Q: Dear Xeon Team, I am reaching out to seek your professional legal opinion on a matter concerning labor contract types under Chinese labor law. We would appreciate your detailed explanation of the major differences between fixed-term labor contracts and open-ended (unfixed-term) labor contracts in a corporate setting.
A: Thank you for your email. We are pleased to share the following analysis on the key distinctions between fixed-term and open-ended (non-fixed-term) labor contracts under the PRC Labor Contract Law.
1. Basic Definitions
– Fixed-term contract: The parties agree on a definite expiration date.
– Open-ended contract: No fixed termination date; the contract continues until a statutory or agreed termination event occurs.
2. When an Open-Ended Contract Is Mandatory
Under PRC Labor Contract Law, an employer is required to conclude (or is deemed to have concluded) an open-ended contract where:
(a) the employee has worked continuously for the employer for 10 years;
(b) upon first implementing the labor contract system, or upon restructuring a state-owned enterprise, the employee has 10 years of continuous service and is within 10 years of statutory retirement age; or
(c) the parties have concluded two consecutive fixed-term contracts and the employee proposes renewal, absent statutory grounds for non-renewal (e.g., serious misconduct).
3. Termination Flexibility
– Fixed-term: Terminates automatically at expiry without severance in most cases, though N (one month’s salary per year of service) as severance is due if the employer chooses not to renew on the same or better terms while the employee is willing to continue.
– Open-ended: Does not expire automatically; termination requires statutory grounds under Articles 39–41 of PRC Labor Contract Law (e.g., serious violation of rules, proven incompetence after retraining/reassignment, or economic layoffs), together with proper procedure, notice, and severance where applicable, otherwise the employer will face 2N severance.
4. Severance and Procedural Burden
Both contract types generally trigger severance obligations upon lawful employer-initiated termination, but open-ended contracts typically involve a heavier evidentiary and procedural burden, since the statutory grounds for termination are narrower and subject to closer scrutiny in labor arbitration.
5. Practical Implications for Employers
– Fixed-term contracts offer more workforce planning flexibility and easier expiry-based separation, subject to the renewal-conversion rules above.
– Open-ended contracts provide greater job security to the employee and require employers to maintain thorough documentation (performance records, training/reassignment evidence, etc.) to support any future termination.
Thus, employers should track cumulative service length and renewal cycles carefully to anticipate mandatory conversion to open-ended status.
Hope the above will be clear and helpful.