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Wanna Get Sued In China? Don't Pay Overtime.

By Dan Harris and Steve Dickinson

China's Labor Contract Law (which law applies to every employment relationship in China) is very clear: employers must pay their employees for overtime. Though there are some exceptions, these exceptions are not nearly as broad or as easy to obtain as is widely believed. Overtime payments are 150 percent for each overtime hour worked on a normal work day, 200 percent for each overtime hour worked on a day off, and 300 percent for each overtime hour worked on a statutory holiday. China considers forty hours per week as generally considered standard. Though high level management and other staff can be considered exempt from overtime pay, to be so, prior government approval is typically required. To make matters even more complicated, local regulations definitely can vary on what constitutes an exempt employee and what is required by way of approval. My firm has handled around a half a dozen cases where foreign companies came to us after having been sued for having failed to pay overtime. In every single instance, our advice and eventual action was to settle the claims because they were all valid. Interestingly, despite all of them having been valid, we were able to settle them for considerably less than full value because the employees were so desirous of getting a lump sum payment and fast. I thought of these cases today after a reader sent me a China Daily article entitled, "Labor Disputes Skyrocket in Beijing." The article talks about how "about 80,000 [Beijing] workers had been involved in disputes with their employers by the end of November, double the number of last year" and up from 26,000 disputes in 2007. The article then noted how "about 50 percent of the cases were related to overtime rates and payment" and the reader asked me if I had been seeing the same thing elsewhere in China with respect to foreign employers. My answer was, "Yes." Employees and ex-employees are suing their foreign employers in China way more now than just a few years ago and most of those lawsuits are stemming from a failure to pay overtime, a failure to pay sufficient wages without a written contract, or from a termination not provided for in the employee manual. We are finding these cases very easy to settle at a fairly reasonable cost, but virtually all of these could have been avoided with just basic care. There is no excuse for not paying overtime or not securing an exemption for your employees to whom you believe overtime is not necessary. There is also no excuse for not having a written contract with your employees or a written employment manual setting out the grounds for firing. Oh, and if you think the person you are paying is an independent contractor and not an employee, there is about a 99.9% chance you are wrong and that person is, in fact, an employee. What are you seeing out there?

Full post as published by China Law Blog on December 19, 2009 (boomark / email).