The PRC Labor Contract Law states that an open-term
contract must be offered after two consecutive fixed-term
contracts, unless the employee opts for another fixed term. Across
China, this is interpreted to mean that employers cannot refuse
renewal after the second term and must switch to an open-term
contract. As a result, an employer can unilaterally decide to
terminate after expiry of the first fixed-term
contract only.
Shanghai labor arbitration tribunals and courts have generally
interpreted the law differently: the requirement to offer an
open-term contract only applies if the
employer intends to renew. As a result, Shanghai
employers can decide to terminate the employment contract at the
end of the second or any subsequent fixed term, without automatic
conversion (subject to payment of severance).
