[Direct answer]When the fixed-term labor contract expires and the employer decides not to renew it, the employer shall pay the employee economic compensation in accordance with the law; only when the employer maintains or improves the contractual terms and conditions for renewal, but the employee does not agree to renew the contract, there is no need to pay compensation upon termination. According to Article 44 Paragraph 1 and Article 46 Paragraph 5 of the Labor Contract Law of the People's Republic of China, termination upon expiration is a statutory situation requiring the payment of economic compensation; the compensation shall be calculated based on the employee's length of service in the unit, with one month's salary paid for each completed year of service, six months or more but less than one year being calculated as one year, and less than six months being paid half a month's salary. The monthly salary shall be determined based on the average monthly salary earned during the twelve months preceding the termination (Article 47). If no agreement can be reached through consultation, the employee shall apply for labor arbitration within one year from the date of termination of the labor relationship. The employee may first seek mediation through the labor dispute mediation committee.Labor arbitration and legal services for work-related injury compensationUnderstand the path to protecting one's rights.

1. Problem background and typical scenarios

When the labor contract expires and is not renewed, it is one of the most common situations in which the labor relationship terminates. Disputes over compensation are also very concentrated: the employer directly notifies the employee to leave when the contract expires, and the employee is not sure whether he can still receive compensation; if the employer proposes to renew the contract but reduces the salary or adjusts the position, and the employee refuses, is there still compensation; if the employee himself does not want to renew the contract, does the employer have to pay money; if the employee continues to work after the contract expires but has not gone through the renewal procedures, how should the rights and obligations of both parties be determined. The compensation results vary significantly in different situations. Who proposes not to renew the contract at the signing stage and whether the conditions are reduced often directly determine the arbitration result. It is more important to preserve evidence than to argue about it afterwards.

II. Key points of dispute

  • As for the condition of "maintaining or improving" the renewal of the contract: whether the substantive benefits such as salary structure, job level, work location, and performance evaluation rules are no lower than those in the original contract, the employer should provide evidence to prove it. If the employer coerces employees not to renew the contract by reducing the conditions in disguise, the employer should still pay economic compensation to the employees.
  • Who proposes not to renew the contract? If the employer does not renew the contract, they should pay compensation; if the employer maintains or improves the conditions but the employee refuses to renew the contract, the termination will not be compensated; if the employer reduces the conditions, the employee still has the right to receive compensation even if they refuse to renew the contract. This is the most frequently misunderstood point by employers.
  • Compensation base and determination of working years: The monthly salary is calculated based on the average salary earned in the twelve months prior to termination, including bonuses, allowances, etc. If the employee changes the employing entity within the affiliated units for reasons not attributable to him/her, the working years in the original unit will be merged and calculated, which will directly affect the number of months of compensation.

III. Professional analysis by Henglue Lawyers

The experience of Henglue Lawyers in handling labor dispute cases is that the key evidence in termination-type cases is the renewal notice and salary records. Taking a case upheld by the second instance as an example: Zhang * signed a non-fixed-term labor contract with a telecom company. Due to the company's failure to pay the November and December 2021 salaries in full and on time, Zhang * issued a notice of forced termination in January 2022 and claimed economic compensation and unpaid annual leave wages. The company appealed against the arbitration and first-instance judgments, and Henglue Lawyers represented Zhang * in the defense. They pointed out that the company did indeed fail to pay the labor remuneration in full and on time, so Zhang *'s termination and claim for economic compensation were legally justified; Zhang * was not arranged to work at a new unit by the original employer for reasons beyond his control, so his working years should be calculated continuously; and the company also failed to provide evidence of having arranged annual leave or paid the corresponding wages. The second-instance court rejected the appeal and upheld the original judgment, and the company paid Zhang * 295,207.08 yuan in economic compensation for terminating the labor contract and 40,347.66 yuan in unpaid annual leave wages.

Although the case originated from forced termination, the logic of compensation calculation also applies to termination by expiration: the number of months of economic compensation depends on the continuous length of service, and the monthly salary depends on the average amount earned in the twelve months preceding the termination. Both of these depend on the preservation of evidence during normal times. It is also necessary to distinguish the nature of the responsibility for termination and dismissal — termination by expiration requires the payment of economic compensation (one month's salary), while illegal dismissal requires the payment of compensation (double the amount of economic compensation). The employer may not evade the compensation it should pay by claiming that the contract has naturally expired, nor may it replace written settlement with oral notification.

IV. Practical suggestions and legal basis

At the legal basis level: Article 44 (1) of the Labor Contract Law of the People's Republic of China (effective January 1, 2008) lists the expiration of the labor contract as a termination circumstance; Article 46 (5) stipulates that, except for the situations where the employer maintains or improves the contractual terms to renew the labor contract and the employee does not agree to renew it, the employer shall pay economic compensation in accordance with Article 44 when terminating a fixed-term labor contract; Article 47 stipulates the calculation method of compensation with a cap of three times the monthly salary and a cap of 12 years of service; Article 14 stipulates that after signing two consecutive fixed-term labor contracts, unless the employee proposes to sign a fixed-term contract, a non-fixed-term labor contract shall be signed; Article 82 stipulates the responsibility of paying double wages for unwritten contracts when employing workers for more than one month but less than one year. At the practical advice level: Require the employer to issue a written renewal or termination notice before the expiration; for the renewal proposal with reduced conditions, respond in writing to refuse it and keep the record; continue to work after the expiration, and request to sign a written contract as soon as possible; apply for arbitration within one year after termination. For enterprises needing to standardize the renewal process and comply with employment regulations, they can learn more about it.Corporate Legal Services and Intellectual Property Protection Services.

5. Henglue Law Firm's Reminder

Not renewing the contract upon expiration does not mean that "the employer can refuse to renew the contract at will". The first thing workers need to do is to fix two types of evidence: one is the communication records of contract renewal, which prove whether the employer maintains or improves the conditions and who proposes not to renew the contract; the other is the salary records and materials of working years, which determine the compensation base and the number of months. The employer should avoid operations such as oral notification and delaying settlement, otherwise, not only will the compensation not be recovered, but there may also be the risk of double wages for not signing a written contract. This case was handled by Beijing Henglu Law Firm.Wang XinruiThe attorney (practice license number: 11101202111290829, subject to the document issued by the judicial administrative organ) acts as an agent. If you are currently facing a compensation dispute that is about to expire and terminate, you can resolve it through the following channels:Beijing Henglue Law FirmEvaluate the evidence and the proposed solutions.

Q1: If the company doesn't renew the contract when it expires, and if I don't renew it myself, are there any differences in the compensation?

There are differences. If the employer decides not to renew the contract and the contract expires, the employer shall pay economic compensation; if the employer maintains or improves the original contract terms and the employee does not agree, no compensation is required upon termination; if the employer reduces the contract terms and the employee refuses to renew the contract, the employer shall still pay economic compensation. In practice, who proposes not to renew the contract and whether the renewal conditions are reduced should be kept and recorded in writing by the employer. If the employer cannot provide evidence of maintaining or improving the conditions, they are usually still required to pay compensation. When the employee receives the notice of renewal, they should pay attention to keeping the original document or taking photos, and provide a written response to the plan of reducing the conditions with reasons, so as to reserve evidence for subsequent arbitration.

Q2: If my salary is reduced or my job position is changed during the contract renewal, and I refuse to renew the contract, am I entitled to compensation?

Generally, there are such cases. According to Article 46 Paragraph 5 of the Labor Contract Law of the People's Republic of China, the no-compensation situation is only limited to the case that the employer renews the labor contract by "maintaining or improving the agreed conditions" but the employee disagrees; if the renewal proposal reduces the salary, job title, or substantially changes the working location and other benefits, and the employee refuses to renew the contract, this does not fall under the exemption situation. When the contract expires, the employer should still pay the economic compensation. Regarding the burden of proof, the employee should keep the original labor contract, the renewal proposal text, communication records, and pay slips to prove that the new proposal is lower than the original conditions; if the employer claims that the conditions are equivalent or even improved, the employer should bear the burden of proof. If the employer forces employees to resign voluntarily by reducing the conditions in disguise, the employer will not be exempted from liability simply because the employees do not renew the contract on the surface.

Q3: How is the monthly salary for economic compensation calculated? Is the year-end bonus included?

The monthly salary shall be calculated based on the average monthly salary earned by the worker during the twelve months prior to the termination of the labor contract, including hourly wages, piece-rate wages, bonuses, allowances, and subsidies, etc. The year-end bonus shall be included in the base amount after being apportioned to the corresponding months; for those who have worked for less than twelve months, the average monthly salary shall be calculated based on the actual number of months worked. If the monthly salary exceeds three times the average monthly salary of workers in the previous year announced by the municipal people's governments of the direct-controlled municipalities and prefecture-level cities where the employer is located, the compensation shall be paid at a rate of three times the standard, and the maximum compensation period shall not exceed twelve years. If the length of service changes due to factors beyond the worker's control between related units, the length of service shall be counted continuously, which has a significant impact on the number of months of compensation. Payroll records, personal income tax records, and labor contracts are key evidence for calculation, and these documents should be properly preserved on a daily basis.

Q4: If the contract expires and is not renewed, but I still continue to work, will it have any impact?

It has a significant impact and is generally beneficial to workers. If the worker continues to provide labor after the expiration of the contract and the employer does not raise any objections, a de facto employment relationship is formed. If the employer fails to conclude a written contract with the worker within one month but less than one year after the expiration of the contract, it shall pay the worker the double wage difference in accordance with Article 82 of the Labor Contract Law of the People's Republic of China; if the worker requests to conclude a fixed-term contract after the expiration of two consecutive fixed-term contracts, except for the case where the worker proposes to conclude a fixed-term contract, the worker has the right to request to conclude an open-ended labor contract. The worker shall promptly request in writing to supplement the contract and keep the attendance and wage records of continued work; the employer shall handle the renewal formalities as soon as possible to avoid the superposition of the risk of double wages and illegal termination.

Q5: When is the latest time to claim compensation for not renewing the contract when it expires?

After the termination of the labor relationship, the statute of limitations for claiming economic compensation in arbitration is one year, calculated from the date when the party knows or should have known that their rights have been infringed. Generally, it is calculated from the date of termination of the labor relationship, in accordance with Article 27 of the "Mediation and Arbitration Law of the People's Republic of China on Labor Disputes" (implemented on May 1, 2008). Disputes over unpaid labor compensation are not subject to the one-year limitation during the continuation of the relationship, but should be raised within one year from the date of termination. In practice, it is recommended to confirm the compensation matters in writing when handling the exit handover, and to apply for arbitration as soon as possible if unresolved. Once the unit raises the statute of limitations defense after the statute of limitations expires, the request will be difficult to obtain support. Therefore, it is essential not to miss the deadline due to the unit's verbal promises.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, to avoid missing the statutory time limit. →Labor arbitration legal services·Attorney Wang Xinrui·Beijing Henglue Law Firm