An analysis of the new guidelines provided by the High People’s Court of Shanghai and their implications for companies and employees.
On January 1, 2025, the Extracts of Opinions on Difficult Labour Disputes Issues (hereinafter referred to as the “Opinions”), published by the Shanghai High People’s Court, came into force, also in the face of the increasing number of layoffs and the rise in the unemployment rate in China.
This document represents a significant update in Chinese labor law, providing clarifications on complex legal issues that, until now, have caused interpretative and practical uncertainty. Among these issues is the employee’s right to establish an open-ended contract upon the completion of the second fixed-term contract with the employer.
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Legal value and relevance
The Opinions are part of the wider context of efforts towards standardization and predictability in China’s labour law system, an aspect that is increasingly important in a country where the labour market is constantly changing. Although not legally binding, the views expressed in the Opinions – especially the majority views – significantly influence the direction of local courts, serving as guidance for judges, lawyers, and legal practitioners in resolving labor disputes.
An interesting aspect of the Opinions is the presence of both majority and minority views. This approach reflects the High People’s Court’s intention to offer a broad and articulated view of the legal debate, allowing legal professionals to evaluate different nuances of interpretation.
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Regulatory framework
The recent intervention by the Shanghai High People’s Court falls within a regulatory framework that already provides – at least in theory – significant protection for employees in terms of job stability. Specifically, Paragraph 2, Article 14 of the Labor Contract Law of the People’s Republic of China (2007) states:
“If an employer consecutively concludes two fixed-term contracts with the same employee, and the employee is not in any situation that allows the termination of the employment relationship under the law, upon the expiration of the second contract, if the employee requests an open-ended contract, the employer shall conclude it”.
This provision grants the employee the right to obtain an open-ended contract, subject to two conditions:
- the employee has already concluded two consecutive fixed-term contracts with the same employer
- the employee has not committed any serious violations justifying dismissal
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The clarifying role of the Shanghai High People’s Court’s Opinions
Despite the apparent clarity of the provision, numerous uncertainties have arisen in its practical application, particularly at the local level. Some courts had interpreted the law narrowly, allowing employers to oppose the renewal. Such interpretations had encouraged the practice among employers of concluding only fixed-term contracts with their employees, typically of short duration, with automatic renewal at the end. This allowed employers considerable discretion in deciding whether to renew the contract or not.
The publication of the Extracts of Opinions on Difficult Labour Disputes Issues by the Shanghai High People’s Court thus plays a crucial role in standardizing and reinforcing the employee-friendly interpretation of the law, clarifying that, in the absence of specific and documented reasons, the employer cannot oppose the employee’s request to convert the contract into an open-ended one.
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Practical implications for companies
For employers – particularly foreign companies operating in the municipality of Shanghai or other regions that follow its jurisprudence – the Opinions require updates to HR policies, employment contracts, and internal procedures.
It is advisable, for example, to:
- Review the duration of fixed-term contracts, renewal practices, and employee evaluation criteria
- Update company manuals and guidelines for staff, considering the legitimacy of rejecting contract renewal
- Provide specific training for HR teams on legal developments
In particular, companies need to understand that since this right can be exercised by the employee at the end of the second fixed-term contract, the company will effectively face the employee’s potential request for an open-ended contract after the first renewal.
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Other aspects addressed by the Shanghai High People’s Court
In addition to the central issue of the renewal of open-ended contracts, the Opinions of the Shanghai High People’s Court also provide clarifications on other critical areas of Chinese labor law. Among the provisions that will have the greatest practical impact are:
- Calculation of back wages in case of reinstatement
- Grace period for signing a new written contract
- Economic treatment in case of unlawful dismissal during medical treatment
- Continuity of service in case of intra-company transfer
Luigi Zunarelli, Junior Partner (luigi.zunarelli@studiozunarelli.com)
