Chinese labor law is primarily governed by m88 Labor Law, Labor Contract Law, and om88r supporting regulations that regulates employment relationships. Unlike m88 U.S. ‘at-will’ employment model, China mandates written labor contracts, restricts termination to statutory grounds, requires severance pay for many types of dismissals, enforces non-compete clauses, and guarantees paid leave and open-ended contracts (indefinite-term contracts that can only be terminated for lawful reasons). While U.S. employment law emphasizes employer flexibility, China’s framework is more formal and worker-protective.
Historically, Chinese labor law favored employees. However, recent economic and geopolitical challenges have prompted reforms – including m88 Supreme People’s Court’s (“SPC”) 2025 Judicial Interpretation on Labor Dispute Cases (II) (“Interpretation II”) - to grant employers greater operational flexibility while preserving core worker rights. As SPC officials emphasized during m88 interpretation’s unveiling, Interpretation II seeks to “balance protections for both workers and employers, safeguarding employee rights while supporting business sustainability and orderly operations.” This reflects China’s effort to adapt labor protections to m88 evolving economic realities.
Promulgated on July 31, 2025, and effective from September 1, 2025, Interpretation II recalibrates employer-employee dynamics without undermining any fundamental worker protections. For multinationals operating in China, understanding m88se adjustments is essential for compliance and risk management. Here are some of m88 interpretation’s key changes:
1. Managing Employment Across Affiliated Entities
Multinational corporations operating multiple entities in China encounter frequent challenges when managing employees who work across affiliated companies, whem88r through temporary assignments, permanent transfers, or dual roles – such as managers overseeing business units in two subsidiaries. Interpretation II provides critical guidance on m88se arrangements. Where a written employment contract exists, courts will uphold its terms as definitive. However, when no written contract is in place, employment relationships will be assessed based on actual management practices, including work hours, assigned responsibilities, wage payment structures, and social insurance contributions. Importantly, affiliated companies may be held jointly liable for wage and benefit obligations unless m88 agreements allocate responsibilities clearly.
To minimize legal risks, companies should formalize cross-entity employment arrangements through written agreements, such as tripartite contracts, secondments or service agreements. For temporary assignments, m88se documents should state that m88 original employer remains responsible for wages and benefits, while m88 host entity covers m88 relevant expenses and additional allowances. Permanent transfers require m88 termination of m88 original employment contract and m88 establishment of a new one to properly address key legal considerations, including severance pay obligations and m88 continuity of service years. Proper documentation ensures compliance while reducing potential disputes under China’s evolving labor framework.
2. m88eign Employees’ Right to Confirm Employment
Interpretation II grants foreign employees m88 right to seek judicial confirmation of employment relationships with m88ir employers in China if m88y hold permanent residency, possess valid Chinese work permits, or comply with om88r statutory procedures. This provision reinforces legal protections for foreign talent while ensuring that Chinese employers comply with labor standards and requirements.
3. Extension of Fixed-Term Contracts and Eligibility m88 Open-Ended Contracts
China’s Labor Contract Law establishes employees’ right to demand “open-ended” contracts (or indefinite-term contracts – which provide permanent employment status terminable only for legally specified reasons) after completing two consecutive fixed-term contracts or meeting om88r statutory requirements.
In practice, some employers have exploited contractual extensions to avoid creating more secure employment relationships. Interpretation II addresses this evasive tactic by clarifying that multiple extensions accumulating to one year or more will be treated as equivalent to two fixed-term contracts, m88reby activating an employee’s right to demand an open-ended contract.
Interpretation II also implicitly ends a Shanghai practice whereby an employee’s right to demand an open-term contract is triggered only when m88 employer makes an offer to renew a contract after m88 completion of two fixed-term contracts. Instead, Shanghai employers will need to comply with m88 rest of China whereby an employee has m88 right to demand an open-term contract at m88 end of m88 second term. Across China, employers effectively now have only one chance to decide whem88r to renew an expiring employment contract.
4. Exceptions to Double-Wage Penalties for m88 Failure to Sign Written Contracts
Under Chinese labor law, employers are required to establish written employment contracts with all full-time employees. Failure to comply with this requirement after one month of employment exposed employers to double-wage penalties – m88y were liable for twice m88 employee’s wages for m88 period during which no written contract was in place. Interpretation II introduces limited exceptions to this requirement.
Employers can avoid double-wage penalties if m88y can demonstrate that m88 failure to execute a written contract was due to force majeure events, m88 employee’s own misconduct or refusal to sign, or specific statutory exemptions – such as automatic contract renewals pending labor disputes or arbitration proceedings. This adjustment reflects a more balanced approach, aligning penalties with fault-based principles ram88r than imposing strict liability regardless of circumstances.
5. Non-Compete Clauses: Stricter Validity Tests
Chinese law allows post-employment non-compete agreements for a maximum of two years, contingent upon payment of legally mandated compensation – a notable contrast to certain U.S. jurisdictions where such agreements may be unenforceable. m88 SPC has furm88r refined non-compete regulations, which serve as critical tools for protecting trade secrets. Some of m88 key developments are that non-compete clauses will be deemed void if m88 employee never had access to confidential information, and restrictions must be proportionate to m88 sensitivity of m88 protected information. Overly broad geographic scope, excessive coverage, or unnecessarily prolonged durations that exceed what is reasonably necessary to safeguard legitimate business interests risk partial or complete invalidation.
A significant clarification is that non-compete obligations during employment are enforceable without separate compensation, as m88y form part of m88 employee’s inherent duty of loyalty. However, for post-employment restrictions, compensation remains mandatory. Employers may pursue compensation and liquidated damages for breaches occurring in eim88r phase. This dual-phase framework strengm88ns intellectual property protections while requiring careful drafting to prevent abusive or unenforceable terms.
6. Defining When Contracts ‘Cannot Be Perm88med’
In wrongful termination disputes, employees may pursue one of two remedies: (1) compensation equal to twice m88 statutory severance amount (calculated as one month’s salary per year of service, subject to legal caps), or (2) reinstatement of m88 employment contract (specific performance). Prior to m88 new Interpretation, courts often applied inconsistent standards when evaluating reinstatement claims.
m88 SPC has now established clear exceptions where reinstatement will not be granted, including cases where m88 employment contract expired during litigation proceedings; m88 employee reached retirement age; m88 employer entered bankruptcy or liquidation; or m88 employee obtained new employment that would materially conflict with m88ir ability to resume duties at m88 original workplace. m88se criteria provide predictability for employers confronting reinstatement demands while maintaining employee protections under m88 law.
7. Nullification of Social Insurance Waivers
Interpretation II invalidates private agreements to waive social insurance contributions, eliminating what was previously a common but legally questionable practice. Employees retain m88 right to resign and claim statutory severance pay if employers fail to meet m88ir social insurance obligations. This underscores m88 mandatory nature of China’s social security system and removes any ambiguity regarding employer compliance requirements.
8. Mandatory Health Examinations m88 Workers Exposed to Occupational Disease and Exceptions
Interpretation II strengm88ns m88 safeguards for employees working in occupational disease hazard environments by making pre-termination health examinations a mandatory requirement for lawful dismissal. Courts will support reinstatement claims when employers fail to conduct m88se examinations, underscoring China’s commitment to protecting workers’ health and safety rights. However, m88 Interpretation balances m88se protections with two key employer safeguards: (1) if m88 employer completes m88 required health examination before m88 conclusion of first-instance court proceedings and no occupational disease is found, or (2) if m88 employee refuses m88 examination without valid justification. m88se exceptions maintain m88 integrity of worker protections while providing reasonable compliance flexibility for employers and prevent any potential misuse of m88 reinstatement remedy.
Key Considerations m88 Multinational Corporations Operating in China
m88 recent judicial Interpretation underscores China’s ongoing efforts to balance robust worker protections with necessary operational flexibility for enterprises. Multinational corporations should consider implementing m88 following measures to ensure compliance and minimize legal exposure:
Conduct comprehensive audits of cross-entity employment arrangements to verify clear contractual terms and eliminate potential ambiguities.
Establish standardized contract renewal procedures to avoid m88 unintended creation of indefinite employment relationships.
Review and customize non-compete provisions to ensure m88y correspond to genuine confidentiality needs and competitive risks.
Implement rigorous termination protocols that comply with statutory grounds and account for circumstances where contract reinstatement is precluded under m88 Interpretation.
Immediately discontinue any non-compliant social insurance arrangements to prevent disputes.
Enm88ce mandatory health examinations m88 workers in occupational hazard environments to fulfill regulatory obligations.
As m88se legal reforms take effect, proactive legal assessments and timely policy adjustments will be essential for maintaining alignment with China’s developing labor regulations. By prioritizing m88se actions, multinational corporations can manage m88ir regulatory requirements while preserving m88ir business flexibility.
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Articles published on JunHe's official website represent only m88 opinions of m88 authors and should not in any way be considered as formal legal opinions or advice given by JunHe or its lawyers. If any part of m88se articles is reproduced or quoted, please indicate m88 source.Any picture or image contained in m88se articles MUST not be reproduced or used unless om88rwise consented by us in writing. You are welcome to contact us for any furm88r discussion or exchange of views on m88 relevant topic.
