An employment contract includes an automatic renewal clause. The employer assumes that renewing the contract automatically avoids the need to consider an open-ended employment contract. Is that assumption correct?
An employment contract includes an automatic renewal clause. The employer assumes that renewing the contract automatically avoids the need to consider an open-ended employment contract. Is that assumption correct?
Not necessarily.
China's Supreme People's Court introduced clearer rules under the 2025 Interpretation on Issues Concerning the Application of Law in the Trial of Labor Dispute Cases (II).
The Interpretation specifically addresses situations involving automatic contract extensions, extended contract periods, and changes to the contracting entity. These arrangements may be treated as satisfying the legal requirement of having concluded two consecutive fixed-term employment contracts.
For international employers, this is an important development in employment contract management.
Under Article 14 of China's Labor Contract Law, an open-ended employment contract is an employment contract without a fixed termination date.
An employer must generally conclude an open-ended employment contract when an employee requests or agrees to renew or conclude a contract, unless the employee requests a fixed-term contract, in circumstances including:
The employee has worked continuously for the same employer for at least 10 years.
The relevant statutory circumstances concerning an employer's initial implementation of the labor contract system or restructuring of a state-owned enterprise are met.
The employer and employee have concluded two consecutive fixed-term employment contracts, the employee does not fall within the specified statutory termination circumstances under Articles 39 and 40(1) or (2), and the employment contract is being renewed.
This means that reaching the second consecutive fixed-term contract can have significant consequences for the employer's ability to continue using fixed-term contracts.
Legal source: Labor Contract Law, Article 14.
Official reference: PRC Labor Contract Law
Article 10 of the Supreme People's Court's 2025 Interpretation (II), effective September 1, 2025, specifies four situations that courts must recognize as satisfying the requirement of having concluded two consecutive fixed-term employment contracts under Article 14(2)(3) of the Labor Contract Law.
Situation 1: Agreed extensions totaling at least one year
Where the employer and employee agree to extend the employment contract, the cumulative extension period reaches at least one year, and the extended period expires, the court must recognize that the two-contract requirement is satisfied.
Situation 2: Automatic renewal or extension
Where the employer and employee agree that the employment contract will automatically continue after its original expiration date, and the extended period subsequently expires, the court must recognize that the two-contract requirement is satisfied.
Importantly, Article 10(2) does not state a separate one-year minimum extension period for this automatic-extension situation.
Situation 3: Changing the contracting entity while actual employment continues
Where an employee continues working at the same workplace and in the same position for reasons not attributable to the employee, the employer changes the entity signing the employment contract but continues managing the employee, and the contract period expires, the court must recognize that the two-contract requirement is satisfied.
Situation 4: Other arrangements designed to circumvent the law
Where the employer uses other arrangements that violate the principle of good faith to circumvent the law, and the relevant contract period expires, the court must recognize that the two-contract requirement is satisfied.
The purpose is to prevent employers from avoiding the statutory obligation to conclude open-ended employment contracts through contractual arrangements or changes to the signing entity.
Legal source: Supreme People's Court Interpretation on Issues Concerning the Application of Law in the Trial of Labor Dispute Cases (II), Article 10.
Official reference: Supreme People's Court — 2025 Interpretation (II)
No. This distinction is important.
Article 10(2) establishes that when an agreed automatic-extension period expires, the situation must be treated as satisfying the two-consecutive-fixed-term-contract requirement.
The next question is whether the employee qualifies for an open-ended employment contract under Article 14.
Where the statutory conditions are met, the employee requests or agrees to renew the contract, and the employee does not request another fixed-term contract, the employer must conclude an open-ended employment contract.
Therefore, employers should not interpret the 2025 Interpretation as saying that every automatic-renewal clause immediately converts an employment contract into an open-ended contract.
The legal consequence depends on the relevant contract history, the expiry of the extension period, and the employee's circumstances at the renewal stage.
Article 11 of the 2025 Interpretation addresses another situation.
Where the employment contract expires, the employee continues working, and the employer does not express an objection for more than one month:
If the employee requests renewal under the original employment conditions, the court will support the request.
If the employee qualifies for an open-ended employment contract and requests one under the original conditions, the court will support that request.
If the employer terminates the employment contract, and the employee requests that the employer bear the corresponding legal consequences, the court will support the request.
This is a separate legal situation from an automatic-extension clause under Article 10.
Employers should therefore distinguish between an agreed automatic extension and continued employment after contract expiration without the employer's objection.
Legal source: Supreme People's Court Interpretation (II), Article 11.
Not necessarily.
The 2025 Interpretation identifies specific situations that courts must treat as satisfying the two-consecutive-contract requirement. It does not mean that every administrative amendment, contract change, or extension automatically qualifies.
For example:
An agreed extension must reach a cumulative period of at least one year and expire to fall within Article 10(1).
An agreed automatic-extension arrangement falls within Article 10(2) when the extension period expires.
A change in the contracting entity is covered by Article 10(3) when the employee continues in the same workplace and position for reasons not attributable to the employee, while the employer continues exercising labor management.
Other arrangements must meet the conditions concerning circumvention of the law and the principle of good faith under Article 10(4).
There is also a separate statutory situation under Article 8 of the Interpretation: certain employment contracts are legally extended when they expire, including specified protected circumstances under Article 42 of the Labor Contract Law, an unexpired service period under Article 17 of the Implementing Regulations, and an unexpired trade union term under Article 19 of the Trade Union Law.
The Supreme Court expressly provides that these legally extended contracts are not treated as cases where the employer failed to conclude a written employment contract.
This statutory extension should not be confused with a contractual automatic-renewal clause.
For international companies operating in China, the following measures can help reduce contract-renewal risks:
Identify contracts containing automatic-renewal or automatic-extension language and record the relevant extension conditions and expiration dates.
Track original contract periods, agreed extensions, cumulative extension periods, and previous contract renewals.
Do not rely solely on the number of signed documents. Review whether any arrangements fall within Article 10 of the 2025 Interpretation.
Where employees are transferred between related entities, assess whether their actual positions, workplaces, and management arrangements remain unchanged.
Check employees' continuous service periods, previous contract arrangements, and whether the statutory conditions under Article 14 have been met.
Keep appropriate records of employee communications, contract documents, renewal decisions, and any mutually agreed changes.
The Bottom Line
An automatic-renewal clause is not simply a contractual formality in China.
Under Article 10 of the 2025 Supreme Court Interpretation (II), an agreed automatic extension counts toward the statutory two-consecutive-fixed-term-contract requirement once the extension period expires.
For employers, the key is to review the entire contract history—not just the latest contract document.
A well-managed renewal process should identify when an employee may become eligible for an open-ended employment contract before the next renewal decision is made.
Disclaimer: This article provides general legal information and does not constitute legal advice. It is a legal explainer, not a report of a specific client case or court judgment. The legal consequences of a particular contract arrangement depend on the contract wording, employment history, actual employment circumstances, and applicable law. Consult qualified China employment counsel before making contract-renewal decisions.
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