Employer cannot terminate solely on contract expiry after one month of unopposed work
Typical Labour Dispute Case jointly released by the Shanghai Municipal Human Resources and Social Security Bureau and the Shanghai No. 2 Intermediate People’s Court: An employer may not terminate an employment relationship based on contract expiry where the employee continues working for more than one month without objection.
Song joined a Shanghai consulting company (the “Company”) as a graphic designer and entered into an employment contract that expired in April 2024. After the employment contract expired, the parties did not enter into a renewed employment contract, but Song continued working for the Company without objection from the Company.
In November 2024, the Company sent Song a notice of employment contract renewal together with a proposed employment contract, requiring him to execute the contract within two days, failing which the employment relationship would be deemed terminated. Song responded the following day that he was willing to renew the employment contract but requested further discussion of certain material terms. Rather than continuing the negotiations, the Company terminated the employment relationship on the ground that Song was unwilling to renew the contract.
The court held that Song had continued working for more than one month after the original employment contract expired without objection from the Company, and a de facto employment relationship had therefore been established. Under the applicable judicial interpretation, Song was entitled to request renewal of the employment contract on the same terms as the original contract. The court further held that Song had expressly indicated his willingness to renew and merely requested further negotiation of certain contractual terms. His conduct therefore could not be regarded as a refusal to renew the employment contract.
The Company had lost the right to terminate the employment relationship solely on the basis of the expiry of the original employment contract, and there was no evidence that Song had refused to renew the contract. The termination therefore lacked a legal basis and constituted wrongful termination, for which the Company was required to pay compensation for wrongful termination. The Shanghai No. 2 Intermediate People’s Court dismissed the Company’s appeal and affirmed the original judgment.
Key Action Points
This case concerns a typical dispute arising after an employment contract expires, but the employee continues working for the employer without objection for more than one month. The issue is whether the employer may subsequently terminate the employment relationship on the ground that the original employment contract has expired or that the employee has refused to renew the contract.
The ruling in this case clarifies the boundary of an employer’s right to terminate following the expiration of an employment contract. Under Article 11, Paragraph 1 of the Interpretation (II) of the Supreme People’s Court on Issues Concerning the Application of Law in the Trial of Labour Dispute Cases, where an employee continues working after the expiration of an employment contract, and the employer raises no objection for more than one month, a de facto employment relationship is established and the employee is entitled to request renewal on the same terms as the original contract. The employer may no longer terminate the employment relationship solely on the ground of contract expiry. Employers should therefore strengthen contract expiry and renewal management, make timely decisions on renewal or termination, and carefully confirm an employee’s actual intention before treating a request for further negotiation as a refusal to renew.
