Must a non-fixed-term labour contract, sometimes referred to as open-ended labour contract, be renewed after two fixed-term labour contracts have been concluded?

Article 14(2) of the Labour Contract Law provides that: " Upon negotiation and consensus between the employer and the worker, a non-fixed-term labour contract may be concluded. Under any of the following circumstances, a worker may propose or agree to renewal or conclusion of labour contract; except where a worker proposes for the conclusion of a fixed-term labour contract, a non-fixed-term labour contract shall be concluded: ... (c) where a fixed-term labour contract has been concluded twice consecutively and the worker who does not fall under any of the categories stipulated in Article 39 and item (1) and item (2) of Article 40 renews his/her labour contract."

The question arises whether a company must renew an employment contract with an employee after having concluded two consecutive fixed-term employment contracts? Does the third renewal of the employment contract have to be for a non-fixed-term? In judicial practice, there are two main views on this issue:

1 The consent of both parties is one of the essential elements for the renewal of a non-fixed-term employment contract.

One view is that the company has no compulsory obligation to enter into a non-fixed-term employment contract and has the right to choose whether to renew the employment contract with the employee and for what term. Therefore, the company should only sign a non-fixed-term employment contract with the employee if both parties agree to renew and renew the non-fixed-term employment contract. Otherwise, the company may unilaterally terminate the contract upon the expiry of the employee's employment contract.

In judicial practice, judicial practice in Shanghai supports such view. Where an employee has worked continuously for the company for less than ten years, if the company decides not to renew the employment contract with the employee after its expiry, it does not violate the law and is not required to pay compensation to the worker for unlawful termination of the employment contract. In Judgment No. (2020) Shanghai Min Shen 2002, the Shanghai High People's Court held that "Article 14 of the Labour Contract Law clearly provides that 'the employer and the worker may conclude a non-fixed-term labour contract by consensus.' Therefore, the prerequisite for the conclusion of a non-fixed-term employment contract is the consensus between the employer and the employee. The employee's proposal to conclude a non-fixed-term employment contract should comply with the three categories of circumstances set out in Article 14(2).The third circumstance refers to the situation where the employee has already concluded two consecutive fixed-term employment contracts with the employer, and when the contract is renewed for a third time by consensus with the employer, the worker proposes to conclude a non-fixed-term employment contract." In this case, during the trial of first and second instance to the retrial process, the court held the same view that the application of the circumstances stipulated in Article 14(2)(c) of the Labour Contract Law required the consensus of both parties. The company had no intention of renewing the contract, let alone requiring it to renew the employment contract with the employee for an indefinite period.

2 After the conclusion of two consecutive fixed-term labour contracts, the renewal of a non-fixed-term contract depends on the will of the employee and may not be unilaterally terminated by the company.

This is the second view, which is held in judicial practice in Beijing, Tianjin, Guangdong, Jiangsu, Zhejiang and so on. Consensus between the two parties is not a prerequisite for the conclusion of a non-fixed-term employment contract. If the employee meets the circumstances stipulated in Article 14(2)(c) of the Labour Contract Law that a non-fixed-term employment contract should be concluded, the two parties should conclude an employment contract. If the company refuses to enter into a non-fixed-term employment contract on the grounds that the contract has expired, it constitutes a breach of the provisions of Article 87 of the Labour Contract Law and shall pay compensation to the employee in accordance with the law.

In Beijing, such as the (2021) Jing 01 Min Yi Zhong No. 11153 Judgment, the focus of the case was whether the company terminated the employment contract after the expiry of the second or more fixed-term employment contracts, and the employee's claim to enter a non-fixed-term employment contract should be supported. The Beijing First Intermediate People's Court, in accordance with Article 14(2) of the Labour Contract Law, provided that even if the company issued a notice terminating the employment contract, if the worker proposed to renew the non-fixed-term employment contract after the second fixed-term employment contract was concluded, the court supported the employee's request to renew the non-fixed-term employment contract in accordance with the law.

In Zhejiang, the issue has been unified over the calibre of judgement, "The First Division of Civil Trial of Zhejiang High People's Court and the Answer of Zhejiang Labour and Employment Disputes Arbitration Committee on Several Issues of Hearing Labour Dispute Cases (II)": V. If a company and an employee have entered two consecutive fixed-term labour contracts and the second labour contract expires, should the employee request to enter into a non-fixed-term labour contract? should it be supported? A: If a company and an employee have entered into two consecutive fixed-term employment contracts and the second fixed-term employment contract expires, and the employee proposes to renew the employment contract and requests to enter into a non-fixed-term employment contract in accordance with the provisions of Article 14(2)(C) of the Labour Contract Law, the employee shall be supported. In the (2017) Zhe Min Zai No. 181 judgment, the court held that the employees enjoyed the right to renew the non-fixed-term labour contract, and that the company's termination of the labour contract, on the premise that the plaintiff proposed to the defendant to enter into a non-fixed-term labour contract, had constituted an illegal termination.

The Guangdong High Court clarified in its (2019) Yue Min Zai No.234 Judgment that "the judgments of the first and second instance in this case, which held that one of the prerequisites for the conclusion of a non-fixed-term labour contract after the conclusion of two consecutive fixed-term labour contracts as stipulated in Article 14 of the Labour Contract Law was the agreement of both parties to renew the labour contract, were improper application of the law, and should be corrected ...The Labour Contract Law expressly provides that a non-fixed-term labour contract must be concluded in certain circumstances, mainly to address the problem of short-term labour contracts and to promote employment stability for employees, and does not make the renewal of a labour contract contingent on the employer's agreement."

Jiangsu not only supported this view, but also imposed a proactive notification requirement on the company. Article 18 of the Regulations on Labour Contracts of Jiangsu Province provides that "Where, after the implementation of the Labour Contract Law of the People's Republic of China, an employer and an employee have entered into two consecutive fixed-term labour contracts and the employee does not have the circumstances set out in Article 39 and the first and second subparagraphs of Article 40 of the Labour Contract Law of the People's Republic of China, the employer shall, thirty days before the expiration of the second labour contract, inform the employee in writing that a non-fixed-term labour contract may be concluded." Article 19 states, "If, before the expiration of the labour contract, an employee who meets the conditions for concluding a non-fixed-term labour contract does not propose in writing the conclusion of a fixed-term labour contract or the termination of the labour contract, and if the employee continues to work for the employer after the expiration of the labour contract, the employee is deemed to have agreed to conclude a non-fixed-term labour contract with the employer. " The employee requests the renewal of the non-fixed-term labour contract, and the termination of the labour contract by the employer on the grounds of expiry of the contract constitutes an unlawful termination and requires the payment of compensation. In the judgment of (2020) Su Min Shen No.5045, the Jiangsu High Court held that "if an employee meets the circumstances of Article 14 of the Labour Contract Law, unless the employer and the employee reach an agreement not to renew the non-fixed-term labour contract, the employee's request for renewal of the non-fixed-term labour contract, and the employer's termination of the contract, or the dissolution of the labour relationship, constitutes an unlawful termination or dissolution."

3 Conclusion

Through the analysis of the above viewpoints and court rulings, we can clearly conclude that for the issue of whether it is necessary to renew a non-fixed-term labour contract after two or more fixed-term labour contracts are signed, the judicial practice's interpretation of the application of Article 14 of the labour Contract Law varies from region to region. Shanghai focuses on whether the company and the employee have reached a consensus on the renewal of the non-fixed-term labour contract; while Beijing, Guangdong, Jiangsu, Zhejiang and other regions are more inclined to consider that the company should renew the non-fixed-term labour contract with the employee based on the social value judgement of protecting the rights and interests of employees and promoting employment stability.