• The Legality of Compensatory Leave System Implemented by Employers in place of Overtime Pay
  • December 14, 2010
  • Law Firm: Lee Tsai Partners - Taipei Office
  • With the rising awareness of labor rights protection in recent years, enterprise employers are required not only to comply with existing labor laws and regulations, but also to enhance their communication and coordination with labor unions when formulating the internal personnel management system in order to create good employment-management relations.  Under Article 24 of the Labor Standards Act (hereinafter, the “LSA”), when extending the working time of workers for any reason, an employer is required to pay overtime compensation for the extended working time pursuant to legal requirements.  In the event of any violation, the employer will be subject to a fine of NT$2,000 to NT$20,000 in accordance with Article 79 of the LSA.  Due to the consideration of factory capacity adjustment, many enterprises in Taiwan pay overtime compensation in the form of compensatory leave within a fixed number of overtime hours each month rather than pay overtime compensation separately.  Further, such enterprises also require all employees to sign a letter of consent to waive the right to request overtime compensation.  However, the legality of such alternative measure and the necessity of negotiating with labor unions have become major controversies in practical operations.


    I.         If a collective agreement specifically provides that an employer can only handle overtime matters by paying overtime compensation rather than granting compensatory leave, the employer shall not enter into any separate contradictory agreement with the employees.


    (1)         Under Article 5 of the Labor Union Law, a labor union may enter into or amend the provisions of a collective agreement on terms of work and welfare matters of its members.  In addition, pursuant to Article 16 of the Collective Agreement Law, the terms of work such as wages, working hours, leave or overtime set under a collective agreement shall be deemed as a part of the individual labor contract.  If the labor contract contains terms of work different from those set under such collective agreement, such different terms shall be invalid, provided that such terms shall still be valid if the different terms are permitted under such collective agreement or if the terms of work are modified for the benefit of workers without any express prohibition under the collective agreement.

    (2)         As previously stated, if it is specifically stipulated in the collective agreement executed between an employer and a labor union that overtime compensation shall be paid for all circumstances of overtime work and shall not be replaced by compensatory leave, such compensatory leave will not have any legal effect, even if a letter of consent for compensatory leave has been separately executed between the employer and the employee, due to contradiction with the provisions of the collective agreement.


    II.      In the absence of relevant provisions under a collective agreement, an employer is still required to pay overtime wages pursuant to the requirements of the L with the exception of subsequent separate negotiations with the employees.

    (1)         According to the ruling issued by the Council of Labor Affairs (hereinafter, the “CLA”) with Ref. No. 79-Tai-Lao-Dong-2-Zi-22155, if workers agree to choose compensatory leave in lieu of overtime pay after the facts of overtime take place, since this is not prohibited by law, this option may be implemented after the employer and employee negotiate the standard for compensatory leave between themselves.

    (2)         Further, pursuant to the CLA’s ruling with Ref. No. Lao-Dong-2-Zi-0980011211 issued on May 1, 2009, the right of claim over overtime pay between the employer and the employee shall not be waived before the fact as mutually agreed.  Therefore, if the employer requests the employee to waive the right of claim over future overtime pay once and for all before the facts of overtime take place, such request shall be invalid even with the consent of the employee.  Although the law does not prohibit a worker’s consent to compensatory leave in place of overtime pay “after” the overtime work takes place, still the waiver of such right shall be made by each individual employee.  Based on the above, if the employer requests an employee to relinquish the right of claim over future overtime pay once and for all before the fact of overtime takes place, such agreement as negotiated shall be invalid even if the employee has agreed.  Moreover, as explained in the same ruling, the employer shall assume the burden of proof in the event of any dispute between the employer and the employee regarding whether the right of claim over overtime pay has been waived by the employee.

    In line with the practical opinion stated above, an employer seeking to implement a compensatory leave system may only do so after the fact of each instance of overtime by negotiating with the employee and requesting the employees who choose compensatory leave in place of the right of claim over overtime pay to sign a letter of consent regarding compensatory leave.  However, such letter of consent only applies to the consent to compensatory leave for each fact of overtime and cannot be extended to facts of overtime which have not taken place in order to comply with relevant legal requirements.