China
New judicial interpretation by the Supreme People’s Court - the meaning of consecutive fixed-term contracts
Impact date: 1 September 2025 Following the enactment of the PRC Civil Code, the Supreme People’s Court began reviewing and consolidating earlier judicial interpretations related to labor disputes. In 2021, it issued the “Interpretation of the Supreme People’s Court on Issues Concerning the Application of Law in the Trial of Labor Dispute Cases (I)” (最高人民法院关于审理劳动争议案件适用法律问题的解释（一）, “Interpretation (I)”).
In response to emerging legal challenges—particularly regarding non-compete clauses, employee benefits, and social insurance—the Supreme People’s Court released the “Interpretation of the Supreme People’s Court on Issues Concerning the Application of Law in the Trial of Labor Dispute Cases (II)” (最高人民法院关于审理劳动争议案件适用法律问题的解释（二）, “Interpretation (II)”) on 31 July 2025, which took effect on 1 September 2025. This new interpretation replaces and updates several prior provisions, including the repeal of Article 32(1) of Interpretation (I) and aims to unify judicial standards in light of evolving employment practices.
One key highlight from Interpretation (II) is the clarification of the meaning of “entering into two consecutive fixed-term contracts”. Article 10 clarifies when two consecutive fixed-term employment contracts are considered to have been entered into under Article 14.2(3) of the PRC Employment Contract Law (“ECL”). This matters because, once the condition is met, the employee has the right to request an open-ended (non-fixed term) contract after the second fixed-term contract ends. The employer must agree to this request unless there are legal grounds for termination under Articles 39 or 40(1) and (2) of the ECL.
One key scenario that has drawn attention is when an employer and employee agree to extend the first fixed-term contract for a total period of one year or more. If this extended period expires, it may be treated as two consecutive contracts, triggering the employee’s right to request an open-ended contract. Previously, local courts and regulations in places like Beijing, Jiangsu and Shenzhen had their own rules. Now, Interpretation (II) establishes a national standard: if the total extension period is less than one year, it does not count as two consecutive contracts. This provides employers with more flexibility, allowing them to extend a contract for up to one year without triggering the obligation to offer an open-ended contract.
Employer implications/action needed Although Interpretation (II) is intended to be applied uniformly across all courts in China, local courts in different regions may interpret certain ambiguities differently. Therefore, employers should closely monitor local court practices after 1 September and stay informed of any developments.
Employer risk Failure to comply with the relevant provisions of Interpretation (II) may lead to unnecessary labor disputes.
New judicial interpretation by the Supreme People’s Court – continued employment following contract expiration
Impact date: 1 September 2025 Another key highlight of Interpretation (II) relates to the continued employment following contract expiration.
Article 11 of Interpretation (II) states that if an employee continues working after their employment contract expires, and the employer does not object within one month, the law assumes the employer agrees to continue the employment. Specifically:
(i) If the employee requests to renew the contract under the same terms, the court will support it
(ii) If the employee qualifies for an open-ended contract and requests one, the court will also support that
(iii) If the employer attempts to terminate the contract without legal grounds, the employee can claim unfair dismissal, and the employer may face legal consequences
Based on the above:
- After the first fixed-term contract ends:
o The employer has a one-month grace period to legally end the contract
o If the employer does not act within that month, the employee can request renewing the contract under the same terms
o The employer loses the right to terminate based solely on contract expiration
- ·After the second fixed-term contract ends:
o If the employee continues working and meets the legal conditions, they can request an open-ended contract
o The employer must agree unless there are valid legal grounds for termination
- If the employer terminates without legal grounds:
o It will be considered unfair dismissal
o The employee can request either reinstatement or compensation equal to twice the statutory severance pay
Employer implications/action needed Although Interpretation (II) is intended to be applied uniformly across all courts in China, local courts in different regions may interpret certain ambiguities differently. Therefore, employers should closely monitor local court practices after 1 September and stay informed of any developments.
Employer risk Failure to comply with the relevant provisions of Interpretation (II) may lead to unnecessary labor disputes.
New judicial interpretation by the Supreme People’s Court – validity of non-compete clauses
Impact date: 1 September 2025 Article 13 of Interpretation (II) clarifies when non-compete clauses can be invalid, aiming to prevent employers from overusing or misusing such clauses. It sets clear limits on who can be subject to such restrictions and under what conditions. Specifically:
- If an employee does not know or have access to the employer’s trade secrets or confidential intellectual property and requests the court to declare the non-compete clause invalid, the court will support that request
- If the scope, location, or duration of the non-compete clause is unreasonably broad compared to the confidential information the employee actually had access to, the court may declare the excessive parts invalid
Article 14 confirms that non-compete clauses can be valid even during employment, not just after an employee leaves. Specifically:
- Employers and employees can agree to non-compete obligations that apply while the employee is still employed
- These clauses are valid even if no additional non-compete compensation is paid during the employment period
- If the employee violates the clause, the employer can claim liquidated damages (if agreed in the contract) and may also ask for the return of any compensation already paid
Employer implications/action needed Although Interpretation (II) is intended to be applied uniformly across all courts in China, local courts in different regions may interpret certain ambiguities differently. Therefore, employers should closely monitor local court practices after 1 September and stay informed of any developments.
Employer risk Failure to comply with the relevant provisions of Interpretation (II) may lead to unnecessary labor disputes.
New judicial Interpretation by the Supreme People’s Court – no voluntary waiver of social insurance
Impact date: 1 September 2025 According to Article 19 of Interpretation (II):
- Any agreement between an employer and employee that waives the employer’s obligation to pay social insurance is invalid
- If an employer fails to pay social insurance, and the employee resigns as a result, the employee has the right to claim statutory severance pay, and the court will support that claim
- If the employer later makes back payments for previously missed social insurance contributions, it may request the employee to return any cash compensation that was paid in lieu of those contributions
Employer implications/action needed Although Interpretation (II) is intended to be applied uniformly across all courts in China, local courts in different regions may interpret certain ambiguities differently. Therefore, employers should closely monitor local court practices after 1 September and stay informed of any developments.
Employer risk Failure to comply with the relevant provisions of Interpretation (II) may lead to unnecessary labor disputes.
New judicial Interpretation by the Supreme People’s Court – abolishing the old rule on retired workers’ employment status
Impact date: 1 September 2025 Previously, under Article 32 of Interpretation (I), if a person had retired and was receiving a pension, any work they did for an employer was treated as a “labor service relationship”—rather than a formal employment relationship. This meant they were not entitled to the same protections as regular employees, such as severance pay or social insurance.
Now, Article 21 of Interpretation (II) has abolished that rule. This change aligns with the Interim Regulations on the Protection of Basic Rights and Interests of Older Workers (Draft for Public Consultation) (超龄劳动者基本权益保障暂行规定（公开征求意见稿）).
Employer implications/action needed Although Interpretation (II) is intended to be applied uniformly across all courts in China, local courts in different regions may interpret certain ambiguities differently. Therefore, employers should closely monitor local court practices after 1 September and stay informed of any developments.
Employer risk Failure to comply with the relevant provisions of Interpretation (II) may lead to unnecessary labor disputes.
Compliance Guidelines on the Implementation of Non-Compete Restrictions for Enterprises
Impact date: 4 September 2025 On 4 September 2025, the General Office of the PRC Ministry of Human Resources and Social Security issued the Compliance Guidelines on the Implementation of Non-Compete Restrictions for Enterprises (人力资源社会保障部办公厅关于发布《企业实施竞业限制合规指引》的通知). The guidelines outline a series of detailed requirements for enterprises to implement non-compete restrictions in compliance with the law, such as precisely defining the applicable subjects and geographical scope of the non-compete restrictions, enhancing the economic compensation standards for long-term non-compete obligations, and establishing a cap on liquidated damages. Although the guidelines do not have mandatory legal force, they are likely to be widely adopted in practice by arbitration committees, people’s courts, and labor authorities.
Employer implications/action needed The issuance of the guidelines reflects the regulatory authorities’ enforcement tendencies and mainstream judicial perspectives on the implementation of non-compete restrictions by enterprises. Employers may consider referring to the guidelines to enhance their non-compete plans/strategies and revise the relevant agreement templates.
Nursing leave for elderly individuals introduced in Shanghai
Impact date: 1 November 2025 On 25 September 2025, the local Government in Shanghai released the revised Regulations on the Protection of the Rights and Interests of the Elderly in Shanghai (上海市人民代表大会常务委员会关于修改《上海市老年人权益保障条例》的决定). One of the revisions introduces nursing leave for elderly individuals (defined as those aged 60 and over). Specifically, during the hospitalization period of elderly individuals, their caregivers are entitled to five working days of nursing leave per year; if the caregiver is the “Only Child” born under the national policy promoting a single child per couple, they are entitled to seven working days of nursing leave per year. The nursing leave is fully paid based on the caregiver’s normal salary for regular attendance.
Employer implications/action needed Employers in Shanghai are required to provide nursing leave for elderly individuals to eligible employees. They may consider formulating internal policies to govern the specific rules for such leave, including required certificates and application procedures.
Employer risk Nursing leave for elderly individuals is statutory paid leave. Failure to provide to eligible employees will result in employment disputes.
Contact
© Eversheds Sutherland. All rights reserved. Eversheds Sutherland is a global provider of legal and other services operating through various separate and distinct legal entities. Eversheds Sutherland is the name and brand under which the members of Eversheds Sutherland Limited (Eversheds Sutherland (International) LLP and Eversheds Sutherland (US) LLP) and their respective controlled, managed and affiliated firms and the members of Eversheds Sutherland (Europe) Limited (each an "Eversheds Sutherland Entity" and together the "Eversheds Sutherland Entities") provide legal or other services to clients around the world. Eversheds Sutherland Entities are constituted and regulated in accordance with relevant local regulatory and legal requirements and operate in accordance with their locally registered names. The use of the name Eversheds Sutherland, is for description purposes only and does not imply that the Eversheds Sutherland Entities are in a partnership or are part of a global LLP. The responsibility for the provision of services to the client is defined in the terms of engagement between the instructed firm and the client.