China: Circumstances to conclude an open-ended employment contract

Labour Law Newsletter
Last Updated: 18 February 2015

by Maggie Kong, Shane Lou, Susan Shan, Kent Xu, Grace Yang, Anderson Zhang and John Zhou

Article 14 of the Employment Contract Law regulates that: if a worker proposes or agrees to renew his employment contract or to conclude an employment contract in any of the following circumstances, an open-ended employment contract shall be concluded, unless the worker requests the conclusion of a fixed-term employment contract:

  1. the worker has been working for the Employer for a consecutive period of not less than 10 years;
  2. when his employer introduces the employment contract system or the state owned enterprise that employs him re-concludes its employment contracts as a result of restructuring, the worker has been working for the employer for a consecutive period of not less than 10 years and is less than 10 years away from his legal retirement age; or
  3. prior to the renewal, a fixed-term employment contract was concluded on two consecutive occasions and the worker is not characterized by any of the circumstances set forth in Article 39 and items (1) and (2) of Article 40 hereof.

In accordance with this regulation, if the employee proposes to conclude an open-ended employment contract under any of above-mentioned circumstances, the employer shall conclude an employment contract with the employee. However, there still exist many problems when concluding open-ended employment contracts in practice. The following analysis focuses on two aspects handled in Shanghai's judicial practice.

  1. The effect of concluding fixed-term employment contract while the condition of concluding an open-ended employment contract is met

The employee meets the conditions to conclude an open-ended employment contract (e.g. the worker has been working for the employer for a consecutive period of not less than 10 years), but he still concludes a fixed-term employment contract with the employer. This fixed-term employment contract is binding on the two parties. The employee does not have the right to revoke it and to ask the employer to sign an open-ended employment contract again. Therefore, once the employee and the employer have come to an agreement and concluded a fixed-term employment contract, this contract is legitimate and binding. Both parties shall fully perform it.

  1. Employment contract renewal after a fixed-term employment contract was concluded on two consecutive occasions

When a fixed-term employment contract was concluded on two consecutive occasions, pursuant to term 3 of Item 2 of Article 14 of the Employment Contract Law and Shanghai's judicial practice, this regulation shall be interpreted as the followings: 1) if the employer does not want to renew the employment contract, the employment contract expires; 2) if the employer agrees to conclude the employment contract for a third time, it should be an open-ended employment contract if the employee proposes as such; 3) if the employee agrees to conclude a fixed-term employment contract, this contract is valid and the employee cannot ask the employer to conclude an open-ended employment contract again. Before the expiration of the employment contract, if both parties cannot reach a consensus on the renewal, the employment contract expires.

Case Study: Concluding Fixed-term Employment Contracts on Four Consecutive Occasions

Ms. Jiang entered into a consulting company in May, 2009. Ms. Jiang concluded fixed-term employment contracts with the company for 4 times consecutively. The term of the last one is from 26 May 2012 to 25 May 2013. Ms. Jiang asked the company by email for the renewal the employment contract at the beginning of May, 2013. Since then, both sides discussed the matters concerning the renewal and post salary by emails but did not come to an agreement. On 24 May 2013, the company informed Ms. Jiang in written that the employment contract will not be renewed upon expiration, since both sides have not reached a consensus.

Ms. Jiang was in the opinion that she had concluded four fixed-term labor contracts consecutively with the company, and pursuant to the Employment Contract Law, she met the conditions to conclude an open-ended employment contract. The company shall renew the employment contract and had no right to end it unilaterally.

Ms. Jiang brought the dispute to the Labor Dispute Arbitration Commission and the Court. Both the Labor Dispute Arbitration Commission and the Court did not support Ms. Jiang's claims and held that, pursuant to the Employment Contract Law, in spite that both parties agree to conclude a fixed-term employment contract, an open-ended employment contract should be concluded if the employee and employer have concluded two fixed-term employee contracts consecutively and agreed to renew it. In this case, Ms. Jiang has concluded four fixed-term employment contracts consecutively, and the fourth one should be binding on the both parties. Since both sides did not reach a consensus on the renewal of the employment contract upon expiration, it is proper for the company to terminate the employment relationship when the fourth employment contract expires.

In the end, the above contents are just the quotation and analysis of the cases judged by the Labor Dispute Arbitration Commission and the Court in Shanghai. The employer shall still be prudent during the daily employment and personnel operation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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