Foreword 

When the conditions in Article 14 of the Labor Contract Law of the People's Republic of China are met, employers have a mandatory obligation to conclude an open-ended labor contract with employees. In particular, after “consecutively concluding two fixed-term labor contracts”, the employee gains a statutory right to demand an open-ended contract—a rule that has long been a high-risk compliance line for employers in labor management. 

In practice, some employers attempt to avoid this obligation by negotiating term extensions, using associated entities to alternate as signatories, or other means to formally interrupt the “continuity” of contracts. Due to the absence of clear legal or judicial guidance, such practices have generated long-standing disputes and inconsistent rulings across regions. 

Effective September 1, 2025, Article 10 of the Supreme People’s Court’s Interpretation (II) on Several Issues Concerning the Application of Law in the Trial of Labor Dispute Cases (“Interpretation (II)”) for the first time explicitly lists four circumstances that shall be recognized as “consecutive conclusion of two fixed-term labor contracts”. This provision helps unify judicial standards nationwide while imposing higher compliance requirements on the full lifecycle management of labor contracts (drafting, renewal, amendment, etc.). This article systematically analyzes the recognition standards under Article 10 of Interpretation (II), combined with prior judicial practice, and provides practical compliance recommendations for employers.   

I. Relevant Legal Provisions               

Article 14, Paragraph 2 of the Labor Contract Law provides: 

“Employers and employees may conclude an open-ended labor contract by mutual agreement. In any of the following circumstances, if the employee proposes or agrees to renew or conclude a labor contract, an open-ended labor contract shall be concluded unless the employee requests a fixed-term contract: 

(3) Having consecutively concluded two fixed-term labor contracts, and the employee has no circumstances under Articles 39 or 40 (1) or (2) of this Law, and the contract is to be renewed.” 

Under this provision, once the number of consecutive fixed-term contracts reaches two, the employee may demand an open-ended contract. Current judicial practice nationwide generally follows this rule. Additionally, pursuant to Article 34, Paragraph 2 of the Supreme People’s Court’s Interpretation (I) on Several Issues Concerning the Application of Law in the Trial of Labor Dispute Cases, if an employer should have concluded an open-ended contract under Article 14 but fails to do so, courts may deem an open-ended contract relationship to exist and determine rights and obligations based on the original contract terms. Thus, if an employer terminates rather than offering an open-ended contract after two consecutive fixed-term contracts, the employee may claim unlawful termination and demand either conclusion of an open-ended contract or compensation (if unwilling to continue). 

Article 10 of Interpretation (II) clarifies that any of the following circumstances shall be recognized as meeting the requirement of “consecutive conclusion of two fixed-term labor contracts”: 

(1) The employer and employee negotiate to extend the labor contract term for a cumulative period of one year or more, and the extended term expires; 

(2) The employer and employee agree that the labor contract will automatically renew upon expiry, and the renewal term expires; 

(3) The employee, through no fault of their own, continues working at the original workplace and position, the employer changes the contracting entity but continues to manage the employee, and the contract term expires; 

(4) Other acts violating the principle of good faith to evade the obligation, and the contract term expires upon renewed conclusion. 

This provision clarifies and refines Article 14 of the Labor Contract Law, bringing formally non-renewed but substantively long-term continuous employment arrangements—especially those with potential evasion intent—into the scope of “consecutive conclusion”, thereby closing legal gaps.   

II. Detailed Analysis and Judicial Recognition Standards for “Consecutive Conclusion of Two Fixed-Term Contracts”               

(1) Negotiated extensions of the labor contract term cumulatively reaching one year or more, and the extended term expires    

This targets extensions that are in substance renewals. Cumulative extensions totaling one year or more count as a new fixed-term contract upon expiry—even if achieved through multiple short extensions. 

Before Interpretation (II), standards varied: Beijing tended to treat any extension as renewal; Jiangsu and Shenzhen applied a six-month threshold; Shanghai had no explicit rule and considered timing and frequency. The new one-year national standard provides uniformity. 

Regions previously stricter (e.g., Beijing, Jiangsu) may need to observe how local rules align post-implementation. Extensions totaling one year or more now clearly risk counting as a new contract. Cumulative extensions under one year generally do not count absent other evasion factors, but fragmented, malicious extensions may still fall under the catch-all clause (4).  

(2) Agreement for automatic renewal upon contract expiry, and the renewal term expires    

Some employers include “automatic renewal upon expiry” clauses to avoid gaps. Under Article 10(2), such preagreed renewal periods count as a new fixed-term contract upon expiry. For example, a 3-year contract with a 1-year auto-renewal clause effectively locks in the second contract term, eliminating the employer’s termination option at the original expiry and accelerating open-ended obligations. Employers should remove such clauses. 

(3) Employee continues at original workplace/position through no fault of their own, employer changes contracting entity but continues labor management, and contract expires    

This addresses the most controversial evasion tactic. Contracts count consecutively if: (i) the change is not due to the employee’s fault, (ii) the same workplace and position, and (iii) continuous management—even without affiliation between old and new entities.

Prior practice varied significantly across regions: Beijing and Zhejiang often treated affiliated entities as continuous; Shanghai generally did not aggregate counts between affiliates unless there was rights/obligations succession (e.g., merger or split); Jiangsu and Guangdong tended to respect corporate independence and required evidence of malice for aggregation. Article 10(3) promotes national uniformity, likely leading lenient regions to adopt stricter standards over time. 

For genuine non-affiliated transfers (e.g., asset or business acquisitions where employees remain in the same branded store but under a new unrelated employer), continuity may lack the “continuous management” element and involve legitimate commercial purpose, so counting prior contracts is arguably inappropriate.  

(4) Other acts violating the principle of good faith to evade the obligation, and the contract expires upon renewed conclusion    

 This catch-all clause grants courts discretion under the principle of good faith. Typical examples include requiring employees to resign and then immediately rehire them, or dissolving the original entity and establishing a new one to reset contract counts.

 III. Compliance Recommendations and Practical Guidance for Employers               

To address Article 10 standards, employers should optimize management as follows: 

(1) Long-term planning from the initial contract: For core or intended long-term positions, avoid short initial terms to delay reaching the “second renewal” threshold and preserve flexibility. Assess renewal or termination well in advance of expiry and comply with local notice periods where required (e.g., Beijing, Liaoning). 

(2) Cautious use of extensions: If extensions are objectively necessary (e.g., project completion), complete them before expiry and strictly limit cumulative duration to under one year. Retain evidence of necessity and, where possible, include employee acknowledgment in writing that the extension does not count toward signing frequency. In regions with historically stricter rules (e.g., Beijing treating any extension as renewal; Jiangsu/Shenzhen capping at six months), avoid extensions where feasible. 

(3) Review and standardize contract templates: Conduct a systematic review of existing labor contract and related agreement templates. Remove “automatic renewal upon expiry” clauses. If such clauses must be retained for special reasons, specify a fixed renewal term to allow better prediction of open-ended contract triggers. 

(4) Manage entity changes carefully: Ensure comprehensive documentation in transfer processes (e.g., tripartite agreements, new contracts) and explicitly state in new contracts that prior signing counts are not inherited—this provides evidentiary support, though not conclusive. 

Article 10 establishes a national uniform standard, particularly strict for entity changes with continuous management despite non-employee-fault causes. Where national and local standards differ, the manner of transition remains to be observed. Employers—especially those operating across provinces—should closely monitor local judicial developments and promptly adjust localized employment strategies to minimize potential disputes and risks. 

Source: Jingtian & Gongcheng Law Firm

Author: Youna.Wang, lawyer, (86-21)2613 6121, Youna.Wang@jingtian.com

DisclaimL: Jingtian & Gongcheng strictly complies with our duty of confidentiality. Allinformation about our clients and transactions here is based on publiclyavailable information or clients' consent. This communication is for yourinformation only and not to be deemed as legal advice given by Jingtian &Gongcheng or its lawyers. Please contact us directly for legal advice orfurther discussion about the relevant issues.