[Q&A] Fixed-Term to Open-Term Transition: Legal Perspectives

2025. 2. 21

Question: After concluding two consecutive fixed-term employment contracts, can the employer unilaterally terminate the employment contract on the grounds of contract expiration?

Answer: There is currently a dispute in judicial practice regarding the handling of consecutive fixed-term employment contracts, mainly due to differing interpretations of Article 14, Paragraph 2 of the Labor Contract Law.

Article 14, Paragraph 2 of the Labor Contract Law stipulates, "An employer and employee can agree to establish an open-term employment contract. Under any of the following circumstances, if the employee proposes or agrees to renew or establish an employment contract, except where the employee proposes a fixed-term employment contract, an open-term employment contract should be established: ...; (3) The employee has consecutively concluded two fixed-term employment contracts, and the employee does not fall under the circumstances stipulated in Articles 39 and 40, Paragraphs 1 and 2 of this Law, and the employment contract is renewed."

Perspective One: The aforementioned condition for signing an open-term employment contract is the renewal of the employment contract, which either party can disagree with. Furthermore, Article 44 of the Labor Contract Law stipulates that "an employment contract is terminated upon expiration." From this perspective, after concluding two consecutive fixed-term employment contracts, the employer can unilaterally terminate the employment contract.

Perspective Two: The aforementioned "renewal of the employment contract" is preceded by "the employee proposes or agrees to renew or establish an employment contract." Moreover, Article 11 of the Implementation Regulations of the Labor Contract Law stipulates that "except where the employer and employee agree, if the employee proposes to establish an open-term employment contract according to Article 14, Paragraph 2 of the Labor Contract Law, the employer should conclude an open-term employment contract with the employee. The content of the employment contract should be determined by mutual agreement between both parties in accordance with the principles of legality, fairness, equality, voluntariness, mutual agreement, and good faith. For content not agreed upon, the provisions of Article 18 of the Labor Contract Law shall apply." Therefore, the employee has the initiative, and the employer cannot unilaterally terminate the employment contract.

In long-term judicial practice, different regions have exhibited varying judicial tendencies, primarily divided into two categories:

1.The judicial tendency represented by Shanghai holds Perspective One: after two consecutive fixed-term employment contracts expire, it is necessary to consider whether the employer and employee have mutually agreed to renew the employment contract to further determine whether an open-term employment contract should be established. Otherwise, the employer has the right to unilaterally terminate the employment contract.

2.The judicial tendency outside of Shanghai, mainly represented by Beijing, Guangdong, and Zhejiang, holds Perspective Two: after two consecutive fixed-term employment contracts expire, as long as the employee does not fall under the circumstances stipulated in Articles 39 and 40, Paragraphs 1 and 2 of the Labor Contract Law, the employer must not refuse the employee's request to establish an open-term employment contract. If the employer directly chooses to terminate the second fixed-term employment contract upon expiration, it is suspected of illegal termination and may face compensation payments or the risk of reinstating the employment relationship.

At the beginning of 2025, there were rumors that the Shanghai judicial system was considering adjusting its judicial tendency and implementing it according to the Perspective Two mentioned above. But currently, there have been no official documents released or confirmed. For employers in Shanghai, we suggest paying attention to this issue. However, in general, while considering long-term arrangements, it is recommended to gradually adjust company personnel management strategies and policies, as more employees may be signing open-term employment contracts in the future. Measures should be taken regarding employee job responsibilities, remuneration, and assessment requirements, such as adopting a "labor contract (open-term) + position agreement (fixed-term)" management model to address this situation.