China Labor Law Update: 2025 Year in Review & 2026 Outlook

Executive Summary
In 2026, foreign-invested enterprises should prioritize several action items: 

• audit non-compete agreements to ensure restrictions apply only to employees with actual trade secret access;
• reassess workforce planning strategies in Shanghai given the elimination of contract termination options;
• prepare for enhanced enforcement of paid annual leave entitlements under forthcoming regulatory amendments; and
• establish compliant employment frameworks for super-aged workers as retirement age extensions take effect.

This article intends to review 2025's key judicial and regulatory developments and outlines compliance priorities in 2026.

I. 2025: Key Developments

Cross-Border Employment: New Rules for Foreign Workers
In August 2025, the SPC issued the Judicial Interpretation on Labor Disputes (II), introducing important clarifications for foreign nationals working in China. It provides greater certainty for cross-border employment arrangements and dispute resolution.

The interpretation establishes clear prerequisites for foreign workers to claim employment relationships: they must either hold permanent residence status, possess valid work permits with legal stay/residence documentation, or have completed other procedures as prescribed by national regulations.

Significantly, the interpretation also clarifies that legally established foreign enterprise representative offices can be parties to labor dispute cases, and foreign enterprises themselves may be added as parties to litigation upon application. 

Non-Compete Agreements: Stricter Compliance Standards
The Judicial Interpretation on Labor Disputes (II) unified the judicial practice on non-compete agreements, reinforcing the principle that such restrictions must balance legitimate business interests against employees' freedom of movement. 

• Article 13 confirms that non-compete clauses are unenforceable against employees who have not actually accessed trade secrets or confidential IP, even if such clauses are included in their contracts.

• Article 14 clarifies that during employment, employees cannot invalidate non-compete clauses solely on the basis that compensation has not yet been paid.

• Article 15 confirms that employees who breach valid non-compete obligations will bear corresponding liability, ensuring enforceability where restrictions are legitimately imposed.

Following this judicial framework, Ministry of Human Resources and Social Security (“MOHRSS”) issued practical compliance guidance establishing compensation benchmarks and confirming employees' right to cease performing non-compete obligations when employers fail to provide timely payment. The guidance also created an administrative complaint channel through local labor authorities as an alternative to litigation.

Together, these developments signal stricter scrutiny of both the substantive necessity and procedural compliance of non-compete arrangements.

Shanghai's Shift on Fixed-Term Contracts
In a major departure from previous practice, Shanghai's Higher People's Court changed its position on open-ended employment contracts in 2025.

Historically, Shanghai courts held that after two consecutive fixed-term contracts, employers retained the option to terminate rather than renew. The new judicial practice eliminates this "termination option": when statutory conditions are met and employees request renewal with open-ended contracts, employers must comply.

This shift significantly limits employer discretion in Shanghai.

Multinational Restructuring and Severance Practices
In the second half of 2025, several multinational corporations announced significant workforce reductions in China, including Canon, Citigroup, Oracle China, and Lenovo’s Infrastructure Solutions Group.

While reported compensation packages varied, most multinational employers adhered to statutory minimums and often provided additional benefits, demonstrating the importance of compliance and reputational considerations during restructuring.

II. Looking Ahead: 2026 Legislative Priorities

Paid Annual Leave: Long-Awaited Reform
Regulations on Paid Annual Leave for Employees, in effect for 18 years since 2008, are set for revision in 2026. The forthcoming amendments aim to strengthen enforcement mechanisms and ensure employees can actually take their entitled leave. 

For multinational employers, this reform signals increased scrutiny of leave policies and internal enforcement practices.

Aging Workforce and "Super-Aged" Workers
China's gradual retirement age extension began on January 1, 2025. To address the rights of workers beyond statutory retirement age, MOHRSS released a draft regulation in July 2025 specifically covering "super-aged workers," including those who retire early and return to work. The regulation mandates written employment agreements, minimum wage compliance, and proper payment procedures. Final implementation is expected in 2026, creating new compliance obligations for employers of older workers. 

Employers engaging retirees or rehiring former employees should expect closer regulatory oversight once the rules are finalized.

Additional Reform Areas
Other anticipated developments for 2026 include enhanced protections for gig economy workers, affecting China’s more than 200 million flexible workers. MOHRSS also plans adjustments to minimum wage mechanisms and enhanced mediation and arbitration efficiency throughindustry association involvement and dialogue mechanisms at private enterprises.