Annual Leave Waiver System to Exempt the Company from its own Legal Obligations should be Invalid

★Nutshell

Mr. Zheng joined a life insurance company on June 12, 2012. The last labour contract signed by both parties was open-ended and dated from June 13, 2016. From 2018 to 2019, Mr. Zheng was entitled an annual leave of 10 days per year, but he had never taken one.

Mr. Zheng resigned in November 2019, and then initiated labor arbitration in December 2019 for the salary of the unused annual leave in 2018 and 2019.

The company holds that as its Attendance Management Policy regulated, the annual leave should be taken before December 31 of the current year in principle, unless due to some work reasons, the employee shall submit a written application, and with the approval by his department manager and HR department, the valid period of unused annual leave could be postponed to the end of February of next year. The overdue annual leave shall be deemed to an automatic waiver.

The labor arbitration supported Mr. Zheng’s demand of the salary difference of the unused annual leave. The company couldn’t accept the arbitration result, and claimed to a district court of Shanghai.

★Judgment

After the trial, the court sustained the result of the labor arbitration. The court thinks that despite the company’s Attendance Management Policy stipulated that the overdue annual leave shall be deemed to an automatic waiver, according to relevant regulations, it is an obligation of employers to actively arrange employees to take annual leave. If an employer can’t arrange annual leave due to work needs, the employee’s consent shall be obtained, in the mean time the unused annual leave salary shall be paid. When the annual leave has been arranged, but the employee hasn’t taken it for his own reason with a written application, the employer could just pay the wages of normal working period. Therefore, this company’s provision is contrary to the law, and this excuse on which the company does not pay annual leave wages can’t be accepted.

★Comment by Lawyer Tang

The central issue of this case is: whether the regulations made by the employer such as “the overdue annual leave shall be deemed to an automatic waiver” are in compliance with the law. Such regulations are not uncommon in the rules and regulations of employers. The employers often hold that they have extended the valid period of annual leave to the second year, but the employees still keep on skipping it, so it should be regarded as a voluntarily waiver. But this view is biased. According to the law, arranging employees to take annual leave is not only the right of the employer, but also the obligation of the employer. Only when the annual leave has been arranged, but the employee proposes not to take it for his own reason with a written application, the employer could just pay the wages of normal working period. Otherwise, the employers shall pay annual leave wages based on 300% of the employees’ daily wages.

Therefore, we suggest that employers should fulfill the obligation of arranging employees to take annual leave instead of simply using the “Overdue Invalid” clauses for simple management.