China: Shanghai Minhang District People’s Court: Employers Issuing a Notice of Non-Renewal of Employment Contract upon the Expiration of the Second Employment Contract Constitutes Illegal Termination of the Employment Contract

On 12 February 2025, Shanghai Minhang District People’s Court has rendered a judgement that employers that issued a notice of non-renewal of employment contract upon the expiration of the second employment contract constitutes illegal termination of the employment contract.

In this case, the plaintiff (employer) and the defendant (employee) consecutively entered into two fixed-term employment contracts. The second employment contract expired on 25 October 2023. On that day, the defendant requested to sign an open-ended contract with the plaintiff, but the plaintiff issued a Notice of Non-Renewal of employment Contract to the defendant. The plaintiff’s actions were not in compliance with legal provisions and constituted an illegal termination of the employment contract. Under these circumstances, the plaintiff should pay compensation to the defendant. Based on the defendant’s average monthly income and tenure at the plaintiff’s company, the plaintiff should pay the defendant liquidated damages of RMB 131,250 for the wrongful termination of the employment contract. The court supported the reasonable portion of the defendant’s claim for liquidated damages.

On the same day, the Employment Relations Division of the Shanghai Municipal Human Resources and Social Security Bureau responded to a public inquiry regarding whether an employer’s refusal to renew an expired employment contract triggers liability for liquidated damages under Article 87 of the Employment Contract Law. The Bureau of the Human Resources and Social Security provided a principled response, explaining the principles for the payment of severance and the standards for the payment of liquidated damages. In judicial practice, most cities in China support employees’ claims for liquidated damages from employers, with exceptions mainly occurring in Shanghai and Dalian where such claims were not supported in the past.

However, the publication of this case indicates a tendency for shift towards supporting the payment of compensation in the Shanghai region. It is worth noting that there have also been cases in the Dalian region this year indicating a similar shift.

Key Action Points

According to Article 48 of the Labour Contract Law, if an employer terminates an employment contract in violation of the law but the employee demands the continuous fulfilment of the contract, the employer must comply. Recent judicial interpretations indicate that upon the expiration of two consecutive fixed-term labour contracts, the employee is entitled to demand the conclusion of an indefinite-term contract, whereas the employer lacks the unilateral right to refuse renewal under statutory conditions. Employers should pay attention to this judicial trend when making personnel appointments and dismissals.