willing to renew the employment contract is not a factor in judgment… The employee’s right to renew an indefinite-term labor contract shall be guaranteed if the conditions for concluding an indefinite-term labor contract as stipulated in Article 14 of the Labor Contract Law have been met, and if the employer does not agree to renew the contract, it shall bear the legal consequences in accordance with Article 48 of the Labor Contract Law. This view is also consistent with the opinions and practices of most regions such as Beijing, Zhejiang, and Jiangsu.

Therefore, we recommend that enterprises in Shanghai prudently exercise the right to terminate the second contract due to the original rules, and considering the uncertainty of the current policy caliber, from the perspective of risk prevention and control, it is recommended that disputes be resolved through negotiation first, so as to ensure the legality and stability of the termination procedure. At the same time, continue to pay attention to the latest judicial trial caliber and judicial precedents. In addition, it is recommended that when an enterprise concludes an employment contract for the first time, it should carefully determine the contract term in combination with the employment planning and inspection and assessment needs, and if the right to terminate the contract is not exercised upon the expiration of the first fixed-term employment contract, after the second fixed-term employment contract is renewed, the enterprise’s employment autonomy will be limited, and the employee will have the obligation to conclude the contract when the employee claims to conclude an indefinite-term labor contract, which will also significantly increase the difficulty of employment management.

Q2. Is the third labor contract renewed between the employee and the enterprise a fixed-term labor contract legal and valid? Can the contract be terminated at the end of the term?

According to Article 4 of the Shanghai High Law [2009] No. 73, “if an employee meets the conditions for signing an indefinite-term labor contract, but signs a fixed-term labor contract with the employer, the fixed-term labor contract shall be binding on both parties in accordance with Article 14 of the Labor Contract Law and Article 11 of the Implementation Regulations.” At the end of the contract, the contract is terminated naturally. ”

In the case (2018) Hu 01 Min Zhong No. 12075, the court held that “although the two parties renewed the third fixed-term employment contract after concluding two fixed-term employment contracts in succession, there was no evidence that Cheng violated his true intention when renewing the third fixed-term employment contract, so the signing of the third fixed-term employment contract should be regarded as an agreement between the two parties and was legal and valid.” Cheng’s appeal that the third fixed-term employment contract should be regarded as an indefinite-term employment contract is difficult for this court to accept. On whether the two parties should renew the indefinite-term employment contract after the expiration of the third fixed-term employment contract. Although ZY Company issued the “Investigation of Intent to Extend the Labor Contract” to Cheng before the expiration of the third fixed-term labor contract between the two parties to solicit Cheng’s intention to renew the labor contract, from the content of the intention investigation, it cannot be concluded that ZY Company has clearly expressed its willingness to renew the labor contract with Cheng, so the investigation of intent cannot be regarded as the two parties have reached an agreement on the renewal of the labor contract. ZY Company’s final decision not to renew the labor contract with Cheng when the third fixed-term labor contract expired was not improper, and ZY’s termination of the labor contract should not be found to be illegal. ”

According to the original judicial practice in Shanghai, as long as the employee voluntarily signs a third fixed-term employment contract, the contract is still considered to be legal and valid, and when the third fixed-term contract expires, the employer can still unilaterally decide to terminate the employment relationship, without considering the employee’s willingness to renew, and the operating logic is consistent with the expiration of the second contract. In the past, Shanghai’s rules strictly limited the “compulsory contractual obligation” to the situation where the employee took the initiative to claim it at the time of the third signing, and tacitly allowed the employer and employee to extend the fixed-term model through “consensus”.

If, as mentioned in question 1, Shanghai’s judicial practice moves closer to the national mainstream view, then the validity of the third fixed-term contract and the rules for dealing with expiration will undergo a fundamental change. Referring to the opinions of the courts in Beijing, Jiangsu and other places (e.g., (2025) Jing 01 Min Zhong No. 1187 and (2019) Su 03 Min Zhong No. 978 cases), as long as the employee cannot prove that he or she was invalid due to fraud or coercion when signing the fixed-term labor contract for the third time, the act of signing the fixed-term labor contract for the third time should be deemed to be a true expression of intent, and the fixed-term labor contract signed this time should be deemed to be a legal and valid labor contract. The court did not support the employee’s claim for double the wage difference for not signing an indefinite-term employment contract on this ground. However, after the expiration of the third fixed-term employment contract, the company should still sign an indefinite-term employment contract with the employee, otherwise it will constitute illegal termination. The change of judicial caliber from “allowing negotiation of a fixed term” to “compulsory conclusion of an indefinite term” is essentially a rebalance between the autonomy of enterprise employment and the right to employment stability of workers, but it will also mean that the right of termination of the enterprise has been completely lost when the contract is renewed, and the original flexible employment model of “fixed-term contract + expiration term” will be difficult to continue, and the enterprise will be bound to employees for a long time, and it is difficult to achieve the purpose of natural elimination of personnel through the termination of the contract at the expiration of the contract.

Q3. Is there a grace period in the case of renewing the labor contract?

Question 3 of the Excerpts from Views records different views: In the case of renewing an employment contract, if the employer is still entitled to a one-month grace period for signing the employment contract, and claims that it should not pay twice the salary difference for the one month when the employment contract has not been signed, how to deal with it?

The minority opinion held that it was not appropriate to give the employer a grace period of one month to renew the employment contract. According to the first paragraph of Article 82 of the Labor Contract Law, the one-month grace period starts from the “date of employment”, i.e., the date of the employee’s initial employment, rather than the “date of re-employment” or “the date of expiration of the contract”. In addition, the employer has the right to anticipate whether or not to renew the employment contract upon expiration, and it should negotiate with the employee on the renewal of the employment contract before the expiration of the previous employment contract. The majority opinion is that the employer can be given a grace period of one month to renew the employment contract. On the one hand, the employment after the expiration of the employment contract is not a simple repetitive employment, and in practice, there is still a practical need for the parties to renegotiate to reach a new agreement on matters such as position, salary, and term. On the other hand, according to the provisions of Article 14, Paragraph 3 and Article 82 of the Labor Contract Law, there are two legal consequences of not signing an employment contract: if the term of the labor contract is less than one year, the difference between the two times the salary shall be paid, and the maximum payment period for the difference between the two wages shall be 11 months; If the term of the labor contract has not been signed for more than one year, it shall be deemed that the two parties have signed an indefinite labor contract. Accordingly, if a one-month grace period is not granted in the case of renewal, the period for which the double wage difference will be paid will exceed the maximum period mentioned above, which is also incompatible with the nature of the double wage difference and the balance of interests of both parties.

Fortunately, on the issue of grace period, the tone of the Shanghai area has not changed. However, in current judicial practice, Beijing is still following the above-mentioned minority opinion practice (e.g., (2024) Jing 01 Min Zhong No. 4249 case), which denies that enterprises are still entitled to a grace period in the case of renewal, and double the wage difference will also be paid from the date of expiration of the employment contract. The formation mechanism of this judicial tendency needs to be systematically interpreted in conjunction with Beijing’s unique early warning system for the expiration of labor contracts. According to the Beijing Labor Contract Regulations and related regulations, an enterprise shall notify the employee in writing of its intention to terminate or renew the labor contract 30 days in advance, otherwise it shall pay compensation for delay in notification on a daily basis. The design of the system essentially reconstructs the paradigm of the employer’s compliance obligations, moving the management node of the labor contract from the traditional “ex post dispute relief” to “ex ante risk prevention and control”, and forcing the enterprise to establish a standardized employment management system.

Q4: When renewing an indefinite labor contract, can the enterprise change the terms and conditions agreed in the labor contract?

According to Paragraph 5 of Article 46 of the Labor Contract Law, the employer shall pay economic compensation to the employee if the fixed-term labor contract is terminated in accordance with Paragraph 1 of Article 44 of the Labor Contract Law, except in the case where the employer maintains or improves the agreed conditions of the labor contract and the employee does not agree to renew the labor contract.

If an enterprise unilaterally changes the terms and conditions of the original contract (e.g., job transfer without salary reduction) when renewing an indefinite employment contract, and the employee refuses to accept the new terms, resulting in the failure of the parties to reach an agreement on the renewal and ultimately the indefinite employment contract is not signed, can the termination of the employment contract be considered legal? Through the case analysis of the case (2022) Jing 01 Min Zhong No. 5309, there were significant differences in the judgment of the courts of first and second instance on the legality and legitimacy of the employer’s transfer and termination, and finally formed diametrically opposite adjudication results, which may lead to reference conclusions.

The court of first instance held that “the focus of the dispute between the two parties is the reasonableness and legality of Company J’s job transfer. Mr. Wang was originally an accountant position, and because the position was a functional post and required long-term employees to engage in related work, it was reasonable and necessary for Mr. Wang to recruit another accountant to replace Mr. Wang during his maternity leave. After Wang’s leave, Company J provided Wang with different positions to choose from based on the current business situation, and some of the positions were related to financial work, which did not cause obvious inconvenience to Wang, nor did it reduce Wang’s labor remuneration, so it should be deemed that it maintained the conditions of the original labor contract and entered into a labor contract with Wang, and Wang refused to sign a written labor contract due to post adjustment, and it was not improper for Company J to terminate the labor contract with him on this basis. ”

The court of second instance held that the core dispute between the two parties was whether the change of the position agreed in the employment contract proposed by Company J met the situation of “maintaining or improving the conditions agreed in the employment contract”. In this regard, the court held that, according to Company J’s self-report, the company provided Wang with three job transfer options, namely the financial manager, auditor and R&D assistant of the subsidiary. However, the position provided by Company J to Wang either changed in terms of work location or work content, which substantially changed the content of the rights and obligations of the job as stipulated in the original labor contract, and imposed a heavier burden on the employee in terms of commuting costs, impact on family life, and requirements for business skills. Therefore, the court held that the conditions for renewing the labor contract proposed by Company J on the premise of job transfer did not meet the conditions of “maintaining or improving the conditions agreed in the labor contract”. Company J did not fully consider Wang’s right to return to work in accordance with the law after the end of maternity leave in the employment arrangement, and arranged for other employees to replace him, and proposed to renew the labor contract on the premise of job transfer on this ground, which lacked legality, reasonableness and necessity; It was not improper for Wang to refuse to be transferred and to fully perform his rights and obligations in accordance with the original labor contract.

Combined with the above cases, it can be seen that the court’s review of whether the enterprise maintains or improves the renewal of the agreed conditions of the employment contract essentially constitutes a multi-dimensional comprehensive review of the reasonableness of the post adjustment. The core elements of the review are: first, whether the reason for post adjustment is based on the objective necessity of the enterprise’s production and operation; second, there is a substantial difference between the responsibilities of the old and new positions; third, whether there is an adverse change in the salary and welfare standards; Fourth, whether there are major adjustments to working hours and places. This review mechanism aims to build a dual prevention system: first, to regulate the illegal wage reduction and dismissal of enterprises in the name of job transfer; The second is to curb the circumvention of enterprises to circumvent the legal obligation to sign indefinite-term labor contracts by maliciously adjusting job settings, unreasonably changing salary structures, setting strict renewal conditions, etc., and finally terminating labor relations on the grounds that employees refuse to renew. Such acts, which clearly violate the legislative purpose of “maintaining or improving the renewal of working conditions” as stipulated in Article 46, Paragraph 5 of the Labor Contract Law, will be difficult to obtain the approval of the judicial authorities.

Based on the change in the caliber of the expiration of the second contract, it will ensure the employment stability of employees to a greater extent and further restrict the employment autonomy of enterprises, so it is recommended that enterprises carefully evaluate the setting of the term of the first signing of the labor contract when the labor contract is terminated, make good use of the initial contract termination authority, and be prepared for long-term employment once the decision is made to renew. Establish a dynamic management system for labor contracts, regularly check the expiration of contracts, and although the requirements for advance notice periods vary from place to place, it is still recommended to prepare for renewal in advance to avoid starting the renewal process after the contract expires; In the case of possible illegal termination, make good use of the negotiation and communication mechanism to reach the negotiation termination as much as possible and minimize legal risks; Pay close attention to policy developments, adjust employment strategies, and strengthen risk prevention and control, especially in contract term planning, termination procedure compliance, and renewal negotiation.

Anjie Broad, China, a Transatlantic Law International Affiliated Firm.  

For further information or for any assistance please contact china@transatlanticlaw.com

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