On August 1, 2025, the Supreme People's Court released the "Interpretation (II) on Issues Concerning the Application of Law in Labor Dispute Cases" (hereinafter referred to as "Interpretation (II)") along with typical cases (hereinafter referred to as "Cases"). This article will analyze and interpret the highlights of Interpretation (II) and Cases, focusing on pain points in corporate labor compliance.
I. Highlights of Interpretation (II)
(1) Exceptions to the Double Wage Rule
Explanation (II) clarifies exceptions to Article 82 of the Labor Contract Law, which stipulates that employers must pay double wages if they fail to sign a written contract with employees. Exceptions include situations where the contract was not signed due to force majeure, the employee's intentional actions or gross negligence, and other circumstances specified by laws and regulations.
In practice, there can be various reasons for not signing a written contract. For example, in the Case 3，"Ran vs. Kanglv Company," the employee, Ran, repeatedly refused to renew the contract despite the employer's attempts. Ran was primarily responsible for the failure to renew the contract in writing, so the court dismissed his claim for double wages.
The rule requiring employers to pay double wages for not signing a written contract is designed to protect employees' rights and ensure employers fulfill their legal obligations. It should not be exploited by dishonest parties for profit. Explanation (II) helps alleviate the burden on employers caused by the "double wages" rule and promotes a clear value orientation, encouraging both employees and employers to fulfill their legal obligations conscientiously.
(2) Conditions for Continuous Fixed-Term Contracts
According to Article 14 of the Labor Contract Law, if an employer and an employee sign two consecutive fixed-term labor contracts and the employee has no statutory fault, the employer must sign an open-ended contract with the employee. This provision aims to protect employees' rights and maintain stable labor relations.
However, in practice, some employers use different affiliated entities to sign labor contracts with employees, avoiding the condition of "two consecutive fixed-term contracts" to circumvent the obligation of signing an open-ended contract. This becomes a challenge for employees seeking to protect their rights.
Article 10 of Explanation (II) addresses this issue by specifying four situations that should be considered as consecutive signing of fixed-term contracts:
- The employer and employee agree to extend the contract term cumulatively for more than one year, and the extension expires.
- The employer and employee agree that the contract will automatically renew upon expiration, and the renewal period expires.
- The employee continues working at the original workplace and position not due to personal reasons, while the employer changes the contract-signing entity but continues labor management, and the contract term expires.
- Any other actions that violate the principle of good faith to avoid signing an open-ended contract.
(3) Scope and Effectiveness of Non-Compete Clauses
Explanation (II) Articles 13 and 14 place limitations on the reasonableness of non-compete clauses, requiring that the scope of non-compete agreements align with the actual trade secrets the employee has accessed. It also clarifies that non-compete obligations during employment can be stipulated.
In Case 4, "Pharmaceutical Company vs. Zheng," the court ruled that the scope of the non-compete should not exceed the trade secrets the employee actually accessed, even if the agreement is broadly defined. In Case 5, "Huang vs. Textile Company," the court upheld the employer's right to hold a sales manager accountable for violating in-employment non-compete obligations.
These cases highlight the importance for companies to tailor non-compete agreements to fit the specific roles, ensuring reasonable restrictions based on the position.
(4) Mandatory Social Insurance Contributions
Explanation (II) Article 19 reiterates the mandatory nature of social insurance, stating that any agreement between an employee and employer not to pay social insurance is invalid. Employees can terminate the contract and request economic compensation based on this.
In Case 6, "Zhu vs. Security Company," the court emphasized that paying social insurance is a legal obligation for both parties, and agreements to waive this are invalid. Furthermore, if an employer fails to pay social insurance, and the employee requests to terminate the contract and receive compensation according to Article 38 of the Labor Contract Law, the court will support this.
If the employer subsequently pays the overdue social insurance and requests the employee to return the compensation received, the court will also support the employer's claim.
(5) Mixed Employment in Affiliated Enterprises
Article 3 deals with mixed employment scenarios in affiliated
enterprises, where employees may work for multiple related
entities. Courts determine the labor relationship by examining
factors such as management behavior, work hours, job content,
salary, and social insurance contributions.
In Case 2, "Wang vs. Digital Company," the court held
Digital Company responsible for Wang's employment, despite his
mixed employment with a related entity. This decision was based on
the assessment of the aforementioned factors, highlighting the
importance of clarifying employment responsibilities within
affiliated enterprises.
(6) Foreign Nationals Confirming Labor Relations
Explanation (II) clarifies that the conditions under which a foreigner can request the court to confirm the existence of a labor relationship with an employer include:
- Having obtained permanent residency.
- Having a work visa and legally residing in China.
- Having completed the relevant procedures in accordance with national regulations.
These conditions ensure that the court can legally support the foreigner's request to confirm a labor relationship.
II. Implications for Corporate Labor Compliance
(1) Importance of Signing Written Labor Contracts
Enterprises should establish a comprehensive system for signing labor contracts, ensuring that written contracts are completed within the legally required timeframe. For employees whose contracts are expiring, communicate renewal matters in advance and promptly handle renewal procedures. When discussing contract signing or renewal with employees, maintain thorough records such as notification emails and signed acknowledgments.
(2) Reasonable Non-Compete Clauses
When drafting non-compete clauses, enterprises should fully consider the employee's job position, the scope of commercial secrets they have access to, and other relevant factors to reasonably determine the scope, geographical area, and duration of the non-compete obligation. For employees subject to non-compete restrictions, the enterprise should clearly inform them of their non-compete obligations and the legal consequences of violating such obligations. Upon the employee's resignation, the enterprise should promptly confirm whether they are fulfilling their non-compete obligations. If a violation of the non-compete agreement is discovered, the enterprise should promptly gather evidence and protect its rights through legal means. Additionally, for employees bound by non-compete obligations during their employment, the enterprise should strengthen supervision and management to prevent them from engaging in competitive activities that harm the interests of the enterprise while still employed.
(3) Legal Compliance in Social Insurance Contributions
Enterprises should regard the lawful payment of social insurance contributions as an important compliance obligation. They should establish a robust management system for social insurance contributions, clearly defining key elements such as the contribution base and rates. Regular self-audits should be conducted to ensure there are no underpayments or omissions. If employees request not to pay social insurance contributions, the enterprise should firmly refuse and explain the relevant legal requirements to them, thereby avoiding legal liability due to unlawful agreements.
(4) Managing Employment in Affiliated Enterprises
For enterprises with affiliated relationships, it is essential to clearly define each entity's employment responsibilities to avoid confusion. During recruitment and onboarding, specify the employing entity for the worker. Throughout the employment process, standardize work arrangements, payment of wages, and social insurance contributions to ensure that the employment relationship is clear and distinguishable. Additionally, it is important to uniformly regulate aspects such as workplace identification and the use of communication tools to prevent misunderstandings that might confuse employees about the nature of their employment relationship.
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.
