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China: Written Agreement that Employee’s Salary includes Overtime Pay is Valid

Mr. Xia (“Employee“) served as the operation director in the company (“Employer”). Upon joining, both parties agreed in writing that standard working hours system shall be adopted and the pre-tax salary to be paid shall include overtime pay. In May 2020, the employee terminated employment for the employer’s underpayment of salary. Later, the employee filed labour arbitration and litigation and claimed for the employer’s payment of overtime. After the labour arbitration and two instances of court trials, the Shanghai No.2 Intermediate Court eventually held the agreement to include overtime pay in the salary was valid and rejected the employee’s claim for overtime pay. The court came to this decision based on that (1) the employee was a managerial staff who should have good ability to identify his risk; (2) the employee failed to prove there was fraud or coercion when he accepted the salary to include overtime pay; (3) the employee’s salary standard was much higher than those of ordinary workers and the inclusion of overtime pay in the salary shall not be deemed as excluding his legitimate rights; and (4) the employee failed to prove he once made a demand to the employer for overtime pay, which shall be viewed as his recognition of the agreement on overtime pay.

Key Action Points for Human Resources and In-house Counsel 

In this case, after carefully evaluating all relevant factors, the court ruled that the employer and employee’s agreement in advance to include overtime pay in the salary was valid. The ruling in this case was based on very specific facts and shall not be interpreted as a uniform rule that helps employers in China to effectively avoid overtime pay to all sorts of employees.