What Should Employers Pay Attention to When an Employee’s Labor Contract is About to Expire?

We discuss best practices and key guidelines regulating the management of the employment relationship in China upon the end of a fixed-term labor contract. 

The expiry of a fixed-term labor contract provides an important opportunity for the employer to evaluate the contribution of the employee and come to a decision on whether or not to renew it.

It is relatively straightforward for an employer to terminate an employee at this stage—the employer does not need to give the employee a reason for the company’s decision.

Nevertheless, to balance the interests of employers and employees, China’s labor laws and regulations also stipulate several rules or procedures that employers need to pay attention to.

That said, although there are national guidelines issued by the central government, local levels of government manage the specifics and administration of the labor relationship management and regional variations can be observed from city to city.

Below we try to demonstrate some key issues.

Employer’s right to choose upon the expiry of the first fixed-term labor contract

Upon the expiry of the first fixed-term labor contract, the employer can choose to legally terminate the labor contract without giving the employee a reason for the company’s decision. It can also choose to renew the employee’s labor contract though the employee has right to decline. There are no specific requirements on the renewed term. However, employers should bear in mind the following points:

• If the employer does not provide a new contract to the employee by the end of the contract term, and the employee still works in the company after this point, the labor relationship effectively continues—that is to say, the employer shall take liability for absence of the labor contract;
• If the employer decides not to renew the contract at the end of the period, the company must still pay severance payment to the employee;
• If the employer offers the employee a renewed contract on equal or better terms to the expired contract but the employee refuses to accept it, the employer is not required to pay any compensation to the employee; and
• Some regions impose additional obligations on employers. For example, in Beijing, the employer is expected to inform the employee its decision—whether to terminate or renew the contract—30 days in advance (more details in the later section).

Issues to pay attention to upon the expiry of the second fixed-term labor contract

After an employee finishes their second fixed-term labor contract with their employer, they shall generally be offered a non-fixed term labor contract as the third unless they want another fixed term contract instead. Such non-fixed term contract can only be terminated if there are grounds for dismissal. Notably, some regions, such as Shanghai, offer more flexibility on this rule. Employers are suggested to seek professional advice on the local policies.

Prior notice on termination or labor contract renewal

Though not strictly required in the Labor Contract Law, the employer is generally expected to convey its decision regarding whether to renew or terminate a labor contract upon the expiry of the fixed term to relevant employees in advance, to leave enough negotiation time for both parties and thus reduce the risk of labor disputes. In some cities, there are clear rules stipulated in the local labor contract regulations.

Find Business Support

Our HR & Payroll services help employers stay competitive in China

For example, in Beijing, according to the Beijing labor Contract Regulation, upon the expiry of an employee’s first fixed-term labor contract and where there are no legal circumstances requiring the extension of the employee’s labor contract, the employer is obliged to deliver a Labor Contract Termination Notice or a Labor Contract Renewal Notice to the employee 30 days in advance.

In the case where the employer terminates an employee’s labor contract upon expiration but fails to deliver the 30-day prior notice, the employer is obliged to pay compensation to the employee for each day of delay and the daily compensation amount shall equal to the employee’s daily average salary amount in the last month.

Where the employer fails to notify the employee of its intension to terminate or renew their labor contract within the 30-day notification period and the employee still works for the employer,  in accordance with the Conference Minutes of Beijing Higher People’s Court and Beijing labor Dispute Arbitration Committee on the Law Application of labor Dispute Cases (II), the employer must renew the employer’s labor contract before the expiration date of the employee’s first labor contract. Otherwise, the employer has to pay double salary to the employee for not signing the labor contract—from the next day after the expiration of employee’s first fixed-term labor contract.

Again, different cities may adopt different rules on this aspect, and employers are suggested to seek professional advice on the local policies.

Special treatment for specially protected employees

Under the current labor law system, certain groups of people are specially protected, including:

• Employees who are suspected of having an occupational disease and waiting for diagnosis;
• Employees who have completely or partially lost labor capability due to occupational diseases or work-related injury;
• Employees who are still in the legal medical treatment period for non-work related illness/ injury;
• Employees who are pregnant, on maternity leave, or in nursing period; and
• Employees who have worked for the employer continuously for more than 15 years and are less than five years away from retirement.

Find Business Support

Move your HR and Payroll processes online across Asia - with asiaadmin™ ⟶

These groups of employees mentioned above cannot be terminated upon expiration of their labor contracts until the corresponding circumstances extinguish, except where the employee has completely or partly lost labor capability due to occupational diseases or work-related injury—this kind of employee shall be terminated and treated in accordance with the provisions on work-related injury insurance.

Nevertheless, the employer can still terminate these specially protected employees by mutual agreement or if any circumstance under ‘immediate termination for inappropriate behavior of the employee’ exists.

Key takeaways

The period before and after the expiration of the term of a labor contract involves several special requirements and treatments. Improper management of this period may lead to additional labor cost, unnecessary incompliance, and prove burdensome for all stakeholders involved in the organization.

The employer should have a clear record of which employees are approaching the expiry of their fixed-term contracts. Around two months prior, the relevant managers should come to an agreement on whether or not to retain the employee. Both the performance of the employee and current and anticipated future business conditions should be considered when making the decision.

Moreover, the employer should have a good understanding of the local rules and develop corresponding protocols to properly manage the employment relationship during this period.

Further Reading

• Respect and Protection: How Should You Manage Your Female Employees in China?
• China’s IIT Special Additional Deductions: An Explainer (Updated)
• Childcare Leave in China (Last Updated April 2, 2022)

• Previous Article Building a High-Trust Society Through the Social Credit System
• Next Article Explainer: Why are MOFCOM’s and the Foreign Exchange Bureau’s China FDI Statistics Different?