Following the implementation of the Labor Contract Law of the People's Republic of China, which went into effect on January 1, 2008, employers have gradually developed a greater awareness of the compliance requirements related to executing written labor contracts with employees at the start of their employment with their organizations. Unfortunately, many employers still do not fully understand the attendant risks they face in failing to renew labor contracts in a timely manner. In fact, there have been multiple cases involving the renewal of labor contracts through non-standard procedures, the loss of renewed labor contracts, as well as executives simply forgetting to renew labor contracts upon expiry, which have resulted in material risks. One such risk includes the requirement for the employer to pay double salary. Moreover, employers often fail to plan and implement remedial measures to reduce these risks effectively. In some instances, these issues are compounded when employers take inappropriate measures. From a risk control perspective, and in combination with relevant practices, this article intends to analyze the feasibility of relevant remedial measures in the event that an employer fails to renew the labor contract with an employee within the statutory time limit, loses a renewal record, or faces other similar situations.

Supplement/Backdate the Labor Contract through Negotiation

When employees continue working after their fixed-term contract expires, for example, if the labor contract has not been renewed within the specified period or if the renewed labor contract has been misplaced, a common practice is for the employer to explain the situation and ramifications to the employee objectively and as soon as possible. In so doing, the employer gains the understanding of the employee, sets mutual expectations, and then negotiates with the employee to supplement/backdate the labor contract. The contract period should retrospectively cover the period of the labor contract that has to date not been signed but should be signed. This approach could substantially reduce the risk and potential penalties employers may face of paying double salary in certain locations.

When an employer negotiates with the employee to supplement/backdate the labor contract, there is still the open question whether the employee can still claim double salary for the unsigned labor contract. In brief, there are different opinions from the judicial authorities based in various locations.

One perspective is that both parties should be regarded as having renewed the labor contract at the beginning, and that therefore the claim that the employee requires the employer to pay double salary should not supported. However, if supplementing or backdating the labor contract is not the true intention of the employee, or if the period does not fully retroactively cover the period of the labor contract that should be signed but has not been signed, the employee's claim of the employer paying double salary for the period without a labor contract should be supported. Some judicial rules and regulations support this view, such as Minutes of the Seminar of the Beijing Municipal High People's Court and the Beijing Municipal Labor Arbitration Committee of Labor Dispute on Issues concerning the Application of Laws for the Trial of Labor Dispute Cases (II) and Minutes of the Symposium on Labor Dispute Arbitration and Litigation Practice in Shenzhen.

Another view is that if an employer fails to sign a labor contract with an employee in time, without valid reasons or reasonable evidence to demonstrate a lack of malice, even if both parties supplement/backdate the labor contract afterwards, it cannot make up for the fact that the employer has violated the legal provisions, nor can it exempt the employer from legal liabilities. In this instance, the employer would still be required to pay double salary. In judicial practice, Shanghai courts mostly held similar views, such as in the case of Shanghai Aijiu Health Management Consulting Co., Ltd. v Qiuyuan Huang (2020).

Renew the Labor Contract through Negotiation

If an employer fails to negotiate with an employee to supplement/backdate the labor contract, but both parties agree to maintain the labor relationship and renew the agreement, the employer will usually negotiate with the employee to avoid further accumulation of responsibilities in connection with paying double salary. However, the employer still retains the significant risk of paying double salary during the period when the contract was not renewed on a timely basis, and the net effect of managing or mitigating this risk is limited.

While employers may believe that they have not demonstrated malice, such that the rights and interests of their employees have not been damaged and that they are therefore not obligated to pay double salary, in this regard, there are different views in theory and practice.

According to the National People's Congress Press Conference Answers to Reporters' Questions Concerning the Labor Contract Law in 2007, the legislative intent of the written labor contract provisions in the Labor Contract Law is that "The rights and obligations of both employees and employers are not clear without a written labor contract. When there is a dispute between employees and employers, employees could not provide evidence to protect their rights and interests because there is no written labor contract." Hence, the legislative purpose of requiring employers to execute written labor contracts with employees is specifically to clarify the rights and obligations of both parties and provide evidentiary support for the protection of employees' rights. In addition, according to Article 34 of Interpretation of the Supreme People's Court on Issues concerning the Application of Law in the Trial of Labor Dispute Cases (I), if an employee still works at the former employer after the expiration of the labor contract, and the former employer does not express any objection, it shall be deemed that both parties agree to continue to perform the labor contract under the original terms and conditions. Therefore, where the employer and the employee agree to maintain the employment after the expiration of the labor contract, even if the employer has failed to renew or has misplaced the labor contract, the period of continuing employment is the same period during which both parties agree to continue to perform the labor contract on the original conditions. According to the aforementioned legislative intent and judicial interpretation, in such a situation, the rights and obligations of both parties are clear, and the employer does not intentionally refuse to renew the contract but recognizes the employment relationship between both parties, paying salaries, social security and Housing Provident Fund for the employee according to Chinese law, and that the lawful rights and interests of the employee have not been damaged as well. It would violate the original intention of the legislation and the principle of fairness if judicial authorities rigidly require the employer to assume the full responsibility for paying double salary. Several cases in Shanghai illustrate the practical application of similar views. For example, in the case of Gang Xiao v China Leaf Capital Management Co., Ltd. (2019), the court did not support the employee's claim of double salary on the grounds that the employer "has no subjective malice and does not slack off on the obligations of performing the signing labor contract". However, it is important to note that, in this particular case, the employer discovered in a relatively timely manner that it had not renewed the contract and sent an invitation to renew the contract to the employee within one month after the expiration of the previous labor contract.

However, at present, most judicial authorities believe that employers retain the obligation to proactively communicate with employees in relation to the renewal of their labor contracts prior to their expiration dates. If they continue to employ staff without renewing the contracts after their expiration, then employers shall pay their employees double salary during the period where the labor contracts have not been renewed. The reason that the employer does not have subjective malice or does not cause actual losses to employees would not exempt the employer from the responsibility of paying double salary to the employee. Certain cases in both Beijing and Shanghai have shown similar rulings, such as the case of Beijing Xinxiya Consulting Co., Ltd. v Kuo Zhao (2018) and the case of SGM-SHA Measuring Instrument Co., Ltd. v Shengyin Yang (2017).

Unilateral Termination

In practice, to avoid the further accumulation of responsibilities of paying double salary, some employers may opt to unilaterally terminate the labor contracts with employees, when they fail to supplement/backdate the agreements with employees through consultation or when they are not willing to renew. However, under these circumstances, the employer still retains the risk of paying double salary during the period without the labor contract and is required to pay the cost of labor contract dissolution or termination.

There are multiple views on whether the employer has the right to terminate unilaterally if it does not renew the contract with the employee prior to its expiration but continues to employ the employee.

On one hand, employers could terminate labor contracts with employees in accordance with Article 34 of the Interpretation of the Supreme People's Court on Issues concerning the Application of Law in the Trial of Labor Dispute (I), but they would need to pay economic compensation to their employees in accordance with the provisions of the Labor Contract Law. This is illustrated in similar cases in Beijing, Shanghai, Guangdong, Zhejiang and Hunan, such as the cases of Chunying Zhang v Beijing Xiangzan International Trading Co., Ltd. (2021), Yanlun Zhu v Shaanxi Labor Union Human Resources Service Co., Ltd. (2021), Zengcheng Gualv Plaza Property Management Co., Ltd. v Zaoqiao Guo (2017), Zhejiang Zhongke Applied Chemistry Technology Co., Ltd. v Mou Huang (2016), and Zitao Wang v Imagination Robot Education in Daxiang district of Shaoyang City (2020). Among these, the cases in Beijing primarily focus on the expiration of the first fixed-term labor contract. In addition, the Understanding and Application of Several Key Issues On the Interpretation of the Supreme People's Court on Issues concerning the Application of Law in the Trial of Labor Dispute Cases (I), published by the Supreme Court in 2021, also holds the view that the employer has the right to unilaterally terminate the labor contract within one year after the expiration of the labor contract, which shall not be regarded as illegal, but the employer shall pay economic compensation to the employee.

On the other hand, if the employer notifies the employee not to renew the contract after the expiration of the labor contract, the labor relationship between the two parties is not terminated at the expiration, which shall be deemed as an illegal, unilateral termination by the employer. In circumstances where the first fixed-term labor contract has expired, there are several cases in Beijing that show similar views, such as the case of China Resources Ng Fung Cereals Industry (China) Co., Ltd. v Mo Chen (2016). In situations concerning the expiration of the second or latter versions of fixed-term labor contracts, Beijing judicial authorities broadly believe that employers should conclude non-fixed-term labor contracts with employees. In this case, employers have no right to terminate labor contracts unilaterally. For example, this is the view held in the case of Daningshanzhuang Kindergarten in Fangshan District of Beijing v Yuxin Feng (2021). In addition, Solutions to Several Difficult Problems in the Trial of Labor Dispute Cases, issued by Luzhou Intermediate People's Court in 2015, also deems that if the employee continues to work with the employer after the expiration of the original labor contract, the labor relationship between the two parties still exists, and the employer shall renew the labor contract with the employee in a timely manner, but has no right to dissolve or terminate employment with the employee on the grounds that the labor contract expires or is terminated.

Conclusion

In conclusion, we recommend that employers pay close attention to the compliance requirements and risk management related to labor contract renewal and that they adopt the appropriate, flexible measures to reduce risks as much as possible should they fail to renew the contracts in time. To be prudent, we suggest that employers prioritize the importance of negotiating with employees to supplement, backdate or renew written labor contracts. Doing so enables employers to reduce their risk associated with paying double salary caused by the lack of written labor contracts, or to avoid the continuous expansion of responsibilities; if both parties fail to reach an agreement on supplementing, backdating or renewing labor contracts, and the employer is not willing to renew the labor contract with the employee, then the employer shall strive for the dissolution or termination of the employment relationship with the employee.

Based on the original legislative intent of the Labor Contract Law, we also anticipate that the judicial authorities could unify different views and balance the rights and interests between employers and employees.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.