What Should You Know About Overtime Work in China?

Company's overtime approval system exists in name only

Case summary

Ms. Wu worked for a pharmaceutical company. The company's overtime management system provided that: "Overtime requires submission of an overtime application for approval in accordance with the procedure. Unapproved overtime will not be recognized as overtime and not be eligible for overtime pay." Based on the work system arranged for by the company, Ms. Wu actually worked from 9 am to 9 pm, six days a week ("996"). Ms. Wu submitted overtime applications as required by the company's overtime management system, but the company did not actually implement the approval procedure. When Ms. Wu subsequently discussed the termination of her employment contract with the company, she asked to be paid for her overtime and presented her attendance record, a record of her WeChat chats with department heads and colleagues, minutes of work meetings, etc. The company recognized the authenticity of the evidence, but it refused to pay for the overtime on the grounds that its approval procedure had not been carried out. Ms. Wu then applied for employment arbitration, claiming overtime pay. The case proceeded from employment arbitration to trial at first instance. Both the arbitration institution and the court of first instance supported Ms. Wu's claim.

Key takeaways

Companies can manage their rights as employers by formulating an appropriate overtime approval system as part of their lawfully established overtime system. They should pay for overtime that satisfies the system's requirements. However, the overtime approval system is binding on both the employees and the company. If the company unilaterally fails to implement the approval procedure, it may be held to have arranged for, or agreed to, an employee's overtime and will still need pay overtime pay. 

Do employees have the right to refuse overtime arranged for by their employers?

Case summary

Ms. Zhang worked as a deliverer for a newspaper, working six hours a day, six days a week. When a deliverer in the same area left, the company arranged for Ms. Zhang to take over the work, without having consulted Ms. Zhang. Ms. Zhang rejected the arrangement on the grounds that her workload would double and she would need to work at least four more hours a day. Based on its reward and penalty system, the newspaper terminated Ms. Zhang's employment contract for failing to submit to its work arrangements. Ms. Zhang subsequently applied for arbitration, claiming compensation from the company for illegal termination of her employment contract. The arbitration award supported her claim on the grounds that the company's unreasonable increase of Ms. Zhang's workload should be regarded as a revision of the employment contract, and that the absence of Ms. Zhang's consent to the revision constituted disguised compulsion to work overtime. Therefore, the company's termination of Ms. Zhang's employment contract on the grounds of failure to submit to its work arrangements was illegal.

Key takeaways

The Employment Contract Law provides that an employment contract may be revised if the company and the employee so agree. However, current legislation does not specify whether unilateral increase of an employee's workload constitutes a revision of the employment contract, so disputes remain in practice. The present case makes it clear that if a company increases an employee's workload beyond reasonable expectations and thus substantially changes the employee's working hours, the company will be deemed to have revised the stipulations of the employment contract. Rather than act unilaterally, companies should reach agreement with their employees in accordance with the principles of legality, fairness, equality and free will.

Can regulations be used to deny the fact that overtime was worked?

Case summary

Ms. Chang worked for an internet company. When she joined, the company informed her by email that it practiced a fingerprintbased attendance checking system. The employee handbook provided that: "Time worked after 9 p.m. is considered overtime. Overtime is subject to the department head's approval of an application submitted by the employee." The overtime that Ms. Chang applied for through the work system amounted to a total of 126 hours. The company refused to pay for the overtime worked before 9 pm, arguing that this time did not count as overtime because company regulations specified that overtime was only counted from 9 pm onward. Ms. Chang applied for arbitration, claiming payment of the shortfall in overtime pay. The case went through arbitration and litigation at first and second instance. The arbitration institution and the courts all supported Ms. Chang's claim.

Key takeaways

In judicial practice, companies have the right to formulate and practice regulations that meet the following three conditions: (1) they have been formulated by democratic process; (2) their contents are lawful; and (3) they have been made known to the employees. In the present case, the company had the right to implement an overtime approval system. The overtime approval system was binding on the employees so long as it did not violate laws and regulations, was reasonable, and had been made known to the employees. This case further clarifies that a company's regulations should be both lawful and reasonable. Rules that are obviously unreasonable (as in the present case, where the company claimed that overtime was counted from 9 pm onward because the period from 6 pm to 9 pm was employee dinner and rest time) run the risk of not being accepted as grounds for the company's defense and its refusal to pay overtime pay.

Does additional overtime pay need to be paid under the all-in salary system?

Case summary

Mr. Zhou's employment contract with an automobile service company stipulated that his monthly salary was inclusive of overtime pay. When he terminated the contract for personal reasons, he argued that since his statutory salary under the standard working hour system was set according to the local minimum wage rate and the company had not paid his full overtime pay, it should pay the difference. The company recognized the fact that Mr. Zhou had worked overtime, but it refused to pay for it on the grounds that the employment contract stipulated that the monthly wage was inclusive of overtime. Mr. Zhou applied for employment arbitration, claiming overtime pay from the company. His claim was ultimately successful. The reason his claim succeeded was that even though his statutory salary under the standard working hour system was set according to the local minimum wage rate and his overtime pay was calculated based on that salary, the salary corresponding to his actual time worked exceeded the salary stipulated in the contract. As a result, the company had not paid his overtime pay in full, according to law.

Key takeaways

The all-in salary system is common in industries where working hours are more fixed and more overtime work is performed. The objective is to stipulate a fixed amount in the employment contract that covers both the statutory salary under the standard working hour system and the overtime pay. Currently, some courts in certain locations (e.g., Guangzhou) may recognize the validity of such a system, though most courts seem to be suspicious of or reject the validity of such systems.

As the present case shows, even though the all-in salary system may be recognized by some courts, if the salary for normal working hours (as calculated according to the statutory overtime pay calculation method) is below the local minimum wage rate, the court may judge the all-in salary provisions of the contract to be void on the basis that it violates the statutory provisions on minimum wage and overtime pay. In such a situation, the company may be ordered to make up for the shortfall in overtime pay at the minimum wage rate. Therefore, when companies make provisions for an all-in salary, they should find out how these matters are decided by their local courts and manage the actual hours of overtime worked so as to avoid situations where the salary for normal working hours (as calculated according to the statutory overtime pay calculation method) is below the local minimum wage rate.

Source: Lexology

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