Can Employer Refuse to Sign Open-ended Labor Contract?

Article 14, Paragraph 2, Item 3 of the Labor Contract Law stipulates that after the employer has signed two consecutive fixed-term labor contracts with the employee, unless the employee proposes to continue to sign a fixed-term labor contract, the employer shall sign an open-ended labor contract with the employee if the employee has not violated the provisions of Article 39 and Article 40, Items 1 and 2 of the Labor Contract Law. Based on this clause, does the employer have the right to choose whether to sign an open-ended labor contract at the request of the employee? Let’s look at this case together.

Case Background（Reference Case2024-07-2-186-003）

Zhang and a bus company entered into two consecutive fixed-term employment contracts, the second of which was concluded until 31 July 2020. On 10 June 2020, a bus company notified Zhang and others to renew their employment contracts. On 12 June 2020, Zhang filed a real-name complaint on a platform against the bus company for not distributing masks as required. On the same day, the bus company notified Zhang that the labor contract would be terminated upon expiration and asked him to handle the resignation procedures and hand over the work. Zhang repeatedly requested the bus company to sign an open-ended labor contract with him. In July 2020, the bus company notified Zhang that the labor contract would be terminated on July 31, 2020, and paid Zhang the economic compensation for the termination of the labor contract by transfer. Zhang worked at the bus company until July 31, 2020. Subsequently, Zhang applied to the labor dispute arbitration committee, requesting the bus company to sign an open-ended labor contract with him starting from August 1, 2020. The labor dispute arbitration committee rejected Zhang’s arbitration claim. Zhang was not satisfied and filed a lawsuit, requesting the court to order the bus company to sign an open-ended labor contract with him starting from August 1, 2020.

The Primary People’s Court of Jinan District of Fuzhou City made the first-instance judgment on December 15, 2021, ruling that the bus company should sign an open-ended labor contract with Zhang within ten days from the date of the judgment. The bus company appealed on the grounds that the employer has the right to choose whether to sign an open-ended labor contract with an employee who has signed two consecutive fixed-term labor contracts.

View of the Court

The effective judgment of the court held that according to Article 14, Paragraph 2, Item 3 of the Labor Contract Law and Article 11 of the Labor Contract Law Implementation Regulations, “except for the case where the employee and the employer agree through negotiation, if the employee requests to sign an open-ended labor contract in accordance with the provisions of Article 14, Paragraph 2 of the Labor Contract Law, the employer shall sign an open-ended labor contract with him. The content of the labor contract shall be negotiated according to the principles of legality, fairness, equality, voluntariness, consensus through consultation, and good faith; for the content that is not negotiated, it shall be executed in accordance with the provisions of Article 18 of the Labor Contract Law.” The above provisions grant the employee a unilateral right to contract, emphasizing only the employee’s expression of intent and the right to choose the term of the contract. Both parties have signed two fixed-term labor contracts, and Zhang’s proposal to sign an open-ended labor contract with the bus company meets the legal conditions and should be signed. The bus company did not consult Zhang's opinion before terminating the labor contract. After receiving the notice of termination of the labor contract from the bus company, Zhang clearly objected and did not agree to terminate the labor contract, and requested to sign an open-ended labor contract. Therefore, in this case, the unilateral notice of termination of the labor contract made by the bus company does not comply with the legal provisions, and the bus company should sign an open-ended labor contract with Zhang.

View of PW & Partners

When an employer has signed two consecutive fixed-term labor contracts with an employee, and the employee has not violated the provisions of Article 39 and Article 40, Items 1 and 2 of the Labor Contract Law, as long as the employee proposes or agrees to renew the labor contract, except for the case where the employee requests to sign a fixed-term labor contract, the employer has no choice and must sign an open-ended labor contract. This institutional design endows the employee with the priority to choose to sign a fixed-term labor contract or an open-ended labor contract, which is conducive to protecting the security benefits of employees who have worked continuously for a long time in the same employer.

Although the law has clearly stipulated that the employee's request to sign a fixed-term labor contract is the only exception where the employer has the right to refuse to renew an open-ended labor contract, there are still differences in the understanding of this clause in judicial practice. Courts in some regions believe that the employee and the employer’s agreement to renew the labor contract is a prerequisite for applying Article 14, Paragraph 2, Item 3 of the Labor Contract Law. If the employer is unwilling to renew the labor contract, there is a lack of a common intention to "renew the labor contract," and even if the employee requests to sign an open-ended labor contract, it does not meet the provisions of the said article, and the labor contract is terminated upon expiration.

For employers, if they wish to continue to sign fixed-term labor contracts with employees who meet the conditions for signing open-ended labor contracts, it is recommended to negotiate with the employees in advance to obtain written documents agreeing to sign fixed-term labor contracts and to properly preserve all kinds of evidence generated during the negotiation process, in order to reduce the risk of being determined by arbitration and trial institutions as refusing to sign an open-ended labor contract when disputes arise.