China’s Judicial Interpretation II on Labor Disputes clarifies key legal standards for handling employment disputes in China. This article examines its legislative context, major changes, and why foreign-invested enterprises must proactively review their employment practices.
On August 1, 2025, China’s Supreme People’s Court (SPC) released the long-awaited Judicial Interpretation II on the Application of Law in Labor Dispute Cases (Fa Shi [2025] No. 12, hereinafter “Judicial Interpretation II on Labor Disputes” or “Judicial Interpretation II”), along with a set of illustrative cases. Both will take effect on September 1, 2025.
The interpretation addresses several contentious and complex issues in labor dispute adjudication, including employer liability in outsourcing and subcontracting arrangements; the determination of labor relationships in mixed employment scenarios; exceptions to double wage compensation for failure to sign written labor contracts; eligibility to enforce non-compete obligations; legal liability for failing to contribute to social insurance; and arbitration time-limit defenses raised during litigation, among others.
This new interpretation reflects the SPC’s ongoing effort to unify judicial standards and provide clearer guidance for handling labor disputes in an increasingly complex employment environment. In this article, we offer a high-level overview of the interpretation background, drafting process, and key provisions. In subsequent articles of this series, we will delve deeper into specific rules and analyze their practical implications for employers and HR compliance teams. Subscribe to stay updated on these critical developments.
Judicial Interpretation II on Labor Disputes Series:
Subcontracting Risks: When Hiring an Unlicensed Entity Creates Employer Liability (Article 1-2)
Who’s the Employer? Managing Risks in Intra-Group and Dual Employment Scenarios (Article 3)
Employment of Foreign Nationals and Foreign Enterprises: What’s New?
Double Wage Liability: When Failing to Sign a Contract Gets Expensive (Article 6-7)
Automatic Renewals and Open-Ended Contracts: What Triggers What? (Article 8-11)
Training Costs and Service Periods: When Can Employers Claim Damages? (Article 12)
Non-Compete Agreements: How to Stay Within the Legal Boundaries (Article 13-15)
Illegal Termination and Continuation of Employment: Key Legal Consequences (Article 16-18)
Social Insurance Compliance: No Waivers, No Excuses (Article 19)
Arbitration Time Limits: How New Evidence Can Still Change the Case (Article 20)
Background and legislative process
In line with the rollout of China’s Civil Code, the SPC has been working to streamline and modernize its judicial interpretations, including those governing labor disputes. This effort began with the release of Judicial Interpretation I in 2021, which consolidated four previous documents into a unified framework.
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Since then, China’s labor landscape has continued to evolve. Disputes involving non-compete clauses, employee benefits, and social insurance obligations have become more frequent and complex, posing new risks for employers and complicating efforts to maintain compliant and stable labor relations. For HR teams and legal departments, the lack of unified judicial standards in these areas has made dispute prevention and resolution more challenging.
To address these gaps, the SPC released a draft version of Judicial Interpretation II in 2023, prompting extensive feedback from legal practitioners and the business community. Over the next 18 months, the SPC reviewed this input and made significant revisions.
The current final version reflects a more targeted approach. The number of provisions was reduced from 27 to 21, with several contentious clauses—such as those on equity incentive disputes and special time limits for annual leave claims—removed. The remaining provisions were revised for clarity and practical application, with a focus on balancing employee protection and employer accountability.
For companies operating in China, the interpretation offers much-needed legal clarity on several long-standing grey areas. Understanding these changes is essential for updating employment practices, managing compliance risk, and handling disputes effectively.
Guiding principles and key highlights
Judicial Interpretation II is built on three guiding principles: supporting employment stability alongside high-quality economic development; balancing the protection of employee rights with employer sustainability; and combining fairness with differentiated treatment based on real-world scenarios. The interpretation addresses both long-standing ambiguities and emerging challenges in China’s evolving labor landscape.
Below are some of the key highlights:
Promoting stable employment and supporting economic development
One of the core objectives of the interpretation is to encourage employers to uphold their social responsibilities around job stability. Frequent use of short-term labor contracts undermines employment security and weakens long-term workforce development. To address this, the interpretation clarifies what constitutes “two consecutive fixed-term contracts” under Article 14 of the Labor Contract Law—often a trigger for mandatory non-fixed term employment. Specific situations now recognized include:
Contract extensions totaling over one year;
Automatic contract renewals after expiry; and
Changes in contract signatory entities not caused by the employee.
These clarifications aim to reduce disputes and prevent employers from circumventing obligations to offer open-ended contracts, thereby promoting more stable employment relationships.
The interpretation also encourages the healthy flow of talent. It limits the enforceability of non-compete clauses, stating that such clauses are invalid if the employee was not actually exposed to trade secrets or confidential IP-related information. Furthermore, non-compete terms must be reasonably aligned with the scope, region, and duration of the confidential exposure. This supports labor market fluidity and reduces overly broad contractual restrictions that can hinder innovation and mobility.
Balancing employee protection with employer operations
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The interpretation emphasizes the principle of good faith, encouraging both parties to honor contractual commitments. For example, if an employer provides special treatment (such as training subsidies or relocation benefits) under an agreed term of service, and the employee fails to fulfill that term, courts may award compensation based on actual losses, the degree of fault, and the duration of service performed.
It also clarifies employer liability regardingunsigned labor contracts. While the Labor Contract Law requires written contracts and mandates double wage penalties for non-compliance, the interpretation limits this liability when the employer can prove that the employee deliberately or negligently refused to sign a written contract. This provision offers some protection for employers acting in good faith but facing non-cooperative behavior from employees.
Strengthening fairness while addressing real-world complexities
The interpretation tackles persistent issues in labor practices, such as illegal subcontracting, use of affiliated companies, and avoidance of social insurance obligations:
Subcontracting and affiliation: If a contractor or affiliated party subcontracts work to an unqualified entity or allows unauthorized parties to “attach” to their license, they remain responsible for employee wages and workplace injury insurance.
Mixed employment scenarios: Where no formal contract exists but multiple affiliated companies are involved, courts will assess actual work arrangements, including job duties, wage payments, and social insurance contributions, to determine the true employer.
Social insurance obligations: Any agreement between employer and employee to waive social insurance contributions is invalid. If an employee resigns on the grounds that contributions were not made and claims severance pay, the court will support that claim. Employers may recover reimbursed contributions made in accordance with administrative orders.
These rules are intended to uphold the integrity of the social insurance system, safeguard employee entitlements, and reduce compliance risks—especially important in the context of population aging and increasing labor costs.
Additional clarifications
The interpretation also provides guidance on other practical issues, including:
Labor relationships involving foreign employees;
Employer obligations when work continues beyond contract expiry;
Conditions under which labor contracts are deemed impossible to perform;
The impact of occupational health assessments on dismissal decisions; and
How arbitration time limits can be raised as a defense in court proceedings.
Six model cases were released alongside the interpretation to illustrate how these rules are applied in practice. These examples, drawn from local court experience, provide valuable reference points for companies navigating labor risk.
Why FIEs should pay attention
Foreign-invested enterprises (FIEs) operating in China often maintain relatively standardized human resources practices. However, the complexity of China’s labor law system, particularly the regional variations and frequent policy updates, presents ongoing compliance challenges. For FIEs, legal predictability and compliance costs are top of mind, as labor disputes can directly impact operational efficiency, internal morale, and corporate reputation.
Judicial Interpretation II addresses many of the high-risk areas where labor disputes frequently arise and establishes clearer judicial standards for how such cases will be adjudicated going forward. As a result, it has direct implications for how FIEs manage labor relationships in China across several key areas.
For example, the interpretation provides specific guidance on commonly disputed matters such as contract formation and termination. These are central to determining whether an enterprise’s employment practices meet legal requirements. In this sense, the interpretation serves as both a compliance benchmark and a risk-prevention tool.
FIEs also tend to rely on employment structures such as intra-group secondment, outsourcing, and the hiring of foreign nationals. These arrangements, while often operationally necessary, are prone to being classified as “de facto employment relationships” under Chinese law—potentially shifting labor liabilities onto the FIE itself. Judicial Interpretation II introduces stricter criteria for determining the legitimacy of such arrangements, making it essential for FIEs to clearly define employment responsibilities and avoid informal or undocumented labor practices.
Moreover, intellectual property and trade secret protection are a top priority for many FIEs. Non-compete agreements are a common tool to retain key personnel and safeguard confidential information. The interpretation refines the enforceability criteria for non-compete clauses, including rules on geographic scope, duration, compensation standards, and liability for breach. This calls for FIEs to revisit the design of their non-compete agreements—ensuring, for example, that they specify competitor lists, clarify payment mechanisms, and strictly fulfill compensation obligations post-termination to uphold the agreement’s validity.
Action points: Ensure compliance before September 1, 2025
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Judicial Interpretation II is not an isolated legal update—it is part of China’s ongoing effort to modernize and refine its labor law system. At its core, the interpretation aims to clarify legal rules, unify adjudication standards, and strike a balance between protecting employee rights and preserving employer autonomy in workforce management.
For FIEs, this development should be viewed not only as a legal compliance requirement but also as a strategic opportunity. While minimizing legal exposure is a necessary defensive move, proactively aligning employment practices with interpretation can help optimize labor management, reduce internal friction, and improve operational efficiency.
To prepare for the implementation of the interpretation, FIEs should conduct a targeted review of their employment practices and policies. Key actions include:
Review qualifications of contracting partners: Terminate cooperation with unlicensed subcontractors or affiliated entities. Clearly assign employment responsibilities in service agreements to avoid liability spillover.
Standardize intra-group employment practices: Harmonize employment terms across group entities and eliminate undocumented cross-entity labor arrangements. Use tripartite agreements to define labor relationships between the employee, dispatching entity, and host company.
Upgrade labor contract templates: Incorporate triggers for open-ended contracts, append non-compete scope and restrictions, and specify how damages will be calculated if service period obligations are breached.
By taking these steps before Judicial Interpretation II comes into force on September 1, 2025, FIEs can better manage compliance risks and create a more stable, trustworthy employment environment in the China market.
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Dezan Shira & Associates assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Haikou, Zhongshan, Shenzhen, and Hong Kong. We also have offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Dubai (UAE) and partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh, and Australia. For assistance in China, please contact the firm at china@dezshira.com or visit our website at www.dezshira.com.
DALIAN, Aug. 7 (Xinhua) — Iron ore futures closed lower on Thursday in daytime trading at the Dalian Commodity Exchange (DCE).
The most active iron ore contract for September 2025 delivery dipped 2 yuan (about 28 U.S. cents) to close at 793 yuan per tonne.
On Thursday, the total trading volume of 12 listed iron ore futures contracts on the exchange was 423,979 lots, with a turnover of about 33.15 billion yuan.
As the world’s largest importer of iron ore, China opened the DCE iron ore futures to international investors in May 2018. ■
What are interest rates?published at 10:01 British Summer Time
10:01 BST
Michael Race Business and economics reporter
Put simply, interest is the extra amount you get charged when you borrow money.
Say someone lends you £10 at a 10% interest rate, you’ll pay them back £11 – the £10 you borrowed, plus an extra £1 in interest (10% of £10).
The Bank of England’s base interest rate, which is being set today, dictates what rates most high street banks and lenders set for things – ranging from mortgages to credit cards and savings accounts.
When the Bank puts up its rate, it gets more expensive to borrow money, but it also means that returns on savings accounts, which accrue interest, go up.
When rates drop, as they are expected to today, borrowing becomes cheaper and saving rates typically go down.
The Bank of England’s job is to keep inflation, which is the rate prices rise at for goods and services, at an annual rate of 2%. It uses interest rates to try to keep it at that level.
When rates rise, people tend to spend less and save more. That slows the demand for goods and services, which can limit price rises and thus cool inflation.
Ultra-processed foods make up the bulk of what kids eat — and adults aren’t far behind, a report published Thursday by the Centers for Disease Control and Prevention finds.
About 62% of kids’ and teens’ daily calories came from ultra-processed foods, the CDC’s National Center for Health Statistics found, compared with 53% for adults.
The report marks the first time CDC has provided estimates about how much ultra-processed foods make up Americans’ diets.
Health and Human Services Secretary Robert F. Kennedy Jr. in May cited ultra-processed foods among his list of top issues that need to be addressed to curb what he says is an epidemic of childhood chronic diseases.
Last month, the Department of Health and Human Services took the first step to formally define “ultra-processed foods” — a move, experts say, that could open the door to regulation, including what types of food are eligible for food assistance programs. Diets high in ultra-processed foods have been linked to a number of health problems, including depression, Type 2 diabetes and early death.
Previous administrations have also tried to take action on ultra-processed foods, but those efforts have focused mostly on labeling and individual ingredients — such as added sugars and trans fats — rather than on regulating or classifying foods based on their level of processing. In January, during the Biden administration, the Food and Drug Administration proposed requiring a new label on the front of most packaged food and drinks that would alert consumers to how much saturated fat, salt and added sugar they contained.
Thursday’s report was based on findings from the National Health and Nutrition Examination Survey, from August 2021 to August 2023.
The report’s lead author, Anne Williams, a researcher with the National Center for Health Statistics, said the agency identified ultra-processed foods using the NOVA classification system — a framework developed by Brazilian researchers that’s the most commonly used tool to evaluate processed foods. NOVA defines ultra-processed products as “industrial creations” made with little — if any — whole foods.
The top source of ultra-processed foods for both kids and adults was sandwiches, such as burgers, hot dogs and PB&Js, Williams said. That was followed by baked goods, salty snacks and sugary drinks.
The report found that adults with higher incomes tended to eat fewer ultra-processed foods.
It also found that intake of ultra-processed foods for both kids and adults dropped slightly from 2017-18 to August 2021–23. For adults, the decline started even earlier, going back to 2013–14. Williams cautioned that the decline so far has been small — a 56-calorie difference over roughly a decade.
Marion Nestle, professor emerita of nutrition, food studies and public health at New York University, said the CDC’s findings align with what outside researchers have found about Americans’ eating habits.
Nestle said parents tend to gravitate toward ultra-processed foods for their kids because they’re easy to throw in a school lunch bag.
But, she added, probably the biggest reason kids eat so many ultra-processed foods is that the food industry heavily markets it to them.
“They’re the most profitable products in the supermarket, and the companies sell them, they market them directly to kids,” Nestle said. “They’re seen as cool and are iconic and you’re lucky to eat them, because that’s how they’re marketed.”
The term “ultra-processed food” was created around 2009 and has primarily been used for research purposes, said Susan Mayne, who was director of the FDA’s Center for Food Safety and Applied Nutrition in both the Biden and the first Trump administrations.
Mayne said research has shown that eating ultra-processed foods in general is linked to increased caloric intake and weight gain and that it is associated with greater risk of chronic diseases.
The problem with defining ultra-processed foods, she said, is that not all of them are linked to greater health risks. In fact, some — like certain yogurts, whole grain breads and cereals — are actually associated with reduced risks of chronic diseases like colon cancer. States like California have tried to address that by coming up with a definition of “particularly harmful” ultra-processed foods, she added.
The NOVA classification system also has limitations, as it doesn’t directly measure processing, Mayne said. Rather, it uses additives and specific ingredients as a proxy for the level of processing.
“FDA is engaging in a public process to attempt to define UPF, which is a good first step,” Mayne said in an email, referring to ultra-processed foods. “But it would be important to repeat studies to demonstrate that the new definition is as or more predictive of chronic disease risk than existing definitions before it could be used for policies.”
HHS hasn’t said when it plans to formally define “ultra-processed.”
Nestle said she hopes the Trump administration also targets marketing.
“These are highly convenient products, and the kids will eat them because the kids have been trained to eat them,” she said.
The federal government is facing mounting pressure to confirm how it plans to regulate fast-growing artificial intelligence technology, with the Coalition critical of mixed messaging from Labor ministers about whether new laws are needed.
As debate erupts over big tech companies seeking access to Australian material including journalism and books to train AI models, Anthony Albanese has stressed the importance of protecting copyright. But the shadow productivity minister, Andrew Bragg, has urged Australia not to squander its opportunity to harness AI’s benefits, warning against any major new rules.
“The risk is that we over-regulate. The risk is that we make ourselves even more uncompetitive,” Bragg told Guardian Australia.
“[AI] might be the only free kick we get on productivity.”
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A suggestion from the Productivity Commission to give big tech companies an exemption to copyright laws for “text and data mining”, or to expand existing fair dealing rules, prompted fierce pushback from arts, creative and media companies this week, alarmed that Australian work could be used by massively wealthy tech companies – without compensation – to train AI models.
Federal ministers, including the treasurer, Jim Chalmers, have said they have no plans to change copyright law, and spoken in favour of creatives and rights holders. Albanese on Thursday echoed concerns over protecting copyright, but also said the government was keen to reap the benefits of AI technology, including productivity gains, expected to be a focus of the upcoming economic reform roundtable.
“My government’s a government that supports the arts,” Albanese said at a press conference in Melbourne, calling AI a “complex” issue.
“We as a society will work [the balance of AI risks and opportunities] through. It’s good there’s debate about it, but copyright and intellectual property is important.”
The government’s plans to respond to the fast-moving technology have shifted, prompting Bragg to call on Labor to offer certainty to the industry.
Former industry and science minister Ed Husic had set out plans for a standalone AI act to regulate the field; the productivity minister, Andrew Leigh, has advocated for a low-intervention approach described by some as “light-touch”; the new industry and science minister, Tim Ayres, has spoken about regulation and legislation among plans still to be decided, as well as giving trade unions more say in developing the sector. Chalmers has pushed for a “sensible middle path” between high and low regulation.
“I just think the government has no idea, really, what it wants to do. They have more positions than you can poke a stick at on AI,” Bragg said, noting these positions.
“We don’t need new laws,” he said. “The government need to say to the regulators ‘How are you going in enforcing the laws the parliament already has on the books?’ before they look to put more laws on those books.”
Julian Leeser, the shadow attorney general and arts spokesperson, echoed similar sentiments, saying creators deserve fair compensation and calling for clarity from the government.
“In the real world, we wouldn’t let someone use an artist’s work for commercial purposes without paying for it. The virtual world should be no different,” he said in a statement.
“This government just doesn’t know what it’s doing when it comes to AI, and it has no plan to protect Australian artists.”
Labor senator Tony Sheldon, who chaired an inquiry into AI in the last term of parliament, wrote on X that copyright laws “must be enforced to ensure big tech fairly licenses and compensates artists, writers and other creatives”.
“Despite the Productivity Commission’s interim report, the Albanese government has been clear – we stand with Australia’s creative workers and industries, and we will not compromise our copyright laws,” Sheldon wrote.
“If the Googles and Amazons of the world want to use Australia’s extraordinary trove of written and recorded treasures, they can license and pay for it just like everyone else.”
APM Terminals’ quarterly results for Q2 2025 show record-high volumes – despite volatile markets. These numbers reflect the hard work and commitment of colleagues in 60 terminals in 33 countries worldwide. As important as these numbers are for the company, this success goes far beyond numbers; we measure our success in the relationships we’ve built and the progress we’ve made with those who matter most.
“APM Terminals delivered on record-high volumes in all regions in a very volatile market. This quarter has proven to us that flexibility and reliability are key to our customers so that they can adapt to market fluctuations. We continue to stay very close to them as an advisor and operator to find solutions where needed. We are also very pleased to have extended a number of concessions with good partners to further develop and enable their opportunities to grow and ensure modernisations of the terminals.” says Keith Svendsen, CEO of APM Terminals.
In this past quarter, the company has continued to strengthen partnerships with customers who rely on APM Terminals to keep their supply chains moving, has worked with governments and port authorities on critical infrastructure projects, and has teamed up with partners in the industry to improve operational efficiency. These aren’t just business deals, they’re shared commitments made to building more resilient, connected global trade networks that benefit the communities in which we operate.
Looking to the future, Svendsen added, “As we move forward, our focus remains clear: to deliver value to every stakeholder in our ecosystem. Our terminals aren’t built on quarterly volumes, they’re built on trust, long-term collaboration and a shared commitment to raising industry standards. That’s why we lead with SQDC: Safety, Quality, Delivery and Cost. It’s how we solve problems and how we earn and keep our customers’ trust. That consistency is what drives long-term performance. Thank you to every partner and colleague who made this progress possible. Together, we’re building a more resilient and reliable global trade system.”
Toyota has warned it faces a 1.4tn yen (£7.1bn) hit from Donald Trump’s trade tariffs, as the Japanese company reported a drop in net profit and cut its guidance for next year.
The biggest carmaker in the world said it expected to make an operating profit of 3.2tn yen in its financial year to March 2026, down 16% on previous guidance of 3.8tn yen.
The anticipated annual hit from US tariffs includes the impact of the levies on car imports, higher material prices and a stronger yen.
The figures were reported as the latest wave of country-specific tariffs came into force, with dozens of countries facing higher taxes on their exports to the US. This includes Japan, whose baseline rate rose from 10% to 15% under the terms of a framework agreed between Tokyo and Washington last month.
Under the deal, Japanese automotive exports to the US are to face a 15% tariff, down from previous sector-specific levies that added up to 27.5%. The timeframe for when the change comes into effect has yet to be announced.
Toyota’s operating profit fell by almost 11% to 1.17tn yen in the three months to the end of June compared with the same period last year.
Its figures came a day after the rival Japanese carmaker Honda reported a 50% drop in profit in the same quarter, to 244bn yen. That was mainly because of a 124bn-yen hit from US tariffs, the company said.
The global car industry has been one of the hardest hit by Trump’s trade wars. The sector accounts for 8% of jobs in Japan, with vehicles and automotive parts making up more than a quarter of all the countries exports to the US.
As part of last month’s bilateral deal, Trump said Japan would invest $550bn (£410bn) in the US. The president also claimed that Japan would open its market to US products such as cars, trucks, rice and certain agricultural products.
Despite the trade turmoil, Toyota reported record sales in the first half of the year, up 5.5% to 5.1m vehicles, supported by demand for hybrid cars. Shares in the company, however, have dropped by more than 10% this year over tariff uncertainty.
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Trump’s latest wave of country-specific tariffs that came into force on Thursday include rates of more than 40% on imports from Syria, Laos and Myanmar, down to 15% for the EU and 10% for the UK.
The “reciprocal” levies announced by the White House a week ago – before a previous 1 August deadline was due to elapse – came into effect a minute past midnight Washington time on Thursday.
