A Guangdong labor dispute ended with a clear answer to a question every foreign manager in China eventually asks: when a fixed-term contract expires and the company decides not to renew it, is severance payable? The courts said yes. As the author, Danica Mai, this article presents my analysis of the case — these views are my personal professional opinions, not legal advice.
- 1. The Case: A U.S. Manager Whose Contract Was Not Renewed
- 2. The Dispute: Is Severance Payable to a Foreign Employee?
- 3. First Instance: Work Permit Means Labor Contract Law Applies
- 4. The Appeal: “A Civil Contract, Not a Labor Dispute”
- 5. Second Instance: Appeal Dismissed
- 6. The Author’s Conclusion
- Frequently Asked Questions
1. The Case: A U.S. Manager Whose Contract Was Not Renewed
Mike is a U.S. citizen. He lawfully held a China work permit from August 16, 2022 to July 31, 2025. In July 2022, a Guangdong company signed a hiring contract with Mike, engaging him as the company’s manager. In June 2024, the parties renewed the contract for a second term: Mike would continue as manager at a pre-tax salary of RMB 30,000 per month, for a term from August 1, 2024 to July 31, 2025.
In June 2025, the company emailed Mike with a clear decision not to renew, stating that “after careful consideration, we have decided not to continue your employment relationship.” Mike’s last working day was July 31, 2025, and the company paid his wages through July 2025. The employment relationship was performed until July 31, 2025.
In October 2025, Mike filed for labor arbitration, requesting an award of RMB 90,000 as economic compensation for the expiry of the labor contract without renewal (RMB 30,000 per month × 3 months). The arbitration committee ruled that the company pay Mike RMB 90,000 in economic compensation for contract expiry without renewal. The company refused to accept the arbitration award and sued in court.
2. The Dispute: Is Severance Payable to a Foreign Employee?
The central question: where a hiring contract expires and the employer decides not to renew it, must the employer pay economic compensation for terminating the labor contract of a foreign employee?
The first-instance court answered yes: the employment relationship of a foreigner who has lawfully obtained a work permit is governed by the Labor Contract Law, and economic compensation is payable when a fixed-term contract expires without renewal.
3. First Instance: Work Permit Means Labor Contract Law Applies
The first-instance court reasoned as follows. Article 25 of the Provisions on the Administration of Employment of Foreigners in China provides: “Where a labor dispute arises between an employer and an employed foreigner, it shall be handled in accordance with the Labor Law of the People’s Republic of China and the Law of the People’s Republic of China on Mediation and Arbitration of Labor Disputes.”
Article 4 of Interpretation (II) of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Labor Dispute Cases provides that where a foreigner establishes an employment relationship with a domestic employer in the People’s Republic of China, the people’s court shall support the foreigner’s claim to confirm the existence of a labor relationship in any of the following circumstances, including: (2) the foreigner has obtained a work permit and lawfully stays or resides within China; or (3) the relevant procedures have been completed in accordance with relevant state provisions.
Mike held a valid work permit and had signed a hiring contract, which showed that he had established an employment relationship with the company. The dispute was therefore a labor dispute, to be tried under the Labor Contract Law of the People’s Republic of China.
In this case, the second hiring contract ran from August 1, 2024 to July 31, 2025. The company had unilaterally expressed its intention not to renew the labor contract and to terminate the labor relationship. It was therefore obliged to pay Mike economic compensation for the expiry of the labor contract without renewal — RMB 90,000 (RMB 30,000 per month × 3 months).
In summary, the first-instance court ordered the company to pay Mike RMB 90,000 in economic compensation for the non-renewal of the labor contract.
4. The Appeal: “A Civil Contract, Not a Labor Dispute”
The company appealed, arguing that the dispute was in nature a dispute over an employment contract with a foreign cultural and educational expert, and that the court had accepted the case in error. According to the company, Article 25 of the Provisions on the Administration of Employment of Foreigners in China mentions only the Labor Law and the Law on Mediation and Arbitration of Labor Disputes, and says nothing about the Labor Contract Law — thereby excluding the Labor Contract Law’s mandatory rules on the employer’s economic compensation liability. The company therefore claimed it was not required to pay severance for non-renewal.
5. Second Instance: Appeal Dismissed
The second-instance court held as follows. The Letter of the General Office of the Ministry of Human Resources and Social Security on Issues Concerning the Handling of Foreign-Related Labor and Personnel Disputes (Ren She Ting Han [2010] No. 629) clearly replies that labor and personnel disputes arising between foreigners who have lawfully obtained a Foreigner Employment Permit or a Foreign Expert Certificate and Chinese employers fall within the acceptance scope of China’s labor and personnel dispute arbitration committees. The State Administration of Foreign Experts Affairs also issued a Notice on Handling Foreign Experts’ Labor and Personnel Dispute Arbitration Work, requiring implementation of the above provisions. The company’s argument on this point therefore lacked a sufficient basis and was not accepted.
As for the company’s claim that the Provisions on the Administration of Employment of Foreigners in China exclude the application of the Labor Contract Law: upon review, the full text of the Provisions contains no clause excluding the application of the Labor Contract Law of the People’s Republic of China. The company’s reading — that because Article 25 does not mention the Labor Contract Law, the law is excluded — was an improper interpretation of departmental rules. The company’s appeal on this point had no legal basis and was not accepted.
In summary, the second-instance court dismissed the appeal and upheld the original judgment.
6. The Author’s Conclusion
In my view as the author, Danica Mai: foreign employees who have lawfully obtained work permits are protected by China’s Labor Law and Labor Contract Law. When a foreign employee’s labor contract expires and the company does not renew it, the employer must still pay economic compensation.
Under Article 4 of Interpretation (II) of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Labor Dispute Cases, the relationship between a foreigner who has lawfully obtained a work permit and lawfully resides in China and a domestic employer is, in legal character, a standard labor relationship. An employer cannot rely on contract titles such as “hiring contract” or “foreign-related agreement” to characterize such disputes as ordinary civil contract disputes in order to evade the statutory jurisdiction over labor disputes. For foreign employers, this case is also a reminder that contract titles cannot change the legal character of the relationship — the mandatory clauses of China employment contracts apply to foreign employees too.
Frequently Asked Questions
Does China’s Labor Contract Law protect foreign employees?
Yes — provided the foreigner has lawfully obtained a work permit and lawfully stays or resides in China. Interpretation (II) of the Supreme People’s Court on labor dispute cases expressly treats such relationships as standard labor relationships governed by the Labor Contract Law.
Is economic compensation payable when a fixed-term contract expires and the employer does not renew it?
Yes. Where a fixed-term contract expires and the employer decides not to renew it, the employer must pay economic compensation of one month’s wage for each year of service. In this case, three years of service at RMB 30,000 per month produced a RMB 90,000 award.
Can a company avoid severance by calling the agreement a “hiring contract” or a civil contract?
No. The courts look at the substance of the relationship — a valid work permit plus actual employment — rather than the contract’s title. The appeal court explicitly rejected the argument that labeling the arrangement differently changes a labor dispute into an ordinary civil contract dispute.
What does this case mean for employers renewing foreign staff contracts?
Before deciding not to renew a foreign employee’s contract, an employer should budget for statutory economic compensation and check whether the employee’s work permit and residence status are in order — the same reasoning applies to disputes over social insurance for foreign employees.
If you employ foreign staff in China — or are about to — our HR and payroll team can review your contracts, work permit processes and severance exposure against the current rules. For related reading, see our compliance analysis of the 2026 housing fund amendment or contact us directly.
Disclaimer: This article reflects the personal opinions of the author and is provided for informational purposes only. It does not constitute legal, tax or professional advice. Laws and regulations in China are subject to change; for advice specific to your business, please consult a qualified professional at Dan Young Business Consultancy. Contact us at [email protected] or call/WeChat: +86 18565453956.
