New Judicial Interpretation Reshapes Labor Rights in China

On 1 August 2025, the Supreme People’s Court of China formally adopted Judicial Interpretation II on Issues Concerning the Application of Law in the Trial of Labor Dispute Cases , set to take effect on 1 September 2025.

The Interpretation, adopted at the 1942nd meeting of the SPC Judicial Committee, not only modernizes the legal landscape of labor disputes but also closes loopholes that had long undermined employee protections and consistency in adjudication.

What's The Matter?

For years, China’s labor dispute system was bedeviled by conflicting rulings, particularly over subcontracting, social insurance, and non-competes issues that placed courts and HR teams in a legal gray zone.

In response, the Supreme People’s Court initiated Judicial Interpretation II after an extensive consultative process, including feedback from legislative bodies, administrative agencies, legal experts, and businesses.

By consolidating judicial guidance into a 21-article framework, the SPC aimed to harmonize standards, close loopholes, and align judicial practice with legislative intent in a labor market under rapid transformation

New rules on labor disputes, make it clear that workers must be properly covered by social insurance and that companies cannot make them give this up. The rules also close loopholes about subcontracting workers and limit unfair non-compete agreements. These changes protect workers’ rights and give businesses clear standards to follow."

-Adv. M.R Mishra

The Interpretation

The Interpretation establishes legally binding standards on several critical aspects of the employment relationship.

Article 1 pierces subcontracting arrangements by holding licensed contractors responsible where unqualified entities employ workers without authorization.

Article 3 addresses the growing reality of multiple or joint employment relationships, directing courts to weigh substantive factors management, working hours, and wage payment when no written contract exists. Together, these provisions ensure that substance prevails over form and prevent employers from hiding behind technicalities.

A particularly consequential reform comes in Article 6, which mandates double wage penalties where employers fail to sign written labor contracts. This sharpens the deterrent against informal employment practices and underscores the judiciary’s intolerance for avoidance of statutory obligations.

Complementing this, Article 19 declares invalid any private agreement to waive social insurance contributions, empowering workers to terminate contracts and seek compensation in cases of non-compliance.

This represents a codified rejection of “informal compromises” that had eroded social protection in practice.

The Interpretation also reshapes the law on non-compete agreements. Under Article 13, only employees with genuine access to trade secrets or confidential information may be bound. Overbroad clauses in terms of scope, geography, or duration will be struck down.

Yet, under Article 14, the Court clarified that non-competes agreed during employment are not invalid merely because no economic compensation was provided an important refinement that balances commercial realities with fairness.

Article 15 further empowers employers to claw back compensation and impose penalties where valid non-competes are breached.

The reforms also extend to foreign-related employment.

Article 4 recognizes the legitimacy of labor relationships with foreigners who hold permanent residence, valid work permits, or other legally required documents. Article 5 explicitly allows foreign enterprise representative offices to participate in labor disputes, even permitting litigants to add the foreign parent enterprise itself as a party.

These provisions harmonize domestic labor law with China’s increasingly globalized employment market.

Beyond these substantive rules, Judicial Interpretation II reflects the SPC’s determination to make remedies more meaningful.

Article 18 clarifies that in cases of unlawful termination, laborers may claim wages for the interim period until reinstatement, with liability apportioned based on fault.

Article 17 places health and safety at the forefront, requiring occupational health checks in hazardous work and supporting continued employment claims when such duties are breached.

Opinion

Judicial Interpretation II is not merely a procedural update it is a structural realignment of Chinese labor law. By affirming that statutory protections such as written contracts and social insurance cannot be bargained away, the SPC strengthens the floor of employee rights. By clarifying the scope of non-competes and joint liability, it introduces predictability and fairness into an area plagued by inconsistency. And by explicitly addressing foreign enterprises and representative offices, it ensures labor law keeps pace with globalization.

This new legal interpretation sends a clear message to everyone involved. For companies, it is a critical warning to immediately check their employment contracts, update their workplace rules, and fix any missing payments into the state social insurance system.

For workers, these new guidelines provide stronger tools to protect their rights and make sure they get the benefits they are legally owed.

　　(Adopted at the 1942nd Meeting of the Judicial Committee of the Supreme People's Court on February 17, 2025, effective September 1, 2025, Fa Shi [2025] No. 12)

Refrences: Interpretation of the Supreme People's Court on the Applicable Law in the Trial of Labor Dispute Cases (II) Currently in effect / Fa Shi [2025] No. 12 / Published on July 31, 2025 / Effective on September 1, 2025

Citation: CLI.3.5302729