New Interpretation by the Supreme People's Court on Labor Law

Enrico Toti
Sep 9
3 min read

The Supreme People’s Court of the PRC has issued a new Judicial Interpretation on several issues concerning the application of labor law in dispute proceedings, effective from September 1, 2025. This Interpretation reinforces worker protections and requires foreign investors to exercise heightened vigilance in ensuring compliance with Chinese labor law.

Prohibition on Waiving Social Security Contributions

Any agreement between employer and employee to waive social security contributions is null and void (art. 19).
In the event of non-payment, the employee may terminate the contract and obtain statutory compensation (art. 19).
If the employer later pays the arrears, it may recover from the employee only the portion legally attributable to them (Art. 19).

Responsibility in Complex Employment Relationships

In cases of subcontracting or corporate group structures, the court will identify the entity exercising actual control as the “real employer” (arts. 1-3).
Affiliated companies may be held jointly liable for wages and social security obligations (art. 3).

Fixed-Term Contracts and Stabilization

After two consecutive fixed-term contracts with the same employer, the employee is entitled to an open-ended (permanent) contract (art. 10).
Automatic extensions or formal substitutions of the contractual counterparty are deemed “consecutive” if the employee continues to work at the same location (art. 10).
If the employee continues to work for more than one month beyond expiry without objection from the employer, the contract is considered renewed and, if conditions are met, permanent (art. 11).

Failure to Sign a Written Contract

If no written contract is signed within one month from commencement of work, the employee may claim double salary for each subsequent month without a contract (arts. 6 - 7).
After one year, the employment relationship is automatically deemed permanent (art. 9).
Exceptions apply in cases of force majeure or where the fault lies with the employee (art. 7).

Service and Non-Competition Clauses

Penalties for breach of minimum service periods must be proportionate to actual costs incurred, considering length of service and degree of fault (art. 12).
Non-competition obligations are enforceable only if proportionate and limited to employees with access to confidential information (arts. 13 - 14).
Overly restrictive clauses may be declared invalid; breach of valid agreements entitles the employer to restitution and compensation (art. 15).

Procedure and Litigation

Reinstatement is excluded in cases such as bankruptcy, retirement, or when the employee has secured new incompatible employment; in such cases, the employer must pay statutory compensation (art. 16).
The remuneration owed between unlawful dismissal and reinstatement is expressly regulated (art. 18).
The statute of limitations must be invoked promptly; failure to do so forfeits the right to rely on it later (art. 20).

Foreign Workers and Representative Offices

Foreign nationals holding permanent residence, work permits, or valid authorizations may request judicial recognition of their employment relationship (art. 4).
Representative Offices (ROs) may be party to labor disputes concerning personnel hired through authorized agencies (art. 5).

Practical Implications for Companies in China

Verify social security contributions: ensure timely and full compliance with local requirements.
Draft clear contracts: always prepare comprehensive written agreements; avoid ambiguous or “short-cut” templates.
Review restrictive covenants: align service and non-competition clauses with proportionality and good faith principles.
Manage group structures: mitigate risks of joint liability by simplifying intra-group employment relationships.
Train HR and management: provide adequate training for local and expatriate staff on the new rules and the risks of non-compliance.

In conclusion, this new Interpretation reflects a broader trend in China’s labor law regime: a steady tightening of rules designed to enhance worker protection, increase legal certainty, and strengthen social stability. For foreign companies, this means that flexibility in employment relations is narrowing and that compliance is no longer a matter of best practice but a strict legal imperative. The challenge will be to adapt corporate governance and HR management models to this more stringent environment, turning compliance into a strategic asset rather than a mere obligation.