CHAPTER 1

INTRODUCTION
Para. 1. Introduction ................................................................................................................................ 1.001 2. Sources of employment law ..................................................................................................... 1.007 3. Statutory framework ................................................................................................................. 1.015 4. Institutional framework ............................................................................................................ 1.023 5. Tribunals and courts ................................................................................................................. 1.028 6. Employment law in Hong Kong ............................................................................................... 1.032 7. Structure of this book ............................................................................................................... 1.034

1. INTRODUCTION
What is employment law? Employment law is the law governing relations between employers and employees. It is concerned with the terms and conditions of work, including the rights of workers to remuneration, safe conditions of work, job security and fair treatment, while promoting economic opportunities for workers and employers alike. The fundamental principles of employment law are to be found in the common law, largely the general law of contract, and the law of contract as it applies in the employment context. Increasingly, since the turn of the 20th century, employment law is found in legislation. Employment law applies to employees and their employers. In general, employment law applies only to employees, and to employers of employees. Employee is dened by the common law to mean a worker employed under a contract of employment, often referred to in the case law as a contract of service.1 As such, employment law, whether the common law or legislation, has almost no application to those working under other arrangements, for instance a contract for services,2 regardless of the nature of the work performed, the degree of regularity that the work is performed for the employer, or the degree of dependency of the worker on the employer for work and remuneration.3 The employment contract. The employment contract is the central feature in employment law. Employers and employees are, in principle, free to negotiate and x the employment terms in the employment contract as they wish. In the event of a dispute, the contract will be enforced by the court in the usual way. The resolution of any employment dispute will, as with contracts generally, require an interpretation of the contract. However, the terms of the contract and its enforcement are subject to the general law, that is, the common law and legislation. Employment law supplements and imposes restrictions on the employment contract. Although the employment contract provides the basic terms of the employment, legislation supplements the employment contract, imposing restrictions on and implying terms into the contract, regarding matters such as protection against discrimination, entitlement to public holidays, rest days and sick leave, remuneration, minimum wage, hours of work, overtime pay, maternity leave, employee safety, ample notice of termination and the like. The common law also implies terms into 1.001

1.002

1.003

1.004

None of Hong Kongs employment legislation attempts to provide a denition for employee or for contract of employment. Thus, the common law concepts of employee and contract of employment apply throughout Hong Kong employment law. See Chapter 2 below for a full consideration of the distinction between contract of service and contract for services. For the few areas in which employment legislation applies to non-employees, see para 2.010 below. Elsewhere the position is changing. There is a trend towards extending some statutory protections to non-employees. For instance, in the UK, some workers falling short of the legal denition of employee are covered by the National Minimum Wage Act, the Working Time Regulations, and the laws pertaining to equal pay, discrimination, and the right not to have deductions from wages. Moreover, with economic globalisation having produced an expanding class of casual and irregular workers without employment contracts, the argument is increasingly being made that the employment contract may no longer be the appropriate condition to trigger labour laws protections and concomitant social security: see e.g., Blanpain R, The Changing World of Work in Blanpain R & Engels C (eds) Comparative Labour Law and Industrial Relations in Industrialized Market Economies (The Hague: Kluwer Law International, 2001).

INTRODUCTION

the contract, such as the employers obligation to provide safe conditions of work, and the employees obligations to take instructions, to do the work in good faith, and to act with loyalty and delity. Thus, although the parties can negotiate the terms of the employment contract, there is no unfettered freedom of contract. 1.005 Individual and collective employment law. An informal distinction is sometimes made between individual and collective employment law. Individual employment law is concerned with the relations between the employer and the individual employee and their respective rights and obligations arising out of the employment contract they have entered into. This is where the bulk of employment law is found. However, because an employer is naturally more powerful than an individual worker, and bargaining positions in the contract are one-sided, workers may wish to organise themselves in order to negotiate with the employer on more even terms in order to obtain better employment conditions. Collective employment law is concerned with the relations between employers and an organised group of workers, usually a trade union. In Hong Kong, this aspect of employment law is not as developed, and trade unions and collective bargaining have not ourished, perhaps due in part to the laissezfaire and non-interventionist regulatory philosophy long practiced by Hong Kong governments.4 Most of this book is concerned with individual employment law issues. Collective employment law issues are dealt with in Chapter 16 and to a limited degree in Chapter 17 below. Hong Kong employment law based on but less developed than UK employment law. Although Hong Kong employment law is, as with Hong Kong law in general, based on UK law, Hong Kong employment law is less developed. Key areas where the UK has enacted statutory laws but Hong Kong has not include: maximum work hours, overtime hours and remuneration, rest breaks, pay equity, pro rata protection for part-time workers, protection against unfair dismissal, and protection against discrimination on the basis of age, religion or sexual orientation. The introduction of a minimum wage law in Hong Kong in 2010 will go a small way in reducing the gap.5

1.006

2. SOURCES OF EMPLOYMENT LAW

1.007 Multiple sources of employment law. The sources of employment law are varied and include constitutional instruments such as the Basic Law of the Hong Kong Special Administrative Region,6 international law, the common law, legislation, and codes of practice.

5 6

Although recent trends show greater activism by the Hong Kong government in enacting employment legislation, the Government is in general slow to respond to pressure to introduce reforms, in particular in the area of collective employment law, in order to attract investment and maintain Hong Kongs status as a largely free economy. See Glofcheski, Job Security Issues in a Laissez-faire Economy the Case of Hong Kong in Blanpain R, Bromwich W, Rymkevich O, Spattini S (eds), The Modernization of Labour Law and Industrial Relations in a Comparative Perspective (The Netherlands: Wolters Kluwers, 2009), at pp 42426. See Chapter 4 below for a discussion of the Minimum Wage Ordinance (Cap.608), passed into law in July 2010. Hereinafter the Basic Law.

SOURCES OF EMPLOYMENT LAW

The Basic Law. Enacted by the National Peoples Congress in 1990, the Basic Law came into force in Hong Kong on 1 July 1997. Article 27 guarantees for Hong Kong residents a number of basic employment-related freedoms and rights, many of which have come to be treated as human rights: freedom of association, freedom of assembly, freedom of procession and of demonstration, the right and freedom to form and join trade unions, and the right to strike. Other articles of the Basic Law expressly incorporate or maintain in force other instruments and laws that provide employment rights and protections.7 International law. By virtue of arts.39 and 153 of the Basic Law, international conventional law also provides a source for Hong Kongs employment law. Article 39 maintains in force the International Covenant on Civil and Political Rights (ICCPR),8 the International Covenant on Economic, Social and Cultural Rights (ICESCR), and international labour conventions as applied to Hong Kong.9 Each of the two general human rights covenants contains provisions relating to employment law.10 By virtue of art.153 of the Basic Law, international agreements which are implemented in Hong Kong may continue to be implemented after the 1997 handover. Thus, other international conventions with employment law-related provisions that have been ratied on behalf of Hong Kong can also provide a source of employment law.11 These include the International Convention on the Elimination of All Forms of Racial Discrimination (ICERD), the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW), and the Convention on the Rights of the Child (CRC).12

1.008

1.009

7 8

10

11

12

In particular, arts.33, 39, 147 and 153. ICCPR was incorporated into domestic law with the enactment of the Bill of Rights Ordinance (Cap.383) in 1991. The second paragraph of art.39 states: The rights and freedoms enjoyed by Hong Kong residents shall not be restricted unless as prescribed by law. Such restrictions shall not contravene the provisions of the preceding paragraph of this Article. See ICCPR arts.2, 8, 21 and 22, and ICESCR arts.2, 6, 7, 8 and 9. Note that both of these covenants contain reporting provisions and procedures, which put States Parties under an obligation not only to implement the covenants provisions, but also to report periodically on the status of the implementation of those provisions in the State concerned. The Hong Kong SAR is not and has never been a State, and therefore lacks basic international legal personality, including the right to enter into conventions on its own. It undertakes international legal obligations through the sovereign State, formerly the United Kingdom, now the Peoples Republic of China. The formal ratication of treaties or conventions applicable to Hong Kong is effected by the Government of the PRC, after consultation with and obtaining the consent of the HKSAR. International conventions are incorporated as HK law and their principles and provisions are enforceable in the courts only if embodied in legislation; however, even where not embodied in legislation, where domestic law on the same subject matter is ambiguous, there is a rebuttable presumption that the Legislature did not intend to legislate in breach of HKs international law obligations, which arise on ratication of the convention. This was the approach taken regarding the Migration for Employment Convention (Revised) 1949 (ILC 97) in Lilik Andayani v Chan Oi Ling [2001] 2 HKLRD 572. Even where a convention is embodied in legislation, an individual cannot assert convention rights as such; it is the rights in the legislation that he must assert. In such cases, the convention serves as an aid to interpretation of the relevant domestic law: see Secretary for Security v Sakthevel Prabakar (2004) 7 HKCFAR 187, and Julita Raza v Chief Executive in Council (unrep., CAVC 218/2005, [2006] HKEC 1339). In particular, see arts.1, 2 and 5 of ICERD, arts.1, 2 and 11 of CEDAW, and art.32 of CRC. Note that as with the ICCPR and the ICESCR, these conventions contain reporting provisions and procedures, which put States Parties under an obligation not only to implement the conventions provisions, but also to report periodically on the status of the implementation of those provisions in the State concerned.

INTRODUCTION

1.010

International Labour Organisation conventions. The most important of Hong Kongs international labour law obligations arise by virtue of Hong Kongs participation in the International Labour Organisation (ILO).13Article 39 of the Basic Law maintains in force the conventions of the ILO that have been ratied on behalf of Hong Kong.14 The ILO is a specialised agency of the United Nations with the objective of raising working and living standards throughout the world. It sets labour standards through the adoption of labour conventions and recommendations.15 Participation in the ILO and its conventions imposes legal obligations on the HKSAR, including the general undertaking to adhere to basic norms established by the ILO and to submit periodic progress reports to the ILO.16 Legal status and effect of ILO conventions. It should be understood that, as a practical matter, ILO and other conventions are not often argued in typical employment-related litigation in Hong Kong courts. Rather, these international instruments inuence the development of Hong Kong employment law. Indeed, most of the important rights and protections in key employment legislation such as the Employment Ordinance,17 the Employees Compensation Ordinance,18 the four discrimination ordinances,19 and Hong Kongs extensive occupational safety legislation were inuenced by and enacted in compliance with international conventions. In Julita F Raza v Chief Executive in Council,20 the Hong Kong Court of Appeal held that even in the absence of local legislation implementing a ratied ILO convention (in this case ILO 97 on migrant labour) it is accepted that its application to Hong Kong as a matter of international law gives rise to legitimate expectation that might avail those in the position of the appellants who seek to pray it in aid.21 Moreover, the ILO Declaration of Fundamental Principles and Rights at Work (1998) identied four areas of concern warranting special attention and protection by Member States whether or not the relevant conventions have been ratied: discrimination, freedom of association and collective bargaining, the elimination of forced labour, and the elimination of child labour.22 Thus, even for

1.011

13

14

15 16 17 18 19

20 21

22

Because it is not a State, Hong Kong is not a member of the ILO. However, Hong Kong participates in the activities of the ILO. Before 1997 it participated as a Non-Metropolitan Territory, as contemplated in art.35 of the ILO Constitution. Since 1 July 1997, it participates by analogy to its former status as a Non-Metropolitan Territory. For activities that are not limited to States, Hong Kong may participate using its own name, Hong Kong, China. 41 ILO conventions have been extended and apply to Hong Kong: see Labour Department Annual Report 2008 at http://www.labour.gov.hk/eng/public/iprd/2008/chapter7.htm. To learn about the ILO and its activities, see http://www.ilo.org/global/lang--en/index.htm. See ILO Constitution at http://www.ilo.org/ilolex/english/constq.htm. Cap.57. Cap.282. Sex Discrimination Ordinance (Cap.480) (SDO), Race Discrimination Ordinance (Cap.602) (RDO), Family Status Discrimination Ordinance (Cap.527) (FSDO), and Disability Discrimination Ordinance (Cap.487) (DDO). Fn 11 above. Stock JA appeared to be prepared to go even further, adding that it is arguable that the Convention has domestic effect to this extent, that if there is a provision in law in Hong Kong that does restrict labour rights in a manner prohibited by the Convention as applied to Hong Kong, that restriction would contravene Art.39 through that Articles requirement that the restrictions on rights enjoyed by Hong Kong residents shall not contravene the provisions of Art.39; but it is not necessary to decide the point . See ILO website at http://www.ilo.org/declaration/.

SOURCES OF EMPLOYMENT LAW

those Member States of the ILO that have not ratied the conventions in question, the Declaration recognises that Members have an obligation to respect in good faith and in accordance with the Constitution, the principles concerning the fundamental rights which are the subject of those Conventions,23 and to submit periodic reports on progress made in implementing the relevant conventions.24 The common law of employment. The most important employment law of direct and immediate relevance is to be found in Hong Kongs domestic law, that is, the common law and legislation. Article 8 of the Basic Law continues the application of the common law in Hong Kong. This means that the large body of English common law principles of employment law will continue to apply, despite the transfer of sovereignty to the Peoples Republic of China in 1997. The common law provides Hong Kongs employment law in fundamental areas such as the formation of a contract of employment, the determination of employee status, and the implied terms of the contract, including the employers duty to provide safe conditions of work and the employees duties of delity, loyalty and condence.25 Legislation. Given that the common law of contract consists of essentially permissive rules, allowing the parties to freely determine their respective positions, contracts are assumed by the common law to be the product of free and equal bargaining. A court will not intervene merely because the resulting contract is unfair to one party. However, because of the imbalance in bargaining power and the take-it-or-leave-it basis of most employment contracts, it falls to legislation to redress the shortcomings of the underlying assumptions of the common law. Legislation is now an essentialand arguably the most importantcomponent of employment law. It is largely in the area of individual employment law that statutory intervention has taken place in Hong Kong, and this legislation has been subjected to extensive litigation and judicial interpretation. Informal sources of employment law. There are a number of informal sources of employment law. Collective agreements, although rare in Hong Kong, and as will be seen, not normally legally binding, are nonetheless potentially important, especially regarding the establishment of joint machinery for negotiation and settlement of terms of employment or to specify the procedural steps to be followed in the event of a dispute. Work rules and staff handbooks issued by the employer are another potential source, as are codes of general application issued by industry watchdogs such as the Equal Opportunities Commission (EOC)26 and the Labour Department.27 These are not necessarily legally binding, but can be inuential as a matter of practice and for courts adjudicating employment disputes.28 1.012

1.013

1.014

23 24

25 26

27

28

ILO Declaration (ibid), art.2. See art.5 of the Declaration, and the Follow-up to the Declaration (Pt BModalities), at ILO website (fn 22 above). These matters are considered in detail in Chapter 3 below. For codes of practice issued by the EOC, see the EOC website at http://www.eoc.org.hk/eoc/GraphicsFolder/ CoPs.aspx. For safety codes issued by the Labour Department, see the Labour Department website at http://www.labour.gov. hk/eng/public/content2_8b.htm. See para 9.041 below.

INTRODUCTION

3. STATUTORY FRAMEWORK
1.015 Employment Ordinance provides a oor of rights and benets. The Employment Ordinance (EO),29 introduced in 1968, is the most important enactment in Hong Kong dealing with labour and employment conditions and terms of service. The EO provides a basic oor of protections, benets and entitlements. All employees, regardless of the length of service, qualify for the basic entitlements and protections under the EO, including the payment of wages, restrictions on deductions from wages, granting of statutory holidays, protection against anti-union discrimination, and employment protection in respect of unreasonable and unlawful dismissal. More extensive benets are available on the establishment of a continuous contract of employment.30 Such workers are entitled to benets such as rest days, paid statutory holidays, annual leave, sickness allowance, severance payment, long service payment and the like, subject to the specic longevity requirements for each.31 EO applies to all employees and their employers. The EO applies to all employees, regardless of the nature of the work, except for those employees expressly excluded by s.4(2) and s.4(2A) of the Ordinance32 as well as civil servants.33 Part-time and casual employees are included within the Ordinances ambit, but the protection is not as extensive as for those working under a continuous contract of employment.34 Moreover, the EO is compulsory. According to s.70 of the EO, any term of a contract of employment which purports to extinguish or reduce any right, benet or protection conferred upon the employee by this Ordinance shall be void. Criminal and civil law sanctions. The provisions of the EO are enforced, rst by criminal law sanctions35 and secondly by way of extensive civil remedies at the instance of the aggrieved employee.36 Occupational safety. Safety at work is a major concern in Hong Kong. Workrelated fatalities and injuries occur at an alarming rate,37 despite various campaigns and programmes operated by the Labour Department. The principal statutory

1.016

1.017

1.018

29 30 31 32

33

34 35

36 37

Cap.57, hereinafter referred to as EO. Continuous contract of employment is explained in Chapter 2 below. The entitlements and protections provided by the EO are considered at length in Chapters 4, 5, 6, 7 and 14 below. The categories of employees excluded by s.4(2) are: a member of the family of the proprietor of the business in which he is employed and who dwells in the same dwelling as the proprietor; an employee as dened under the Contracts for Employment Outside Hong Kong Ordinance (Cap.78); and a person serving under a crew agreement within the meaning of the Merchant Shipping (Seafarers) Ordinance (Cap.478), or on a ship not registered in Hong Kong. Moreover, by virtue of s.4(2A) the Ordinance does not apply to most contracts of apprenticeship registered under the Apprenticeship Ordinance (Cap.47). It does not apply to civil servants because, by virtue of s.66 of the Interpretation and General Clauses Ordinance (Cap.1), statutory provisions do not apply to the Government of the HKSAR unless the ordinance in question contains a provision expressly saying it does apply, or if it can be deemed to apply by necessary implication. There is no such provision in the EO. The regulatory framework for civil servants is provided by the Basic Law, legislation and sub-legislation such as the Civil Service Regulations. The employment law of civil servants is addressed in Chapter 15 below. See Chapter 2, fn 122 below. These are scattered throughout the Ordinance. On conviction, the usual penalty is a ne, except for payment of wages offences, which can give rise to a sentence of imprisonment: see EO s.63C. These are discussed extensively in Chapters 47 below. Some rather unfavourable comparative statistics can be found at para 9.002 below.

STATUTORY FRAMEWORK

mechanisms38 intended to achieve safety at the workplace are the Occupational Safety and Health Ordinance (OSHO),39 which applies to workplaces generally, and the Factories and Industrial Undertakings Ordinance (FIUO),40 which has more specic application to industrial undertakings such as construction sites. Extensive regulations have been made under each, providing industry-specic standards in a wide range of undertakings.41 These ordinances and the regulations are enforced primarily by criminal sanction,42 while a breach of their provisions will generally give rise to a range of civil remedies.43 The Labour Department is responsible for enforcement, through inspections and prosecutions in addition to educational programmes, and has extensive powers under the legislation to monitor, inspect and require cooperation of those responsible for the workplace.44 Statutory compensation for work-related injury and disease. An employee who is injured at work by accident or who suffers from certain occupational diseases has the right under the Employees Compensation Ordinance (ECO)45 to receive compensation from his employer. In addition, an employee who develops occupational deafness, or who suffers from either of the silica and asbestos-related diseases known as pneumoconiosis and mesothelioma may have the right to compensation under specialised statutory regimes designed to provide compensation for those occupational hazards.46 Compensation under these ordinances is payable on an essentially no-fault basis. Discrimination at work. Discrimination is pervasive in any society, no less in Hong Kong, and one of its most invidious forms is discrimination at work. Discrimination is a broad concept, and can occur in a number of different contexts at work, and in different ways. The forms of discrimination that have been identied and that have been the subject of legislation in Hong Kong are discrimination based on trade union activities,47 for reasons of gender,48 race,49 family status50 and disability.51 The remedies for employment-related discrimination include the possibility of a declaration regarding the employers conduct, an order for re-employment, or an award of damages including compensation for injury to feelings and exemplary damages.52 Damages claims for violations of the discrimination ordinances can 1.019

1.020

38 39 40 41 42 43 44 45 46

47 48 49 50 51 52

For other workplace safety statutes, see paras 9.0729.084 below. Cap.509. Cap.59. The regulations are considered in Chapter 9 below. Considered in Chapter 9 below. Considered in Chapter 10 below. See paras 9.0859.092 below. Cap.282, hereinafter referred to as ECO. Namely, the Pneumoconiosis and Mesothelioma (Compensation) Ordinance (Cap.360) (PMCO), discussed below at para 11.155 et seq., and the Occupational Deafness (Compensation) Ordinance (Cap.469) (ODCO), discussed below at para 11.195 et seq. EO s.21B and 21C. SDO (Cap.480) and EO s.15, 15A and 15AA regarding pregnancy discrimination. RDO (Cap.602). FSDO (Cap.527). DDO (Cap.487). See e.g. SDO s.76(3A).

10

INTRODUCTION

be brought in the District Court53 on the complainants own initiative or with the help of the EOC.54 Notable areas that have been identied by the ILO as in need of protection but where Hong Kong has not legislated include discrimination on the basis of age, religion, or sexual orientation,55 and discrimination against migrant workers.56 1.021 Collective employment law. In contrast to individual employment law, for which there is extensive legislation, collective employment law in Hong Kong is relatively underdeveloped. Nonetheless, the importance of trade unions is underlined by their express recognition and protection in Hong Kongs mini-constitution, the Basic Law. The Trade Unions Ordinance57 governs the registration of trade unions and their powers and immunities. The EO provides some protection against discrimination on the basis of trade union membership, including the right to strike. The Labour Relations Ordinance58 is available to regulate collective labour disputes. However, Hong Kong law places a number of restrictions on trade unions and their activities that would not be found in other developed jurisdictions.59 Moreover, there is no legislation to support the right of employees to bargain collectively, a right promised in ILC 87, a convention binding on the Government of Hong Kong.60 Other important legislation. There is a plethora of other employment-related legislation in Hong Kong, most of which is discussed elsewhere in this book. The subject areas addressed by such legislation include: the conditions of work for children and young persons, in particular, the protection of children and young persons from hazardous or tiring work;61 contracts for employment outside Hong Kong;62 remedies

1.022

53 54 55

56

57 58 59

60

61

62

See e.g. SDO s.76(3). See para 1.027 below. The Government has, however, produced a code of practice on sexual orientation discrimination: see http://www. cmab.gov.hk/en/issues/sexual.htm. In addition to the ICCPR and ICECR, which contain anti-discrimination provisions, Hong Kong is party to three discrimination-specic conventions which include important provisions on work-related discriminatory practices: the (ICERD), the (CEDAW) and the Convention on the Rights of Persons with Disabilities. The SDO, the RDO and the DDO go some way to ensure Hong Kongs compliance with its international obligations under those conventions. The ILO has also produced conventions concerned with discrimination at work, but most are not ratied on behalf of Hong Kong: the Equal Remuneration Convention (ILC 100), the Discrimination (Employment and Occupation) Convention (ILC 111) and the Migrant Workers (Supplementary Provisions) Convention 1975 (ILC 143) dealing specically with discrimination against migrant workers. However, ILC 87 and 98, concerned in part with protection against trade union discrimination, are ratied on behalf of Hong Kong. It is important to note that discrimination is one of the four areas identied in the ILO Declaration of Fundamental Principles and Rights at Work (1998) warranting special attention and protection by member States (see para 1.011 above). Cap.332. Cap.55. For instance, there is no UK equivalent to the Trade Unions Ordinance requirement that trade unions must be registered in order to be lawful. Legislation enacted just before the handover to support the right to bargain collectively was quickly shelved by the post-handover provisional legislature. See para 16.046 below. Employment of Children Regulations (Cap.57B); Employment of Young Persons (Industry) Regulations (Cap.57C); and Apprenticeship Ordinance (Cap.47). Contracts for Employment Outside Hong Kong Ordinance (Cap.78).

INSTITUTIONAL FRAMEWORK

11

for workers left unpaid after an employers insolvency;63 holidays,64 a mandatory pension scheme,65 and the fair and proper use of employees personal data.66

4. INSTITUTIONAL FRAMEWORK
Labour Department. The Labour Department, under the Economic Development and Labour Bureau, and headed by the Commissioner for Labour, is responsible for administering most of Hong Kongs employment-related legislation. It initiates and helps formulate proposals for legislative reform, offers career and job-placement services, produces publicity, education and awareness campaigns, and provides a voluntary conciliation service through the Labour Relations Division.67 It enforces labour standards through inspections and criminal prosecutions for violations of workplace safety legislation and of employment standards legislation.68 Development Division of the Labour Department. The Development Division of the Labour Department is the division concerned specically with ILO matters, including research, reporting, and compliance. The Development Division studies newly adopted conventions and recommendations, with a view to consideration for implementation.69 Labour Advisory Board. The Labour Advisory Board, a tri-partite elected consultative body chaired by the Commissioner for Labour, advises the Permanent Secretary for Economic Development and Labour on labour matters, including any legislation or conventions and recommendations of the ILO that the Commissioner may refer to it. Members attend the ILO annual Conference as part of the China delegation. A Committee on Implementation of International Labour Standards is established under the Labour Advisory Board to deliberate and advise on matters such as: declarations to be made in respect of the application of ILO conventions in Hong Kong; measures to promote the implementation of conventions or to improve the declarations in respect of conventions applied with modication in Hong Kong; and questions relating to the submission of reports to the ILO.70 Registry of trade unions. Trade unions must register under the Trade Unions Ordinance. The registry is administered by the Registrar of Trade Unions. Registration 1.023

1.024

1.025

1.026

63 64 65 66 67

68

69

70

Protection of Wages on Insolvency Ordinance (Cap.380) (PWIO). General Holidays Ordinance (Cap.149). Mandatory Provident Fund Schemes Ordinance (Cap.485). The Personal Data (Privacy) Ordinance (Cap.486), considered at length in Chapter 12 below. According to the Labour Department Annual Report 2008, the Labour Relations Division handled 83,897 in-person consultations, 120 labour disputes, and 20,623 claims in 2008. In 2008 there were 132,525 inspections and 4,376 prosecutions under the various ordinances and regulations, resulting in nes totalling HK$18,194,250: see Labour Department Annual Report 2008 at http://www.labour. gov.hk/eng/public/iprd/2008/chapter8.htm#6.2. The Labour Departments role and functions are considered in Chapter 9 below. See Labour Department Annual Report 2008, Chapter 2.9, at http://www.labour.gov.hk/eng/public/iprd/2008/ chapter2.htm. See Labour Advisory Board Report 2008, Chapter 6, at http://www.labour.gov.hk/eng/public/dd/lab/report/2007/ home/chapter6.htm

12

INTRODUCTION

qualies a trade union for limited civil and criminal immunities. The Registrar has only limited discretion to refuse registration.71 1.027 Equal Opportunities Commission. The EOC, an independent, non-governmental but publicly-funded statutory body created under the Sex Discrimination Ordinance (SDO)72 administers four discrimination ordinances.73 The EOC provides a conciliation service for aggrieved employees and a publicity and education service to raise awareness of discrimination issues. It also supports some applicants in pursuing legal action against employers. Pregnancy discrimination constitutes the most common form of complaint led under the SDO.74

5. TRIBUNALS AND COURTS

1.028 Specialised tribunals and the ordinary courts. Specialised tribunals as well as the ordinary courts adjudicate contentious matters that arise between employers and employees. Specialised tribunals are intended to provide a simple and informal mechanism for the resolution of employment disputes, while the ordinary courts provide appellate jurisdiction, as well as some original jurisdiction where the issues are complex or otherwise outside of the expertise of the specialised tribunals. Labour Tribunal. The Labour Tribunal, established in 1972 under the Labour Tribunal Ordinance,75 is intended to provide a quick and inexpensive mechanism for adjudicating employment claims.76 The Tribunal has exclusive jurisdiction over all civil claims for a sum of money arising from a breach of contract of employment.77 The Tribunal has unlimited monetary jurisdiction. The Tribunal is presided over by a single adjudicator, known as a presiding ofcer.78 Proceedings are informal,79 held in public,80 and no legal representation is allowed.81 The Tribunal cannot hear a claim unless it is established by way of certicate that conciliation has been attempted or is unlikely to succeed.82 Large or complex claims may be transferred to the District Court or the Court of First Instance.83 It has no enforcement machinery of its own. Decisions are registered for enforcement with the District Court.84 A presiding ofcer who has

1.029

71 72 73 74

75 76

77 78 79

80 81 82 83 84

See paras 16.01016.013 below. Cap.480 Part VII. Fn 19 above. See Petersen C, Fong J and Rush G, Enforcing Equal Opportunities: Investigation and Conciliation of Discrimination Complaints in Hong Kong (Hong Kong: Centre for Comparative and Public Law, 2003), pp 2122. The most common forms of discrimination include job loss, loss of promotion opportunity, and harassment. Cap.25 s.15. The Labour Tribunal had a caseload of 7,758 cases in 2009, as compared to 7,199 in 2008 and 6,160 in 2007: see Hong Kong Judiciary website at http://www.judiciary.gov.hk/en/publications/annu_rept_2009/eng/caseload06.html. See the Schedule to the Labour Tribunal Ordinance. As of July 2010, there were 8 courtrooms and 8 presiding ofcers. Labour Tribunal Ordinance (Cap.25), s.20. For a helpful guide to the procedure to be followed in ling a claim, see the Judiciary website at http://www.judiciary.gov.hk/en/crt_services/pphlt/html/labour.htm. Ibid, s.18. By implication from s.23, ibid. Ibid, s.15. Ibid, s.10. Ibid, s.38.

TRIBUNALS AND COURTS

13

made an award or order may on his own motion or on application by a party review the award or order.85 An appeal is available to the Court of First Instance for an error of law or an excess of jurisdiction.86 Minor Employment Claims Adjudication Board. The Minor Employment Claims Adjudication Board (MECAB) was established by the Minor Employment Claims Adjudication Board Ordinance.87 As with the Labour Tribunal, it is intended as a quick, simple and inexpensive mechanism for the adjudication of minor employment claims. As with the Labour Tribunal, a claim that is not resolved through conciliation88 may be referred to the MECAB for adjudication. The MECAB is empowered to adjudicate employment claims involving not more than 10 claimants for a sum of money not exceeding HK$8,000 per claimant.89 Employment claims falling outside the jurisdiction of the MECAB are heard by the Labour Tribunal. Hearings of claims are conducted in public90 and, as with the Labour Tribunal, no legal representation is allowed.91 The award or order made by a MECAB adjudication ofcer is legally binding and may be registered and enforced in a manner similar to that in the Labour Tribunal.92 Parties who are dissatised with the judgment of an adjudication ofcer may apply for a review.93 They may also apply to the Court of First Instance for an appeal against the adjudication ofcers decision on a point of law or question of jurisdiction.94 Ordinary courts. The ordinary courts hear cases that fall beyond the jurisdiction of the Labour Tribunal and MECAB. The Magistrates Court hears criminal prosecutions brought by the Labour Department against employers and contractors who breach statutory provisions. The District Court has exclusive jurisdiction to hear cases arising from claims under the ECO,95 in addition to hearing tort actions for work-related personal injury damages within its monetary jurisdiction.96 It may also hear cases transferred to it by the Labour Tribunal.97 The Small Claims Tribunal can hear tort actions for work-related personal injuries within its monetary jurisdiction,98 as well as cases transferred to it from the Labour Tribunal.99 The Court of First Instance has unlimited monetary jurisdiction to hear tort actions for work-related personal injury damages, and has jurisdiction to hear claims falling outside of the Labour Tribunals exclusive jurisdiction, for instance an application for injunction or an action in tort,100 as 1.030

1.031

85 86 87

88 89 90 91 92 93 94 95 96 97 98 99 100

Ibid, s.31. Ibid, s.32. Cap.453. In 2008, MECAB recorded 2,022 claims: see Labour Department Annual Report 2008 at http://www. labour.gov.hk/eng/public/iprd/2008/chapter3.htm. As with the Labour Tribunal, conciliation is a pre-requisite: ibid, s.14. See Schedule to Cap.453. Ibid, s.15. Ibid, s.18. Ibid, s.37. Ibid, s.30. Or a review may be conducted on the adjudication ofcers motion. Ibid, s.31. ECO s.18A. It also has appellate jurisdiction under s.18. Currently HK$1,000,000: see District Court Ordinance (Cap.336) s.32. Cap.25 s.10. Currently HK$50,000: see Small Claims Tribunal Ordinance (Cap.338) Schedule. Cap.25 s.10. See e.g. Gain Hill (Hong Kong) Ltd v Li Kin Yip [2006] 4 HKLRD 186.

14

INTRODUCTION

well as those cases transferred from the Labour Tribunal.101 The Court of First Instance also has jurisdiction to hear appeals from the Labour Tribunal and MECAB.102 The Court of Appeal and the Court of Final Appeal have their usual appellate jurisdiction to hear appeals beyond the Court of First Instance.

6. EMPLOYMENT LAW IN HONG KONG

1.032 Employment law in Hong Kong. Employment law in Hong Kong is not as developed, nor as deeply rooted, as in the United Kingdom103 or comparable developed jurisdictions in the common law or even the civil law world. It was only in 1948 that legislation was enacted to dene and recognise the status of trade unions and their role as representatives of workers,104 and in 1974 that anti-union discrimination legislation was rst introduced.105 The EO, the key enactment of general application that provides the oor of basic employment rights and entitlements, was only introduced in 1968,106 and the Labour Tribunal established in 1973. It is fair to say that Hong Kong has pursued a laissez-faire approach to the economy and to employment law, in the belief that free competition and minimum intervention would maximise benets for all.107 This philosophy has led to a minimalist approach to employment legislation, in particular collective employment legislation, which provides little more than a framework within which trade unions can exist, with almost no effort to encourage or facilitate collective rights,108 in particular, collective bargaining.109 However, in recent years a tradition of intervention in individual employment law has taken hold. In particular, progress has been made in the eld of discrimination. Legislation has been enacted to address sex, family, disability and race discrimination, all of which have potentially important application in the workplace. The EOC has been established to help safeguard the rights provided by the anti-discrimination ordinances.110 Incremental amendments to

101 102 103

104

105 106

107

108

109

110

Cap.25 s.10. Cap.25 s.32 and Cap.453 s.31. A quick glance at the table of contents of the UKs Employment Rights Act 1996, c.18 (ERA) reveals a much more ambitious and pro-active agenda than that to be found in Hong Kongs EO. The ERA can be viewed at http://www.opsi.gov.uk/acts/acts1996/ukpga_19960018_en_1. Trade Unions and Trade Disputes Ordinance 1948. For the history, see England J, Industrial Relations and Law in Hong Kong 2nd edn (Hong Kong: Oxford University Press, 1989) Chapter 7. Now see Cap.57 s.21B and 21C. For the evolution of the predecessor legislation, see the Employers and Servants Ordinance 1902 (45 of 1902), the Employer and Servants Amendment Ordinance 1950 (24 of 1950), and the Employer and Servants Ordinance 1961 (46 of 1961). The Hong Kong Government Yearbook 2008, Chapter 5 (Commerce and Industry) puts it thus: Hong Kongs continuing economic success owes much to ... the free ow of capital ... and the Governments rm commitment to free trade and enterprise ... the Government facilitates commerce and industry within the framework of a free market: available at http://www.yearbook.gov.hk/2008/en/pdf/E05.pdf. The opening sentence of the Labour Department Annual Report 2008, Chapter 3 on Labour Relations reveals something of the ofcial position: In Hong Kong, employer and employee relations are largely premised on the freely negotiated terms and conditions of employment entered into between the two parties: see http://www. labour.gov.hk/eng/public/iprd/2008/chapter3.htm. Despite art.4 of ILC 98, a convention binding on Hong Kong, which requires that measures appropriate to national conditions shall be taken, where necessary, to encourage and promote the full development and utilisation of machinery for voluntary negotiation between employers or employers organisations and workers organisations, with a view to the regulation of terms and conditions of employment by means of collective agreements. The EOC was established under the SDO: see para 1.027 above.

EMPLOYMENT LAW IN HONG KONG

15

the EO intended to improve the position of workers have been introduced, usually the result of concerted pressure from trade unionists and the advocacy of sympathetic lawmakers.111 Important amendments include increased employment protection in the form of civil remedies for unreasonable and unlawful termination,112 a re-denition of the meaning of wages to better take into account the entitlements of persons paid by commission and piece-rate,113 and the creation of a criminal offence for an employers failure to pay a Labour Tribunal judgment.114 In one of the most signicant intrusions into Hong Kongs laissez-faire free market philosophy, a minimum wage law was passed into law in July 2010.115 Notable areas where Hong Kong still lacks laws include: hours of work,116 overtime pay, rest breaks, age discrimination, sexual orientation discrimination, religious discrimination, pay equity, pro rata entitlements for part-time workers, and an adequate job security law in the form of strong unfair dismissal legislation.117 In the meantime the courts have been busy determining contentious issues arising more often than not out of ambiguities in the language of existing employment legislation, including the EO118 and the ECO.119 Employees and employers alike have shown a surprising resolve to pursue such matters in appellate courts. Finally, although the ofcial picture of rosy industrial relations in Hong Kong is to some degree accurate, with comparatively low rates of work days lost to industrial strife, it is nonetheless true that participation rates in trade unions have held steady and even enjoyed an increase in recent years,120 and industrial activity continues to be resorted to, more often than not successfully, by organised and unorganised groups of workers seeking to improve their employment conditions.121

111

112 113

114

115

116 117

118

119 120 121

See e.g. Martin Wong, Workers win battle with bosses over orders for unpaid wages, South China Morning Post, April 29, 2010, p A3, commenting on the introduction of Employment (Amendment) Ordinance 2010; see also fn 114 below and accompanying text. EO Part VIA, introduced in 1997. Introduced in 2007. For a simplied explanation of these amendments see A Concise Guide to the Employment (Amendment) Ordinance 2007 at http://www.labour.gov.hk/eng/public/wcp/GuideEAO2007.pdf. Employment (Amendment) Ordinance 2010, introduced in 2010. For a simplied explanation of these amendments see Labour Department website at http://www.labour.gov.hk/eng/news/EAO2010.htm. For the text of the legislation in draft form and an explanatory memorandum, see Legislative Council website at http://www.legco.gov.hk/yr08-09/english/bills/brief/b24_brf.pdf. For an analysis of the Minimum Wage Ordinance (Cap.608), see Chapter 4 below. The major remaining issue of controversy is the setting of the wage level: see Wong M, Last Words on Minimum Wage Bill, South China Morning Post, 4 May 2010, p C2. Other than for children and young persons: see paras 9.0819.084 below. To be distinguished from the employment protection offered in EO Part VIA, which does not provide particularly strong protection compared to that in England: see Employment Rights Act 1996, c.18 Part X. Examples in the Court of Final Appeal include: Lisbeth Enterprises Ltd v Mandy Luk (2006) 9 HKCFAR 131 (interpreting wages); Leung Ka Lau v Hospital Authority (unrep., FACV 22, 23/2008, [2009] HKEC 1707) (interpreting rest day and public holiday); and Kao Lee & Yip v Lau Wing (2008) 11 HKCFAR 576 (interpreting agreeing to pay). See LKK Trans Ltd v Wong Hoi Chung (2006) 9 HKCFAR 103 (CFA interpretation of injury by accident). See fn 127 below and accompanying text. A classic example was the ve-week bar benders strike in the summer of 2007, which attracted extensive media coverage throughout the strikes duration: see Wong M and Lam A, Strike set to end as bar benders take 14pc pay rise, South China Morning Post, 13 Sept 2007. The strike resulted in the formation of a trade union: see Lam A, Disaffected bar benders vote to form independent union, South China Morning Post, 17 Sept 2007. The trend continued into 2009 and 2010: see Lam A, Unions set for new talks after PCCW work-to-rule, South China Morning Post, 25 Feb 2009, p A3; Sun C and Li N, McDonalds delivery workers picket outlet today before talks, South China Morning Post, 12 Aug 2009, p C3; Staff Reporters, Watsons deal ends strike, but labour strife is continuing, South China Morning Post, 8 Aug 2009, p A2; and Lam A, City braces for chaos as bus strike looms, South China Morning Post, 9 Aug 2010, p A1.

16

INTRODUCTION

1.033

Hong Kong facts and gures. As of May 2010,122 Hong Kong had a labour force of 3,655,700 persons, of whom 3,483,300 were employed. Of those employed, the majority of workers were engaged in wholesale/retail, import/export, accommodation and food (approximately 32.8 per cent of the workforce); nance, real estate, construction, transport, professional and technical services (30.6 per cent of the workforce); and health, social, personal and educational services (22.1 per cent of the workforce). These gures reect the continuation of Hong Kongs decades-long shift away from manufacturing (now employing only 3.8 per cent of the workforce).123 A large number of workers (approximately 1.2 million) were employed by SMEs (small to medium sized enterprises, either manufacturing enterprises with fewer than 100 employees or non-manufacturing enterprises with fewer than 50), of which there were approximately 281,808.124 In May 2010, the unemployment rate was 4.6 per cent, down from 5.2 per cent the previous year.125 The underemployment rate was 2.0 per cent, down from 2.3 per cent the previous year.126 In 2008, there were 752 registered employee trade unions (up from 731 in 2007), with a declared membership of 708,953 (up from 686,371 in 2007), signalling slight increases over previous years, but nonetheless continuing Hong Kongs tradition of comparatively low union density rates (21.51 per cent in 2008, up from 21.09 per cent in 2007).127 According to the Labour Department classication, there were only four strikes in 2008, three in 2007, three in 2006, and one in 2005.128

7. STRUCTURE OF THIS BOOK

1.034 Structure of this book. This book is intended to proceed from the general to the particular, beginning with an explication of the concepts most fundamental to employment law, and proceeding to particularised issues within employment law. An employment relationship is at the core of employment law, indeed, it is a condition precedent to the application of employment law, and is thus considered in the rst substantive chapter, Chapter 2. An employment relationship requires that the parties are in an employment contract, or contract of service. A distinction must be made between a contract of service and one for services, a legal distinction that is also fact sensitive in its determination. This is followed in Chapter 3 by a consideration of the nature and features of an employment contract, how it is created, how it can be changed, its basic terms, some of which are implied into all employment contracts by operation of law.

122 123

124

125 126

127

128

The most recent period for which reliable gures are available. All gures from the Census and Statistics Department Website, visited 18 June 2010: http://www.censtatd.gov. hk/FileManager/EN/Content_800/labour.pdf. From the SME Information Centre website, Government of Hong Kong, visited 18 June 2010 (gures as of December 2009): http://www.success.tid.gov.hk/english/lin_sup_org/gov_dep/service_detail_6863.html. Fn 123 above. Underemployed persons comprise those employed persons who have involuntarily worked less than 35 hours during the seven days before enumeration and have sought additional work during the 30 days before enumeration, or have not sought additional work but have been available for additional work during the seven days before enumeration. All trade union statistics are from the Labour Department website, visited 18 June 2010: http://www.labour.gov. hk/eng/labour/content3.htm. See the Labour Department Annual Report 2008 at http://www.labour.gov.hk/eng/public/iprd/2008/chapter8. htm#3.6. The Government celebrates these gures as signifying harmonious labour relations: ibid, at para 3.5.

STRUCTURE OF THIS BOOK

17

A contract of employment is an exchange of work and services for remuneration of various kinds. Chapter 4 addresses the employers obligations and the employees entitlement to remuneration, in particular, to wages, which through case law interpretation and statutory amendment has acquired a technical meaning. Work is a time-consuming and tiring activity, and requires sufcient periods of leave from work, in order to ensure that a reasonable quality of life can be maintained. Chapter 5 addresses the various forms of statutory leave entitlement, including a mandatory weekly rest day, public holidays, annual leave, and vitally, sick leave and maternity leave. A contract of employment must come to an end, whether by agreement or by other means. If the means do not comply with statutory or contractual requirements, termination is unlawful and gives rise to remedies. Chapter 6 addresses the various means of termination, and Chapter 7 addresses the remedies for an unlawful termination, as well as those where, although the termination is not unlawful, the employee is entitled to additional compensation by virtue of long service. Employment is the central activity in ones life, important to ones physical welfare and to ones personal identity. It is so recognised in fundamental human rights instruments. Thus, the legislature has intervened, enacting specialised laws that apply to persons and activities generally but that have their most particular application to employment, in an attempt to ensure that workers are not subject to discrimination, whether in terms of employment opportunities, job security or victimisation. Chapter 8 addresses this very important topic. Chapters 9 to 11 are concerned with another vital issuesafety at work. Employers are under various duties, by statute and under common law, to ensure safe work conditions. Chapter 9 maps out the regulatory regime, including the criminal law implications of a breach of safety provisions. Chapter 10 addresses the employers common law duties to ensure safety, and the workers entitlement to compensation in the event of an injury, while Chapter 11 addresses the statutory, no-fault mechanisms for obtaining compensation for work-related injury and disease. Chapter 12 reviews the statutory obligations of an employer and the entitlements of an employee regarding use of an employees personal data, an increasingly important issue in the electronic information age. Chapter 13 addresses inter-jurisdictional employment issues, which have become more common and signicant due to Hong Kongs increasing inter-connectedness with Mainland China. These issues arise in a number of ways, in particular, as a result of the mobility of Hong Kongs workforce, and, as regards Mainland China, because of Hong Kongs huge commercial investments involving the deployment of manpower across the border. Chapter 14 deals with employment issues that arise with a change of ownership of a company. This is a technical issue but one that is vital to the security and welfare of employees not otherwise accounted for in such transactions. In Hong Kong, as in many other places, the Government is the largest employer. The employment relationship between the Government and public servants is unique, with particularised regulations replacing much of the general employment law. Chapter 15 deals with the peculiarities of that employment relationship. Chapter 16 addresses trade unions and collective employment law issues, which, although of comparatively less importance in Hong Kong, nonetheless have the potential to inform and inuence the employment relationship and the terms of service. The book concludes with a consideration of the specialised dispute resolution mechanisms that apply to employment in Hong Kong.

CHAPTER 2

THE EMPLOYMENT RELATIONSHIP

Para. 1. Introduction .............................................................................................................................. 2.001 2. Employment status ................................................................................................................... 2.002 (a) Distinction between employees and independent contractors ........................................... 2.002 (b) Characteristics of employees and independent contractors .............................................. 2.005 (c) Legal consequences of a contract of employment ............................................................ 2.007 (d) Legal consequences of a contract for services .................................................................. 2.010 (e) Burden of proof ................................................................................................................. 2.011 (f) Question of fact or law? .................................................................................................... 2.012 (g) Judicial determination of employment status .................................................................... 2.014 (i) Control test .............................................................................................................. 2.015 (ii) Organisation approach ............................................................................................ 2.016 (iii) Overall impression .................................................................................................. 2.017 (h) Relevant considerations in reaching an overall impression .............................................. 2.021 (i) Control .................................................................................................................... 2.022 (ii) Provision of tools and equipment ............................................................................ 2.023 (iii) Freedom to delegate work or hire workers .............................................................. 2.024 (iv) Financial risk and prospect of prot ....................................................................... 2.027 (v) Mandatory provident fund payments ...................................................................... 2.028 (vi) Filing of income tax forms ...................................................................................... 2.030 (vii) Filing of statutory Form 2 ....................................................................................... 2.031 (viii) Nature of employment activity ................................................................................ 2.034 (ix) Mutuality of obligation ........................................................................................... 2.036 (x) Express designation in a written contract ............................................................... 2.039 3. Continuous contract of employment ........................................................................................ 2.042 (a) Legal signicance of continuous contract of employment ............................................... 2.042 (b) The 4-18 requirement ........................................................................................................ 2.043 (c) Implied global contract .................................................................................................. 2.045 (d) Effect of the 4-18 requirement on casual and part-time workers ...................................... 2.046 (i) General effect of the 4-18 requirement ................................................................... 2.046 (ii) Casual workers ........................................................................................................ 2.047 (iii) Part-time workers .................................................................................................... 2.050 4. Special categories of employees .............................................................................................. 2.051 (a) Civil servants ..................................................................................................................... 2.051 (b) Minors ............................................................................................................................... 2.053 (c) Apprentices ....................................................................................................................... 2.055 (d) Contracts for employment outside Hong Kong ................................................................. 2.056 5. Problems in employer identication ........................................................................................ 2.058 (a) Employer identication in general .................................................................................... 2.058 (b) Statutory denitions of employer ...................................................................................... 2.059

20

THE EMPLOYMENT RELATIONSHIP (c) (d) (e) (f) (g) Complex employment arrangements ................................................................................ 2.060 Multiple employers ........................................................................................................... 2.063 Worker loan arrangements ................................................................................................ 2.064 Workers placed by an employment agency ....................................................................... 2.072 Regulation of employment agencies ................................................................................. 2.077

1. INTRODUCTION
Overview of chapter. A central issue in employment law is that of employment status: is the worker in question an employee or an independent contractor? Proof of employee status is a crucial precondition to almost all of the rights and protections afforded by employment law, whether by statute or at common law. Workers who are self-employed are expected to look after their own needs in relation to job safety, accident insurance, retirement schemes, leave periods, job security and other benets normally associated with employment.1 For this reason many employers prefer to ll some or all of their stafng needs by hiring consultants and contractors on a self-employment basis, although the actual legal characterisation of such staff is ultimately a matter for the courts to determine. Thus, employment status is one of the most hotly contested issues in employment law.2 Moreover, to qualify for substantial protection under Hong Kongs principle employment legislation, the Employment Ordinance (EO), it is necessary for the employee to show that he was in a continuous contract of employment for the required period, an issue that has also proved to be contentious for the courts. Other controversies may arise, for instance, the identication of the true employer, in particular where the worker is on loan to another company, or was placed by an employment agency. These and other related issues will be considered in this chapter. 2.001

2. EMPLOYMENT STATUS
(a) Distinction between employees and independent contractors Distinction between employees and independent contractors. A distinction is made between employees and independent contractors. Is the worker in question an employee, working under a contract of employment, or is he self-employed, an independent contractor in business on his own account?3 Sometimes this distinction 2.002

The assumption that self-employed workers can do so may no longer hold up given the rise of atypical employment in the increasingly competitive globalised economy. In Hong Kong they are still expected to do so, although this is changing elsewhere: see generally Blanpain R, Bromwich W, Rymkevich O and Spattini S (eds.), The Modernization of Labour Law and Industrial Relations in a Comparative Perspective (The Netherlands: Wolters Kluwers, 2009), in particular, Glofcheski R, Job Security Issues in a Laissez-faire Economythe Case of Hong Kong at pp 441458. A Westlaw search of Labour Tribunal Appeals from Jan 2007 to Aug 2010 showed that, of 44 such appeals, 12 concerned the issue of contract of employment. In the same period, the contract of employment issue was contested in 26 ECO cases in the District Court, and in seven negligence cases in the Court of First Instance: Westlaw search conducted 5 Sept 2010. This is not to say that employee and independent contractor are the only possibilities. Exceptionally, the worker in question may fall into neither category, as in the case of a business partner, as argued (unsuccessfully) by the respondent in Yan Kwok Man v Tak Lee Trading Co (unrep., DCEC 1322/2004, [2007] HKEC 1767), and Lau Yuk Hung v Tsang Kwong Ming (unrep., DCEC 614/2009, [2010] HKEC 740), or as occurred in the case of the golf caddie in Cheng Yuen v Royal Hong Kong Golf Club [1997] HKLRD 1132 (neither employee nor contractor in relation to the defendant golf club). In such cases, the worker is not protected by statutory employment law or by the common law applicable to employees.

22

THE EMPLOYMENT RELATIONSHIP

is expressed as that between a worker engaged under a contract of service and one engaged under a contract for services.4 2.003 Employer free to choose manpower arrangements. There are many commercial reasons why a business entity might wish to undertake work and complete its projects through the temporary engagement of independent contractors rather than by hiring workers on an employment basis. One common reason is that the skills of the worker may not be needed on an ongoing basis, and it would not be nancially prudent to retain that worker as regular staff. By and large, a business entity is free to engage personnel as it sees t. Sham agreements not recognised. Care must be taken to ensure that the legal implications of any given stafng arrangement are not different than those intended by the parties. Courts the world over, no less in Hong Kong, tend to be protective of the workforce and are often prepared to go to great lengths to nd that a worker in an ambiguous employment arrangement falls within the ranks of employees and therefore within both statutory employment protection and that of the common law. An employer who intends to hire an independent contractor must ensure that the relationship is in substance one of self-employment, and not merely a sham, as, for instance, where nancial advantages are offered to obtain the consent of the worker to accept self-employment status when the reality of the relationship is otherwise.5 (b) Characteristics of employees and independent contractors 2.005 Characteristics of employees. Stating the position in general terms, a true employee is, for the duration of the employment, at the disposal of the employer. The employee stands ready to take instructions from the employer and to devote his energies exclusively to the employers business. For this, he receives remuneration at regular intervals, for the most part without regard to issues of output6 or project completion. He often receives other agreed contractual benets in addition to statutory entitlements and protections. Characteristics of independent contractors. An independent contractor undertakes to provide a service that does not typically require his full-time commitment or his complete submission to the employers supervision. The service provided is often not available within the employers personnel ranks. The engagement may cover a period of time, or more likely, a project, during which time the contractor is free to pursue other projects as well. The independent contractor will be subject only to that amount of control and supervision agreed in the contract. He will be paid the fee agreed in the contract, normally on completion, although it is not unusual for periodic payments to be made at various stages of completion. He will not be entitled to statutory employment benets and protections.

2.004

2.006

4 5

In this chapter, the terms contract of employment and contract of service are used interchangeably. This practice was denounced by Ribeiro PJ in Poon Chau Nam v Yim Siu Cheung [2007] 1 HKLRD 951 (at 97374), but it continues to prove irresistible to many employers: see C Sun, Delivery Riders in Contract Row, South China Morning Post, 8 Aug, 2009, p A2; Kang-chung Ng, Unionists decry spread of self-employment contracts, South China Morning Post, 21 Sept 2009, p C3; Lam A, Crackdown planned on contract-system abuseInspectors focus on dishonest bosses, South China Morning Post, 5 Nov 2009, p C2. Leaving aside employments paid wholly or partly according to piece-work or on a commission basis.

EMPLOYMENT STATUS

23

(c) Legal consequences of a contract of employment Legal consequences of a contract of employment under statute. Proof of employee status is vital because it triggers a range of employer obligations and employee entitlements under legislation and at common law. The EO and the Employees Compensation Ordinance (ECO) apply only to employees.7 The Occupational Safety and Health Ordinance (OSHO) imposes a duty on employers to ensure the safety and health of employees at work,8 and the Factories and Industrial Undertakings Ordinance imposes a duty on proprietors of industrial undertakings to ensure the health and safety of all persons employed by him.9 Employees, dened by reference to the EO and the ECO are entitled to various priorities in the event of the winding up of a company under the Companies Ordinance10 and under the Bankruptcy Ordinance.11 Payments under the Protection of Wages on Insolvency Ordinance are available to applicants, dened by reference to the persons, including employees, entitled to priorities under the Companies Ordinance and the Bankruptcy Ordinance.12 Under the Mandatory Provident Fund Schemes Ordinance, employers are required to enroll employees in a registered scheme and, together with employees, make contributions to the scheme.13 Moreover, the Immigration Ordinance makes it an offence for an employer to enter into a contract of employment with someone not lawfully employable under the Ordinance.14 Finally, the Labour Tribunal has jurisdiction only in respect of a contract of employment.15 Legal consequences of a contract of employment at common law. At common law, the four-fold non-delegable duty to provide safe conditions at work applies only to a contract of service,16 as do a range of other duties implied into a contract of employment by the common law.17 Similarly, vicarious liability of an employer for torts committed by a worker arises only if the worker was engaged under a contract of service at the moment of the torts commission.18 2.007

2.008

8 9 10 11 12 13 14 15

16

17 18

Dened in the EO (Cap.57) by reference to a contract of employment (s.4(1)), and in the ECO (Cap.282), by reference to a contract of service (s.5(1)). Cap.509 s.6. Cap.59 s.6A. Cap.32 s.265. Cap.6 s.38. Cap.380 s.2. Cap.485 s.7A. Section 2 denes employee by reference to the EO. Cap.115 s.17I. For persons lawfully employable, see s.17G. LTO s.7 and Schedule. In Helskens Jan Bert Julia v AXA International Ltd (unrep., HCA 1348/2005, [2008] HKEC 1450), the plaintiffs argument that he was not an employee but an independent contractor was accepted by the Court of First Instance, which therefore rejected the defendant companys argument that the Labour Tribunal, and not the court, had exclusive jurisdiction to hear the case. See also Leung Bing v Tanfory Co Ltd (unrep., HCLA 129/2002, [2003] HKEC 602) where a similar argument made by the appellant worker was rejected by the court. Wilsons & Clyde Coal Ltd v English [1938] AC 57. For an elaboration of the non-delegable duty, see paras 10.004 to 10.010 below. See Chapter 3. For instance, in Tung Chi Cheung v Jamsons Shipping Co (HK) Ltd [1961] HKDCLR 124, the vicarious liability argument failed because the tortfeasor, a consultant engineer, was found to be an independent contractor. The result would be otherwise only if the work in question was found to attract a non-delegable duty, although this is not, strictly speaking, a vicarious but rather a direct liability: see Glofcheski R, Tort Law in Hong Kong (Hong Kong: Sweet & Maxwell Asia, 2nd edn, 2007) Chapter 11.

24

THE EMPLOYMENT RELATIONSHIP

2.009

Duties borne by the employee. Of course, an employment relationship also imposes duties on the employee, implied by common law, and to a lesser degree by statute, 19 owed to the employer and possibly to others as well.20 These matters will be discussed at length in Chapter 3. (d) Legal consequences of a contract for services

2.010

Legal consequences of a contract for services. A self-employed worker or independent contractor is not entitled to the statutory benets and protections afforded to employees. He is by and large responsible for his own safety, his own insurance, his own MPF and tax payments and the collection of job payments due to him. However, it should not be understood from this and the preceding paragraphs that a nding of no contract of employment relieves the business entity employing the independent contractor of all duties. A contract for services is a contract all the same. Both the independent contractor and the party engaging him must honour their obligations under the contract.21 Furthermore, the usual common law duties of reasonable care in negligence22 and occupiers liability23 will apply. A principal contractor may have statutory obligations to non-employees on the site,24 including independent contractors, but does not owe a particularised common law duty other than the usual

19 20 21

22

23

24

For instance, by virtue of s.6B of the FIUO (Cap.59), and s.8 of OSHO (Cap.509). As in Cap.59 s.6B and Cap.509 s.8, ibid. As in Helskens Jan Bert Julia v AXA International Ltd (fn 15 above), where the plaintiff succeeded in part of his breach of contract claim and the defendant company succeeded in much of its counterclaim. The contractual obligations owed by the independent contractor to the employer may prove unexpectedly catastrophic, as in Chun Fu Transportation Ltd v Wong Wan Kau (unrep., DCCJ 4339/2006, [2007] HKEC 344). A truck driver, having entered into a cooperation agreement with the plaintiff trucking rm stating that he was an independent contractor, was held liable for the damage to the plaintiff s truck, for the damage to cargo owners, and for damage to public property consequent on a motor vehicle accident caused by the drivers negligence. The driver did not defend, and the nding of independent contractor was not contested. This will be the usual duty of care in negligence, to take reasonable care for the safety of ones neighbour as propounded in Donoghue v Stevenson [1932] AC 562, and not the more particularised four-fold duty in Wilsons & Clyde Coal Ltd v English [1938] AC 57 applicable to the contract of service: see also Chapter 10 below. In Leung Chun Pong v Cheng Man Tung (unrep., HCPI 296/2007, [2008] HKEC 1001), Deputy Judge Anthony To found a contract of employment, but would have applied the neighbour principle to establish liability in a common law action for work-related injuries even in the absence of a contract of employment. To similar effect see Fung Shuk Fan v Land Fortune Ltd (unrep., DCPI 1507/2006, [2007] HKEC 1371). See also Nguyen Van Vinh v Cheung Ying Construction Engineering Ltd (unrep., HCPI 1173/2004, [2008] CHKEC 556), Chong Chun Wah v Tsui Yiu Wah (unrep., DCPI 1388/2007, [2008] HKEC 2170), and Tam Hon Leung v Ng Wai Hing [2006] 1 HKLRD 923, where the common law duty in negligence owed to the independent contractor was found not to have been breached. As in Fung Shuk Fan v Land Fortune Ltd (ibid) and Tam Hon Leung v Ng Wai Hing (ibid), where occupiers liability was the alternative nding. For example, reg.38A of the Construction Sites Safety Regulations (Cap.59I) requires a contractor responsible for a construction site to ensure that every place of work has been made safe for persons working there (see Nguyen Van Vinh v Cheung Ying Construction Engineering Ltd (fn 22 above)); and reg.38A(2) of the same regulations requiring a contractor to ensure that, so far as is reasonably practicable, suitable and adequate safe access to and egress from every place of work on the site is provided and properly maintained has been interpreted to extend to independent contractors (Poon Chau Nam v Yim Siu Cheung (fn 5 above)). Moreover, under s.24 of the ECO (Cap.282), a principal contractor may be liable to pay employees compensation to the employees of a sub-contractor.

EMPLOYMENT STATUS

25

duty under the general law of negligence.25 Finally, the party engaging an independent contractor to perform the work personally may also be bound by the employmentrelated provisions in the four discrimination ordinances. Each of these ordinances applies to employment, dened to include not only those persons working under a contract of service but also those working under a contract personally to execute any work or labour.26 (e) Burden of proof Worker bears the burden of proof. As a general rule, the burden to prove a contract of employment falls on the worker, and the proof required is on a balance of probabilities. This is so whether the litigation concerns an action for entitlements under the EO, an application for compensation under the ECO,27 or a common law negligence action for work-related injuries. It would also generally be so for an action for breach of any of the terms implied by the common law into a contract of employment.28 (f ) Question of fact or law? Legal characterisation of employment status restricts inquiry on appeal. Is the determination of employment status a question of fact or law? This question arises periodically in the case law and is relevant only to the extent that it affects appellate court jurisdiction. As a matter of general principle, an appeal court should not interfere with a determination of fact made by the trial judge.29 Moreover, the Labour Tribunal Ordinance provides that a party may only apply for leave to appeal to the Court of First Instance on the grounds that the award or determination of the Labour Tribunal is 2.012 2.011

25

26

27

28

29

An example is Waan Chuen Ming v Lo Kin Nam [2009] 4 HKC 349, where the defendant factory owner was held to be in breach of a duty of care owed to an employee of a contractor hired to effect repairs to a machine in the factory. The defendant lent the contractor some equipment to transport the machine, equipment that proved unsuitable for the purpose, causing the machine to topple and injure the employee. The court considered these facts sufcient to satisfy the foreseeability, proximity and justice criteria required for the general duty of care. See s.2(1) in each of the Sex Discrimination Ordinance (Cap.480), the Disability Discrimination Ordinance (Cap.487), the Family Status Discrimination Ordinance (Cap.527), and the Race Discrimination Ordinance (Cap.602). In this regard it should be noted that the same language used in s.2 of the discrimination ordinances is used in s.2 of the Labour Relations Ordinance (Cap.55), thus bringing within the scope of the ordinance some workers not in a contract of employment. In relation to the ECO, see Yeung Tin Sang v The Brothers Co (unrep., DCEC 800/2000, [2001] HKEC 1493). See also Sae-Lee Srikanya v Chung Yat Ming [2009] 3 HKLRD 152, where the Court of Appeal held that failure to discharge the burden of proof was not a sufcient reason for the trial judge to nd no employment contract, and that a positive nding on the evidence must be made. It would be otherwise if the action is brought by the employer asserting a contract of service, for instance to enforce an obligation implied into a contract of service at common law. See Helskens Jan Bert Julia v AXA International Ltd (fn 15 above). See also Leung Bing v Tanfory Co Ltd (fn 15 above), where the same position appears to have been accepted in circumstances where the worker sought to argue against a contract of employment for jurisdictional reasons. Moreover, where vicarious liability is at issue, the onus is on the tort victim to prove a contract of service between the tortfeasor and employer. Kwong Mile Services Ltd v Commissioner of Inland Revenue [2004] 3 HKLRD 168. However, from this it does not follow that a decision based on a nding of fact or inference from the facts which is perverse or irrational will be allowed to stand. As stated by Bokhary PJ in Kwong Mile Services Ltd, just because there is no appeal on facts, it does not mean that the appellate court is precluded from detecting and correcting errors of law buried beneath conclusions ostensibly of fact. Sometimes, as Lord Radcliffe put it in Edwards (Inspector of Taxes) v Bairstow [1956] AC 14 at p 36, the true and only reasonable conclusion contradicts the determination appealed against. If so, the appellate court will assume that the determination resulted from an error of law. And that opens the way for the appellate court to intervene on the ground of an error of law.

26

THE EMPLOYMENT RELATIONSHIP

either erroneous in point of law or outside the jurisdiction of the tribunal.30 Therefore, if employment status is a question of fact, as is the general judicial consensus, there should be very few appeal court decisions on the issue of employment status. That there is a rather substantial body of appellate case law may therefore come as something of a surprise. In fact, there is no true consensus in the case law regarding the true characterisation of the employment status issue. It is variously described as a question of fact,31 a question of mixed fact and law32 and, occasionally, in the context of written agreements, a question of law.33 2.013 Appeal court reluctance to reverse trial judges determination of employment status. What is apparent from all of the case law is a general reluctance on the part of appeal courts to reverse the ndings of trial judges on the issue of employment status.34 For instance, in Ting Kwok Keung v Tam Dick Yuen,35 a case concerning employment status in which the Court of Appeal had reversed the trial judge, Bokhary PJ in the Court of Final Appeal restored the trial judges determination of a contract of service, and warned against appeal judges lightly substituting their views of the evidence for that of the trial judge, who has the advantage of having received the evidence at rst-hand.36 Later, in Poon Chau Nam v Yim Siu Cheung,37 in which the Court of Final Appeal did reverse the courts below, Bokhary PJ put it thus: A nding that an employer-employee relationship does or does not exist can only be interfered with on appeal if it can be shown that the tribunal misdirected itself in law or came to a decision which no tribunal, properly directing itself on the relevant facts, could reasonably have reached.38

30

31

32

33

34

35 36 37 38

Cap.25 s.32(1). In Kei Siu Hung v CAF Securities Co Ltd (unrep., HCLA 39/2008, [2009] HKEC 24), an appeal concerning the employment contract issue, Deputy Judge Anthony To put it thus: It is not permissible to appeal against the nding of fact of the Labour Tribunal unless the determination is based on a nding of fact or inference from those facts which is perverse or irrational, or where there is no evidence to support the decision or where the decision was made by reference to irrelevant factors or without regard to relevant factors. To similar effect in a case not concerning contract of service but entitlement to year-end bonus, see Guido Ferrando v Hua Dao Shipping (Far East) Ltd (unrep., HCLA 44/2007, [2008] HKEC 1827). Law Chun Choi v Wong Yee Lin [2008] 5 HKLRD 328, citing Poon Chau Nam v Yim Siu Cheung (fn 5 above), per Ribeiro PJ; see also Leung Bing v Tanfory Co Ltd (fn 15 above), and Lee Ting Sang v Chung Chi Keung [1990] 1 HKLR 764 at 768-89, in which Lord Grifths, after considering the alternatives, settled on the general rule that the issue is normally one of fact. OKelly v Trusthouse Forte Plc [1984] QB 90, per Donaldson MR; Nguyen Van Vinh v Cheung Ying Construction Engineering Ltd (fn 22 above); and Chan Yiu Man v Buddhist Dao Hope Yuen Charity Co Ltd (unrep., DCEC 46/2006, [200] HKEC 373). It has been held that where the relationship is dependent solely upon the construction of a written contract, the determination is a question of law: To Kwok Sheung v Kwan Yiu Kee Finishing Work Co Ltd (unrep., DCEC 66/2001, [2002] HKEC 219); Lee Wan Hung v Wang Tat (China) Transportation Co Ltd (unrep., DCEC 92/2000, [2001] HKEC 1550); and Lee Ting Sang v Chung Chi Keung (fn 31 above), all citing Davies v Presbyterian Church of Wales [1986] 1 WLR 323. See also Lai Sing Ping v Kwong Wan Kai Transportation Co Ltd (unrep., HCPI 1084/1997, [1999] HKEC 260). However, in making this determination, it is unlikely that the court would ignore the realities of how the contract was in fact performed. That said, if the contract had not yet commenced, the determination would most likely be based on the interpretation of the written contract. The reluctance stems from a oodgates concern that the courts would be crushed by the weight of appeals in the many borderline cases that arise. See the comments of Lord Grifths in Lee Ting Sang v Chung Chi Keung (fn 31 above) at 769. [2002] 3 HKLRD 1. Ibid, at 12. Fn 5 above. Ibid, p 962.

EMPLOYMENT STATUS

27

From this one can infer that there is a legal dimension to the determination, since it is a misdirection of law that will trigger the possibility of a reversal. Thus, the issue is best characterised as one of mixed fact and law. Or perhaps it is most accurate to say that the criteria to be applied are a matter of law, but the application of the criteria is a question of fact.39 (g) Judicial determination of employment status Lack of legislative guidance. Unfortunately, the legislation does not provide a denition of employee or any guidance in making the distinction between a worker engaged under a contract of employment and an independent contractor.40 It is therefore necessary to refer to the common law for an understanding of how the distinction is made.41 As will be seen, this is no easy task, as Judge Mimmie Chan has candidly explained in these terms: The parties in this case, as laymen, have expressed confusion and bewilderment over the question of when a worker is, in law, an employee, and when he is an independent contractor. They may get some comfort from the fact that often, lawyers are just as confused, and that the question cannot be easily answered by the courts.42 (i) Control test Control test inadequate. At one time, the concept of control was the main consideration to determine employment status. Under this approach, a high degree of control exercised by the employer over the worker (over what, how, when and where the work was to be done) would give rise to a nding of a contract of employment.43 Where that control was lacking or limited, a nding of independent contractor was likely. However much this approach may have found application in earlier times in generally less complicated forms of employment, control in itself can no longer be a 2.014

2.015

39 40

41

42

43

Smith I and Thomas G, Smith & Woods Employment Law (9th ed.) (Oxford: OUP, 2008), p 64. According to the EO s.2(1), employee means an employee to whom, by virtue of s.4, this Ordinance applies. Section 4 stipulates that this Ordinance applies to every employee engaged under a contract of employment Section 2(1) denes a contract of employment as any agreement whereby one person agrees to employ another and that other agrees to serve his employer as an employee None of these denitions helps clarify the distinction between employees and independent contractors. Neither can assistance be found in other important legislation for which the distinction is crucial, such as the ECO (Cap.282) where employee is dened in s.2 as any person who has entered into or works under a contract of service . The term contract of service is not dened in the Ordinance. Similarly, s.3 of the OSHO (Cap.509) denes an employee as a natural person who works under a contract of employment Although the distinction is relevant in a wide range of contexts (see paras 2.007 to 2.010), the principles for making the distinction are the same. Since the legal concept of employee is not adequately dened in any of the legislation, one must turn to the common law for guidance. Thus, the distinction made for the purposes of a common law action for vicarious liability will be the same as for an action under the EO or a claim under the ECO. That said, where some degree of employment continuity is required under the EO and there has been a break in the employment, proof of mutuality of obligation may be necessary in addition to the other considerations. Still, the common law requirements for the employment contract itself remain the same: see Poon Chau Nam v Yim Siu Cheung (fn 5 above). For a detailed discussion of the mutuality of obligation, see paras 2.036 to 2.038 below. Wong Ki v Shun Tak Electrical Mechanical and Air Conditioning Engineering (Hong Kong) Co Ltd (unrep., DCEC 835/2007, 74/2008, [2009] HKEC 595). Yuen Mei v Hop Sze Machine Shop (a Firm) [1961] HKDCLR 193.

28

THE EMPLOYMENT RELATIONSHIP

sufcient indicator in a world of diverse employment arrangements in which workers are paid to exercise a high degree of judgment and independence in the application of their skills and knowledge.44 (ii) Organisation approach 2.016 Organisation approach inadequate. Subsequently, the organisation approach45 came to be preferred by the courts, partly as a response to changes in management and organisational structures. Many workers in more advanced work settings exercised a high degree of independence and judgment in their work, but nonetheless did not enjoy the kind of managerial autonomy and self-determination associated with true independent contractors. Under the organisation approach, a contract of service would be found if the work was done as part and parcel of the employers organisation46 subject perhaps to control of the employer as to when and where, although not necessarily as to how, the work would be done. Put another way, could the worker be characterised as having been integrated into the employers organisation, as opposed to being independent of it? In the former circumstances, a contractor working continuously under the direction of the same employer might be found to be an employee. This approach, although a helpful addendum to the control approach, ran the risk of including too many, for example, subcontractors repeatedly employed on the employers building sites. (iii) Overall impression 2.017 Overall impression based on a range of relevant factors. Today there is no single or convenient test for making the determination of employment status.47 What emerges is a nuanced but exible approach in which the court develops an overall impression48 based on an examination of a range of factors that have been identied in the case law as relevant to this issue.49 In doing so the courts emphasise that there is no comprehensive list of factors, and that the list of potentially relevant factors is not closed.50 Moreover, although reference must be made to these factors, the determination of employment status cannot be reached by compiling a checklist or by counting up the factors falling on one side or the other.

44

45 46

47 48

49 50

In both of the leading Hong Kong cases concerning the issue of employment status, the court found an employment contract despite the almost complete absence of supervision and control exercised by the employer over the worker: see Lee Ting Sang v Chung Chi Keung (fn 31 above) and Poon Chau Nam v Yim Siu Cheung (fn 5 above). Sometimes referred to as the enterprise or integration approach. Denning LJ in Bank voor Handel en Scheepvaart NV v Slatford [1953] 1 QB 248 at 295, and in Stevenson, Jordan & Harrison Ltd v McDonnell [1952] 1 TLR, 101 at 111. This view was expressed 20 years ago by Lord Grifths in Lee Ting Sang (fn 31 above) at 766. The term overall impression in the context of determining employment status appears to have been coined, in Hong Kong at least, by Ribeiro PJ in Poon Chau Nam v Yim Siu Cheung (fn 5 above at 961), and has frequently been used in the case law since then. Each of these factors will be specically considered under separate headings below. One of the earliest and often cited statements of this view is that of Cooke J in Market Investigations Ltd v Minister of Social Security [1969] 2 QB 173 at 184; see text accompanying fn 53 below.

EMPLOYMENT STATUS

29

Lee Ting Sang v Chung Chi Keung. In Hong Kong, the Privy Council decision in Lee Ting Sang v Chung Chi Keung 51 is the starting point for an understanding of the modern approach for determining employment status. In that case, the applicant, a master chiseller injured in the course of his work, sought compensation under the ECO from the respondent subcontractor. The Privy Council reversed the courts below and found the applicant to be an employee. The case is important for the courts endorsement of the approach proposed by Cooke J in Market Investigations v Minister of Social Security:52 The fundamental test to be applied is this: Is the person who has engaged himself to perform these services performing them as a person in business on his own account? If the answer to that question is Yes, then the contract is a contract for services. If the answer is No, then the contract is a contract of service. No exhaustive list has been compiled and perhaps no exhaustive list can be compiled of the considerations which are relevant in determining that question, nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases. The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and that factors which may be of importance are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of nancial risk he takes, what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of proting from sound management in the performance of his task.53 As the appellant in Lee Ting Sang did not provide his own equipment or hire his own helpers, had no responsibility for investment in or management of the work on the construction site, and did not price the job but was paid either a piece-work rate or a daily rate according to the nature of the work he was doing, he was found to be in a contract of employment. Although the appellant was not supervised in his work, this was not considered important for a skilled man who could simply be told what to do and be left to get on with it. Poon Chau Nam v Yim Siu Cheung. The approach in Lee Ting Sang, including its endorsement of Cooke Js approach, was afrmed and further rened by the Court of

2.018

2.019

51 52

53

Fn 31 above. Fn 50 above. The approach in the Market Investigations case, as adopted in Lee Ting Sang, continues to be favoured by the courts in determining this issue; it has been specically cited and applied in Ting Kim Fung v Holder Transportation Co Ltd (unrep., DCEC 736/2002, [2004] HKEC 519); Lam Hon Keung v Pang May Ngor (unrep., DCEC 648/2003, [2005] HKEC 959); Chan Po Kai v Ng Moon Sum (unrep., DCEC 820/2004, [2006] HKEC 346); Yeung Tin Sum v Wong See Ting (unrep., DCEC 1077/2006, [2007] HKEC 694); and Poon Chau Nam v Yim Siu Cheung (fn 5 above). Fn 31 above, at 766.

30

THE EMPLOYMENT RELATIONSHIP

Final Appeal in Poon Chau Nam v Yim Siu Cheung.54 This was also a case concerning an application under the ECO, but one in which considerable weight had been placed in the lower courts on the requirement for mutuality of obligation in reaching a nding of self-employment. The appellant was an air-conditioning worker engaged by the respondent on a casual, as-required basis. Like the appellant in Lee Ting Sang, he worked for the respondent from time to time but was free to and did work for other employers. The court came to the view that, although the respondent was not obliged to provide employment to the appellant on a continuing basis, and that mutuality of obligation was absent, each time the respondent engaged the appellant, a contract of service came into existence. This was established on the basis of the kinds of factors identied by Cooke J in Market Investigations Ltd v Minister of Social Security, resulting in an overall impression of an employment relationship. Ribeiro PJ said: The air-conditioning business belonged to the respondent The respondent decided which, if any, jobs should be assigned to the appellant and paid him to do them at the daily rate of $550, plus any overtime. All the prots and losses of the business were for the respondents account. The appellant bore no nancial risks and reaped no nancial rewards beyond his daily-rated remuneration. The respondent managed the business and hired several other workers, some of whom would sometimes work alongside the appellant on a job. The appellant personally did the work assigned to him. He did not hire anyone to help. Travel expenses incurred in the course of the work were borne by the respondent who sometimes drove the appellant to the work site in his van, particularly where heavy equipment had to be transported there. Such equipment was owned by the respondent and not the appellant. Whenever items had to be purchased by the appellant for work purposes, he was reimbursed by the respondent, even where the amounts were very small. The appellant was a skilled air-conditioning worker and, like the others who were undoubtedly the respondents employees, did not require supervision or control over the manner of carrying out the work. So the control test is, in the circumstances, of little relevance. But the other indicia all point clearly to an employeremployee relationship entered into for each specic engagement. The main difference between the appellant and the other workers was that his employment was of a casual nature whereas theirs was permanent and paid on a monthly basis.55 2.020 Evaluation of the overall effect of the detail. In Poon, Ribeiro PJ emphasised the intuitive nature of the exercise: The modern approach to the question whether one person is anothers employee is therefore to examine all the features of their relationship against the background

54

55

Fn 5 above. Poon Chau Nam has now overtaken Lee Ting Sang as the leading authority on the issue of employment status in Hong Kong, having been cited 25 times since its rendering in Mar 2007, compared to 13 citations of Lee Ting Sang over the same period (Westlaw search conducted 2 Mar 2010). See e.g. Rana Lek Bahadur v Best Field Logistics Ltd (unrep., DCEC 948/2008, [2010] HKEC 174). Fn 5 above at 961.

EMPLOYMENT STATUS

31

of the indicia developed in the abovementioned case-law with a view to deciding whether, as a matter of overall impression, the relationship is one of employment, bearing in mind the purpose for which the question is asked. It involves a nuanced and not a mechanical approach, as Mummery J emphasised in Hall v Lorimer :56 In order to decide whether a person carries on business on his own account it is necessary to consider many different aspects of that persons work activity. This is not a mechanical exercise of running through items on a check list to see whether they are present in, or absent from, a given situation. The object of the exercise is to paint a picture from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole. It is a matter of evaluation of the overall effect of the detail, which is not necessarily the same as the sum total of the individual details. Not all details are of equal weight or importance in any given situation. The details may also vary in importance from one situation to another.57 (h) Relevant considerations in reaching an overall impression Relevant factors examined. Despite the warning sounded by Ribeiro PJ in Poon Chau Nam against a mechanical approach in favour of one based on an overall impression, the court can only reach that impression after examining the specic features of the employment arrangement at issue and giving due regard to them in the particular circumstances. It will therefore be instructive to identify and briey consider those factors that the courts have found to be of relevance in making this determination, bearing in mind that the weight to be given to each will vary depending on the circumstances of the particular case. Thus, a factor considered important in one case may carry very little weight in another. (i) Control Continuing importance of control. Although control is no longer a sufcient indicator of employment status and may have little or no role to play in some cases,58 for example those involving skilled workers able to work without supervision,59 it nonetheless remains the single most important consideration. Control can manifest itself in many ways, for example: regular, timetabled hours of work; prohibition against working for others; provision of transportation between job sites;60 regular and close 2.022 2.021

56 57 58

59

60

Hall (HMIT) v Lorimer [1992] STC 599 at 612. Fn 5 above at 961. In Leung Kwok Biu v Tam San Yu (unrep., DCEC 1278/2007, [2009] HKEC 108), Cheung Wai Yick v Lau Kin Wing (unrep., DCEC 1164/2007, [2009] HKEC 268), and Tang Chau Yuet v Fu Kin Po (unrep., DCEC 28/2008, [2010] HKEC 1053), the courts found an employment contract as a matter of overall impression in circumstances of an experienced worker requiring no supervision in the carrying out of his duties. Conversely, there will be rare cases in which, despite a high degree of control, the worker is found to be an independent contractor, as has been the case with some labour-only subcontractors: see discussion at para 2.035. As in Leung Chun Pong v Cheng Man Tung (fn 22 above) and Chiu Kwok Hung Ban v Ng Fu Wing (unrep., DCEC 887/2002, 317/2004, [2010] HKEC 147). As in Leung Chun Pong v Cheng Man Tung (fn 22 above).

32

THE EMPLOYMENT RELATIONSHIP

supervision; instruction as to how, when and where to do the work;61 the requirement to wear company uniforms and/or to display the company logo;62 and submission to the employers internal rules, for instance the need to seek approval before taking leave.63 These are all highly suggestive of a contract of employment, and inconsistent with the notion of being in business on ones own account. In Wong Wai Ming v FTE Logistics International Ltd, a case of a delivery worker injured in a motor vehicle accident, the requirements of mandated work hours, clocking in and out, the wearing of the company uniform, the display of the company logo on the motorcycle, and other aspects of close supervision overrode the fact that the worker provided his own motorcycle and was described in the written contract as self-employed. The delivery worker was found to be in a contract of employment.64 (ii) Provision of tools and equipment 2.023 Employer provision of tools and equipment suggests contract of employment. A worker whose employer provides tools, equipment, protective clothing and the like is more likely to be found to be engaged under a contract of employment. Quite simply, it is inconsistent with the notion of a worker being in business on his own account that the employer would provide tools, equipment, protective clothing or uniforms. This factor is mentioned frequently in the case law, if only to buttress a nding of contract of employment otherwise made out on the facts.65 Of course, in those rare cases where the worker provides or is expected to provide his own tools and equipment, the court will look longer at the possibility that the worker is an independent contractor. Even in such circumstances, this factor is not determinative because it cannot be ruled out that some employers will require artisans and other skilled workmen, otherwise hired on employment terms, to provide their own tools and equipment,66 in the case of drivers even their own vehicles,67 and that some skilled workers generally prefer their own

61

62 63 64

65

66

67

As in Yeung Tin Sum v Wong See Ting (unrep., DCEC 1077/2006, [2007] HKEC 694). See McKenna J in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497 at 515. Wong Wai Ming v FTE Logistics International Ltd (unrep., DCEC 314/2007, [2008] HKEC 1441). Leung Kam Wah v Fung Yuk Ching (unrep., HCLA 43/2006, [2008] HKEC 698). Fn 62 above. See also Fung Shuk Fan v Land Fortune Ltd (fn 22 above), a common law negligence action, in which the control-related factors over-rode an express contractual designation of the plaintiff art director as self-employed: the Plaintiff had to guarantee that she was free from any other contractual obligations and had to fulll her obligations under the contract; that she had to work for the Defendant solely and exclusively; that she could not work for a third party at the same time; that if requested, she needed to work for the Defendant after the expiry of the contractual period; that the Plaintiff was required to follow the instructions of the senior staff of the Defendant or the lm director; that the Plaintiff was required to inform the Defendant of her location so that she could be reached by the Defendant at whatever the time; that the Defendant was allowed to instruct the Plaintiff to go to any place in Hong Kong or overseas and the expenses related thereto would be borne by the Defendant; that prior approval from the Defendant was required before taking sick leave with proper medical proof . As in Cheung Wai Yick v Lau Kin Wing (fn 58 above), where the court found an employment contract on the basis of the overall impression; and Chan Sau Ying v Yuk Luk Sauna (unrep., HCLA 82/1994, [1995] HKLY 575) where the employer provided the masseuses with uniforms, towels and massage oil. See also So Yuk Kam v Lau Kam Yuen (unrep., DCEC 30/2008, [2008] HKEC 2184); Wong Chun Mam v Tang Koon Kau (unrep., DCEC 1119/2003, [2005] HKEC 2132); Leung Chun Pong v Cheng Man Tung (fn 22 above); and Law Yiu Chan v Wong Kwok Wai (unrep., DCEC 804/2007, [2008] HKEC 964). As in Chan Suet Hung v Laneld Marble Co Ltd (unrep., DCEC 790/2002, [2003] HKEC 1496); and Chan Kwan v Wang Fat Scaffolding Ltd (unrep., DCEC 758/2008, [2010] HKEC 1307). As in Wong Wai Ming v FTE Logistics International Ltd (fn 62 above); and Mak Ching Shan v Power Max Design Ltd (unrep., DCEC 301/2008, [2009] HKEC 1895).

EMPLOYMENT STATUS

33

equipment.68 There will also be cases where the employers provision of equipment, even a uniform, will not result in a nding of a contract of employment.69 (iii) Freedom to delegate work or hire workers Freedom to delegate work or hire workers suggests self-employment. This factor does not feature as frequently in the case law, but where it does, it carries considerable weight. A worker who is free to assign the work to others or hire workers, will not normally be found to be in a contract of employment.70 Such freedom contradicts the concept of employers control and the basic obligation of an employee to do the work personally. Freedom to delegate or hire is often cited in negative terms, that is, the court may cite the absence of such freedom or its express restriction as supporting a nding of a contract of employment.71 Freedom to delegate or hire not decisive. This is not to say that the fact of some degree of freedom to delegate or hire workers necessarily points to self-employment. As acknowledged by McKenna J in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance,72 there may be exceptions. In Pun Wai Ming v Tsang Chung Kai,73 evidence that the lorry driver delegated some driving to an assistant, apparently as his employee, was not determinative of the outcome, but only one factor to be set against other of the trial judges ndings that were more consistent with a contract of employment.74 Moreover, gangers, asked to recruit others (gang members) on behalf of the employer have long been recognised as having employee status in Hong Kong.75 In Wong Chi Wo v Cheng Muk Yung76 the appellant steel binding contractor would, after obtaining a contract, seek the services of the rst respondent and ask him to recruit other workers. According to the arrangement the appellant would pay the rst respondent for the job, and the rst respondent would in turn pay the recruits. The court held that there was no basis for disturbing the Labour Tribunals ruling that the rst respondent was an employee, taking into account the fact that the rst respondent had no discretion over how much to pay the recruits (he paid the xed union rate), that he was himself a manual labourer, that the recruits moved from site to 2.024

2.025

68 69

70 71 72 73 74

75

76

As in Leung Kwok Biu v Tam San Yu (fn 58 above). As in Tam Hon Leung v Ng Wai Hing [2006] 1 HKLRD 923 and Nguyen Van Vinh v Cheung Ying Construction Engineering Ltd (fn 22 above), where tools were provided to a worker found to be an independent contractor; and Cheng Yuen v Royal Hong Kong Golf Club (fn 3 above), where a golf caddie, required to wear the employers uniform, was found to be neither employee nor independent contractor, at least in relation to the defendant golf club. As in Nguyen Van Vinh v Cheung Ying Construction Engineering Ltd (fn 22 above). As in Chan Kin Man v Pacic Drayage Co Ltd (unrep., HCLA 49, 50/2007, [2008] HKEC 1176). Fn 61 above. (unrep., CACV 301/2008, [2009] HKEC 1047). See also Lam Sik v Sen International Ventures Corp (HK) Ltd [1994] 3 HKC 405, where the written agreement required the worker to arrange a substitute worker at his own expense if he wanted a day off. In nding a contract of service, Judge V Bokhary said: As far as the point about a substitute is concerned, I would add that such a state of affairs would be the natural position in regard to any worker whom an employer saw t to work seven days a week. See also Yeung Tin Sum v Wong See Ting (unrep., DCEC 1077/2006, [2007] HKEC 694). As stated in Wong Sai Yee v Kong Kwan [1988] 1 HKLR 67, True it is that he had wide powers of engaging and dismissing workers, but so do senior ofcials in companies who are clearly employees. The reality of the situation appears to be that, as the leader of a gang, he was a foreman and that he and the workers were all employed by the respondent. See also Chan Suet Hung v Laneld Marble Co Ltd (fn 66 above); and Chan Kwan v Wang Fat Scaffolding Ltd (fn 66 above). (unrep., HCLA 55/1996, [1996] HKLY 742).

34

THE EMPLOYMENT RELATIONSHIP

site according to the appellants instructions, and that all of the materials were supplied by the owner or contractor of the sites.77 2.026 A worker who recruits other workers not necessarily their employer. It follows that a worker who recruits other workers is not necessarily their employer. In Leung Kam Fat v Johnathans Fashion Manufacturing Ltd,78 Nazareth J considered this to be only one factor. Further factors, that the rst defendant (who had recruited other workers) worked exclusively for the second defendant on the second defendants premises, using the second defendants equipment and materials, suggested that the rst defendant was a supervisor or foreman, in the second defendants employ, and not the employer of the workers he had recruited. (iv) Financial risk and prospect of prot 2.027 Financial risk and prospect of prot from ones own management suggests self-employment. Financial risk and the prospect of prot is an often misunderstood head. It does not normally include a piece-workers opportunity to increase his income by working harder.79 Nor should it be understood as meaning that a worker with management responsibilities is self-employed.80 It means expending ones own energies and putting ones own nancial resources at risk in the business enterprise, with the possibility of nancially beneting or suffering from ones own management decisions. In Leung Chun Pong v Cheng Man Tung, Deputy High Court Judge To drew an apt comparison between an employed mechanic (the plaintiff) and a self-employed mechanic (Hung) both working for the defendant: On the evidence, the Defendant bore all the risks of loss and prospect of prot. The Plaintiff did not have any risk of loss or prospect of prot beyond his daily remuneration and overtime pay. He did not have any responsibility for management and did not benet from his good management. He would not receive any benet for nishing his task earlier, nor would he suffer any loss if he was unable to nish his assignment in time. He would be paid overtime at the expense of the Defendant if an item of works took him longer to nish. By way

77

78 79

80

Yeung J described this kind of recruitment arrangement as by no means uncommon in the building industry in Hong Kong and not in itself inconsistent with a contract of service. Indeed, the gang members are also likely to be found to be employees of the gangers employer, as in T K Shen Construction Co v Yip Pak Ying (unrep., CACV 22/1973, 11 Oct 1973) (noted by Ribeiro in Workmens Compensation and Informal Work Practices (1974) 4 Hong Kong Law Journal 65); and the facts that the gang members are paid by the ganger rather than the employer, and that they require little or no supervision, being expert tradesmen in their own right, that the ganger can hire and re gang members, and that the gang members are expected, in the event of absence, to provide a replacement worker, are not inconsistent with their being employees: see Chan Kwan v Wang Fat Scaffolding Ltd (fn 66 above). For a case with broadly similar facts to those in Wong Chi Wo v Cheng Muk Yung (ibid ) in which the court found the recruiter to be an independent contractor, see To Kwok Sheung v Kwan Yiu Kee Finishing Work Co Ltd (fn 33 above) (Wong Chi Wo v Cheng Muk Yung distinguished on the basis that in To Kwok Sheung the employer had little or no control over the work and over the wages to be paid to the recruits, leaving the recruiter with the opportunity for prot and loss). (unrep., LTA 14/1988). See also Wong Chi Wo v Cheng Muk Yung (fn 76 above). As in Chan Siu Ming v Kwok Chung Motor Car Ltd (2008) [2008] HKCNS 43, where the fact that the applicant minibus drivers were paid on commission basis and presumably could earn more depending on trafc conditions and the like was rightly rejected as proving self-employment. This appears to have been misunderstood in Chan Siu Ming v Kwok Chung Motor Car Ltd (ibid, para 35 of the decision), but fortunately this had no bearing on the decision that the minibus drivers were employees.

EMPLOYMENT STATUS

35

of contrast, Hung who was indisputably engaged as a subcontractor at a daily rate without overtime or at a lump sum contract, had the benet of good management if he could nish his work early and could perform other assignments from the Defendant or others or bore the risk of having to incur more of his own time and at his own cost if he could not.81 In Helskens Jan Bert Julia v AXA International Ltd, the fact that the plaintiff management expert personally guaranteed the companys nances, and was paid by reference to the companys performance, weighed heavily in the courts nding of independent contractor.82 Conversely, in Leung Kam Wah v Fung Yuk Ching83 where the defendant provided and maintained the lorry, paid all business expenses, and prepaid a monthly cash allowance to the driver for his pager, telephone and parking expenses, a contract of employment was found.84 (v) Mandatory Provident Fund payments Where MPF payments not made by employer. With the introduction of the Mandatory Provident Fund Schemes Ordinance in 2000, it became incumbent on employers to make contributions to the fund on behalf of all employees. This obligation created a further incentive for employers to try to structure employment arrangements so as to avoid a contract of employment. The fact that an employer does not make MPF payments on behalf of a worker may in some cases be treated as an indication that the parties are not in an employment relationship.85 However, since this could easily be exploited by employers as a self-serving device, it should in no way be determinative of the outcome of the employee versus independent contractor issue. In itself, it is at most evidence of a delinquent employer. Where MPF payments made by worker. Where the worker makes the MPF payments, this factor will be given more weight, as pointing away from a contract of employment.86 However, this factor is only one element in the matrix of considerations, and only rarely decisive. In Poon Chau Nam v Yim Siu Cheung where the appellant had undertaken his own MPF arrangements as a self-employed person under an agreement reached with the employer, Ribeiro PJ found this to be only one factor in the overall assessment, and did not nd it to be determinative of the contract of service issue.87 Ribeiro PJ was not troubled by the concern expressed by Woo V-P in the Court of Appeal that, if the parties apparent intentions for self-employment were 2.028

2.029

81 82

83 84 85

86

87

(unrep., HCPI 296/2007, [2008] HKEC 1001), at para 19. Fn 15 above. The personal guarantee of the companys nances was described by the presiding judge as something I have never encountered before in an employee/employer relationship. See also Sae-Lee Srikanya v Chung Yat Ming (fn 27 above), where the fact of the defendants pre-payment of wages to workers led to a nding of employee status. Fn 63 above. Despite the fact that the driver was required to pay for his own driving insurance. As in Helskens Jan Bert Julia v AXA International Ltd (fn 15 above); see also Tai Wall (China-HK) Container Services Co Ltd v Fan Chi Hoi (unrep., DCCJ 5126, 5370/2003, [2006] HKEC 1719). For instance, this was a critical factor in the District Court and Court of Appeal decisions in Poon Chau Nam v Yim Siu Cheung (fn 5 above). Both courts dismissed the workers claim for employees compensation on the basis that he was an independent contractor, having agreed to make his own MPF payments. Poon Chau Nam v Yim Siu Cheung (fn 5 above) at 974.

36

THE EMPLOYMENT RELATIONSHIP

not respected by the courts, there would be serious unintended ramications in that the employer would then inadvertently be liable to criminal sanction for failing to make the MPF payments. Employers cannot be permitted to enter into agreements, even with consenting employees, to avoid their statutory obligations. If permitted, the same argument would apply to the employers obligation to take out employees compensation insurance under s.40 of the ECO, and that would undermine the efcacy of the employees compensation scheme.88 (vi) Filing of income tax forms 2.030 Employer ling of income tax forms suggests contract of employment. The ling of income tax forms with the Inland Revenue Department is one of the administrative tasks and responsibilities normally associated with an employment relationship. Indeed, employers are obliged to report the salaries paid to employees so that the appropriate rate of income tax can be levied.89 Proof of the employer having led income tax returns on behalf of the workers obliging the workers to pay salaries tax was found to be an important factor pointing toward employment status in Chan Sau Ying v Yuk Luk Sauna.90 By the same token, where the worker was not described as an employee in the forms led with the Inland Revenue, the court inferred an intention by the parties that the worker be treated as self-employed.91 However, as with MPF payments, this is only one element in the matrix of considerations. (vii) Filing of statutory Form 2 2.031 Employer ling of statutory Form 2 suggests contract of employment. The ling of statutory Form 2 is an obligation imposed on employers by the ECO to report the details of any work-related injury or death.92 Therefore, it is primarily relevant in relation to applications for compensation under that Ordinance.93 However, it is also relevant in common law actions for negligence in which the plaintiff seeks to establish an employeeemployer relationship in order to activate the more demanding duty of care required by that relationship.94 Form 2 can be found in the Schedule to the ECO Regulations.95 It is to be completed by the employer and submitted to the Labour Department. Form 2 requires the employer to provide considerable detail about the employee and his work history, and to indicate, by ticking a box, whether the accident occurred in the course of employment. Thus, the ling of Form 2 is important evidence

88

89 90 91

92 93

94 95

As conrmed by Ribeiro PJ in Poon Chau Nam v Yim Siu Cheung (fn 5 above). See also Yan Kwok Man v Tak Lee Trading Co (fn 3 above), adopting the same approach as Ribeiro PJ in Poon Chau Nam. Inland Revenue Ordinance (Cap.112) s.52(2) and (4). (unrep., LTA 82/1994). Helskens Jan Bert Julia v AXA International Ltd (fn 15 above). See also Zurich Life Insurance Co Ltd v Pang Man Yiu (unrep., DCCJ 2465/2007, [2010] HKEC 543). Cap.282 s.15. As in Leung Chun Pong v Cheng Man Tung (fn 22 above) and Cheung Shuk Wah Jessica v Wong Kang Hung Darwin (unrep., DCEC 842/2007, [2009] HKEC 1105). See Chapter 10 below. Cap.282A.

EMPLOYMENT STATUS

37

that the one ling the document is the employer of the injured worker and that the accident was work-related.96 Statutory Form 2 not a binding admission. Nonetheless, despite the detail required and the clarity of the language in the document and the admissions apparently made, the ling of Form 2 will not be treated as a binding admission on the part of the ler that he is the employer of the injured worker. The courts have repeatedly stated that a Form 2 ling cannot form the basis of an estoppel against the one ling it, or a presumption of an employment relationship. Certainly it will not be treated as binding where it is shown to have been mistakenly led,97 or led without having made a detailed and proper inquiry.98 The same approach will be taken even where the ling is accompanied by actual payment of compensation. Chan Sik Pan v Wylams Service Ltd. In Chan Sik Pan v Wylams Service Ltd,99 the plaintiff electrical worker was injured when he fell from an unguarded platform. Wylams, the sub-subcontractor on the project, not only led Form 2 as employer, but entered into two compensation agreements with the plaintiff and paid compensation under those agreements. Nonetheless, in the negligence action for common law damages, the court found not Wylams but Wylams sub-subcontractor to be the employer, notwithstanding Wylams ling of Form 2 and payment of compensation.100 This judicial circumspection in the weight to be attached to the documentary evidence generated under the ECO is necessary in order to encourage the prompt reporting of accidents and the payment of compensation by responsible persons at the work site. A contrary judicial approach might lead to the situation where those in the position to report accidents and pay employees compensation might hesitate to do so in order to avoid adverse legal inferences being drawn from such admissions and actions. (viii) Nature of employment activity Nature of employment activity. Given the ultimately intuitive nature of the exercise, it is only natural that the kind of work involved should bear some inuence on the determination of the employment status issue, although this consideration should not be overstated. Surely, it is in the nature of the work of a restaurant waiter, a hotel bellhop, an ofce receptionist or a domestic servant, that the nding of employee 2.034 2.032

2.033

96

97 98

99 100

In Cheung Shuk Wah Jessica v Wong Kang Hung Darwin (fn 93 above), where the employee, a bartender, was murdered shortly after closing and leaving the pub where he worked and while accompanying a female co-worker home to ensure her safety following a violent episode with pub patrons, the court took the ticking of the box as good evidence that the accident occurred in the course of work despite the employers arguments to the contrary. To Kwok Sheung v Kwan Yiu Kee Finishing Work Co Ltd (unrep., DCEC 66/2001, [2002] HKEC 219). Ho Mui v Gammon (Hong Kong) Ltd [1975] HKLR 195; Li Kwai Fong Ah Pat v Bachy Soletanche Group (unrep., CACV 30/1989, 10 Jan 1990); Chow Shu Ki v Osram Prosperity Co Ltd (unrep., DCEC 1059/2000, 21 Nov 2001, [2001] HKLRD (Yrbk) 619); and Chan Sik Pan v Wylams Service Ltd (2004) (unrep., CACV 17/2003, [2004] HKEC 1282), conrming the decision of Sufad J (unrep., HCPI 648/1995, [2002] HKEC 1558). Similarly, see Hui Wai Cheung v Yat Fai Engineering Ltd (unrep., DCEC 221/2003, [2004] HKEC 1270); Wong Kai Hung v Lam Geotechnics Ltd (unrep., DCEC 110/2004, [2006] HKEC 692); and Lau Kwok Chiu v Seneld Ltd [2007] 5 HKC 367. Note however that a nding of contract of employment in ECO proceedings will be binding in a subsequent civil action brought by the employee against the employer for common law damages: see e.g. Fan Hung Shing v Hang Fung Shipping Co Ltd (unrep., HCPI 1192/1995, [2000] HKEC 65) and Wong Ki v Wong Tung Sing (unrep., HCPI 50/2008, [2010] HKEC 811). Ibid. See also Lung Yui Man v Yee Hing Kee Plumbing Works Co Ltd (unrep., HCPI 923/1996, [2000] HKEC 130).

38

THE EMPLOYMENT RELATIONSHIP

status is extremely likely. The need for submission to the control of the one running the business virtually guarantees a nding of a contract of employment. Similarly, a lawyer providing advice to a client can be assumed to be an independent contractor, at least in relation to the client, and so too a portrait photographer commissioned to do family portraits. From this, one might also infer that a labourer engaged to do manual work is also engaged as an employee, given the nature of the work, which is hardly compatible with the notion of being in business on ones own account. Yet that sort of assumption exposes the dangers in this highly contentious area of employment law. 2.035 Labour-only subcontract possible. In fact, the possibility of a labour-only subcontract has long been acknowledged in the case law, however uncomfortable the t with the so-called fundamental test propounded by Cooke J in Market Investigations v Minister of Social Security101 and approved in Lee Ting Sang v Chung Chi Keung102 and Poon Chau Nam v Yim Siu Cheung.103 Tam Hon Leung v Ng Wai Hing104 involved the exceptional circumstances in which a labourer, albeit a skilled labourer engaged by the defendant to repair damaged containers, was found to be an independent contractor. The court so found because the plaintiff, after his engagement by the defendant, recruited additional workmen and did his work under little or no supervision. Moreover, he was paid on the basis of the number of containers repaired, and distributed this sum among the team of workers he had recruited. All of the workers paid their own Mandatory Provident Fund contributions. The fact that the defendant supplied the plaintiff with tools was considered only part of the overall picture. The fact that, in his tax return and in the ECO Form 2 reporting the injury to the Labour Department, the defendant had described the plaintiff as his employee was treated as a mere mis-characterisation and did not alter the overall picture.105 (ix) Mutuality of obligation 2.036 Mutuality of obligation not a requirement for a contract of service. In some cases the courts have placed emphasis on the presence or absence of mutuality of obligation between employer and workeri.e. whether the worker was obliged to work when asked and whether the employer was obliged to provide work to the worker when it was available. For instance, if the worker was free to refuse work, presumably because he wished to take up other projects instead, a nding of contract of employment is thought to be unlikely. However, this may be misleading since mutuality of obligation is not a requirement for a contract of employment. Mutuality of obligation not relevant for ECO purposes. In Poon Chau Nam v Yim Siu Cheung, Ribeiro PJ found that mutuality of obligation had no relevance to the ECO given that the Ordinance expressly includes casual workers whose work, by

2.037

101 102 103 104 105

Fn 50 above. Fn 31 above. Fn 5 above. [2006] 1 HKLRD 923. A similar result was reached in Mohammad Munir v Yau Kei Tak (unrep., DCEC 251/2006, [2007] HKEC 562), again in circumstances where the applicant had recruited workers to assist him in labour-only work. See also Chan Yiu Man v Buddhist Dao Hope Yuen Charity Co Ltd (fn 32 above), citing Chitty on Contract, Vol. 2, 29th edn, paras 39.010 to 39.028.

EMPLOYMENT STATUS

39

denition, does not involve mutuality of obligation.106 It was in the nature of casual work that neither party was obliged to attend or provide work on a regular basis, yet there could be no doubt that such workers were covered by the ECO.107 Ribeiro PJ took the opportunity to clarify the effect of the decision of the Privy Council in Cheng Yuen v Royal Hong Kong Golf Club,108 a case concerning a golf caddie who, over the course of years, attended at the defendants golf course club every day, but would only be assigned work if a club member selected him as his golf caddie for the day. The Privy Council found no contract of service between the golf caddie and the golf club, citing a lack of mutuality of obligation, neither party being obliged to the other to provide or accept work. Woo V-P in the Court of Appeal in Poon Chau Nam took this to mean that mutuality of obligation was essential for a contract of service. However, according to Ribeiro PJ, that was not a correct reading of Cheng Yuen. Rather, given that the applicants claim in Cheng Yuen was for EO benets requiring continuous employment, and given that the applicant did not work every day, the applicant could succeed only if he could prove a global or umbrella contract, which would require mutuality of obligation, in order to overcome the problem of the absence of work every day. From this it can be seen that the mutuality requirement will never be relevant to the employeeindependent contractor distinction for the purposes of the ECO. Under this ordinance, the only relevant question will be whether the worker was engaged under a contract of service at the moment of the accident causing the injury. Mutuality of obligation of limited relevance for EO purposes. Ribeiro PJ also claried that even under the EO, the continuous employment requirement does not require mutuality. For instance, consecutive daily separate contracts, for a four-week period, would satisfy the continuous contract requirement in the EO whether or not there was mutuality.109 However, where work is intermittent, and a worker seeks to establish a continuous contract for the period of time necessary to qualify for particular benets under the EO, mutuality of obligation will be necessary to create a global contract.110 (x) Express designation in a written contract Express designation in a written contract. As with all contracts, the intention of the parties in forming their relationship is important and will be given due and normally considerable weight. Where there is a written contract, the terms of the contract will be interpreted to help determine the issue of employment status. The contract could be consistent with either a contract of service or a contract for services. Occasionally there is an express designation regarding employment status, or there is a use of terms (e.g. contractor) suggestive of employment status. Express designation is a controversial issue in the context of the Hong Kong workplace, where a practice of labelling has 2.039 2.038

106 107 108 109

110

Fn 5 above at 965. See also Mak Ching Shan v Power Max Design Ltd (fn 67 above). Cap.282 s.2(1)(b). Fn 3 above. Wong Man Sum v Wonderland Seafood (unrep., CACV 241/2005, [2006] HKEC 1930) cited in Poon Chau Nam v Yim Siu Cheung (fn 5 above); see also Lui Lin Kam v Nice Creation Development Ltd [2006] 3 HKLRD 655. As in Wong Man Sum v Wonderland Seafood (ibid) and Lui Lin Kam v Nice Creation Development Ltd (ibid). In Fong Anne v Hong Kong Adventist Hospital (unrep., HCLA 33/2009, [2010] HKEC 985), the court found no mutuality of obligation and hence no global contract for the purpose of continuous contract as dened in s.3(2)(b) of Sch.1 of the Employment Ordinance.

40

THE EMPLOYMENT RELATIONSHIP

developed among some unscrupulous employers in order to avoid employment law obligations.111 Workers are often amenable to signing an agreement designating their status as self-employed because they may be desperate for work under any terms, or because an enticement has been offered, usually in the form of higher remuneration.112 2.040 Express designation not decisive. What is now clear is that an express designation or use of suggestive terms113 in a contract to the effect that the worker is self-employed will not be determinative of the workers employment status. The parties own view, even agreement as to the relationship, is but one factor in the determination.114 Rather, the court will examine the substance of the employment arrangement, how it operated in practice, to determine the issue of employment status,115 even to the point of overriding the workers apparent willingness, when signing the agreement, to accept self-employment terms.116 The express designation will be just one factor in the determination, and probably a minor one.117 This must be so, for were it otherwise, employers could completely circumvent the application of virtually all employment law by inserting in the contract a designation of self-employment.118 Relevance of express designation. From this, it does not follow that a written agreement indicating self-employment terms will be disregarded. Although the label that the parties choose cannot alter their true relationship, the expression of their intention remains relevant. As stated by McKenna J in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance: I do not say that a declaration of this kind is always necessarily ineffective. If it were doubtful what rights and duties the parties wished to provide for, a declaration of this kind might help in resolving the doubt and xing them in the sense required to give effect to that intention. 119

2.041

111

112

113 114

115

116

117

118

119

This has been a longstanding problem: see Rear, Self-Employment in the Building Industry (1972) 2 Hong Kong Law Journal 150. As in Chan Siu Ming v Kwok Chung Motor Car Ltd (fn 80 above) and Zielona Transport Ltd v Au Sou Lin (unrep., HCLA 46/2008, [2010] HKEC 848). In Zielona Transport Ltd v Au Sou Lin, where the claimant had enjoyed an increase in salary by virtue of converting to contractor status, the court, after determining that he was after all an employee, ordered the claimant to pay the additional amount of salary to the employer on the basis of unjust enrichment. See Leung Kam Fat v Johnathans Fashion Manufacturing Ltd (fn 78 above). See Leung Kam Wah v Fung Yuk Ching (fn 63 above), Chan Wai Yin v Wong Sau Ping (unrep., DCEC 97/2004, [2007] HKEC 1254), and Pun Wai Ming v Tsang Chung Kai (fn 73 above), all citing Chan Kwok Kin v Mok Kwan Hing [1991] 1 HKLR 631; see also Leung Chun Pong v Cheng Man Tung (fn 22 above), and Chan Shui Man v Tsang Hing Shan [1991] 2 HKC 243. As stated by Barnabas Fung J in Law Chun Choi v Wong Yee Lin (fn 31 above), the parties cannot transfer a statute-imposed duty of care for safety of a workman from an employer to the workman merely because the parties agree that the workman is self-employed, where the true essence of the contract is otherwise of a contract of service. This has been repeatedly stated in the case law. See for example Lam Sik v Sen International Ventures Corp (fn 74 above); Mak Kai Wing v Express Top Industries Ltd (unrep., HCLA 93/2004, 29 Nov 2004); and Leung Kam Wah v Fung Yuk Ching (fn 63 above). See Chan Kwok Kin v Mok Kwan Hing (fn 114 above), per Clough JA; Poon Chau Nam (fn 5 above), per Ribeiro PJ; Lam Yau Kuen v Easy (Hang Fung) Transportation Co Ltd (unrep., DCCJ 1/2006, [2006] HKEC 2218); and Mak Ching Shan v Power Max Design Ltd (fn 67 above). See Chan Siu Ming v Kwok Chung Motor Car Ltd (fn 79 above), citing Poon Chau Nam v Yim Siu Cheung (fn 5 above). See also Leung Bing v Tanfory Co Ltd (fn 15 above). Where the case concerns benets or protections under the EO, such a designation or agreement may be found to fall afoul of s.70: see Lam Yau Kuen v Easy (Hang Fung) Transportation Co Ltd (fn 116 above). Fn 61 above, at 512513.

CONTINUOUS CONTRACT OF EMPLOYMENT

41

Thus, in Hui Wai Cheung v Yat Fai Engineering Ltd,120 the written agreement suggesting an independent contract was given full weight and was not considered a mere matter of labelling.

3. CONTINUOUS CONTRACT OF EMPLOYMENT

(a) Legal signicance of continuous contract of employment Legal signicance of continuous contract of employment. A central feature of the EO is the concept of continuous contract of employment.121 A continuous contract requires not only that the worker be engaged under a contract of employment, but that there be a minimum degree of continuity to the employment. Proof of a continuous contract is vital because it entitles an employee to potentially all of the benets and protections under the EO. Those not working under a continuous contract of employment are entitled to the basic protections only.122 (b) The 4-18 requirement The 4-18 requirement. The criteria for a continuous contract of employment can be found in s.3 and Sch.1 of the EO. Continuous contract requires that the worker must have worked for the same employer during each of the previous four weeks for at least 18 hours in each of those four weeks (known in Hong Kong as the 4-18 requirement).123 It matters not that there were separate successive contracts, as for instance in the case of a casual worker or a worker who was promoted and enters into a fresh contract.124 Nor does it matter that there was no mutuality of obligation, so long as the requisite number of hours and weeks in the 4-18 requirement is met.125 By virtue of s.3, the onus to prove that a contract of employment is not continuous is on the employer. Flexible interpretation. Certain provisions of the EO provide for some exibility in interpreting and applying the 4-18 continuous contract requirement. Section 31K 2.043 2.042

2.044

120 121

122

123

124 125

Fn 98 above. See also Zurich Life Insurance Co Ltd v Pang Man Yiu (fn 91 above). Continuous contract of employment is pertinent only to the EO. It has no relevance to the ECO, or to common law actions in which employment status is at issue. Basic entitlements include payment of wages, restrictions on deductions from wages, granting of statutory holidays, protection against anti-union discrimination, and employment protection in respect of unreasonable and unlawful dismissal. Those working under a continuous contract of employment are entitled to further benets such as rest days, paid statutory holidays, annual leave, sickness allowance, severance payment, long service payment and the like, subject to the specic longevity requirements for each. This is the interpretation of s.3 and Sch.1 of the EO concerning continuous contract reached by Deputy Judge Lam in Lui Lin Kam v Nice Creation Development Ltd (unrep., HCLA 106/2002, [2003] HKEC 855), conrmed by the Court of Appeal (fn 109 above). Deputy Judge Lam rejected the interpretation put on the provision by Yam J in David Hot Blocking Press Ltd v Ho King Yam [1996] 1 HKC 270, which required a break of at least four weeks before continuity could be broken. Deputy Judge Lams reading is less favourable to workers, but appears to be more consistent with the wording of Sch.1. Against this, under United Kingdom law, continuous contract is presumed, and, if contested, only requires that, for the period in question, the worker was engaged under a contract of employment: Employment Rights Act 1996 s.210(5) and s.212(1). Cap.57 Sch.1 para 6. Wong Man Kwan v Chun Shing Holdings Ltd [2003] 3 HKLRD 403; see also Lui Lin Kam v Nice Creation Development Ltd (fn 109 above).

42

THE EMPLOYMENT RELATIONSHIP

preserves continuity in the case of a transfer of the employee between associated companies.126 More importantly, in Schedule 1, periods of no work in consequence of sickness, injury, strikes and lock-outs, and absence from work in circumstances such that, by law,127 mutual arrangement128 or the custom of the trade, business or undertaking, the employee is regarded as continuing in the employment of his employer for any purpose, shall not be treated as breaking the continuity of employment.129 Until recently, the mutual arrangement or custom of the trade exception was interpreted exibly in establishing a so-called global contract, but it is now clear from the most recent authorities that this will not be easy to prove.130 (c) Implied global contract 2.045 Possibility of implied global contract. A global contract can be implied where the relationship is of such a longstanding nature that, even though the work periods have not been continuous, there is a continuous obligation on the employer to provide work and a reciprocal obligation on the worker to accept work whenever offered. In effect, global contract is simply an example of the mutual arrangement exception in para 3(2)(b) of EO Schedule 1. However, it is now clear that there cannot be a global contract in the absence of mutuality of obligation throughout the duration of the contract, and evidence of an intention to re-employ or an expectation of re-employment is not in itself sufcient for this purpose.131 (d) Effect of the 4-18 requirement on casual and part-time workers (i) General effect of the 4-18 requirement 2.046 Most part-time, temporary and casual workers excluded from substantial EO provisions. The effect of the 4-18 requirement is to exclude most part-time,132 temporary and casual133 workers from the main protections and entitlements in the EO. Unlike in the United Kingdom, there is no legislation in Hong Kong requiring

126 127 128

129

130

131

132 133

See Flying Goose Garment Factory Ltd v Cheung Chun Chu [1989] 2 HKC 388 at 389. For example, annual leave provided under the EO. For example, leave agreed under the contract of employment, or absence during a typhoon signal where it is a custom of the trade that workers stay at home. In the case of sickness or injury, and absence such that by law, mutual arrangement or custom of the trade the worker is regarded as continuing in employment, the period of absence is counted as a period of work: see EO Sch.1 s3(2). However, where the absence is due to strike or lock-out, continuity is preserved but the absence from work is not counted as a period of work: see EO Sch.1 s.3(4). The distinction is relevant when calculating length of service for the purposes of entitlements under the EO requiring a minimum length of continuous employment. Lui Lin Kam v Nice Creation Development Ltd (fn 109 above); Wong Man Sum v Wonderland Seafood Restaurant (fn 109 above). Lui Lin Kam v Nice Creation Development Ltd (fn 109 above); Wong Man Sum v Wonderland Seafood Restaurant (fn 109 above). See also Fong Anne v Hong Kong Adventist Hospital (fn 110 above). The HK position is to be contrasted with that in the UK, where it was recently decided that, in appropriate circumstances, the expectation of work, created over a period of time in which a casual worker regularly accepted work on a daily basis, mutuality of obligation can be inferred: see St Ives Plymouth v Haggerty (unrep., Employment Appeal Tribunal, 22 May 2008), where the worker was held to have the continuity of employment necessary to qualify for an unfair dismissal claim. Unless the part-time hours are sufcient to satisfy the 4-18 requirement. Again, unless the temporary or casual worker has worked sufcient hours to satisfy the 4-18 requirement.

CONTINUOUS CONTRACT OF EMPLOYMENT

43

that part-time workers be treated on a similar but proportionate footing as full-time workers, i.e. on the basis of a pro rata calculation of benets.134 The 4-18 requirement means that employers may be tempted to stagger work schedules in a way that prevents the accumulation of the required four consecutive weeks of 18 hours each, thereby avoiding important statutory obligations. Moreover, given that many of the more substantial benets under the EO require the accumulation of continuity for a longer period,135 employers may be tempted to prevent continuity through the use of short-term contracts. No doubt the current statutory requirement for coverage permits and indeed encourages such practices, despite expressions of concern from many sectors including trade unions136 and even the judges who apply these provisions.137 (ii) Casual workers Casual workers. Casual workers is a term often used to describe those workers hired on a temporary, irregular, or as required basis. They may be skilled or unskilled. Such workers are preferred by some employers because of the exibility in stafng they allow. In such employment arrangements there is no mutuality of obligation; neither employer nor employee is obliged to offer or take up work when it is available.138 As such, there is in general no job security. They may or may not satisfy the 4-18 requirement for continuous contract. What is important is for the parties to look beyond the label to the statutory law that might be applicable. Basic provisions of EO apply to casual workers. Casual workers engaged under a contract of service are covered by the basic protections in the EO, requiring only proof of an employment contract.139 Indeed, the more comprehensive EO benets and protections requiring continuous employment over a period of time are also available to casual workers, if they can satisfy the 4-18 requirement over the period required to qualify for the benet in question. Again, it matters not that each day of work is a separate engagement on a casual basis.140 ECO applies to casual workers. Most casual workers are protected by employment law in the same way as other workers. For ECO purposes they are covered, despite the rather confused wording of the proviso,141 so long as at the moment of the accident causing injury they were engaged under a contract of service. It matters not that the 2.047

2.048

2.049

134

135 136

137 138 139 140

141

See Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (SI 2000/1551). These regulations are far from perfect and have not escaped criticism: see Kilpatrick C and Freedland M, The UK: How is EU Governance Transformative? in Sciarra, Davies and Freedland, Employment Policy and the Regulation of Part-time Work in the European Uniona Comparative Analysis (Cambridge: Cambridge University Press, 2004). For example, severance pay, long service pay, maternity pay, statutory holiday pay and the like. See Poon P, Labour Law Casualties: A Loophole in the EO has Created an Angry Army of Part-time Workers on Casual Terms, South China Morning Post, 14 May 2001, 17; and Wu E, Denying Part-time Workers Benets Unfair, South China Morning Post, 17 June 2005, C4. Wong Man Sum v Wonderland Seafood Restaurant (fn 109 above), per Cheung JA. See generally Carmichael v National Power Plc [1999] 1 WLR 2042, per Lord Irvine at 2047. See fn 122 for the basic protections. Wong Man Kwan v Chun Shing Holdings Ltd (fn 125 above); and Lui Lin Kam v Nice Creation Development (fn 109 above). See Lee Ting Sang v Chung Chi Keung (fn 31 above); and Poon Chau Nam v Yim Siu Cheung (fn 5 above).

44

THE EMPLOYMENT RELATIONSHIP

contract was for that engagement only,142 with no offer of further work. Even a worker hired on a one-day labour only basis has been found to be in a contract of service and entitled to employees compensation under the Ordinance.143 In Poon Chau Nam v Yim Siu Cheung, Ribeiro PJ referred to s.2(1) but also to various other provisions in the ECO, in particular s.11(2) and s.11(7) dealing with the method of calculation of monthly earnings for casual workers, in conrming that casual workers fall within the protection of the Ordinance. Moreover, it was of no import that the appellant worked for other employers from time to time, because it is in the nature of casual employment that the worker may take up work wherever it can be found, with one or more employers.144 A lack of mutuality of obligation, in the sense that the respondent was not obliged to provide the appellant with regular work, in no way prevented a nding of a contract of service. What was important was that on the day in question, at the moment of the accident causing the injury, the appellant was engaged in a contract of service with the respondent. The duration of that contract was of no relevance. (iii) Part-time workers 2.050 Part-time workers. Part-time workers can be loosely dened as those who work regularly but on a less than full-time basis. Again, the label carries no legal consequences in itself. Such a worker is entitled to the usual protection under the ECO and the various workplace safety ordinances and regulations. He will be entitled to all or only some of the EO protections depending on whether he has worked a sufcient number of hours to satisfy the 4-18 continuous contract requirement.

4. SPECIAL CATEGORIES OF EMPLOYEES

(a) Civil servants 2.051 Civil servants. The relationship between the Government as employer and civil servants is, as in the private sector, based on the employment contract.145 Thus, the discussion about employment status and the distinction between contract of employment and independent contractor in the previous sections of this chapter are equally applicable here. A nding of a contract of employment triggers common law rights and obligations, as well as the application of the ECO and other ordinances expressly applicable to the Government that require employee status as a condition of their application. However, as discussed below in Chapter 15, such an employment contract is unique in that it incorporates various regulations and instructions that come from within the Government and its various departments. From this it does not

142 143 144 145

As in Lee Ting Sang v Chung Chi Keung (ibid ) and Poon Chau Nam v Yim Siu Cheung (ibid ). Chan Yiu Man v Buddhist Dao Hope Yuen Charity Co Ltd (fn 32 above). Poon Chau Nam v Yim Siu Cheung (fn 5 above) at 975. Ho Chi Sing v Secretary for Justice [2008] 3 HKLRD 319, citing Secretary for Justice v Lau Kwok Fai Bernard [2005] 8 HKCFAR 304. As such, the Labour Tribunal has jurisdiction over cases not involving public interest in which the Government is sued as employer, for instance for a shortfall in remuneration (as in Ho Chi Sing). See also Choi Sum v AG of Hong Kong [1976] HKLR 609 and Lam Yuk Ming v AG [1980] HKLR 815. Generally see Chapter 15 below.

SPECIAL CATEGORIES OF EMPLOYEES

45

necessarily follow that there is a public law dimension to all such employment, so that public law remedies such as judicial review would become available, for instance, to challenge employment terminations. That would happen only if there were restrictions on termination imposed by statute.146 Some statutory provisions do not apply to the Government. By virtue of s.66 of the Interpretation and General Clauses Ordinance,147 statutory provisions do not apply to the Government of the HKSAR unless the ordinance in question contains a provision expressly saying so, or if it can be deemed so by necessary implication. For this reason, much employment-related legislation, including the EO itself, does not apply to the employment contracts entered into by the Government and its civil servants.148 On the other hand the ECO applies to employees employed by or under the Government 149 Moreover, the four discrimination ordinances and the Personal Data (Privacy) Ordinance expressly apply to the Government and civil servants.150 (b) Minors Minors. A minor is a person who has not yet reached the age of majority, which in Hong Kong is 18 years.151 Although the common law imposes restrictions on the capacity of a minor to enter into most contracts, rendering them voidable at the instance of the minor, the law allows for some exceptions.152 These include contracts for apprenticeship and employment, where they are found to be benecial to the minor.153 Assuming they are found to be benecial, such contracts are lawful and binding on the minor. As such, most of the discussion in the preceding sections also applies to employment contracts entered into by minors. Assuming they are found to be employees and not self-employed, they will enjoy the benets and protection of the EO, the ECO and other relevant legislation. 2.053 2.052

146

147 148

149

150

151 152 153

R v East Berkshire Health Authority Ex p Walsh [1984] 3 WLR 818, per Donaldson MR at 826, applied in Sit Ka Yin v Equal Opportunities Commission [1998] 1 HKC 278. Cap.1. So too the Protection of Wages on Insolvency Ordinance (Cap.380), the Contracts for Employment Outside Hong Kong Ordinance (Cap.78), the Labour Relations Ordinance (Cap.55), the Trade Union Ordinance (Cap.332), the Apprenticeship Ordinance (Cap.47), and the Factories and Industrial Undertakings Ordinance (Cap.59). It is likely that the LTO (Cap.25) does not apply; but see Ho Chee Sing James v Secretary for Justice [2008] 3 HKLRD 319 where the court held that the provision allowing representation in the Labour Tribunal by a public ofcer who appears on behalf of the Secretary for Justice, if the Secretary for Justice is a claimant or defendant suggested that the LTO did apply to Government. Cap.282 s.4(1). Moreover, the Pneumoconiosis and Mesothelioma (Compensation) Ordinance (Cap.360) s.3, the Occupational Deafness (Compensation) Ordinance (Cap.469) s.3, and the OSHO s.5 expressly bind the Government. Sex Discrimination Ordinance (Cap.480) s.3; Disability Discrimination Ordinance (Cap.487) s.5; Family Status Discrimination Ordinance (Cap.527) s.3; Race Discrimination Ordinance (Cap.602) s.3; and Personal Data (Privacy) Ordinance (Cap.486) s.3. See Age of Majority (Related Provisions) Ordinance (Cap.410) s.2(1), which makes 18 the age of majority. For instance, the well-recognised exception of a contract for necessaries. De Francesca v Barnum (1890) LR 45 Ch D 430, where a dancing apprenticeship was found, on balance, not to be benecial to the 14-year-old minor. By contrast, in Sea Wave Hair Design ( WTS Ltd ) v Choy Kwong Yiu (unrep., HCA 2743/1992, [1992] HKLY 451), the employment contract of a 16-year-old hair stylist was found to be benecial.

46

THE EMPLOYMENT RELATIONSHIP

2.054

Special regulations to protect minors. However, in view of the vulnerability of minors and their susceptibility to exploitation, regulations made under the EO offer specic protection in addition to that provided in the general employment law. The Employment of Children Regulations154 and the Employment of Young Persons Regulations,155 govern the type of work, the hours of work and permission to work, and take into account completion of minimum levels of education.156 These matters are discussed at greater length in Chapter 9. (c) Apprentices

2.055

Apprentices. The Apprenticeship Ordinance157 regulates the employment of young persons158 in certain designated trades listed in the regulations to the Apprenticeship Ordinance. The Ordinance is intended to facilitate the training of apprentice craftsmen and ensure fairness in apprenticeship contracts. Contracts of apprenticeship must follow certain specications and be registered with the Director of Apprenticeship in order to be lawful. The EO denes contract of employment to include a contract of apprenticeship,159 as does the ECO,160 effectively meaning that, once a contract of apprenticeship is proved ,161 there is no need to engage in an independent proof of contract of service. However, by virtue of s.4(2A) of the EO, that Ordinance does not apply to contracts of apprenticeship registered under the Apprenticeship Ordinance, except to the extent specied in the Apprenticeship Ordinance. Section 48 of the Apprenticeship Ordinance extends the application of certain key provisions of the EO to contracts of apprenticeship, thereby ensuring basic coverage and protections to apprentices.162 (d) Contracts for employment outside Hong Kong

2.056

Contracts for Employment Outside Hong Kong Ordinance. The Contracts for Employment Outside Hong Kong Ordinance (CEOHKO)163 applies to contracts of employment entered into in Hong Kong in which a person in Hong Kong is recruited to work outside of Hong Kong for a person who is not in Hong Kong and not carrying on a business in Hong Kong.164 The CEOHKO applies only to the employment of

154 155 156 157 158 159 160 161

162

163 164

Cap.57B. Cap.57C. See also Employment of Young Persons and Children at Sea Ordinance (Cap.58). Cap.47. Dened as persons over the age of 14 and under the age of 19: ibid, s.2. Cap.57 s.2. Cap.282 s.2. Dened in s.2 of the Apprenticeship Ordinance to mean an agreement made between an employer and an apprentice whereby the employer agrees to teach and the apprentice agrees to learn a trade or occupation. These are Part IIA (end of year payment), Part IVA (protection against anti-union discrimination), Part V (payment of wages), Part VI (deduction from wages), Part VII (sickness allowance), Part VIII (holidays with pay), Part VIIIA (annual leave with pay), Part IX (ancillary provisions relating to sickness allowance and holidays and annual leave with pay), Part IXA (liability to pay wages of sub-contractors and nominated sub-contractors employees), and Part XIII (offences and penalties). Cap.78, hereinafter referred to as the CEOHKO. Ibid, s.4(1). The CEOHKO does not apply where the employer is based in Hong Kong or undertakes business in Hong Kong.

PROBLEMS IN EMPLOYER IDENTIFICATION

47

manual workers165 and to others only if they are low wage earners.166 The EO expressly excludes employees employed under such contracts from its application.167 In the absence of EO protection, the CEOHKO is intended to provide some protection to workers under such employment contracts from exploitation by employers. Requirements of the CEOHKO. The CEOHKO requires that such contracts be in a specied form, signed by the parties, and attested by the Labour Department before the worker can depart for overseas employment. The contract must contain all such particulars as may be necessary to dene the rights and obligations of the parties.168 The contract is void at the instance of the worker should the agreement fail to comply with the provisions in the Ordinance. Since it applies only to contracts of employment, the CEOHKO has no application to independent contractors. Moreover, the same criteria discussed above to prove a contract of service will be applicable here. 2.057

5. PROBLEMS IN EMPLOYER IDENTIFICATION

(a) Employer identication in general Employer identication a question of fact. Occasionally, the issue before the court is not whether the applicant/plaintiff is an employee, but rather the identity of the employer. This is a separate question, and the issue of the workers employment status cannot be determined until the employer who engaged him, whether as employee or as independent contractor, is rst identied.169 This is a question of fact. (b) Statutory denitions of employer Who is the employer? The employer is the entity that enters into the contract of employment with the employee. In general, an employer must be a recognised legal person, but there is exibility in the statutory denitions. For EO purposes, employer means any person who has entered into a contract of employment to employ any other person as an employee and any duly authorised agent, manager or factor of such rst 2.059 2.058

165 166

167 168

169

Ibid, s.2. Manual worker is dened to include personal and domestic service. According to CEOHKO s.4(2), this legislation does not apply to persons who do not perform primarily manual work and whose wages exceed an amount set by the Secretary for Labour and Welfare by notice in the Gazette (currently HK$20,000 per month). It also does not apply to persons employed for service as members of the crews of ships or aircraft, or to persons migrating for employment whose admission to the destination country will be granted on a permanent basis (i.e. as immigrants). Cap.57 s.4(2)(c). Cap.78 s.5(2) lists certain details that must be included in the contract, including the employers name, the employees name, the particulars of the place of engagement and the place of origin of the employee, the name of the place at which the contract is to be performed, and particulars of the nature of the employment, including duration of the employment and wages. This must be so as a matter of logic, though in practice the determination is sometimes conducted in reverse order: see e.g. Mak Ching Shan v Power Max Design Ltd (fn 67 above). In Ahmed Ishtiaq v Tin Wo Engineering Co Ltd (unrep., DCEC 572/2009, [2010] HKEC 721), the applicant, a Hong Kong resident working in Macau when injured, sought to prove that his contract of employment was with a Hong Kong-based company rather than the related Macau-based company, in order to qualify for compensation under Hong Kongs employees compensation regime. It was uncontroversial that the applicant was an employee; the only question was with which of the related corporate entities.

48

THE EMPLOYMENT RELATIONSHIP

mentioned person.170 Corporations, government departments, statutory bodies and individual persons can be employers. The ECO denes employer to include: The Government and any body of persons corporate or unincorporate and the legal personal representative of a deceased employer; and, where the services of an employee are temporarily lent or let on hire to another person by the person with whom the employee has entered into a contract of service or apprenticeship, the latter shall, for the purposes of this Ordinance, be deemed to continue to be the employer of the employee whilst he is working for that other person; and in relation to a person engaged, employed or paid through a club or hostel, the manager or members of the managing committee of the club or hostel .171 These denitions have the potential to extend employer obligations under the legislation to persons other than the party to the employment contract. (c) Complex employment arrangements 2.060 Labour recruiting agents. The employer identication problem arises most often where a worker is recruited by someone, apparently his employer, who is in fact acting as agent for another.172 This problem is common on construction sites where, due to the complex employment arrangements sometimes undertaken with the very purpose of avoiding an employment contract, the identity of the ultimate employer is unclear.173 Chan Sik Pan v Wylams Services Ltd. The problem of labour recruiters and complex employment arrangements on construction sites can be illustrated by way of case example. In Chan Sik Pan v Wylams Services Ltd,174 the plaintiff, Chan, a re installation technician, fell from a platform and was injured when he lost his balance while using a defective pair of chain pliers. The platform from which he fell had no guard-rails. At trial, Deputy Judge Li found that the plaintiff was entitled to recover in negligence, but the question arose against whom? Leong JA in the Court of Appeal summarised the situation thus: In August 1992, Windsor House in Causeway Bay underwent renovation. The main contractor for the renovation work was one OSL International Company (OSL). OSL subcontracted the electrical and mechanical work in the renovation project to Carrier Ltd (Carrier). Out of this, Carrier further subcontracted the part relating to the re installation work to Wylams Services Ltd (Wylam). Wylam is the 1st defendant in this case. Wylam then subcontracted the work to Leung Kwok-chau (Leung) the 2nd defendant. Leung again subcontracted the work to

2.061

170 171 172

173

174

Cap.57 s.2(1). Cap.282 s.3(1). This was the case in So Yuk Kam v Lau Kam Yuen (fn 65 above); see also Buddhist Dao Hope Yuen Charity Co Ltd (fn 32 above), and Ho Man Wa v Wong Shui Fun (unrep., DCEC 504/2007, [2008] CHKEC 631). See also the cases discussed at fnn 7678 and accompanying text. A problem can also arise quite innocently by virtue of complex corporate structures and the confusion arising from the existence of related corporate entities, as in Ahmed Ishtiaq v Tin Wo Engineering Co Ltd (fn 169 above). [2000] 1 HKLRD 687. See also fnn 175178 and accompanying text.

PROBLEMS IN EMPLOYER IDENTIFICATION

49

Yu Chi-kong (Yu) the 3rd defendant. Chan was requested to work at the site by a person called Tong Kin-hung. As a result he started on 11.8.92 to carry out installation work. Only Wylam was covered by insurance. Neither Leung nor Yu were covered. After the accident [on 21.8.92], Wylam reported the matter to the Labour Department. The report was made on the prescribed form (Form II) under the Employees Compensation Ordinance (Cap.282). In ling this form, Wylam stated that it was the employer of Chan. In January and May 1993, Wylam entered into two compensation agreements with Chan and subsequently paid compensation to Chan pursuant to these two agreements.175 Leong JA overruled Deputy Judge Lis determination that the re installation subcontractor, Wylam, was the employer. In his view the evidence supported Yu, not Wylam, as being the employer. However, even this ruling did not end the matter. A further appeal to the Court of Final Appeal176 resulted in an order for a new trial, largely because Yu had not been given an opportunity to be heard at the initial trial. The Court of Final Appeal held that there was insufcient evidence to conrm the judgment of either the trial judge or the Court of Appeal. In December 2002, a re-trial took place in which Yu, the third defendant, was found to have recruited and hired the plaintiff, provided tools to the plaintiff, and paid his wages, and on this basis was determined to be the employer. The court rejected the third defendants argument that, like the plaintiff, he was an employee of either the rst or second defendant. The court found that the ling of Form 2 by Wylam and the employees compensation agreements were not sufcient to rebut this nding.177 In October 2004, this ruling was further appealed to the Court of Appeal, which conrmed the re-trial decision.178 Complexities of employer identication. If nothing else, Chan Sik Pan demonstrates the complexities of the issue of employer identication, in particular on construction sites. In such circumstances, it will always be wise for a plaintiff who is uncertain about the identity of the employer to name more than one defendant in alternative pleas.179 It has recently been held that an admission by one defendant that he is the employer does not operate as a bar to the plaintiff s continuation of his action against other defendants.180 It has also been held that in circumstances where employer identity is unclear, the usual entity to employ workers should be the one who actually contracted to perform the project, i.e. the principal contractor.181 (d) Multiple employers Possibility of multiple employers. The possibility that a worker may be simultaneously employed by more than one employer cannot be ruled out. This may occur in the case 2.063 2.062

175 176 177 178 179 180

181

(unrep., CACV 108/2000, [2000] HKEC 893). Chan Sik Pan v Wylams Services Ltd [2002] 1 HKLRD 337. Chan Sik Pan v Wylams Services Ltd (unrep., HCPI 648/1995, [2002] HKEC 1558). [2004] 4 HKC 393. As in Yasar Hussain v Wui Shing Cargo Transportation Co Ltd (unrep., DCEC 310/2003, [2006] HKEC 19). Raj Kumar Mahajan v HCL Technologies (Hong Kong) Ltd (unrep., CACV 46/2008, 49/2008, [2008] HKEC 1955). Mak Ching Shan v Power Max Design Ltd (fn 67 above).

50

THE EMPLOYMENT RELATIONSHIP

of associated companies, as in Yu Tak Fu v Gold Gain (HK) Ltd,182 or with completely separate companies, as in Chan Si Mui v Kong Hung Keung.183 (e) Worker loan arrangements 2.064 Worker loan arrangements. Occasionally an employer will lend a worker to another company, sometimes with equipment, sometimes without, to assist in the completion of some task or other. The legal signicance of such an arrangement will vary depending on the nature of the claim that arises, for instance an accident of some sort in which the worker is injured, or an injury to a third party caused by the borrowed workers negligence from which a vicarious liability claim may arise. Contract of service not transferable without employee consent. As a matter of employment law, it is not possible for an employer to transfer the contract of service to another employer without the employees consent.184 Responsibilities of the lending employer. The lending employer continues to be responsible for any entitlements and protections under the EO, and for the provision of a safe work place and system of work under legislation185 and common law,186 as well as the payment of employees compensation under the ECO in the event of an injury at work.187 Responsibilities of the borrowing employer. The borrowing employer can also be held accountable, for instance, on the basis of occupiers liability,188 or in a conventional negligence action based on the neighbour principle. Exceptionally, where a worker is lent to do unskilled work without specialised equipment, the temporary employer who controls both the worker and the manner of doing the work may be found liable in negligence as employer.189 Dual responsibility of lending and borrowing employers. Even more exceptionally, it is possible that both the lending employer and the borrowing employer may be held liable under the employers common law duty of care to the worker.190 Moreover, the

2.065

2.066

2.067

2.068

182 183 184

185

186

187 188 189

190

[2004] 4 HKC 567. (unrep., HCA 4977/1991, 18 July 1994), a case of dual vicarious liability. See Jerry Chen v Whirlpool (Hong Kong) Ltd (unrep., CACV 325/2005, [2006] HKEC 1316), citing Lord Denning in Denham v Midland Employers Mutual Assurance Ltd [1955] 2 QB 437. However, the possibility that a transferred worker might be proved to have consented by conduct cannot be ruled out, as hypothesised by Lord Denning in Denham v Midland Employers Mutual Assurance Ltd. As in Li Moon Chai v Leung Shu Man (unrep., HCPI 48/2007, [2008] HKEC 1517). More generally, see Chapter 10 below. As in Li Moon Chai v Leung Shu Man (ibid ). Even in circumstances of loan, these duties are non-delegable: see Lam Pui Yi v Secretary for Justice (unrep., HCPI 924/2002, [2009] HKEC 1316). By virtue of the broad denition of employer in ECO s.3(1): see para 2.059 above. As in Li Moon Chai v Leung Shu Man (fn 185 above). Garrard v A E Southey & Co [1952] 2 QB 174 at 179. In Chung Yuen Yee v Sam Woo Bore Pile Foundation Ltd (unrep., HCPI 1053/2006, [2010] HKEC 1228), the temporary employer found liable for failing to provide a safe system of work was described as employer pro hac vice (for this occasion). In Wong Yat Chiu v Chan Kwok Wa [1999] 2 HKLRD 849, both the lending and borrowing employers were held liable in negligence for the plaintiffs injuries caused by a defective system of work used by the borrowing employer. Similarly see Chung Yuen Yee v Sam Woo Bore Pile Foundation (ibid ). See also paras 2.070 to 2.071 below.

PROBLEMS IN EMPLOYER IDENTIFICATION

51

ECO contains an important, irrebuttable deeming provision. Where the employee is on loan to another company, s.3(1) deems the lending employer to continue to be the employer for the purposes of the Ordinance. The effect is to leave open the possibility that there may be two employers who are jointly and severally liable for compensation payable to an injured employee.191 Third party injury and vicarious liability. Where a third party is injured by the borrowed workers negligence, a vicarious liability action will be available, and a question as to the true employer for the purposes of vicarious liability will arise. In general, it will be difcult for the regular (lending) employer to shift responsibility in this situation, particularly where the loan includes equipment operated by the worker.192 To do so it must be shown that, at the moment of the accident, the servant was not employed by the lending employer. This is difcult but not impossible.193 A consideration of all the relevant circumstances will determine the outcome, including the terms of any contract between the lending and borrowing employers, and matters such as who exercises control over the worker while he does the work in question, who pays the workers wages, who can dismiss the worker, who provides the machinery and equipment, etc. Kwok Wai v Win Base Services Ltd. In Kwok Wai v Win Base Services Ltd,194 the rst defendant hired a lorry with crane and operator from the second defendant. The hire was arranged on the basis that the rst defendant as hirer would control and supervise the operator. One of the rst defendants labourers was injured when he was struck by the hook of the crane. In the plaintiff s negligence action against both defendants, default judgment was obtained against the rst defendant. The second defendant paid a sum of money into court to discharge its liability to the plaintiff, and commenced contribution proceedings against the rst defendant to recover the amount paid on the basis that the rst defendant was to blame for the accident. The court found that the crane operator was not negligent in the operation of the crane, and that the cause of the accident was more likely the unsafe system of work in place at the rst defendants worksite. As such, the second defendant was not vicariously liable for the plaintiffs injuries arising from the crane mishap. In addressing the question of contribution, Seagroatt J made the following observations on the issue of vicarious liability in the circumstances of an employee on loan: Cases which have come before the court fall into two groups. The rst is where damage has been caused by an employee in the general employment of one employer, who is working under the directions of a second employer. The second is where the employee of such general employer working under the directions of a 2.069

2.070

191 192

193

194

This was the case in Wong Wing Cheung v Interlite (Asia) Ltd [2003] 3 HKLRD 473. Mersey Docks & Harbour Board v Coggins & Grifth (Liverpool) Ltd [1947] AC 1 and Denham v Midland Employers Mutual Assurance Ltd (fn 184 above). More recently, in Biffa Waste v Maschinenfabrik Ernst Hese GmbH [2008] EWCA Civ 1238, the English Court of Appeal described such a shift of responsibility as exceptional. Kwok Wai v Win Base Services Ltd [1999] 2 HKLRD 591 may be such an exception, although in that case the discussion of vicarious liability is probably obiter dictum. See para 2.070 below. Ibid.

52

THE EMPLOYMENT RELATIONSHIP

second employer suffers damage. Clearly this case falls within the rst category. There the general employer may be able to escape vicarious liability In Morris v Breaveglen [1993] ICR 766 Lord Justice Beldam propounded as a test the following: When the question is which of two possible employers is to be vicariously responsible for the acts or omissions of an employee, it has been found useful as a test to decide which of them was responsible for controlling the actions of the employee which caused the injury; so, in particular, where a skilled man is hired out with plant, which it is his duty to operate, a distinction has been drawn between his actions in carrying out tasks under the direction and control of the employer to whom he has been hired and his actions simply in operating the plant. In the former case the particular employer to whom he has been hired, having directed him to carry out a particular task which gives rise to a risk to some third party, bears responsibility if in carrying it out the employee causes injury. But if injury is caused to a third party from the operation of the plant itself, a matter left entirely to the skill and judgment of the plant operator and which the particular employer to whom he is hired has no right to dictate to him, then the general employer will be responsible for the actions of its employee. That decision was made after reviewing a number of authorities including Wilsons & Clyde Coal Co Ltd v English [1938] AC p 57, Mersey Docks and Harbour Board v Coggins & Grifth (Liverpool) Ltd [1947] AC p 1, the classic case on the general employers vicarious liability for the negligence of its employee in the operation of equipment, and Denham v Midland Employers Mutual Assurance [1955] 2 QB 437 I am satised that the 2nd Defendant did not retain direction, control or supervision of Mr Tsang in the work he did when hired with lorry/ crane to the 1st Defendant.195 2.071 Dual vicarious liability possible. An alternative approach, for which there is only limited authority, would be to impose dual vicarious liability, on both the lending and receiving employers, leaving it to the employers to ght out the question of contribution as between them.196 (f ) Workers placed by an employment agency 2.072 Placement of workers by employment agencies. The issue under consideration is the employment status of a worker placed by an employment agency and paid by that agency to work on a temporary basis for a business (the end-user).197 Typically, the agreement between the agency and the end-user will stipulate that the end-user

195 196

197

Ibid, at 59899. For a rare example of dual vicarious liability, see Chan Si Mui v Kong Hung Keung (fn 183 above). More recently see Viasystems (Tyneside) Ltd v Thermal Transfers (Northern) Ltd [2006] QB 510 (Eng CA). This situation is to be distinguished from the more typical arrangement in Hong Kong whereby an employment agency places workers with employers for the purposes of permanent employment. In the special case of foreign domestic helpers, who often use such agencies, the issue of employment status is beyond dispute by virtue of the Immigration Department requirement of a standard form employment contract which makes clear that the one seeking the services of the domestic helper is the employer.

PROBLEMS IN EMPLOYER IDENTIFICATION

53

is not the employer, while the agreement between the worker and the agency will stipulate that the worker is self-employed.198 Fees are paid by the end-user to the employment agency, while the agency in turn pays remuneration to the worker. Businesses often prefer to ll stafng needs, especially temporary ones, in this way in order to limit headcount,199 and, as a matter of general practice, possibly in the belief that temporary workers will be more malleable and less likely to complain about working conditions. The placement may be for a xed term or open-ended. In some cases, these so-called temp workers may remain with the end-user business for many months or even years.200 Litigation scenarios involving temp workers. When termination occurs, whether due to redundancy, incompetence, or for any other reason, the worker may wish to claim the usual termination benets and entitlements. In other scenarios, a worker who becomes ill may want sick leave pay, or a worker who becomes pregnant may want maternity leave pay, and the question arises: who, if anyone, is responsible to make such payments? In yet another scenario, where the temp workers negligence causes injury or damage to another, against whom, if anyone, is vicarious liability to be imposed? This is an issue that has not yet arisen in Hong Kong litigation but has featured rather prominently in the case law in the United Kingdom and Europe. It is only a matter of time before the issue will surface in Hong Kong. Identifying the employer and establishing a contract of employment. There are four possibilities: the worker may be found to be an employee of the end-user, or an employee of the agency, or he may be found to be self-employed, or none of these.201 The usual common law criteria considered throughout this chapter will apply in making the determination of whether an employment contract exists, and if so, between whom. In general, it will be difcult to establish a contract of employment. As against the employment agency. As against the employment agency, although the worker is paid by the agency, the element of day-to-day control usually required in the employment relationship is lacking. Moreover, once placed, the worker does not receive instructions from the agency regarding what to do or how to do it. Nor is there any obligation on the agency to assign work or on the worker to accept it, i.e. the mutuality of obligation necessary to establish a continuous contract of employment under the EO where there have been gaps in employment. 2.073

2.074

2.075

198

199

200 201

It is possible that a worker may be expressly employed as regular staff of the agency and merely seconded to the end-user, but that situation is not controversial and thus is not considered here. The author has heard anecdotal reports of businesses terminating permanent staff and replacing them with temp agency staff, sometimes the very same recently terminated personnel. This was the case in James v London Borough of Greenwich [2008] ICR 545. As in Wickens v Champion Employment [1984] ICR 365 and in Muschett v HM Prison Service (unrep., Employment Appeal Tribunal, 26 Aug 2008). In Hong Kong, the case of Cheng Yuen v Royal Hong Kong Golf Club (fn 3 above) comes to mind. Although this case did not concern an employment agency, the defendant golf club was effectively a sort of temporary employment agency connecting caddies with golfers for the days round of golf. The Privy Council came to the view that the caddies were probably employed by the golfers, but this was of no use to the appellant whose claim for EO benets required proof of continuous employment over a period of years.

54

THE EMPLOYMENT RELATIONSHIP

2.076

As against the end-user. As against the end-user, proof of a contract of employment is less daunting, but still difcult. Certainly there was no offer and acceptance so any such contract would have to be implied. Although the end-user provides instructions and supervision and sets out the basic work requirements, the end-user does not directly pay the workers salary, nor is the end-user under any obligation to provide work. The English Court of Appeal has held that the crucial test is whether it is necessary that a contract of employment be implied between the worker and the end-user.202 Where the arrangements are seen to be genuine and not a sham designed to avoid legal obligations, they will be enforced by the court.203 Ultimately, each case will turn on its own facts. The courts in Hong Kong are generally reluctant to nd a worker who is subject to close supervision and control not to be under a contract of employment, even where there is an express agreement saying so.204 Therefore, employers in Hong Kong taking on temp agency workers must take care to structure their arrangements in clear and unambiguous terms so as not to fall afoul of a nding of a contract of employment. To achieve this, it must be made clear in any agreements that the worker agrees to be self-employed and is under no obligation to continue to work, and that the end-user is under no obligation to provide work to the worker. The absence of mutuality of obligation is crucial to avoiding an implied contract of employment, especially in circumstances where the worker has worked for the end-user for an extended, continuous period of time. (g) Regulation of employment agencies

2.077

Employment agencies in Hong Kong. Although strictly speaking not relevant to the issue of the employment relationship, it is important to acquire a basic understanding of the function of employment agencies and how they are regulated in Hong Kong,205 in particular because of the role employment agencies play in arranging employment contracts, and the inuence they can exert, sometimes in a position of conict,206 over those contracts.

202

203

204

205

206

necessary in order to give business reality to a transaction and to create enforceable obligations between parties who are dealing with one another in circumstances in which one would expect that business reality and those enforceable obligations to exist, per Bingham LJ in The Aramis [1989] 1 Lloyds Rep 213 at 224, cited by Mummery LJ in James v London Borough of Greenwich (fn 200 above). James v London Borough of Greenwich (fn 200 above). Note that, in the UK, the proposed statutory reform to protect agency workers, the Temporary and Agency Workers (Equal Treatment) Bill, was withdrawn on 21 May 2008: see http://www.publications.parliament.uk/pa/cm200708/cmvote/80521v01.htm. This follows the agreement on 20 May 2008 between the Government, the TUC (trade unionists) and the CBI (business lobby group) that will see agency workers in the UK receive equal treatment after 12 weeks employment: see http:// www.Emplaw.co.uk. Indeed, agency employment seems designed for the very purpose of evading responsibilities for labour protection, and the courts are very likely to take a dim view if such workers are not accorded basic rights. It is often overlooked that the regulation of employment agencies is one of the three stated purposes of the EO, the long title of which reads: To provide for the protection of the wages of employees, to regulate general conditions of employment and employment agencies, and for matters connected therewith. As for instance appears to have occurred in Estinah v Golden Hand Indonesian Employment Agency [2001] 4 HKC 607 (discussed at para 2.079 below) and in HKSAR v IT&T Careers (HK) Ltd [2001] 4 HKC 345.

PROBLEMS IN EMPLOYER IDENTIFICATION

55

Regulation of employment agencies in Hong Kong. The EO207 and the Employment Agency Regulations208 regulate employment agencies. The EO establishes the terms and conditions for obtaining a license to operate an agency, and sets permissible commissions for agencies doing employment placements. Employment agency is dened as a person who operates a business the purpose of which is (a) to obtain employment for another person; or (b) to supply the labour of another person to an employer, whether or not the person who operates the business will derive any pecuniary or other material advantage from either the employer or such other person.209 A license is necessary to operate an employment agency210 and on application may be granted by the Commissioner.211 The Commissioner may refuse to grant a license on certain specied grounds,212 but these grounds are not rigorous, and, on the face of it, a license is not difcult to obtain. A licensee is required to maintain a record of all job applicants registered with his employment agency, and job applicants who, at the time of registration, were not residents of Hong Kong and who were placed in employment in Hong Kong by his employment agency.213 A licensee is prohibited from receiving any payment other than the prescribed commission.214 The Commissioner has wide powers of entry, inspection and investigation without notice.215 The maximum commission which may be received by a licensee in connection with the employment of any person is an amount not exceeding a sum equal to ten per cent of the rst months wages received by such person after he has been placed in employment by the employment agency.216 A contravention of this and other provisions is punishable by ne.217 Migrant domestic workers. Employment agencies have developed something of a bad reputation in Hong Kong in the placement of migrant domestic workers, and are often suspected of charging workers more than the permitted commission.218 In Estinah v Golden Hand Indonesian Employment Agency,219 a migrant domestic worker was charged $10,000 by the defendant employment agency that found her employment. The plaintiff brought an action for breach of statutory duty220 in the

2.078

2.079

207 208 209 210 211

212 213

214 215 216 217 218

219 220

Cap.57, Part XII, ss.5062. Cap.57A. Ibid, s.50(1). Cap.57, s.51. Ibid, s.52. The Commissioner has power to exempt from the license requirement a non-prot making employment agency: ibid, s.54. Ibid, s.53. By virtue of Cap.57 s.56, the record shall contain the persons name, address, Hong Kong Identity Card number or, in the case of a non-resident, passport number and citizenship, fee and commission received, date of employment and name and address of employer. Ibid, s.57. Ibid, ss.5859. Employment Agency Regulations Cap.57A, reg.10 and Part II of Sch.2. Cap.57 s.60. It is now known that this abuse is most likely to occur with Indonesian migrant domestic workers (MDWs). A recent survey showed that all of the 1,289 Indonesian MDWs surveyed were charged agency fees far above the legal maximum of $358.00 (the minimum monthly pay is currently $3580), the majority paying between $20,000 and $25,000. See Yau Chui-yan, Indonesians take lead in being exploited, South China Morning Post, 8 Nov 2009, p 3. This may even happen with the collusion of MDWs, some of whom willingly pay local employment agencies amounts greatly exceeding the legal maximum of $358 in order to beat the two week rule while looking for new employers: see AMC Media Release (18 Dec 2007) at http://www.asian-migrants.org. Fn 206 above. For the breach of statutory duty action generally, see Chapter 10 below.

56

THE EMPLOYMENT RELATIONSHIP

Small Claims Tribunal, and was awarded $9,633, being the difference between what she paid and what she was required to pay as prescribed commission ($367, being 10% of one months wages). That decision was upheld by Kwan J in the Court of First Instance, nding that the plaintiff should not be deprived of her claim on the basis of collusion because there was evidence of inequality between the parties such that the claimants conduct in paying the fee could not be regarded as voluntary. The fact that the EO imposed a criminal penalty on agencies who charged commissions in excess of the prescribed amount did not provide a sufcient remedy to those who paid that amount.221

221

HKSAR v IT&T Careers (HK) Ltd (fn 206 above) provides an example of a contravention of s.57 in another context. The defendant employment agency was found to have required two job seekers to sign agreements undertaking to pay the defendant additional sums if they did not remain in the jobs in which they were placed for a minimum period. The job seekers paid the sums. The defendants conviction in Magistrates Court for charging in excess of the prescribed commission, under s.57 and s.60(7) of the EO, was upheld in the Court of First Instance.

CHAPTER 3

CONTRACT OF EMPLOYMENT
Para. 1. Introduction .............................................................................................................................. 3.001 2. Formation of the contract ......................................................................................................... 3.002 (a) General principles ............................................................................................................. 3.002 (b) Capacity of parties ............................................................................................................ 3.007 (i) In general ................................................................................................................ 3.007 (ii) Minors ..................................................................................................................... 3.008 (iii) Corporations ............................................................................................................ 3.011 (iv) Persons with mental incapacity ............................................................................... 3.012 (c) Elements of contract ......................................................................................................... 3.013 (i) Offer ........................................................................................................................ 3.013 (ii) Acceptance .............................................................................................................. 3.015 (iii) Consideration .......................................................................................................... 3.017 (iv) Clarity of terms ....................................................................................................... 3.018 (v) Illegality .................................................................................................................. 3.019 (vi) Form of agreement .................................................................................................. 3.020 3. Implied terms and duties .......................................................................................................... 3.024 (a) Implied terms .................................................................................................................... 3.024 (i) Implied by facts ....................................................................................................... 3.025 (ii) Implied by law ......................................................................................................... 3.027 (b) Implied duties of employee ............................................................................................... 3.028 (i) Duty of delity and good faith ................................................................................ 3.028 (ii) Duty to exercise reasonable skill and competence .................................................. 3.033 (iii) Duty to obey lawful and reasonable orders ............................................................. 3.034 (iv) Duty not to disclose condential information ......................................................... 3.035 (v) Duty to account ....................................................................................................... 3.039 (vi) Duty to indemnify employer ................................................................................... 3.040 (vii) Duty in relation to industrial action ........................................................................ 3.041 (c) Implied duties of employer ............................................................................................... 3.042 (i) Duty to provide work .............................................................................................. 3.042 (ii) Duty to provide safe working environment ............................................................. 3.043 (iii) Duty to indemnify employee ................................................................................... 3.044 (d) Mutual trust and condence .............................................................................................. 3.045 4. Express terms ........................................................................................................................... 3.046 (a) Common terms .................................................................................................................. 3.046 (i) Probation period ...................................................................................................... 3.047 (ii) Duration and term of contract ................................................................................. 3.048 (iii) Rest days ................................................................................................................. 3.054 (iv) Remuneration .......................................................................................................... 3.055 (v) Place of employment ............................................................................................... 3.062 (vi) Entire agreement ..................................................................................................... 3.063

58

CONTRACT OF EMPLOYMENT (b) Restrictions on express terms ............................................................................................ 3.064 (c) The statutory framework of a contract of service ............................................................ 3.069 5. Collective agreements .............................................................................................................. 3.078 (a) Nature of collective agreements ........................................................................................ 3.078 (b) Impact upon contracts of employment .............................................................................. 3.079 6. Variation of contract of employment ........................................................................................ 3.082 7. Information and record-keeping under the Employment Ordinance ....................................... 3.087

1. INTRODUCTION
Overview of chapter. The legal relationship between employer and employee has its roots in contract law. Therefore, the fundamentals necessary for any binding contract must be present before any employment relationship can exist. These include offer, acceptance, adequate consideration, certainty as to the terms and the parties legal capacity to enter into the contract of employment. Not all terms and conditions of employment will be set out in a written contract of employment. Some terms may be implied by reference to the facts and circumstances, the law or because of the very nature of the employment. In recent years legislation has come to play a greater role in governing the obligation of employers and entitlements of employees. The principle employment legislation in Hong Kong, the Employment Ordinance (Cap.57) (EO), sets out certain minimum obligations in respect of a contract of employment. A term of a contract of employment seeking to reduce any rights, benets or entitlements conferred upon the employee by the EO, will be of no legal effect.1 Finally, while there is no collective bargaining legislation in Hong Kong, in certain instances which are discussed below, a collective agreement can still bind the parties as an enforceable contract. 3.001

2. FORMATION OF THE CONTRACT

(a) General principles Usual contractual principles apply. The fundamentals of an employment contract are no different from any other contract formed under common law. An employment contract can only exist if there is an intention by the parties to create a legal relationship, the parties are legally capable of entering into a binding contract, there is an offer, an acceptance, the transfer of valuable consideration and terms that are sufciently certain.2 In addition, the contract must, in order to be an employment contract, be of service (as opposed to for services).3 Interpretation of contract: what reasonable person would have understood parties to mean. In interpreting an employment contract a court will look to the intention of the parties as evidenced by the express words used.4 In Leung Ka Lau v Hospital Authority,5 in holding that, under their contracts with the Hospital Authority, doctors were not entitled to overtime for being on-call on normal working days, as opposed to statutory rest days or holidays, the Court of Final Appeal applied the well-known Jumbo King Ltd v Faithful Properties Ltd6 principles on interpretation of contracts, namely it was an attempt to discover what a reasonable person would 3.002

3.003

2 3 4 5 6

Section 70 EO. See for example Yam Yui Wai v Wanchai Sun Kwong Restaurant Co Ltd [20012003] HKCLRT 186 (s.70 applied where restaurant employees had to obtain employers consent to take leave on statutory rest days). See Gilligam v AHK Air Hong Kong Ltd [1989] 2 HKC 189. For a discussion of this distinction, see Chapter 2. Gilligam v AHK Air Hong Kong Ltd [1989] 2 HKC 189. (2009) 12 HKCFAR 924. (1999) 2 HKCFAR 279.

60

CONTRACT OF EMPLOYMENT

have understood the parties to mean having regard, not merely to the individual words [the parties] have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. 3.004 Employer has freedom to choose employees subject to certain statutory restrictions. An employer will have freedom to choose to whom it wishes to make an offer of employment and the terms of such offer subject to any statutory restrictions. These statutory restrictions include:

the prohibition against unlawful discrimination under the Sex Discrimination Ordinance (SDO), Disability Discrimination Ordinance (DDO), Family Status Discrimination Ordinance (FSDO) and Race Discrimination Ordinance (RDO);7 restrictions under the Rehabilitation of Offenders Ordinance,8 which provides, among other things, that if an individual has been convicted of an offence where he has not been sentenced to imprisonment exceeding three months or to a ne exceeding $10,000, he had a clean record before the conviction, and three years has elapsed since the conviction and he has not been convicted of another offence, then that conviction, or any failure to disclose it shall not be a lawful or proper ground for dismissing or excluding that individual from any ofce, profession, occupation or employment or for prejudicing him in any way in that ofce, profession, occupation or employment; restrictions under the Immigration Ordinance9 against employing a person not lawfully employable in Hong Kong;10 and the prohibition against an offer of employment being conditional on the offeree not being a member of a trade union.11

In practice, there will be little or no genuine bargaining between the parties to a contract of employment as the terms are usually determined by the employer. An employee wishing to obtain employment with the employer will typically have to accept the terms and conditions of employment offered by the employer. This imbalance in bargaining position does not usually vitiate the contract of employment if the offer of employment is accepted by the employee.12

7 8 9 10 11 12

See Chapter 8. ROO. IO. Section 17J IO. Section 21C EO. For example, see Huen Fook Nam v Penthalpha Enterprises Ltd (unrep., HCA 15860/1999, [2006] HKEC 1069), at para 49, where Judge To said: the employment market was against the Plaintiff and his position in the Defendant was not strong. He had no bargaining power. The Plaintiff had no choice. The Defendant could at any time give a months notice to terminate the Plaintiff s employment if the Plaintiff did not accept the new terms. The Plaintiffs choice was either to take it or leave it.

FORMATION OF THE CONTRACT

61

Must have intention to create legal relations. The parties must have a mutual intention to create a legally binding agreement. An agreement to agree does not amount to a contract of employment.13 The courts will be slow to impose legal obligations on parties where they have gone out of their way to make it clear that they do not wish to create such obligations.14 In Rogers v Booth,15 the English Court of Appeal found that the relationship between the female lieutenant in the Salvation Army and the organisation she worked for was pre-eminently of a spiritual character and the parties did not have an intention to confer upon one another rights and obligations which were capable of enforcement. Mutuality of obligations (to take up and supply work) required only for umbrella or global contract of employment. The issue of mutuality of obligations will typically be relevant in the context of determining whether there has been continuous employment under an umbrella or global contract where the employee is engaged under a number of short-term employment contracts. In Poon Chau Nam v Yim Siu Cheung Ribeiro PJ said:16 On the other hand, it is possible (although uncommon) for the parties to enter into an overall contract whereby they do undertake mutual obligations to provide and accept work. Such a contract has been called an umbrella or global contract, to indicate that it is an over-arching and continuous agreement between the parties, encompassing a series of specic engagements within its span. Where an umbrella contract exists, the question may arise as to whether it is a contract of employment (whether or not each specic engagement within its ambit gives rise to its own such contract). Such a question is generally only relevant where a person claiming a particular statutory right needs to establish a period of continuous employment by relying on an umbrella contract and cannot do so merely by showing that he has worked a series of specic engagements. However, Ribeiro PJ said at para 45 of Poon Chau Nam: It follows that the absence of a mutual obligation to supply and to take up work, while fatal to the existence of an umbrella contract, is irrelevant to the existence of a contract of employment arising out of a specic engagement. (b) Capacity of parties (i) In general Parties must have legal capacity to enter into contract. Whether a person has the power to enter into a contract of employment is governed by the general rules

3.005

3.006

3.007

13 14 15 16

Gilligam v AHK Air Hong Kong Ltd [1989] 2 HKC 189 at para 27. Koeller v Coleg Elidyr (Camphill Communities Wales) Ltd [2005] EWCA Civ 856. [1937] 2 All ER 751 at 755; see also New Testament Church of God v Stewart [2007] EWCA Civ 1004. (2007) 10 HKCFAR 156, at para 36.

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CONTRACT OF EMPLOYMENT

relating to capacity to contract. Certainly companies, partnerships, and individuals can employ individuals. The Government of the Hong Kong Special Administrative Region can also employ individuals as civil servants. An otherwise valid contract of employment may be defeated by the incapacity of a party to such contract. In the employment context the issue of contractual incapacity arises in the context of the employment of minors.17 (ii) Minors 3.008 Employment contract with minor not enforceable unless to his benet. Minors can enter into a contract of employment. However the contract of employment will not be enforceable against a minor if it is not in favour of the minor or not substantially for the benet of the minor. If the contract contains a mixture of terms, some favouring the minor and some not, then it is only enforceable if it is benecial overall.18 In other words, if the contract is for the benet of the minor, then it is binding on the minor and is not voidable.19 On the other hand, if the contract is not for his benet, then it is voidable and the minor can cancel or repudiate the agreement at any time during his minority or within a reasonable time after he attained the age of majority.20 Non-complete term does not prevent the contract from being benecial overall. An agreement that the minor will not compete with his employer after his service ceases does not necessarily prevent the contract from being benecial overall. In Sea Wave Hair Designs (WTS) Ltd v Choy Kwong Yiu21 the defendants, who were minors, were employed by the plaintiff as hairdressers. Their contracts restricted them from working in Tsim Sha Tsui for a period of one year after the termination of their contracts of employment. Deputy Judge Tong found that despite the restriction, the contracts were benecial to the minors, and cited Evans v Ware22 in support of this. The consideration of the contract as a whole was emphasised, and it was stated that a bargain that the minor would not compete after his service ceased did not prevent the contract from being benecial overall, as the minor obtained the means of earning by making such a bargain.

3.009

17 18

19

20 21 22

See also Chapter 2. See De Francesco v Barnum (1890) LR 45 Ch D 430, Clements v London & North Western Railway Co [1894] 2 QB 482 and Sea Wave Hair Designs (WTS) Ltd v Choy Kwong Yiu (unrep., HCA A2743/1992, [1992] HKLY 451). See Lord Eshers dicta in Clements v London & North Western Railway Co [1894] 2 QB 482: That raises this question of law whether this is a contract which he can now repudiate, he being still an infant the answer depends on whether the contract as a whole was for his advantage. If it was not so, he can repudiate it; but if it was for his advantage, it was not a voidable contract, but one binding on him, which he had no right to repudiate. See also Chaplin v Leslie Frewin (Publishers) [1966] 1 Ch 71 where the court gave a narrow interpretation to benet. The plaintiff-employee, Charlie Chaplins son, made a contract with the defendant-employer, when he was a minor, to write a book about his life. The plaintiff regretted the decision because of the possible damage to his reputation, and attempted to repudiate the contract after most of the book was prepared. It was held by the Court of Appeal that the contract was, when made, substantially for the employees benet and therefore enforceable. The majority of the Court took a narrower view of benet, taking into account the nancial gain but not the moral welfare of the minor. Dankwerts LJ stated that it cannot be right to enable a contract made in good faith to be avoided because it turns out at a later date that the benets are not as great as the parties anticipated. Sea Wave Hair Designs (WTS) Ltd v Choy Kwong Yiu (unrep., HCA A2743/1992, [1992] HKLY 451). (unrep., HCA A2743/1992, [1992] HKLY 451). [1892] 3 Ch 502.

FORMATION OF THE CONTRACT

63

Statutory provisions dealing with minors. The age of majority is 18 years under the Interpretation and General Clauses Ordinance23 and Age of Majority (Related Provisions) Ordinance.24 There are several statutory limitations affecting the contractual capacity of young persons and children in employment. The Employment of Children Regulations contain a general prohibition on the employment of a child under the age of 13 years.25 Regulation 5 allows the employment of children who have attained 13 years and completed Secondary Form III education, subject to some restrictions. Children who have attained 13 years but not completed Secondary Form III education are subject to even greater restrictions. The Schedule sets out various employments they are prohibited from engaging in, including premises selling liquor, dance hall and gambling establishments, places of public entertainment except where the net prots of a stage performance is devoted to purposes other than the private gain of the performance promoters, hair-dressing salons and massage parlours. The Employment of Young Persons and Children at Sea Ordinance prohibits children under 15 years from employment on sea vessels. In addition, the Employment of Young Persons (Industry) Regulations restrict the working hours of young persons and prohibits their employment in underground work, such as in mines, quarries or tunnelling operations.26 (iii) Corporations Capacity of companies, partnerships and individuals to enter into contract of employment with individuals. A corporation is capable of making contracts, commonly as a registered company. Companies only have capacity to contract in relation to contractual activities falling within its object clauses, as set out in its Memorandum of Articles of Association. Section 7 of the Partnership Ordinance gives a partner the capacity to enter into an employment contract for the benet of the partnership. The Government has contractual capacity to employ individuals as civil servants. (iv) Persons with mental incapacity Contracting with persons with mental incapacity. A person with mental incapacity is bound by his contract unless he can show two elements. First, that owing to his mental condition, he did not understand what he was doing; and secondly that the other party to the contract was aware of his mental incapacity at the time the contract was made. If these two conditions are satised, the contract is voidable at the option of the mentally incapacitated person.27 Likewise, for a drunk (or drugged) person, the contract is voidable if these two conditions are satised.28

3.010

3.011

3.012

23 24 25 26 27

28

Section 3. Section 2(1). Regulation 4(1)(b). See para 3.053. See also Chapter 9. See Imperial Loan Co Ltd v Stone [1892] 1 QB 599, 601 which was cited with approval in the Hong Kong case of Knight John Lee v Global Force Ltd (unrep., DCCJ 5534/2007, [2009] HKEC 1092). Matthews v Baxter (187273) LR 8 Ex 132.

64

CONTRACT OF EMPLOYMENT

(c) Elements of contract (i) Offer 3.013 Offer. An offer of employment must be communicated before it can be accepted. However, the offer need not be addressed to any particular person29 and may be made, for example, by newspaper or internet advertisements. An offer of employment will usually be made in writing and following an interview of the candidate. Subsequent negotiations on terms may take place followed by a revised written offer. Offer may be conditional. An offer of employment may be made subject to certain conditions, for example, the passing of a medical examination, the conduct of reference checks and granting of a work visa to work in Hong Kong. Such conditions may be waived by the employer provided that the resulting contract is not an illegal contract. (ii) Acceptance 3.015 Acceptance. An offer of employment may be accepted at any time before it lapses or before it is withdrawn by the employer. However, once an offer has been accepted, such offer cannot be withdrawn unilaterally by the employer. Acceptance of an offer must be in accordance with the terms of the offer. So, a verbal acceptance will not sufce if the offer requires written acceptance. While strictly speaking an offer of employment may be withdrawn before it is accepted there may be circumstances in which an employer may be estopped from denying the existence of a contract of employment even where the offer has been purportedly withdrawn before its acceptance.30 Agreement to agree will not create a binding contract. An agreement to agree in the future will not create a binding contract31 and all the material terms of the contract must be agreed for there to be a binding obligation. Deputy Judge Saied summed up the position in Gilligan v AHK Air Hong Kong Ltd:32 This brings to mind Poley v Classique Coaches Ltd (1934) 2 KP 1 where Maugham, LJ said: It is indisputable that unless all the material terms of the contract are agreed there is no binding obligation. An agreement to agree in the future is not a contract; nor is there a contract if a material term is neither settled nor implied by law and the document contains no machinery for ascertaining it. In Gilligan v AHK Air Hong Kong Ltd Deputy Judge Saied said: Besides specifying the term of two years, the letter of appointment stipulated unequivocally such other vital terms, as the job title, the salary package, the date from which it was to commence and the annual leave. The mere fact that the parties had expressly stipulated that a formal employment contract was to follow

3.014

3.016

29 30 31 32

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. Gill v Cape Contracts [1985] IRLR 499. Hyundai Engineering & Construction Co Ltd v Vigour Ltd [2005] 3 HKLRD 723. [1989] 2 HKC 189 at para 27.

FORMATION OF THE CONTRACT

65

does not by itself show that they continued merely in negotiation: Rossiter v Miller (187778) 3 App Cas 1124. Such an agreement, which Mr Tsang himself regarded as an interim measure or a temporary agreement, seems to me to be complete in itself and in no way dependent on the making of a formal contract the temporary agreement contained in the letter of appointment was binding until the formal agreement was drawn up and signed; the latter was not a condition which had to be fullled before the parties were bound.33 (iii) Consideration Contract must be supported by valuable consideration: typically wages and provision of work. In Lui Lin Kam v Nice Creation Development Ltd34 Justice Tang JA said at para 30, quoting Sir Christopher Slade in Clark v Oxfordshire Health Authority:35 There must be a wage or other remuneration. Otherwise there will be no consideration, and without consideration no contract of any kind. The servant must be obliged to provide his own work and skill. There must, in my judgment, be an irreducible minimum of obligation on each side to create a contract of service ... Typically, in a contract of employment, consideration from the employer will be in the form of payment of wages and provision of other benets to the employee. An employees consideration will be the provision of labour or personal services. (iv) Clarity of terms Terms of the contract of employment must be sufciently clear. An offer of employment that does not set out sufciently clear terms will not create a binding contract. The leading authority on this point is Loftus v Roberts.36 In that case an actress was hired by a manager to go on a tour to the suburban theatres at a certain salary, with a provision that thereafter she would go to the London theatres at the Westend. ... at a West-end salary, to be mutually arranged between us. It was held that whilst the rst part of the contract was valid, the second part was an illusory contract because no salary was xed and there was no certainty. The salary was to be agreed between the parties and that gave either party an option out of the contract and as such, was an invalid contract. Vaughan Williams LJ37 summed up what he saw as the position: 3.018 3.017

33 34

35 36 37

[1989] 2 HKC 189 at para 31. [2006] 3 HKLRD 655; see also the rst condition of the three conditions required to form a contract of employment mentioned by MacKenna J in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497 at page 515, namely that the servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill. [1998] 1 IRLR 125. (1902) 18 TLR 532. This passage was quoted by Deputy High Court Judge Woolley in Wood v Jardine Fleming Holdings Ltd [2001] 2 HKC 735 at para 15. See also Ko Sunkersette Obu v A Strauss & Co Ltd [1951] AC 243 and Re Richmond Gate Propery Co Ltd [1965] 1 WLR 335.

66

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wherever words which by themselves constituted a promise were accompanied by words which showed that the promisor was to have a discretion or option as to whether he would carry out that which purported to be the promise, the result was that there was no contract on which an action could be brought at all. The doctrine was an old one. In Leake on Contracts 3rd ed, p 3, it was expressed thus:- Promissory xpressions reserving an option as to the performance do not create a contract. This was not one of that class of cases in which it was said that there was no contract because the words were too vague. This was a case in which it was said there was no contract because the promissory words left a discretion to the alleged promisor.38 However, the mere fact that a contract of employment includes a discretionary bonus or incentive scheme that retains a degree of discretion in the employer will not void a contract for uncertainty in its terms.39 A contract that is made subject to a staff handbook yet to be created40 or terms41 to be agreed upon will not necessarily be void for uncertainty. As discussed above, at paras 3.0103.013, provided the essential terms for the formation of a contract are sufciently clear,42 the contents of the contract may be expanded in various ways beyond the essential terms presented at the time of offer and acceptance. For instance, there are terms that are implied by law43 and terms that may be incorporated by reference44 or implied by the facts.45 (v) Illegality 3.019 Contract unenforceable if vitiated by illegality. A contract will be unenforceable if it is vitiated by illegality, duress or undue inuence.46 In Lilik Andayani v Chan Oi Ling,47 the appellant, a foreign domestic helper who could not read English, signed a standard form domestic helper contract with the respondent with a salary specied at the statutory minimum of HK$3,860 per month and which had been approved by the Immigration Department. However, the parties separately agreed orally that the appellant would only be paid HK$2,200 per month. Deputy Judge To held that the appellant could not rely on the approved contract as there had never been a meeting of minds between the appellant and the respondent as to the terms of that contract. All along the appellant had been told and understood that her salary would be HK$2,200 per month. Deputy Judge To also held that the oral contract was illegal and unenforceable as the appellant was uninformed of the minimum wage imposed by the Director of Immigration in Hong Kong and the contract was vitiated by fraud.

38 39

40 41 42

43 44 45 46 47

(1902) 18 TLR 532 at p 534. See Wood v Jardine Fleming Holdings Ltd (unrep., HCA 12524/1998, [2001] HKLRD (Yrbk) 467) and Clark v Nomura International Plc [2000] IRLR 766. Post v Nomura International (Hong Kong) Ltd (unrep., HCA 7259/1997, [2001] HKEC 600), see paras 27 and 28. Gilligan v AHK Air Hong Kong Ltd [1989] 2 HKC 189. In Gilligan v AHK Air Hong Kong Ltd Deputy Judge Saied held at para 31 these vital terms included the job title, the salary package, the date from which it was to commence and the annual leave. see para 3.027. see para 3.022. see para 3.025. Lilik Andayani v Chan Oi Ling [2001] 2 HKLRD 572 at para 12. Lilik Andayani v Chan Oi Ling [2001] 2 HKLRD 572.

FORMATION OF THE CONTRACT

67

However, Deputy Judge To found that by the fact that the appellant had worked for the respondent, there was a de facto employment relationship, and there could be implied a contract of employment on the same terms as the approved contract. As for awarding compensation to workers who enter Hong Kong to work without the requisite visa to do so, pursuant to the s.2(2) discretion of the Employees Compensation Ordinance (Cap.282) (ECO) to treat such employees as working under a valid contract, the public policy regarding unemployable persons performing lawful work, was better served by allowing such compensation claims.48 (vi) Form of agreement Offer letter can be contractually binding. It is not uncommon for an employer to make an offer of employment by way of a short offer letter (sometimes only one page long) following the acceptance of which the employee will be provided with a more detailed employment agreement. To the extent that the offer letter satises the conditions for formation of a contract49 such offer letter will be contractually binding. Hence, any proposed term to be included in the employment agreement must be consistent with the terms contained in the offer letter unless the variation falls within the employers power to vary unilaterally50 or the employee agrees to such variation. However, where the offer letter is merely an agreement to agree in the future, such offer letter will not be contractually binding.51 No specic form for an employment contract. Employment contracts can be written or oral. They can contain minimal express terms (the parties, the level of pay52 and the work to be performed). However, frequently employment contracts in Hong Kong will comprise at least a brief letter setting out the basic structure of the relationship. There is no absolute obligation in Hong Kong for employment contracts to be in a particular form. However an employee has a statutory right53 to require the employer to provide limited information concerning the contract of employment in writing. Where a contract of employment is not in writing, it will be for the courts to determine the terms of the contract of employment in the event of a dispute.54 Policies, practices and handbooks may be incorporated into the employment contract. It is common, particularly for large organisations, that the employer will also have a staff handbook setting out policies or procedures. This handbook may form part of the contract of employment, but can also be excluded by appropriate wording. The approach to be taken concerning the incorporation of other documents as part of the contract of employment is summarised by Lam J in Kwan Ka Man Blanche v Espirit 3.020

3.021

3.022

48 49 50 51 52 53 54

See Yu Nongxian v Ng Ka Wing [2007] 4 HKLRD 159 and Chen Xiu Mei v Li Siu Wo [2008] 2 HKLRD 211. see paras 3.0133.019. see paras 3.0823.086. Gilligan v AHK Air Hong Kong Ltd [1989] 2 HKC 189. Section44(1) of the Employment Ordinance (Cap.57). Ibid. See para 3.003 above. In Law Shiu Kai v Dynasty International Hotel Corp [2004] 2 HKLRD 524 there had been a number of drafts of the contract of employment but none had been signed. Cheung J said at para 55 such drafts do serve as part of the evidence before the Court regarding what had been agreed between the parties. On that basis, I fully take into account the contents of the various drafts.

68

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(Retail) Hong Kong Ltd55 quoting Hobhouse J (as he then was) in Alexander v Standard Telephones & Cables Ltd (No. 2):56 The fact that another document is not itself contractual does not prevent it from being incorporated in the contract if that intention is shown as between the employer and the individual employee. Where a document is expressly incorporated by general words it is still necessary to consider in conjunction with the words of incorporation, whether any particular part of that document is apt to be a term of the contract; if it is inapt, the correct construction of the contract may be that it is not a term of the contract. Where it is not a case of express incorporation, but a matter of inferring contractual intent, the character of the document and the relevant part of it and whether it is apt to form part of the individual contract is central to the decision whether or not the inference should be drawn. 3.023 Some benets may not be contractual and so not enforceable. Terms and conditions not incorporated into the contract of employment will not be contractually enforceable.57 In Suzuya International (HK) Co Ltd v Chung Chun Hei58 the court found that the staff handbook sought to be relied upon by the employee to claim medical expenses did not confer contractual entitlements on the employee because the contract of employment did not refer to the staff handbook, the staff handbook was rst seen by the employee after she had commenced employment with the employer and parts of the staff handbook were outdated. In Cathay Pacic Airways Ltd v Sumitra Jayasena Kelly,59 the Court held that retirement travel benets (details of which were contained in the employers Staff Benets Booklet) claimed by a former employee were discretionary benets as there was no evidence that such benets had been incorporated into the employment contract. The Court conrmed the Presiding Ofcers nding that the Staff Benets Booklets were not contractual documents and could only be evidence of retirement travel benets being discretionary benets. However, a disciplinary procedure incorporated into the contract of employment may fetter an employers right to terminate the employment of an employee where the underlying grounds for termination of employment falls within the scope of the disciplinary procedure.60 Notices and circulars issued by an employer may also confer contractual entitlements.61 Even where no contractual entitlement exists an employee may be able to argue that the employer is estopped from denying

55 56 57

58 59 60

61

(unrep., HCLA 160/2003, [2004] HKEC 846) at para 15. [1991] IRLR 286. Suzuya International (HK) Co Ltd v Chung Chun Hei (unrep., DCCJ 5251, 6016/2004, [2007] HKEC 438); Cathay Pacic Airways Ltd v Sumitra Jayasena Kelly (unrep., HCLA 94/2005, [2006] HKEC 1954). (unrep., DCCJ 5251, 6016/2004, [2007] HKEC 438). (unrep., HCLA 94/2005, [2006] HKEC 1954). See Warham v Cathay Pacic Airways Ltd (unrep., HCMP 4400/2001, HCA 2822/2002, 299, 1405/2006, 807/2007, [2009] HKEC 1848) and Gunton v Richmnd-upon-Thames LBCl [1981] 1 Ch 448 where it was held that the disciplinary procedures fettered the employers right to terminate the contract of employment. This can be contrasted with Cheung Chi Keung v Hospital Authority [2006] 2 HKLRD 46 where it was held that there was no obligation requiring compliance with the disciplinary procedure if the employer chose to terminate the employees employment by notice, even if the disciplinary procedure had commenced but had not been completed. See Cathay Pacic Airways Ltd v Sumitra Jayasena Kelly (unrep., HCLA 94/2005, [2006] HKEC 1954) where the notices and circulars issued in relation to the new policy for concession travel did not confer contractual rights.

IMPLIED TERMS AND DUTIES

69

the existence of a benet.62 Conversely, receipt by an employee of an employee manual and regulations setting out obligations and expectations in relation to accepting an advantage from a third party may bind the employee.63

3. IMPLIED TERMS AND DUTIES

(a) Implied terms Generally. A written contract of employment will often not set out the full terms governing the employment relationship.64 While certain contracts of employment are more detailed than others, there will always be certain implied terms which will also apply to govern the relationship between employer and employee. There is a distinction between a term implied by law,65 due to the existence of an employer-employee relationship, and a term implied arising from the particular facts and circumstances of the parties.66 (i) Implied by facts Terms implied by facts and circumstances. The law on implied terms is set out in the well-known passage from the judgment of Lord Simon in BP Renery (Westernport) Pty Ltd v Shire of Hastings:67 for a term to be implied, the following conditions (which may overlap) must be satised: (1) it must be reasonable and equitable; (2) it must be necessary to give business efcacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that it goes without saying; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract. It is an accepted law that a term will not be implied into a contract simply because it is reasonable.68 In Chow Jih Yim Wilson v Global Regency Electronics Ltd the Court implied a term into the contract of employment that the Performance Bonus should be calculated based on the net prots of the employer for the period up to the termination of employment of the employee (and not to the end of the employers nancial year).69 In Sunny Tadjudin v 3.025 3.024

62

63

64 65

66 67

68 69

In Cathay Pacic Airways Ltd v Sumitra Jayasena Kelly (unrep., HCLA 94/2005, [2006] HKEC 1954) such an argument, on the facts, was dismissed. The employee had argued that the employer was estopped from denying the retirement travel benets were a contractual entitlement. In Tri-Union (International) Development Ltd v Shum Lee Man (unrep., HCA 2723/2004, [2008] HKEC 820) at para 75 Deputy High Court Judge L. Chan found that an Employees Manual and Regulations Regarding Acceptance of Advantage were received by the employee and the employee was bound by the terms contained in these documents. For example, Kwan Ka Man Blanche v Espirit (Retail) Hong Kong Ltd (unrep., HCLA 160/2003, [2004] HKEC 846) . For example, the implied duty of mutual trust and condence; see Semana Bachicha v Poon Shiu Man [2000] 2 HKLRD 833 and Sun Zhongguo v BOC Group Ltd [2003] 2 HKC 239. For example, see Chow Jih Yim v Global Regency Electronics Ltd (unrep., HCLA 21/2005, [2005] HKEC 1472). [1978] 52 ALJR 20, adopted by Yau Chin Kwan v Tin Shui Wai Development Ltd [2003] 2 HKLRD 1 (which is not a case involving an employment situation but the principles should still apply). Sun Zhongguo v BOC Group Ltd (fn 65) at para 12. Chow Jih Yim v Global Regency Electronics Ltd (unrep., HCLA 21/2005, [2005] HKEC 1472) (at para 9).

70

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Bank of America National Association70 Justice Chu held that an anti-avoidance term to the effect that an employer was bound not to engage in tactics which evaded the operation of an express term that conferred a certain or conditional benet upon the employee could not be implied into the contract of employment. It was inappropriate for the courts to construct a common law remedy based on the anti-avoidance term, which ran counter to the evident intention of the EO, and doing so, would also cut down the clear statutory right of termination without cause.71 On appeal the order of Justice Chu was set aside by the Court of Appeal on the basis that this was not such a plain and obvious case for striking out and dismissing the plaintiffs claim outright.72 3.026 Express terms shall prevail. An implied term will not override an express term. So, in Wong Yin Fong v ISS Hong Kong Services Ltd Justice Lam held that where there was an express mobility clause entitling the employer to redeploy the employee, it was not possible to imply a duty stemming from the duty of trust and condence that the employer could not re-deploy in circumstances where the mobility clause was applicable.73 A long-standing practice may not be sufcient to confer contractual entitlements.74 (ii) Implied by law 3.027 Terms implied by law. The nature of an employment relationship demands that certain terms be implied as a legal incident of such relationship. This was identied by Stephenson LF in Mears v Safecar Security Ltd: there are contracts which establish a relationship, for example, of master and servant, landlord and tenant, which demand by their nature and subject matter certain obligations, and those obligations the general law will impose and imply, not as satisfying the business efcacy or ofcious bystander tests applicable to commercial contracts where there is no such relationship, but as legal incidents of those other kinds of contractual relationship. In considering what obligations to imply into contracts of these kinds which are not complete, the actions of the parties may properly be considered. But the obligation must be a necessary term; that is, required by their relationship. It is not enough that it would be a reasonable term.75 (b) Implied duties of employee (i) Duty of delity and good faith 3.028 Employees duty of delity and good faith. A principal duty imposed on an employee is the duty to serve his or her employer with delity and good faith.76 The scope of the duty of delity and good faith is difcult to dene. The enquiry a court is required to

70 71 72 73 74

75 76

(unrep., HCA 322/2008, [2008] HKEC 1986). See para 32. Sunny Tadjudian v Bank of America National Association [2010] 3 HKLRD 417 at para 65. [2005] 2 HKLRD 648 at para 47. See Wong Yin Fong v ISS Hong Kong Services Ltd [2005] 2 HKLRD 648 (longstanding practice to allow nightshift workers to leave around 3.30am provided one worker stayed behind. Held did not alter contractual working hours). [1982] 3 WLR 366 at 383. Gregory v Ford [1951] 1 All ER 121; Deacons v White & Case Ltd Liability Partnership [2003] 3 HKLRD 670.

IMPLIED TERMS AND DUTIES

71

make is whether the employee has done something which saps the condence of the employer in him and thus strikes at the very root of the relationship between them.77 The intention of the employee is most likely irrelevant.78 An intention to act in breach of the duty of good faith is not, in itself, a breach of such duty.79 The employees core duty of delity to his employer is capable of limitation or variation if the contract between them states as much.80 The following paragraphs deal with specic applications of the duty of delity and good faith. (a) Must not persuade customers to shift to new employer. The duty of delity and good faith imposes an obligation on an employee not to persuade customers of the employees current employer to move with the employee to the employees proposed new employer.81 In terms of what an employee may do to solicit clients see the guidelines in Kao Lee & Yip v Koo Hoi Yan82 per Ma J (as he then was): 58. Ultimately, as I have said, the application of the principle depends on the facts and involves matters of degree. 59. The following is a familiar scenario. A partner, employee or other duciary intends leaving a rm or employers either to join another rm or to set up on his own in competition. What steps can he take to solicit clients during the time he is still in partnership or employment with the old rm? Here, the partner or employee needs to tread very carefully: (1) Solicitation as such when he is still working for the old rm or employers is not permitted: see Wessex Dairies. This is so even if this is done in his spare time: see Hivac at 182, Balston at 414. Whether or not an act amounts to solicitation will of course obviously depend on the facts in any given case. It is neither possible nor desirable to set out the various circumstances in which this can arise. In some instances, it may be difcult to ascertain whether the relevant act or acts amount to solicitation. One would have thought that merely 3.029

(2)

77 78

79

80

81

82

Chan Yiu Yam v Peter Woo [1981] HKLR 193 at para 8 per Sir Alan Huggins VP. Chan Yiu Yam v Peter Woo [1981] HKLR 193 at para 8 where Sir Alan Huggins VP said, Usually the employee will admit [the conduct] to be unfair and dishonourable, but we do not rule out the possibility that a case might occur where, upon an objective approach, a breach of duty might be found although the employee did not in fact think he was doing wrong. Horcal Ltd v Gatland [1984] IRLR 288; Deacons v White & Case Ltd Liability Partnership [2003] 3 HKLRD 670; Kao, Lee & Yip v Koo Hoi Yan [2003] 3 HKLRD 296. Deacons v White & Case Ltd Liability Partnership [2003] 3 HKLRD 670 per Deputy High Court Judge Gill at para 113. See Deacons v White & Case Ltd Liability Partnership [2003] 3 HKLRD 670 at para 150 where Deputy High Court Judge Gill said A duciary or employee cannot compete with his principal for business. He cannot solicit his principals clients to leave his principal. Whether activity undertaken by him goes so far as to amount to soliciting or is preparatory work in anticipation of his departure and is unobjectionable is a matter of degree in the given circumstances. The duty of good faith or delity is also broken if an employee makes or copies a list of customers of the employer for use after his employment ends or deliberately memorises such a list, even though there is no restriction on the ex-employee canvassing or doing business with customers of his former employer: AXA China Region Insurance Co Ltd v Pacic Century Insurance Co Ltd (unrep., HCA 9093/2000, [2001] HKEC 931) at para 70. [2003] 3 HKLRD 296.

72

CONTRACT OF EMPLOYMENT

informing a client that the employee is about to leave a partnership or employment, will not by itself amount to solicitation. It may be different where the client is asked whether he is likely to follow that partner or employee when he moves. ... (3) Finally, I should just mention that even where it is the client that initiates the approach to the partner or employee with the intention that the partner or employee should leave whereupon the client would transfer to him the relevant custom or business, the partner or employee will be in breach of his duciary duties if he were to go along with this unless consent is obtained from the beneciary (whether a fellow partner or the employer): see Sanders v Parry [1967] 1 WLR 753.;

3.030

(b) Should not take part in business in competition with employer. Similarly an employee should not take part in a business in competition with the employees employer.83 This does not, however, amount to a duty not to compete with the employees employer following the termination of the employment contract,84 unless the termination was by the employee and in breach of contract.85 (c) Might be required to disclose misconduct of fellow employees. The duty of good faith can also oblige an employee to disclose misconduct of fellow employees.86 However the extent of such obligation may depend on the seniority of the employee concerned.87 This duty does not, generally, impose a duty to disclose information incriminating the employee himself.88 (d) Others. The duty of good faith includes the obligation not to disrupt the business of the employer. This extends to a restriction on taking industrial action designed to damage the employer.89 A further consequence of the duty of good faith is the implied

3.031

3.032

83

84

85

86

87 88

89

Oriental Machinery Ltd v Choi Kin On (unrep., HCA 1719/2000, [2001] HKEC 1391) where Deputy High Court Judge Lam held that an employee approaching a customer of the employer while employed by the employer to solicit that customers business for the employees own business he had set up is a breach of the employees implied duty of delity to the employer. However, His Honour held that the employee setting up his own rm while employed by the employer did not amount to a breach of the implied duty of delity and that such act was just a preparatory act. See also Thomas Marshall (Exports) Ltd v Guinle [1978] ICR 905 at 922; Kao Lee & Yip v Koo Hoi Yan [2003] 3 HKLRD 296. Re Irish (1889] LR 40 Ch D 49; cf Faccenda Chicken Ltd v Fowler [1986] ICR 297; Balston Ltd v Headline Filters Ltd (No. 1) [1987] FSR 330; GSL Engineering Ltd v Yau Hon Yin, Sammon [1991] 1 HKLR 199; Deacons v White & Case Ltd Liability Partnership [2003] 3 HKLRD 670. Thomas Marshall (Exports)Ltd v Guinle [1978] ICR 905 at 922; cf Evening Standard Ltd v Henderson [1987] ICR 588. Ng Chung Hing v Wan Kit (unrep., HCA 8951/1994, [1999] HKEC 1026) citing Swain v West (Butchers) Ltd [1936] 3 All ER.261 where Greene LJ held, Whether there is such a duty or not must depend upon the circumstances of each particular case. and Sybron Corp v Rochem Ltd [1984] Ch 112 where the Court of Appeal held A person in a managerial position cannot possibly stand by and allow fellow servants to pilfer the companys assets generally, the senior employee is under a duty to report what has happened as soon as he nds out, and further to indicate which steps (if any) he has taken to prevent a repetition thereof.; Deacons v White & Case Ltd Liability Partnership [2003] 3 HKLRD 670 per Deputy High Court Judge Gill at para 125. Ibid. Bell v Lever Brothers Ltd [1932] AC 161; cf Sybron v Barclays Bank Plc [1985] Ch 299; Deacons v White & Case Ltd Liability Partnership [2003] 3 HKLRD 670. Secretary of State for Employment v Associated Society of Locomotive Engineers and Firemen (No. 2) [1972] 2 QB 455; British Telecommunications Plc v Ticehurst [1992] IRLR 219; Miles v Wakeeld MDC [1987] ICR 368.

IMPLIED TERMS AND DUTIES

73

duty on an employee not to work for another employer in a role inconsistent with the current employment.90 However, an employee can, of course, work for a third party outside employment hours,91 provided that this does not cause harm to the employees rst employers business.92 An employee must also disclose information useful to the employees employer, which is obtained in the course of employment.93 The duty of good faith and delity continues so long as the contract of employment subsists.94 (ii) Duty to exercise reasonable skill and competence Employees duty to exercise reasonable skill and competence. An employee owes a duty to perform work with reasonable skill or competence.95 A claim for breach of the implied duty to exercise reasonable skill and care may sometimes also give rise to a claim in negligence.96 This duty extends to all tasks to be performed by the employee during employment and is not limited to any special skills required by the employment.97 The duty to exercise skill can include an obligation to indemnify the employer where an employees failure to exercise skill results in tortious liability for the employer.98 (iii) Duty to obey lawful and reasonable orders Employees duty to obey lawful and reasonable orders. Wilful disobedience of a lawful and reasonable order shows a complete disregard of a condition essential to the contract of service so as to warrant dismissal.99 So, while an isolated incident of lateness may not warrant dismissal, persistent and repeated lateness that had been warned against has been held to be a sufcient ground for summary dismissal by reason of disobeying a lawful order.100 Holding a stop work meeting to discuss pay conditions has been held to be wilful disobedience of an employers lawful and reasonable 3.034 3.033

90

91

92 93

94

95

96

97 98 99

100

Cf the special cases of Lumley v Wagner (1852) 1 De GM & G 604; National Provincial Bank of England v Marshall (1889) LR 40 Ch D 112. Nova Plastics v Froggatt [1982] IRLR 146; cf Hivac Ltd v Park Royal Scientic Instruments Ltd [1946] Ch 169; Kao Lee & Yip v Koo Hoi Yan [2003] 3 HKLRD 296. Nova Plastics v Froggatt [1982] IRLR 146; Kao Lee & Yip v Koo Hoi Yan [2003] 3 HKLRD 296. Cranleigh Precision Engineering Co Ltd v Bryant [1965] 1 WLR 1293; Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443; Fongs National Engineering Co Ltd v Wong Wai Yuk (unrep., HCA 573/2003, [2003] HKEC 1141). Chan Yiu Yam v Peter Woo [1981] HKLR 193. See also the dicta of Leggatt LJ in Wallace Bogan & Co v Cove [1997] IRLR 453 at para 14 which was cited by Deputy High Court Judge Wong Yan Lung, SC in Fongs National Engineering Co Ltd v Wong Wai Kuk (unrep., HCA 573/2003, [2003] HKEC 1141) at para 43. Mingson Industries Ltd v Lin Shun Hung (unrep., DCCJ 6560/1990, [1992] HKEC 181); Harmer v Cornelius (1858) 5 CB (NS) 236; Shenyin Wanguo Securities (HK) Ltd v Cheung Hung (unrep., HCA 12802/1998, [2000] HKEC 1364); cf Jones v Manchester Corp [1952] 2 QB 852. Mingson Industries Ltd v Lin Shun Hung (unrep., DCCJ 6560/1990, [1992] HKEC 181) where giving instructions to another employee to accept a post-dated cheque which was subsequently dishonoured did not amount to a breach of the implied duty to exercise reasonable skill and competence. Lister v Romford Ice & Cold Storage Co Ltd [1975] AC 555. See para 3.040 below. Ying Kee Safes & Furniture Ltd v Wong Yam Tak (unrep., HCLA 105/1995, [1995] HKLY 613) at para 11 and s.9 Employment Ordinance. To justify summary dismissal for wilfully disobeying a lawful and reasonable order the disobedience must be wilful and not negligent: Law Ying Chung v Lo Chun Kie (unrep., CACV 28/2004, [2005] HKEC 359) at para 66. See also Lam Tze Ying v Maria College (unrep., HCLA 136/1996, [1997] HKLY 456) (in considering failure of teachers to failure to follow certain instructions in dealing with students, had to be borne in mind that teachers were professionals and entitled to discretion as to how best to deal with students). Ying Kee Safes & Furniture Ltd v Wong Yam Tak (unrep., HCLA 105/1995, [1995] HKLY 613); Oceanic Universal Garment Manufacturers Co Ltd v Keung Man Lan [1987] 1 HKC 27.

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orders.101 Whether an order is reasonable will need to be assessed in the context in which it is given.102 The employee has the burden of establishing a reasonable excuse in not obeying a prima facie lawful and reasonable instruction of the employer.103 Where an employer gives a direction to an employee that is both lawful104 and within the scope of the employees employment, the employee is obliged to comply with such direction. (iv) Duty not to disclose condential information 3.035 Employees duty not to disclose condential information. The leading case on an employees duty of condentiality to his employer is Faccenda Chicken Ltd v Fowler105 which has been accepted and applied by the Hong Kong Courts.106 At rst instance, Goulding J categorised information gained by an employee in the course of his employment into three classes, namely: (1) (2) information which was so easily accessible to the public that an employee was at liberty to impart it to anyone during his employment and afterwards; condential information which he could not use or disclose during his employment without breaching his duty of delity to his employer, but which, in the absence of an express restrictive covenant, he was at liberty to use thereafter; and specic trade secrets which he was not entitled to use either during or after his employment.107

(3)

Hence, during employment the employees duty of condentiality attaches to all kinds of information learned in the course of employment, except for information that is trivial or in the public domain. After the cessation of employment the only information capable of being protected by express or implied restriction is information that is the equivalent of a trade secret.108 3.036 Second category: condential information. In deciding whether information falls within the second category of Goulding Js three categories Deputy High Court Judge To stated in Kuoni Travel (China) Ltd v Kelly Frances Richards at para 12: attention has to be given to the following matters: (a) the nature of the employment; (b) the nature of the information itself; (c) whether the employer

101

102

103 104

105 106

107 108

Liu Kin Yip v Jackel Porter Co Ltd (unrep., HCLA 53/1993, [1994] HKEC 242). While Litton J held that the conduct in question justied summary dismissal under s.9(a)(i) Employment Ordinance, it should be noted that this case was decided before the introduction of s.9(2) Employment Ordinance. Lee Sze Yiu v Garden Co Ltd (unrep., HCLA 22/2000, [2000] HKEC 917) where Yam J held that an order directing the employee to change to work the late shift in circumstances where the employer had previously acceded to the employees request not to work the late shift for medical reasons was unreasonable. Fong Yee Dung v Swire Properties Management Ltd (unrep., HCLA 96/1995, [1995] HKEC 289). Gregory v Ford [1951] 1 All ER 121; Oceanic Universal Garment Manufacturers Co Ltd v Keung Man Lan [1987] 1 HKC 27. [1986] ICR 297. See, for example, Deacons v White & Case Ltd Liability Partnership [2003] 3 HKLRD 670 and Kuoni Travel (China) Ltd v Kelly Frances Richards (unrep., HCA 1265/2006, [2006] HKEC 2201). [1984] ICR 589, at para 600. Deacons v White & Case Ltd Liability Partnership [2003] 3 HKLRD 670 at para 128.

IMPLIED TERMS AND DUTIES

75

impressed on the employee the condentiality of the information; and (d) whether the information can be easily isolated from other information which the employee is free to use or disclose.109 Disclosure of condential information belonging to the employer may give the employer grounds to summarily dismiss the employee.110 Third category: test for whether information is a trade secret. In determining whether information is a trade secret or equivalent to trade secret, Deputy High Court Judge To held in Kuoni Travel (China) Ltd v Kelly Frances Richards at para 9 that such information must be: (1) (2) (3) used in a trade or business (Lansing Linde Ltd v Kerr [1991] 1 WLR 251 and Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117); is condential, ie not already in the public domain (Thomas Marshall (Exports) Ltd v Guinle [1979] Ch 227 and Faccenda Chicken); can be easily isolated from other information which the employee is free to use so that any man of average intelligence and honesty would think it is improper to use the information at the disposal of his new employer (Faccenda Chicken and Printers & Finishers Ltd v Holloway [1965] 1 WLR 1); which, if disclosed to a competitor, would be liable to cause real or signicant harm to the owner (Lansing Linde and Thomas Marshall v Guinle); and which the owner of the information must limit its dissemination or at least not encourage or permit its widespread publication or otherwise impress upon the employee the condentiality of the information (Lansing Linde and Faccenda Chicken).111 3.038 3.037

(4) (5)

Whether misuse of condential information must be detrimental to employer. Whether the implied term preventing an employee from misusing condential information requires the qualication that such use must be detrimental to the employer is yet to be conclusively determined.112 A third party, who receives information in breach of the duty not to disclose from an employee, may also be restrained from using or releasing the information.113 The public interest exception means that the duty not to disclose condential information will not extend to information disclosing fraud or

109 110 111

112

113

(unrep., HCA 1265/2006, [2006] HKEC 2201). Gilligan v AHK Air Hong Kong Ltd [1989] HKCFI 472. (unrep., HCA 1265/2006, [2006] HKEC 2201). See also Deputy High Court Judge To at para 10 regarding the test that should be applied for items (2) and (4). Merryweather v Moore [1892] 2 Ch 518; Robb v Green [1895] 2 QB 1; Bents Brewery Co v Hogan [1945] 2 All ER 570; Cranleigh Precision Engineering Co Ltd v Bryant [1965] 1 WLR 1293; A-G v Guardian Newspaper Ltd (No. 2) [1990] 1 AC 109 where Lords Goff, Keith and Grifths touched on the topic without providing a rm view; Deacons v White & Case Ltd Liability Partnership [2003] 3 HKLRD 670 where Deputy High Court Judge Gill at para 129 also touched upon the topic but did not make a ruling on the point. Printers & Finishers Ltd v Holloway [1965] 1 WLR 1; AXA China Region Insurance Co Ltd v Pacic Century Insurance Co Ltd [2003] 3 HKC 1.

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misconduct which it is in the public interest to be disclosed.114 Misuse of condential information during employment by an employee may entitle the employer to a Springboard Injunction.115 The concept of springboard relief, sometimes known as the headstart principle, arises where there is misuse of condential information.116 Roxburgh J in Terrapin Ltd v Builders Supply Co (Hayes)117 may have been the rst to coin the term springboard where he said: a person who has obtained information in condence is not allowed to use it as a springboard for activities detrimental to the person who made the condential communication, and springboard it remains even when all the features have been published, or can be ascertained by actual inspection by any member of the public It is, in my view, inherent in the principle upon which [Saltman v Campbell] rests that the possessor of such information must be placed under a special disability in the eld of competition in order to ensure that he does not get an unfair start. As such, springboard relief is in the form of an injunction restraining the party in breach from competing with the party whose condential information has been misused.118 (v) Duty to account 3.039 Employees duty to account. Employees are obliged to account to their employer for any property provided to them, any prots made through their employment119 and any bribe,120 secret prot or commission121 received as a consequence of the employees employment. The duty to account is unaffected by the fact that the employer may not have suffered any loss.122 (vi) Duty to indemnify employer 3.040 Employees duty to indemnify the employer. Where an employee breaches the duty to use reasonable care and skill and as a consequence the employees employer is obliged to pay tortious damages to a third party, the employer has a right to be

114

115

116

117 118

119 120 121 122

Gartside v Outram (1856) 26 LJ Ch 113; Initial Services v Putterill [1968] 1 QB 396. Kwan Chi On v Hong Kong Baptist University (unrep., HCA 12277/1996, [1997] HKEC 114). See Fongs National Engineering Co Ltd v Wong Wai Yuk (unrep., HCA 573/2003, [2003] HKEC 1141) and ICAP (Hong Kong) Ltd v BGC Securities (Hong Kong) LLC [2005] 2 HKLRD 349. In the earlier case of Vite Ltd v Chiu Oi Fan (unrep., HCA 8148/2000, 28 Aug 2000) Justice Chung did appear to consider the Springboard Theory in the context of preparatory work undertaken by the defendant to set up a competing business and did not necessarily conne the Springboard principle to misuse of condential information. The case of ICAP (Hong Kong) Ltd v BGC Securities (Hong Kong) LLC seems to make it clear, at least for now, that the Springboard principle is conned to misuse of condential information. Slik Hong Kong Co Ltd v Gerald Merlyn Rhoslyn Evans (unrep., HCA 1424/2005, [2005] HKEC 1730); ICAP (Hong Kong) Ltd v BGC Securities (Hong Kong) LLC [2005] 2 HKLRD 349. In the latter case Justice Stone conrmed that the springboard principle remains conned to misuse of condential information. [1967] RPC 375. See Supreme Fame Industrial Ltd v Cheung Man Kwok (unrep., HCA 4208/2003, 21 Novem 2003); Fongs National Engineering Co Ltd v Wong Wai Yuk (unrep., HCA 573/2003, [2003] HKEC 1141) where Deputy High Court Judge Wong Yan Lung SC in Chambers granted a Springboard injunction to the plaintiffs. Biddle v Bond (1865) 6 B & S 225; Parker v McKenna [1874] LR 10. A-G v Goddard (1929) 98 LJ KB 743; A-G v Lui Lok [1984] HKLR 275. Reading v A-G [1951] AC 507; A-G v Lui Lok [1984] HKLR 275. Reading v A-G [1951] AC 507.

IMPLIED TERMS AND DUTIES

77

indemnied from the employee.123 Whether this is an implied term or simply a manner of calculation of damages for breach of contract (i.e. breach of implied duty to use reasonable care) is uncertain.124 (vii) Duty in relation to industrial action Employees duties in relation to industrial action.125 Industrial action that falls short of a strike (e.g. work to rule) can amount to a breach of contract. Any action of an employee designed to disrupt the business of the employer will breach the implied duty of good faith.126 This extends to a restriction on taking industrial action designed to damage the employer.127 So, an employee participating in a strike may be in breach of his contract of employment. However, the employer would be prohibited from summarily dismissing the employee under s.9 EO.128 Where industrial action takes the form of a refusal to undertake certain actions that would fall within the normal course of employment, then this will be a breach of contract where the refusal contravenes a direct order from the employer.129 Whether an overtime ban is in breach of contract will depend on the relevant terms of the contract (is the employee obliged to make himself available for overtime?).130 (c) Implied duties of employer (i) Duty to provide work Employer under duty to provide work where remuneration dependent on hours worked. Where an employees level of remuneration is dependent on the number of hours worked (or amount of work performed in respect of piece rate employees) the law will imply an obligation on the employer to provide the employee with the opportunity to earn a reasonable wage.131 However, whether this right to earn wages truly amounts to a right to be given work independent of payment of remuneration (i.e. the question of whether an employer is obliged to provide work for an employee in addition to paying the agreed salary) is less clear. In certain cases (e.g. a performer) such obligation may apply.132 However a spot welder does not have a general right to work.133 The Court of Appeal (UK) considered such general right in Langston v Amalgamated Union of Engineering Workers134 and did not reach a clear conclusion. 3.042 3.041

123

124 125 126

127

128 129 130 131

132 133 134

Lister v Romford Ice & Cold Storage Co Ltd [1957] AC 555; Semtex Ltd v Gladstone [1954] 1 WLR 945; Harvey v RG ODell Ltd [1958] 2 QB 78. Chan Chun Keung v Chiu Kwok Kuen (unrep., HCA 11970/1985, [1985] HKLY 428). Lister v Romford Ice & Cold Storage Co Ltd [1957] AC 555; cf Harvey v RG ODell Ltd [1958] 2 QB 78. For a more detailed discussion on industrial action see Chapter 16. Secretary of State for Employment v Associated Society of Locomotive Engineers and Firemen (No. 2) [1972] 2 QB 455. Secretary of State for Employment v Associated Society of Locomotive Engineers and Firemen (No. 2) [1972] 2 QB 455; British Telecommunications Plc v Ticehurst [1992] IRLR 219; Miles v Wakeeld MDC [1987] ICR 368. Section 9(2), EO. DC Thomson & Co Ltd v Deakin [1952] 1 Ch 646. Ibid; cf Camden Exhibition & Display Ltd v Lynott [1966] 1 QB 555. Devonald v Rosser & Sons [1906] 2 KB 728; Shell Electric Manufacturing Co Ltd v Lau Shiu Cheung [1980] HKDCLR 9. Herbert Clayton & Jack Waller Ltd v Oliver [1930] AC 209; Withers v General Theatre Corp Ltd [1933] 2 KB 536. Langston v Amalgamated Union of Engineering Workers (No. 2) [1974] ICR 510. [1974] ICR 510.

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(ii) Duty to provide safe working environment 3.043 Employer under duty to provide safe working environment.135 An employer must ensure that the plant, tools, equipment, premises and systems of work used in the employers business are safe.136 The duty is set out by Keith JA in Wong Wai Ming v Hospital Authority137 in the following terms: An employer is under a duty to its workforce to take reasonable care for their safety. Where one employment happens to be more dangerous than another, a greater degree of care must be taken, but where the employer cannot eliminate the risk of danger, it is required to take reasonable precautions to reduce the risk as far as possible: see Charlesworth & Percy on Negligence (9th ed.) para. 1083. However, an employer is not required to take reasonable precautions to remove every risk which might confront its workforce. In a classic statement of the relevant principles, Lord Reid said in The Wagon Mound (No. 2) [1967] 1 AC 617 at pp 642E643A: ... it does not follow that, no matter what the circumstances may be, it is justiable to neglect a risk of ... a small magnitude. A reasonable man would only neglect such a risk if he had some valid reason for doing so, eg, that it would involve considerable expense to eliminate the risk. He would weigh the risk against the difculty of eliminating it ... [T]he general principle [is] that a person must be regarded as negligent if he does not take steps to eliminate a risk which he knows or ought to know is a real risk and not a mere possibility which would never inuence the mind of a reasonable man ... [I]t is justiable not to take steps to eliminate a real risk if it is small and if the circumstances are such that a reasonable man, careful of the safety of his neighbour, would think it right to neglect it. So the employers duty does not extend to an absolute duty to warrant the safety of an employee. The employer will not be liable for an injury caused by a latent defect in machinery reasonably chosen by the employer.138 In addition, an employer is not under any duty to protect the belongings of an employee.139 (iii) Duty to indemnify employee 3.044 Employers duty to indemnify the employee for expenses in reasonable execution of contract. The employer is obliged to indemnify the employee for any expense or costs

135 136

137 138 139

See Chapter 10 for more extensive discussion of this issue. Wilsons & Clyde Coal Co Ltd v English [1938] AC 57; Wilson v Tyneside Window Cleaning Co [1958] 2 QB 110; Johnstone v Bloomsbury Health Authority [1992] 1 QB 333; Rana v Aoki Corp (unrep., HCPI 1404/2000, [2002] HKEC 1611); Wong Woon Hei v Dickson Construction Co Ltd (unrep., HCPI 521/2000, [2001] HKEC 791); cf Jagdeo v Smiths Industries Ltd [1982] ICR 47. For further discussion, see Chapter 10. [2001] 3 HKLRD 209 at para 8. Davie v New Merton Board Mills Ltd [1959] AC 604. Deyong v Shenburn [1964] KB 227; cf Edwards v West Herts Group Hospital Management Committee [1957] 1 WLR 415.

IMPLIED TERMS AND DUTIES

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incurred by the employee in the reasonable execution of the contract of employment.140 The employee is not entitled to an indemnity where the act is manifestly unlawful141 but will be so entitled if the employee is unaware of the facts that meant that the act was unlawful.142 (d) Mutual trust and condence Mutual trust and condence. The implied term of mutual trust and condence imposes reciprocal obligations on the employer and the employee not to, without reasonable and proper cause, conduct themselves in a manner calculated and likely to destroy or seriously damage the relationship of condence and trust between the employer and employee.143 Where an employer has a discretion under the contract of employment, the employer is under an implied duty to exercise such discretion rationally,144 but not reasonably.145 The implied duty to act rationally has been held to apply to an employer in deciding the level of certain benets payable to its employees.146 The duty to act rationally exists with regard to the exercise of a power of re-deployment by an employer.147 However, there is doubt on the application of such implied duty in the context of promotion. An employer is under a duty to bring certain important rights of an employee to the employees attention where the employee would not otherwise be reasonably considered to be aware of such rights.148 The mere fact of an employee working in a high pressure environment in a well-paid job does not remove the obligation on the employer to ensure that the employee is treated with sufcient respect to satisfy the duty of trust and condence.149 In Bachicha v Poon Shiu Man Henry,150 physical and psychological abuse by the employer of their domestic helper amounted to a breach of this implied term. 3.045

140

141 142 143

144

145 146

147 148 149

150

Adamson v Jarvis (1827) 4 Bing 66; Mak Chi Sing v A & A Continental Con Modies Ltd [1983] HKLR 403; Re Famatina Development Corp Ltd [1914] 2 Ch 271; Lam Suk Han v Ng Suk Han (unrep., DCPI 1615/2009, [2010] HKEC 957). Cf Southern v How [1618] CroJac 468. Burrows v Rhodes [1899] 1 QB 816; Thacker v Hardy (187879) LR 4 QBD 685. Malik v Bank of Credit and Commerce International SA [1998] AC 20 (corruption by bank-employer tainted employees, so impacting on their ability to secure future employment, and breaching implied duty of trust and condence). Wong Yin Fongv ISS Hong Kong Services Ltd [2005] 2 HKLRD 648; see discussion below regarding discretionary bonuses at para 3.059. See para 36 of Wong Yin Fong v ISS Hong Kong Services Ltd [2005] 2 HKLRD 648 . See Clark v Nomura International Plc [2000] IRLR 766; Wood v Jardine Fleming Holdings Ltd [2001] 2 HKC 735; Wong Huey Lan v Colgate-Palmolive (HK) Ltd (unrep., HCLA 77/2001, [2002] HKEC 312); (Wong Shun v General Security (HK) Ltd) (unrep., HCME 4/2002, 11 Apr 2003); Mallone v BPB Industries Ltd [2002] ICR 1045; Kwan Ka Man Blanche v Esprit Retail (Hong Kong) Ltd (unrep., HCLA 160/2003, [2004] HKEC 846). Wong Yin Fong v ISS Hong Kong Services Ltd [2005] 2 HKLRD 648. Scally v Southern Health and Social Services Board [1991] ICR 771. Steven Horkulak v Cantor Fitzgerald International [2003] EWHC 1918. See also Courtaulds Northern Textiles Ltd v Andrew [1979] IRLR 84; Woods v WM Car Services (Peterborough) Ltd [1981] ICR 666; Morrow v Safeway Stores Plc [2002] IRLR 9; Cantor Fitzgerald International v Callaghan [1999] ICR 639; RF Hill Ltd v Mooney [1981] IRLR 258; Cantor Fitzgerald International v Bird [2002] IRLR 867. Semana Bachicha v Poon Shiu Man [2000] 2 HKLRD 833.

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4. EXPRESS TERMS
(a) Common terms 3.046 Some common terms. A contract of employment, whether written or oral, will usually set out the remuneration and benets to be provided to the employee, work to be performed, commencement date and (sometimes, but not always) a mechanism for terminating the contract. Remuneration, especially in relation to bonuses and commission, and benets can be quite elaborate and complex. The passing of the Employment (Amendment) Ordinance (EAO) adds a further layer of matters to be considered when structuring the remuneration and benets of an employee. Under the EAO certain benets under the EO are determined by reference to wages as dened in s.2 of the EO, which is dened broadly, and so most items of remuneration will need to be included in the calculation of statutory benets.151 Some of the common terms of a contract of employment are dealt with below. (i) Probation period 3.047 Probationary period. An employer may require a new employee to complete a probationary period upon initial commencement of employment. There is no statutory limit on the length of a probationary period. So, in theory at least, an employer could impose a period of probation lasting the entire period of employment. In the case of Lai Foon Yung v Tin Sum Valley Public Primary School152 the ten-month (one academic year) xed-term employment contract provided for a two-year probationary period. This was interpreted by the High Court of Hong Kong as creating a contract for one year the whole of which was to be probationary. Under the EO, where a contract of employment provides for a probationary period, either the employer or the employee may terminate the contract of employment without notice (or payment of wages in lieu of notice) during the rst month of employment and, thereafter, by not less than seven days notice or such longer period as may be provided in the contract of employment.153 (ii) Duration and term of contract 3.048 Duration of contract. A contract of employment may either be for an indenite period terminable by either party on notice or for a xed term.154 There are certain industries where xed-term contracts are common, for example, in the education sector, the restaurant industry and some government agencies. In the private sector however, contracts of employment for an unspecied duration are more prevalent. The EO provides that every contract of employment which is a continuous contract shall, in the absence of any express agreement to the contrary, be deemed to be a contract for one month renewable from month to month.155 Even where the employer and employee agree that the duration of the employment contract will be for longer than one month,

151 152 153 154 155

See Chapter 4. [1986] HKLR 128. Sections 6(3) and (3A). See para 3.042 below. Section 5(1) EO.

EXPRESS TERMS

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if such agreement is not evidenced in writing signed by each of the parties, the contract will be deemed to be a contract for one month renewable from month to month.156 The requirement that each of the parties sign the contract and the formalities requiring written agreement signed by both parties will not be met if only one of the parties sign.157 The onus is on the employer to prove that the contract of employment was other than a contract renewable from month to month.158 Fixed-term contract. A xed-term contract can be determined by reference to xed date in time or the completion of a task or project. There is no real difference between the rights and benets of an employee employed under an indenite contract of employment as compared to a xed-term contract other than that a xed-term contract will terminate automatically on expiry of the xed term without the need for either party to give notice of termination. A xed-term contract may contain a notice provision providing for termination prior to expiry of the xed term by giving the appropriate notice. The EO does not specically distinguish between employees engaged under a xed term as opposed to an indenite-term contract and, in particular, includes non-renewal of a xed-term contract as a dismissal for the purposes of severance and long-service payments159 and claims of unreasonable dismissal.160 Employment protection rights will not be excluded merely because an individual is employed under a xed-term contract. Continuing to work after expiry of xed term. If the xed-term contract expires and the employee continues to work after expiry of the xed-term contract and such service is accepted by the employer it is possible that the xed-term contract will be replaced by a one-month contract renewable from month to month (in the absence of any specic agreement to the contrary).161 Successive xed-term contracts might create global contract. It is possible for an employer to break a continuous contract under the EO and therefore continuity of employment by providing a gap of at least a week between xed-term contracts. The court will only treat successive xed-term contracts as a global contract that governs the whole of the employment relationship if there is irreducible minimum of mutual obligation between the employee and the employer.162 Even a high expectation on the part of an employee (even when shared by the employer) or a virtual certainty of re-employment after the break is not sufcient to create a global contract.163 3.049

3.050

3.051

156 157

158 159 160 161 162 163

Section 5(2) EO. See Law Shiu Kai v Dynasty International Hotel Corp [2004] 2 HKLRD 524 . In Lee Wai Wah v Kowloon Motor Bus Co (1933) Ltd (unrep., HCLA 3/1975, 29 July 1975), the employees had signed but the employer had not. The District Court held the formalities requiring signing by both parties had not been met. Cheung Man v Kings Textile Co [1968] HKDCLR 45. Sections 31D and 31T, respectively. Section 32B. Section 5(1) . See para 3.006 above. Lui Lin Kam v Nice Creation Development Ltd (unrep., HCLA 106/2002, [2003] HKEC 855); Wong Man Sum v Wonderland Seafood Restaurant (unrep., CACV 241/2005, [2006] HKEC 1930).

82

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3.052

Length of notice of termination. Subject to the minimum length of notice required to terminate a contract of employment set out in the EO164 an employer and an employee can agree the length of notice required to terminate the contract of employment. There is no legal requirement that the agreed length of notice must relate to, for example, the seniority of the employee or the duration of the contract of employment. Where the parties do not agree on the length of the notice of termination, there may be an implied term that the contract of employment is for an indenite duration able to be terminated on reasonable notice.165 However, this will turn on a construction of the contract of employment.166 Part-time contracts, work hours and overtime; overtime was subject to agreement between parties. Except in relation to the employment of young persons employed in industrial undertakings there are no statutory provisions that prescribes a maximum or minimum number of working hours. The EO also does not oblige an employer to pay overtime or provide time off in lieu for overtime worked. The parties to a contract of employment may agree on whether the employee is obliged to work overtime and if so, how that work would be remunerated. Any entitlement to be paid for overtime worked will be subject to the agreement of the parties. So, where there is no contractual agreement to be paid overtime the employee will have no claim for overtime pay.167 The EO does dene overtime for the purposes of determining whether certain amounts paid to an employee should be taken into account for determining wage-based benets under the EO.168 The EO also does not set any rules relating to temporary contracts. However, depending on the length of the period of employment and any breaks between employment, the employee may or may not work under a continuous contract (see Chapter 4) to entitle the employee to certain rights and benets under the EO. (iii) Rest days

3.053

3.054

Statutory rest days: good practice to designate rest days. Where the employee is working under a continuous contract the employee is entitled to not less than one rest day in every period of seven days.169 If an employer provides more than one day off per week (e.g. a weekend) it should, as a matter of good practice, clearly designate that only one of those days is the statutory rest day while the other is simply a contractual day off. While the court170 has so far taken a pragmatic approach to the designation of statutory rest days and do not say that it is mandatory to specically designate a statutory rest day, it is good practice to do so to avoid confusion.

164 165

166

167 168 169 170

Sections 5 and 6 EO; see also Chapter 7. De Stempel v Dunkels [1938] 1 All ER 238; James v Thomas Kent & Co Ltd [1951] 1 KB 551; Richardson v Koefod above; Bryne v Australian Airlines Ltd, above. See Gilligan v AHK Air Hong Kong Ltd [1989] 2 HKC 189 (pro-forma contract of employment replaced with the handwritten words two years contract was held to be two-year xed-term contract). For a more in depth discussion of termination of employment, see Chapter 7. See Leung Ka Lau v Hospital Authority (2009) 12 HKCFAR 924 at para 77 concerning letters of appointment. Section 2 EO. See Chapter 5. Tam Wai Mei v Cathay Pacic Airways Ltd (unrep., CACV 232/2005, [2005] HKEC 1727).

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(iv) Remuneration Remuneration. Remuneration and benets are usually negotiated with a job candidate or employee on an individual basis as collective bargaining is rare and there is currently no minimum wage rate prescribed by statute.171 Unless otherwise agreed, wages must be paid in legal tender (i.e. cash). However, with the employees consent, wages may also be paid by cheque, money order or postal order into a bank account in the employees name or to the employees duly appointed agent.172 Most large employers pay wages by electronic transfer. As such, it is good practice to include in the offer of employment a term that wages will be paid by electronic transfer. Most employees are paid on a monthly basis although it is always possible for an employer and employee to agree on a different pay interval (e.g. fortnightly). End-of-year payments. There is no statutory obligation for an employer to provide a bonus to an employee. However, where an employer does provide an annual bonus or payment of a contractual nature173 which is not gratuitous in nature or payable only at the discretion of the employer, then such bonus or payment will be an end-of-year payment and will be regulated by the EO.174 In Wong Huey Lan v Colgate-Palmolive (HK) Ltd,175 the Court of First Instance held that a Long Term Incentive Plan, calculated by reference to (among other things) performance targets and where part of the Plan involved the exercise of a discretion by the employer, could amount to an end-of-year payment. It was held that, under s.11A, a payment can be contractual in nature although it has some discretionary elements. Hence, care needs to be taken when drafting the bonus plan provision, not to include contractual terms that may be void under s.70 of the EO as reducing a right, benet or entitlement conferred upon the employee by the EO. For example, if the bonus plan is an end-of-year payment then a clause that provides that the employee will only be paid the end-of-year payment on the condition that the employee is in the employment of the employer at the time of payment, may be void for contravening s.11F of the EO to make a proportional payment on termination of employment. End-of-year payments: pro rated in event of termination and probationary period not to be included. If an employer terminates the employment of an employee (including by constructive dismissal) not less than three months into the bonus year other than by way of summary dismissal, then the employer will need to make a proportional payment of the end-of-year payment.176 If the employee is on probation then the period of probation or three months, whichever is shorter, shall not be included in calculating the three months qualifying period for a proportional payment of the end-of-year payment. Distinction between discretionary bonuses and contractual bonuses. For some time now, Hong Kong employers have been moving away from xed guaranteed annual 3.055

3.056

3.057

3.058

171 172 173 174 175 176

One exception relates to the employment of domestic helpers where a minimum wage applies. Section 26 EO. See also para 3.052 on the distinction between discretionary bonuses and contractual bonuses. See Pt IIA of the EO and s.11A. (unrep., HCLA 77/2001, [2002] HKEC 312). Section 11F EO.

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bonuses in favour of discretionary performance-based bonuses, particularly for senior, professional and managerial staff. In some areas, such as the nancial services industry where the remuneration of professional employees is back-end loaded (i.e. their base salaries are a mere fraction of the amount they can expect to earn in bonus payments). There are a number of pitfalls in relation to discretionary bonuses. A discretionary bonus can be distinguished from a contractual bonus (where failure to pay results in a breach of contract). A contractual bonus need not be a guaranteed or nominated amount. If the bonus is assessed by reference to clear contractual targets (e.g. as a percentage of prots, operating surplus etc), then the employee will have a contractual entitlement to have his or her bonus assessed and paid in accordance with those targets. 3.059 Elements of a discretionary bonus. In relation to a discretionary bonus, discretion can relate to (a) the entitlement to a bonus (e.g. the Company may at its discretion, pay a bonus), and (b) the amount of the bonus (e.g. an additional amount of one months salary). An employer will need to carefully set any parameters for the exercise of discretion under a discretionary bonus as well as ensure that it considers those parameters in exercising its discretion. Discretion must be exercised rationally: example of Clark v Nomura International Plc.177 Mr Clark, a successful proprietary equities trader, was entitled to a bonus, payment of which was dependent upon individual performance. His annual salary was 100,000. In his rst year of employment he earned Nomura prots of 13.5M for which he was paid a bonus payment of 2.5M. In his second year, he earned Nomura prots of 22M. Mr Clark was then dismissed on notice. During his period of notice, Nomura exercised its discretion not to pay Mr Clark any bonus. The Judge determined that the factors considered by Nomura did not relate to individual performance, but were irrelevant factors, e.g.: (a) Mr Clarks unwillingness to accept additional managerial responsibility, (b) his boss did not like him, and (c) Mr Clark had been difcult over his termination and critical of certain practices of Nomura. The Judge therefore concluded that Nomura had incorrectly exercised its discretion; an employer will need to exercise any discretion under a discretionary bonus arrangement in a manner which is not perverse, irrational or capricious so as to breach the employers implied duty of mutual trust and condence,178 and in light of Mr Clarks exemplary performance, No rational company would [in the given circumstances] award ... a nil bonus and awarded a payment of 1.35M to Mr Clark. Hong Kong examples of where discretion not exercised irrationally. The case of Clark v Nomura International Plc can be contrasted with the Hong Kong cases of Wood v Jardine Fleming Holdings Ltd179 and Post v Nomura International (Hong Kong) Ltd.180 In Wood v Jardine Fleming Holdings Ltd Ms Woods claim was rejected by the Judge on the grounds that Jardine Fleming did consider her personal performance and, on justiable evidence, found it to be below the standard necessary to justify a bonus (i.e. Jardine Fleming had exercised its discretion by reference to correct parameters

3.060

3.061

177 178 179 180

[2000] IRLR 766. See para 3.045 above on implied duty of mutual trust and condence. [2001] 2 HKC 735. (unrep., HCA 7259/1997, [2001] HKEC 600).

EXPRESS TERMS

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and not in a capricious or irrational manner). In Post v Nomura International (Hong Kong) Ltd Ms Posts claim was ultimately rejected by the Judge on the basis that as there was no prot generated by her team and it was not irrational or perverse for Nomura not to award a discretionary bonus to Ms Post. (v) Place of employment Place of employment. A contract of employment may specify a particular place or location where the employee is required to work. If it does, and if there is a change in work location then this would amount to a variation of the contract of employment. It is therefore advisable to include in the contract of employment a provision reserving the right in the employer to change the work location of the employee. Such clauses have been held to be enforceable181 and provided the parties agree, such clauses can include a work location outside Hong Kong. However, care should be taken that the change in work location does not amount to a change in employer, e.g. to a subsidiary, in circumstances where a prohibition on termination of employment, e.g. a pregnant employee, applies.182 (vi) Entire agreement Entire agreements clauses. Sometimes during the recruitment process an employer may make certain representations to a potential candidate to entice the candidate to join the employer. Sometimes these representations may give rise to binding obligations, including contractual obligations, on the employer. As mentioned above, an employment agreement need not be in writing and can be oral, or partly oral and partly in writing. To overcome this some employers have adopted the use of entire agreements clauses. In Inntrepreneur Pub Co Ltd v East Crown Ltd,183 Lightman J described the purpose of an entire agreements clause as being to preclude a party to a written agreement from threshing through the undergrowth and nding, in the course of negotiations, some (chance) remark or statement (often long-forgotten or difcult to recall or explain) upon which to found a claim. It is important to look at the wording of the entire agreements clause to determine what precisely is precluded by the clause.184 For example, it was held in So v Critchley Group Plc185 that the entire agreements clause did not preclude any operation of the doctrine of estoppel or relief in equity. (b) Restrictions on express terms Restrictions on express terms under s.70 EO. Section 70 of the EO provides Any term of a contract of employment which purports to extinguish or reduce any right, benet or protection conferred upon the employee by this Ordinance shall be void.186 3.064 3.063 3.062

181 182 183 184

185

186

Fong Mung Yan v ISS Hong Kong Services Ltd [2008] 1 HKLRD 63. See Sun Min v Hong Kong Ming Wah Shipping Co Ltd (unrep., CACV 37/2004, [2005] HKEC 292). [2000] 2 Lloyds Rep 611 at pp 614615. So v Critchley Group Plc (unrep., HCA 9803/2000, [2003] HKEC 74); Edwin Phillips v Sa Sa International Holdings Ltd (unrep., HCA 5190/2001, [2002] HKEC 483). (unrep., HCA 9803/2000, [2003] HKEC 74). The entire agreements clause in question in this case read This Agreement supersedes all previous agreements and understanding of the parties relating to the employment of the Executive by the Employer. Wong Yin Fong v ISS Hong Kong Services Ltd [2005] 2 HKLRD 648 at para 100.

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Section 70 only applies to a term of a contract that seeks to reduce any right, benet or protection conferred upon the employee by the EO and not the employer. Therefore, a term of a contract of employment that purports to contract out of Pt IIA of the EO will be void.187 If the employer is only doing what it was entitled to do under the EO, this will not contravene s.70. Hence, the entering into successive contracts with the appropriate breaks so that they do not constitute a continuous contract is not covered by s.70.188 Where the employer and employee enter into a settlement agreement that varies the contract of employment, the authorities are not clear as to whether s.70 applies to such settlement agreement.189 A contract of service will be subject to s.70 even if it is expressed to be a contract for service.190 3.065 Restrictions relating to trade union membership. Section 21C of the EO provides that it is an offence for an employer to make an offer of employment conditional upon the job applicant either relinquishing his union membership, not becoming a member of a trade union or not associating with persons for the purpose of forming a trade union. Restrictions on express terms under s.29 EO. Section 29 of the EO provides No employer shall in any contract of employment or agreement in consideration of a contract of employment make any provision as to the place at which, the manner in which, or the person with whom, wages paid to an employee are to be expended. Restrictions on express terms under anti-discrimination ordinances. The various anti-discrimination ordinances render void any term of a contract where: (1) (2) (3) its inclusion renders the making of the contract unlawful by virtue of the Ordinance; it is included in furtherance of an act rendered unlawful by the Ordinance; or it provides for the doing of an act which would be rendered unlawful by the Ordinance.191

3.066

3.067

3.068

Post-termination restrictive covenants.192 Restrictive covenants are void for being in restraint of trade and contrary to public policy unless the employer can show that the provision is reasonable in all the circumstances to protect a legitimate business

187 188 189

190 191 192

Wong Huey Lan v Colgate-Palmolive (HK) Ltd (unrep., HCLA 77/2001, [2002] HKEC 312) at para 5. Lui Lin Kam v Nice Creation Development Ltd (unrep., HCLA 106/2002, [2003] HKEC 855). There are conicting authorities on this. See Wong Yin Mui v Newport May (unrep., DCCJ 2477/2004, [2006] HKEC 1606) and (Chiu Wang Hang v BG Lighting Co Ltd) (unrep., HCLA 67/1999, 8 Mar 2000) (held that agreement regarding late payment of wages not a term of the contract of employment and therefore not subject to s.70). These can be contrasted with Tsang Wai Sun v Beverly Fashion Ltd (unrep., HCLA 54/1992, [1994] HKEC 361); and Tam Moon Tong v Lucky Dragon Restaurant Ltd (unrep., DCCJ 1706/2001, [2001] HKEC 968), in which Deputy District Judge Andrew Chow said, without specically deciding the issue, that the courts should not allow an employer to extinguish or reduce an employees rights under the Ordinance merely by use of a document separate from the employment agreement, all employee benet provisions in the Ordinance could be rendered a nullity. Lam Yau Kuen v Easy (Hang Fung) Transportation Co Ltd (unrep., DCCJ 1/2006, [2006] HKEC 2218) at para 9. Section 87 SDO; s.87 DDO; s.65 FSDO; s.81 RDO. For more detailed discussion of restrictive covenant see Chapter 7. See also Husky Injection Molding Systems China Ltd v Lau Kwong Fat (unrep., HCA 1937/2002, [2002] HKEC 963); Kao Lee & Yip v Edwards (John Richard) (unrep., HCA A8680/1992, [1993] HKLY 194); BSC Building Materials Supply Co Ltd v Cheung Chi Hung [1998] 2 HKC 425; Ho Wing Cheong v Graham Margot [1991] 1 HKLR 245.

EXPRESS TERMS

87

interest. Legitimate business interests have been held to include the protection of trade connections and goodwill,193 the protection of condential information and trade secrets194 and maintaining a stable workforce195. The reasonableness of such a restrictive covenant is generally considered by reference to the duration,196 geographical scope197 and nature of the activities restrained.198 The most common forms of restrictive covenant are non-disclosure of condential information, non-solicitation of customers, non-solicitation of work colleagues and non-competition clauses. (c) The statutory framework of a contract of service Employment Ordinance. The EO applies, subject to certain exceptions, to every employee engaged under a contract of employment, to an employer of such employee and to a contract of employment between such employer and employee.199 The term contract of employment is dened broadly as a contract whereby one person agrees to employ another and that other agrees to serve his employer.200 The EO does not apply to an independent contractor.201 Effect of there being a continuous contract. Many of the benets and protections extended to employees under the EO are available only if the employee has been employed under a continuous contract for a specied period.202 Other benets and protections are available irrespective of length of continuous employment.203 Protection and benets provided by the EO. Where the EO applies, the employee can qualify for the following statutory protection and benets. These include protection and benets in respect of: 3.069

3.070

3.071

193

194 195

196

197

198 199 200 201

202 203

Herbert Morris Ltd v Saxelby [1916] AC 688; Candia Shipping (HK) Ltd v Wong Chiu Wai (unrep., HCA 629/1986, [1986] HKLY 448); Cantor Fitzgerald (UK) Ltd v Wallace [1992] IRLR 215. Gilman Engineering Ltd v Ho Shek On (unrep., HCA A5233/1986, [1986] HKLY 456), para 26. Ingham v ABC Contract Services Ltd (unrep., English Court of Appeal, 12 Nov 1993); for further discussion of the issues associated with post-termination restrictive covenants see Chapter 7. Husky Injection Moulding Systems China Ltd v Lau Kwong Fat (unrep., HCA 1937/2002, [2002] HKEC 963); Ng Kam Chun v Chan Wai Hing (unrep., HCA A3036/1992, [1994] HKLY 564); Kao, Lee & Yip v Edwards (John Richards) [1994] 1 HKLR 232 Candia Shipping (HK) Ltd v Wong Chiu Wai (unrep., HCA 629/1986, [1986] HKLY 448); Sea Wave Hair Design (WTS) Ltd v Choy Kwong Yiu (unrep., HCA A2743/1992, [1992] HKLY 451); BSC Building Materials Supply Co Ltd v Cheung Chi Hung [1998] 2 HKC 425. See also Fongs National Engineering Co Ltd v Wong Wai Yuk (unrep., HCA 573/2003, [2003] HKEC 1141) where the restrictions in question were drafted with no geographical limitations. Susan Buchanan v Janesville Ltd [1981] HKLR 700; Deacons v White & Case LLP [2003] 3 HKLRD 670. Section 4(1); see Chapter 2. Section 2. The EO does address the issue of a principals liability to pay wages of sub-contractors and nominated subcontractors employees. See Pt IXA of the EO and further discussion on the independent contractor and employment distinction in Chapter 2. For a discussion on what constitutes a continuous contract see Chapter 2. For example, an employee employed under a continuous contract of employment is entitled to one rest day in every period of seven days, regardless of how long the employee has been employed by that employer. Other entitlements under the EO, such as maternity leave pay and holiday pay, will not arise unless the employee has been employed under a continuous contract for a specied period of time, while some entitlements such as sickness allowance, severance payments and long service payments increase based on the length of the continuous contract.

88

CONTRACT OF EMPLOYMENT

(1) termination of employment;204 (2) end of year payments;205 (3) maternity leave and maternity leave pay;206 (4) rest days;207 (5) protection against anti-union discrimination;208 (6) payment of wages;209 (7) statutory severance pay;210 (8) statutory long-service pay;211 (9) deduction from wages;212 (10) unreasonable dismissal;213 (11) sick leave and sickness allowance;214 (12) holiday and holiday pay;215 (13) annual leave and annual leave pay;216 (14) the provision of certain information regarding the conditions of service.217 These statutory rights cannot be removed or reduced by means of contrary agreement between the parties in the contract of employment.218 3.072 Contract in writing not required, but details of certain conditions required. While there is no legal requirement for a contract of employment to be in writing,219 there are certain details of the conditions of employment that an employer must provide to a person before such person enters the employers employment.220 Moreover, where the contract of employment is not in writing, then upon the written request from the

204 205 206 207 208 209 210 211 212 213 214 215 216 217 218

219 220

Sections 510A. Part IIA of the EO, see also Chapter 4. Part III of the EO, see also Chapter 5. Part IV of the EO, see also Chapter 5. Part IVA of the EO, see also Chapter 8. Part V of the EO, see also Chapter 4. Part VA of the EO, see also Chapter 4. Part VB of the EO, see also Chapter 4. Section 32 of the EO, see also Chapter 4. Part VIA of the EO, see also Chapter 7. Part VII of the EO, see also Chapter 5. Part VIII of the EO, see also Chapter 5. Part VIIIA of the EO, see also Chapter 5. Part X of the EO. See s.70 of the EO; see para 3.064; see e.g. Hang Fook Lau Seafood Restaurant v Kwok Sik Yuen [2001] 2 HKC 69 where a provision in a contract of employment purporting to reduce statutory entitlement to rest days was held to be void pursuant to s.70 of the EO. Huen Fook Nam v Pentalpha Enterprises Ltd (unrep., HCA 15860/1999, [2006] HKEC 1069) at para 50. Section 44(1). The employer must inform the person in detail and in a manner intelligible to such person of the conditions with regard to: (a) the wages and the wage period, (b) where Pt IIA applies to such person, the end-of-year payment or proportion of the end-of-year payment and the payment period, and (c) the length of notice required to terminate the proposed contract of employment. The conditions shall include the rate of wages, the overtime rate and any allowances, whether calculated by the piece, job, hour, day, week or otherwise: s.46(1).

EXPRESS TERMS

89

person to be employed, the employer must deliver to such person a notice in writing containing certain conditions of employment.221 Where the contract of employment is in writing the employer must provide the person to be employed with a copy of the contract immediately after it is signed or immediately after the procedure to validate the contract is completed where such procedure is required.222 An employer must also inform its employee whenever any change takes place in the conditions mentioned in s.44 of the EO.223 Unwritten contract treated as contract for one month renewable from month to month. Under s.5(2) of the EO, unless the contract of employment is evidenced in writing signed by each of the parties thereto, the contract of employment would have to be treated as a contract for one month renewable from month to month, in which event the notice provisions in s.6(1) and (2)(a) and (b) of the EO would apply. Evidenced in writing was explained by Cheung J in Law Shiu Kai v Dynasty International Hotel Corp: Section 5(2) refers to evidence in writing of the contract of employment rather than merely the employment. In my judgment, what is required here is something in writing evidencing the essential terms of the contract of employment, i.e. the parties, the remuneration, the essential job description, and any terms of particular importance, such as the term (i.e. duration) of the employment. All that is required is some evidence in writing of those essential terms. There is no need for a full written contract of employment. The evidence need not be contained in one document. One document may refer to another, subject to the signing requirement. However, the evidence must be signed by the parties.224 In applying this to the facts of the case, Cheung J did not consider that the wage receipts, leave applications, pay cheques, daily attendance sheets, share certicates, correspondence constituted the requisite signed evidence in writing of the contract of employment, within the meaning of s.5(2) of the EO.225 Mandatory Provident Fund. Employers are obliged to enrol each employee (other than exempt employees) into a scheme registered under the Mandatory Provident Fund Schemes Ordinance (MPFSO).226 Contributions must also be paid by and in respect of each employee to such scheme.227 The MPF legislation denes employee by reference to the EO.228 Independent contractors and other persons entering into a contract for services are not covered. 3.074 3.073

221 222 223

224 225

226 227 228

See s.44(2). The details of the conditions of employment to be provided are set out in s.44(1). Section 44(3). Section 45(1) An employer is under a statutory duty to inform an employee of any changes which occur in respect of wages, the wage period and the length of notice required to terminate the employment contract in a manner intelligible to the employee. [2004] 2 HKLRD 524. See also Harrington Lynch v Cap Gemini Ernst & Young Hong Kong Ltd (unrep., HCCL 10, 61/2002, [2004] HKEC 581); see also (unrep., CACV 287/2004, [2005] HKEC 1022) where the Court of Appeal agreed with the lower court decision. Section 7 MPFSO, see also Chapter 4. Section 7A MPFSO. Section 2 MPFSO.

90

CONTRACT OF EMPLOYMENT

3.075

Employees compensation. The Employees Compensation Ordinance (ECO) only applies in respect of a person who has entered into or works under a contract of service or apprenticeship with an employer.229 Independent contractors are, therefore, not able to take advantage of the protection afforded by this legislation. Discrimination legislation. There are four relevant Hong Kong ordinances which provide protection against discrimination.230 Each such ordinance contains specic sections relevant to the treatment of persons in employment.231 The term employment is dened in each of the four ordinances as employment under a contract of service or of apprenticeship or a contract personally to execute any work or labour.232 This extends the application of the anti-discrimination ordinances beyond a simple contract of service to include certain contractors who provide labour (but probably not labour and materials) for an employer. Immigration Ordinance. Every employer has a statutory duty to ensure all his employees are lawfully employable. Under s.17G of the Immigration Ordinance (Cap.115) (IO), a person is lawfully employable if he holds an identity card or other valid travel document (not endorsed with a condition of stay prohibiting him from taking employment in Hong Kong). According to s.17I, an employer who employs someone who is not lawfully employable commits an offence. Under s.17J(1), an employer shall not enter into a contract of employment to employ any other person unless he rst inspects, inter alia his identity card or passport. If an employer fails to inspect the identity document of a prospective employee as required under s.17J(1) IO, he shall be guilty of an offence upon conviction to a ne of up to HK$150,000 and to imprisonment for up to one year.

3.076

3.077

5. COLLECTIVE AGREEMENTS
(a) Nature of collective agreements 3.078 No collective bargaining legislation in Hong Kong: enforceability of collective agreement depends on employment contract. There is no collective bargaining legislation in Hong Kong. This can be contrasted with certain jurisdictions, where if a deal is struck between the trade union and the employer then the terms of that deal are deemed to be binding on any member of the trade union. The fact that no collective bargaining legislation exists in Hong Kong means that even if the employer and a Trade Union or staff association agree specic changes to employees contract (e.g. a percentage salary reduction in return for increased benets elsewhere) this agreement will not necessarily bind an individual employee. The employer will therefore still have to obtain each individual employees express consent. The best the Trade Union can do is to recommend the negotiated and agreed terms to its members. As such the issue of whether or not a collective agreement is binding on employees is simply a question of construction of the relevant employment contracts.

229 230 231 232

Section 2 ECO, see also Chapter 11. SDO (Cap.480), DDO (Cap.487), FSDO (Cap.527), RDO (Cap.602). See also Chapter 8. Part III of the SDO; Pt III of the DDO; Pt III of the FSDO; Pt III of the RDO. Section 2 SDO; s.2 DDO; s.2 FSDO; s.2 RDO.

COLLECTIVE AGREEMENTS

91

(b) Impact upon contracts of employment Unless expressly stated to be intended to create legal relationship, collective agreement not legally enforceable.233 In this respect there is a distinction between commercial agreements, where the presumption is that they are intended to be legally enforceable, and social agreements (e.g. lets have dinner; you bring the food, Ill bring the drink), where the presumption is that they are not intended to be legally enforceable. Collective agreements are generally considered to be more akin to social agreements. This was succinctly put by Chan J (as he then was) in Hong Kong Aircrew Ofcers Association v Cathay Pacic Airways Ltd 234 where he stated that the real threats behind collective agreements are dismissal and strike. He emphasised that it will certainly require strong evidence to ask a court to believe any realistic and reasonable party to a collective agreement will ever believe in the effectiveness of redress in a court of law for industrial disputes over such an agreement.235 Express incorporation of collective agreement. Where a collective agreement is expressly incorporated into a contract of employment then it is clear that it can operate to bind the parties to such contract.236 This is the case even if the collective agreement itself is binding in honour only.237 However only those aspects of a collective agreement which are referred to will be incorporated into the contract of employment.238 Therefore where the contract makes reference to the wage structure agreed between employer and trade union this will not in itself incorporate procedural provisions also set out in the collective agreement. Moreover, it is important to distinguish the incorporation into a contract of employment by reference of a term in a collective agreement from a term in a contract of employment that is derived from a collective agreement. An incorporated term can be varied as the collective agreement is varied whilst a derivative term in a contract can only be varied by the parties to the contract.239 Preferred interpretation was that trade union acting as principal. There has been some dicta indicating that a trade union, in negotiating a collective agreement, is acting as an agent for its members.240 If this is correct then it raises a number of 3.079

3.080

3.081

233

234 235

236

237 238

239

240

Cable & Wireless (Hong Kong) Ltd Staff Association v Hong Kong Telecom International Ltd [2001] 2 HKLRD 809; Hong Kong Aircrew Ofcers Association v Cathay Pacic Airways Ltd [1994] 2 HKLR 367; Ford Motor Co Ltd v Amalgamated Union of Engineering and Foundry Workers [1969] 2 QB 303; Ardley and Morey v London Electric Board (unrep., The Times, 16 June 1956); Burgess v Stevedoring Services Ltd [2002] IRLR 810; Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235. [1994] 2 HKLR 367. See also Cable & Wireless (Hong Kong) Ltd Staff Association v Hong Kong Telecom International Ltd [2001] 2 HKLRD 809. Hooker v Lange, Bell & Co [1937] 4 LJNCCR 199; Young v Canadian Northern Railway Co [1931] AC 83; National Coal Board v Galley [1958] 1 WLR 16. Marley v Forward Trust Group Ltd [1986] ICR 891. R v Industrial Disputes Tribunal, Ex p Portland UDC [1955] 1 WLR 949; National Coal Board v National Union of Mineworkers [1986] ICR 736. National Coal Board v Galley [1958] 1 WLR 16; Robertson v British Gas Corp [1983] ICR 351; Gibbons v Associated British Ports [1985] IRLR 376. Rookes v Barnard [1961] 2 All ER 825 at 827; Edwards v Skyways Ltd [1964] 1 WLR 349; Chappell v Times Newspapers Ltd [1975] ICR 145; Cable & Wireless (Hong Kong) Ltd Staff Association v Hong Kong Telecom International Ltd [2001] 2 HKLRD 809; cf Ford Motor Co Ltd v Amalgamated Union of Engineering and Foundry Workers [1969] 2 QB 303; Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235.

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CONTRACT OF EMPLOYMENT

difcult issues including whether non-union members are bound by the agreement and what is the impact upon employees who join the union after settlement of the collective agreement. Whilst the preferred interpretation is that a trade union is acting as principal241 in negotiating a collective agreement there may be a sustainable argument that in particular circumstances the union is acting as agent (for example in the settlement of a dispute concerning named employees).242

6. VARIATION OF CONTRACT OF EMPLOYMENT

3.082 Mutual agreement required to vary contract unless one party given unilateral power to vary. The basic legal principle is that any variation to a contract of employment requires the mutual agreement of both parties unless there is an express term in the contract enabling one party to unilaterally vary the contract. Lord Woolf MR in Wandsworth LBC v DSilva said, obiter, at page 197: The general position is that contracts of employment can only be varied by agreement. However, in the employment eld an employer or for that matter an employee can reserve the ability to change a particular aspect of the contract unilaterally by notifying the other party as part of the contract that this is the situation. However, clear language is required to reserve to one party an unusual power of this sort. In addition, the court is unlikely to favour an interpretation which does more than enable a party to vary contractual provisions with which that party is required to comply.243 In the absence of a term allowing the employer to vary unilaterally the contract of employment, the employer must obtain the agreement of the affected employee to the proposed variation. Failure to do so may result in a breach of contract by the employer. This may give rise to various claims such as constructive dismissal, an unreasonable variation claim under Pt VIA of the EO and/or an unreasonable dismissal claim under the EO.244 3.083 Principles concerning unilateral power to vary. Where there is a such a power, the employer may vary the contract subject to the following: (1) the power to vary unilaterally must be reserved using very clear language (where there is any doubt in interpreting such a provision, the courts will interpret it against the party seeking to rely on the power, typically the employer);245

241 242 243

244 245

Holland v London Society of Compositors (1924) 40 TLR 440. Deane v Craik (unrep., The Times, 16 Mar 1962); cf Edwards v Skyways Ltd [1964] 1 WLR 349. [1998] IRLR 193; cited by Lam J in Kwan Ka Man Blanche v Esprit Retail (Hong Kong) Ltd (unrep., HCLA 160/2003, [2004] HKEC 846) at para 26 and Deputy District Judge Eddie Yip in Chan Kam Yau v Hong Kong University of Science & Technology (unrep., DCCJ 4016/2006, [2007] HKEC 2304) at para 36. See also Lau Kwok Fai v Secretary for Justice [2004] 3 HKLRD 570 at para 44. See Chapter 7. Wandsworth LBC v DSilva [1998] IRLR 193.

VARIATION OF CONTRACT OF EMPLOYMENT

93

(2)

the employer must comply with the terms of the contractual provision allowing variation (e.g. one months notice of the change before the change will become effective); and the employer must exercise its power to vary rationally and not capriciously pursuant to the implied duty of mutual trust and condence;246 but the power does not have to be exercised reasonably. That is, the employer must have sufcient grounds for the proposed change. See Chan Kam Yau v Hong Kong University of Science & Technology.247 What will be considered sufcient and not irrational nor capricious will depend on all the facts and circumstances. 3.084

(3)

Reduction in wages: unilateral reduction of wages by employer without power to do so amounted to terminating the contract. Section 10A of the EO provides that an employee may terminate his contract of employment without notice or payment in lieu of notice if any wages are not paid within one month from the date on which they become due to him under s.23. Where the employee terminates in these circumstances, the contract shall be deemed to be terminated by the employer by payment of wages in lieu of notice. Section 23 of the EO provides that wages must be paid within seven days of the last day of a wage period. Failure to do so will constitute an offence. So, if an employer purports to reduce wages unilaterally without the power to do so, then the employee may terminate the contract of employment under s.10A of the EO and claim, among other things, wages in lieu of notice. In addition, depending on the circumstances of the breach, there may be liability under s.23 of the EO for failing to pay wages on time. Reduction in wages: reality of employees bargaining position in difcult economic times. An employee during such times may not have much bargaining power and may feel compelled to accept the wage reduction. In Huen Fook Nam v Penthalpha Enterprises Ltd counsel for the plaintiff employee argued that new terms of employment offered to the employee that reduced scope of the plaintiff to earn commission was ... so unfavourable that he queried how [the employers representative] could have induced the plaintiff to agree to the revision and what provided the consideration. In response Judge To said: the employment market was against the Plaintiff and his position in the Defendant was not strong. He had no bargaining power The Defendant could at any time give a months notice to terminate the Plaintiffs employment if the Plaintiff did not accept the new terms As for consideration, the Defendants agreement to continue the Plaintiffs employment on the new terms or the Defendants forbearance from exercising its right to terminate the employment provided the necessary consideration. This may be nothing but a peppercorn, but is nevertheless sufcient as a matter of law.248

3.085

246 247 248

See also para 3.039 above on the implied duty of mutual trust and condence. (unrep., DCCJ 4016/2006, [2007] HKEC 2304). (unrep., HCA 15860/1999, [2006] HKEC 1069). See, in particular, the statement by Judge To at para 49.

94

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3.086

EO protection for unreasonable variation. Section 32A of the EO provides that an employee may be granted remedies against his employer (pursuant to an unreasonable variation or dismissal claim) where he is employed under a continuous contract and the employer, without his consent and, in the absence of an express term in his contract of employment which so permits, varies the terms of his contract of employment because the employer intends to extinguish or reduce any right, benet or protection conferred or to be conferred upon the employee by the EO. The EO deems that a variation shall be taken to be made with such intention unless a valid reason is shown for that variation. Section 32K sets out the valid reasons which includes, amongst others, (1) the redundancy of the employee or other genuine operational requirements of the business of the employer and (2) any reason of substance, which, in the opinion of the court or the Labour Tribunal, was sufcient cause to warrant the variation of the terms.

7. INFORMATION AND RECORD-KEEPING UNDER THE EMPLOYMENT ORDINANCE

3.087 Records of wages. Employers are required by statute to keep the wage and employment history of each employee covering the period of the employees employment during the preceding 12 months.249 Such records do not have to be provided to the employee. However, in most cases employers provide their employees with itemised pay slips at each pay interval.

249

Section 49A EO.

CHAPTER 4

REMUNERATION AND BENEFITS

Para. 1. Introduction ............................................................................................................................... 4.001 2. Denition of wages ................................................................................................................... 4.011 (a) Introduction ....................................................................................................................... 4.011 (b) Payments excluded from wages ..................................................................................... 4.013 (c) Judicial determination of wages .................................................................................... 4.026 (i) Attendance allowance or attendance bonus ............................................................ 4.027 (ii) Commission ............................................................................................................ 4.030 (iii) Tips and service charges ......................................................................................... 4.032 (iv) Overtime payments ................................................................................................. 4.035 (v) Housing allowance .................................................................................................. 4.040 3. Payment of wages ..................................................................................................................... 4.041 (a) Timing of payment ............................................................................................................ 4.042 (b) Manner and place of wage payment .................................................................................. 4.047 (c) Remuneration items outside the scope of wages ........................................................... 4.049 (d) Legal consequences of late payment ................................................................................. 4.050 (i) Criminal liability ..................................................................................................... 4.051 (ii) Civil liability ........................................................................................................... 4.066 (e) Legal consequences of failure to settle awards ................................................................. 4.068 (f) Further employers obligations .......................................................................................... 4.070 4. Deductions from wages ............................................................................................................ 4.073 (a) General .............................................................................................................................. 4.073 (b) Exceptions ......................................................................................................................... 4.074 (c) Types of lawful deductions ................................................................................................ 4.077 (d) Maximum amount of total deductions .............................................................................. 4.091 (e) Legal consequences of unlawful deductions from wages ................................................. 4.094 5. End-of-year payment and bonuses ........................................................................................... 4.098 (a) Overview ........................................................................................................................... 4.098 (b) Contractual nature of end-of-year payments ..................................................................... 4.099 (c) Statutory requirements in relation to end-of-year payments ............................................. 4.110 (d) Amount of end-of-year payment ....................................................................................... 4.111 (e) Time of payment ............................................................................................................... 4.113 (f) Pro rated end-of-year payment .......................................................................................... 4.115 (g) Offences ............................................................................................................................ 4.122 (h) Discretionary bonuses ....................................................................................................... 4.123 (i) Recovery of paid bonuses ................................................................................................. 4.131

96

REMUNERATION AND BENEFITS 6. Liability of principal contractor for wages .............................................................................. 4.133 (a) Introduction ....................................................................................................................... 4.133 (b) Denitions ......................................................................................................................... 4.135 (c) Liability of principal contractor and superior subcontractor for unpaid wages of subcontractors employees ................................................................................................ 4.142 (i) Request for particulars of the principal contractor and superior subcontractors .... 4.147 (ii) Service of request for particulars by subcontractors ............................................... 4.148 (d) Liability of superior nominated subcontractor to pay wages of employees of nominated subcontractors ................................................................................................. 4.151 7. Mandatory provident fund schemes ......................................................................................... 4.154 (a) Introduction ....................................................................................................................... 4.154 (b) Duties of employers .......................................................................................................... 4.157

1. INTRODUCTION
Overview of chapter. The Employment Ordinance (EO) regulates the conditions under which payment of wages and certain other contractual benets, including end-of-year payments, must be made. It also prescribes the manner and form of wage payments. In order to ensure that wage payments in full are made by employers promptly, the EO sets the parameters within which an employer is entitled lawfully to make deductions from an employees wages. Over the last few decades, the remuneration landscape in Hong Kong has changed dramatically. In the past, it was common for employers in Hong Kong to offer a basic salary together with a guaranteed end-of-year payment. Today, employers are looking for new ways to incentivise and retain staff but, at the same time, to retain the discretion to make additional payments by implementing more complex, structured bonus schemes. Consequently, the structure of an employees remuneration is more complex. Today, an employees remuneration may have many different components but not all of them are considered to be wages for the purpose of the EO. It is essential to fully understand the scope of the term wages as dened under the EO since wages form the basis for the computation of an employees statutory benets and entitlements. Thus, for instance, an employees remuneration may comprise different components and some of them fall outside the denition of wages. If the employees contract of employment is terminated wrongfully, the non-wage components of the employees remuneration can affect the amount of damages awarded to him for wrongful dismissal.1 Also, if the employee has accrued any unused days of annual leave, this will affect the amount of payment in lieu of unused days annual leave.2 The concept of wages, and the statutory minimum conditions in respect of wage payment and end-of-year payments, will be the focus of this chapter. This chapter also addresses the right of employees of subcontractors engaged in building and construction works to seek unpaid wages directly from the principal contractors and superior contractors. Duty under common law. An employee is entitled to receive remuneration in return for the services provided to his employer. At common law, a duty to pay wages is implied in every contract of employment.3 The amount of remuneration is generally a matter to be agreed by the employer and employee. In the absence of any express agreement, the common law will imply a term providing for reasonable remuneration.4 The employer may be liable to make a payment to the employee on a quantum meruit basis (i.e. based on the value of the work done or the services provided by the employee) if the work was done at the express request of the employer in circumstances where it was expected that the negotiations would lead to a contract.5 If an employer is in 4.001

4.002

4.003

4.004

1 2 3

4 5

See Chapter 6. See Chapter 5. Price v Hong Kong Tea Co [1861] 2 F. & F. 466; Lamburn v Cruden [1841] 2 Man & G 253; Reeve v Reeve [1858] 1 F & F 280; Lees v Whitcomb [1828] 5 Bing 34; Morrison v Baillie [1855] 2 Macq HL 80; Nairne [1839] 9 Car & P 204; Way v Latilla [1937] 3 All ER 759. Ibid. Way v Latilla (fn 3 above).

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breach of the implied duty to pay wages or evinces an intention no longer to be bound by the contract term relating to wage payment, the employer may be in fundamental breach of the contract of employment, in which case the employee may be entitled to claim constructive dismissal.6 4.005 Minimum Wage Ordinance (MWO).7 Prior to the introduction of the MWO, there was nothing in law which conferred a right on employees to receive any minimum wage payment.8 The fundamental basis for an employees entitlement to remuneration is to be found in the contract of employment.9 The MWO aims to establish an optimal statutory minimum wage regime, providing an hourly wage oor to forestall excessively low wages. Application of MWO. Under the MWO, except for certain categories of employees, an employee is entitled to receive wages of not less than the statutory minimum amount in a wage period.10 The following categories of employees are, however, excluded from the protection of the MWO:

4.006

persons to whom the EO does not apply;11 domestic workers;12 students undertaking internships necessitated by their curricula;13 work experience students under the age of 26;14 and people with disabilities.15

9 10 11 12 13 14

15

Wong Cheuk Wah v Five Star Wine Ltd (unrep., HCLA 35/2001, [2001] HKEC 1437). See also s.10A of the EO, Chapter 6 para 6.142 and para 4.097 below. (Cap.608). The MWO was passed by the Legislative Council on 17 July 2010 and was gazetted on 23 July 2010. It will come into operation on a day to be appointed by the Secretary for Labour and Welfare. A Provisional Minimum Wage Commission (the PMW Commission) was established in February 2010. The main functions of the PMW Commission are to advise the Chief Executive on the setting of the initial statutory minimum wage rate (see s.12(1) of the MWO). At present, there are vigorous and controversial debates about the level of the statutory minimum hourly rate. The unionists have recommended that a minimum hourly rate be set at around HK$35. However, employer groups are striving to set the minimum hourly rate at around HK$20. See Martin Wong HK$20 an hour: Im sorry for that, South China Morning Post, 25 Mar 2010; Martin Wong Tommy Cheung joins the call for HK$24 minimum, South China Morning Post, 21 Apr 2010; Martin Wong Government will take middle road on minimum wage, academics say, South China Morning Post, 5 May 2010. Notwithstanding the debates, it is hoped that the MWO will come into force in the rst half of 2011. See the press release issued on 23 July 2010 at http://www.info.gov.hk/gia/general/201007/23/P201007230105.htm. A wage protection scheme was launched by the Government in 2006 which aimed to protect the wages of workers in the cleaning and security services sectors. However, it is not mandatory for employers to adopt the wage protection scheme. Those employers who have adopted the scheme did so on a voluntary basis. Stair Fair Electronics Co Ltd v Wong Tak Cheung [1985] 2 HKC 92. Section 7 of the MWO. Section 7(2) of the MWO. Section 7(3) of the MWO. Section 7(4) of the MWO. Section 7(5) of the MWO. A work experience student is dened to mean a student who is enrolled in an accredited programme or is resident in Hong Kong and enrolled in a non-local education programme, and who is engaged under a contract of employment at the beginning of which he is under the age of 26. Section 3 of the MWO provides that, subject to certain conditions, a work experience student may agree with his employer to treat a continuous period of up to 59 days during a contract of employment as a period of exempt student employment. Section 6 of the MWO.

INTRODUCTION

99

People with disabilities. It is recognized that people with disabilities (PWDs) are likely to encounter employment difculties since their productivity is likely to be impaired by their disabilities. The MWO therefore provides for special arrangements for those PWDs in order to mitigate any potential risk that the MWO may have on their employment opportunities. Under the MWO, PWDs whose productivity is impaired by their disabilities may undergo an assessment.16 The purpose of the assessment is to ascertain whether the statutory minimum hourly rate will apply or whether a rate which is proportional to the degree of their productivity should be used instead. There are specic requirements in relation to different categories of PWDs. For those PWDs who have undergone a trial period of employment, the applicable minimum hourly wage rate is set at 50 per cent of the prescribed minimum hourly rate.17 In relation to employees with a disability and whose degree of productivity has been assessed, the applicable hourly rate is derived by multiplying the prescribed minimum hourly wage rate by the employees assessed degree of productivity as stated in the certicate of assessment.18 For those PWDs who have elected to have an assessment made in respect of their degree of productivity in performing the work required under their contract of employment (assessment-opting PWDs) and continue to be employed to do the same work for the same employer, until the end of the day on which the assessment of their degree of productivity is completed, the hourly rates applicable to them are the percentage of the prescribed minimum hourly wage rate as specied in the option forms signed by them.19 Entitlement to minimum wage. An employee is entitled to be paid wages in respect of any wage period of not less than the minimum wage.20 The minimum wage for an employee for a wage period is the amount derived by multiplying the total number of hours worked by the employee in the wage period by the prescribed minimum hourly wage rate for the employee. 21 No contracting out. Any agreement which purports to extinguish or reduce any right, benet or protection conferred on employees under the MWO is void.22 Criminal liability. The MWO does not seek to interfere with the operation of the EO. Failure of an employer to comply with the minimum wage requirements as set out in the MWO will be treated in the same way as underpayment of wages to an employee. The maximum penalty is a ne of HK$350,000 and imprisonment of three years.23

4.007

4.008

4.009 4.010

16 17 18 19

20 21

22 23

Section 9 and Sch.2 of the MWO. Section 9(1)(a) and s.3 of Sch.2 of the MWO. Section 9(1)(b) of the MWO. Section 9(1)(c) of the MWO. Assessment-opting PWDs are required to sign option forms which set out, among other things, the hourly wage rate at which the PWDs are employed (the current contractual rate) and the percentage of the prescribed minimum hourly wage rate that the current contractual rate represents. Section 8(1) of the MWO. Section 8(2) of the MWO. The prescribed minimum hourly wage rate is dened to mean the hourly wage rate specied in column 1 of Sch.3 of the MWO. See s.4 of the MWO for the denition of hours worked. Section 15 of the MWO. Paragraph 24 of the Legislative Council Brief issued by the Labour and Welfare Bureau issued in June 2009 at http://www.legco.gov.hk/yr08-09/english/bills/brief/b24_brf.pdf.

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2. DEFINITION OF WAGES
(a) Introduction 4.011 Denition of wages. Under the EO, the term wages is dened to mean all remuneration, earnings, allowances, including travelling allowances and attendance allowances, attendance bonus, commission, overtime pay, tips and service charges, however designated or calculated, capable of being expressed in terms of money, payable to an employee in respect of work done or to be done under his contract of employment.24 For details relating to the judicial determination of different categories of wages, see paras 4.026 to 4.040. Relevance of wages to calculation of entitlements under EO. Although the denition of wages is very broad and can potentially include many forms of payment in an employment contract, the EO specically excludes 11 categories of payment from the denition of wages. It is essential to note that wages do not merely represent a component of an employees remuneration; they are the key to the calculation of an employees statutory benets and entitlements, namely end-of-year payment, maternity leave pay, severance payment, long service payment, sickness allowance, holiday pay and annual leave pay.25 (b) Payments excluded from wages 4.013 Excluded payments. The denition of wages specically excludes certain payments and benets that an employer may agree to provide an employee.26 The items of payments that are specically excluded are as follows:

4.012

the value of any accommodation, education, food, fuel, light, medical care or water provided by the employer; any contribution paid by the employer on his own account to any retirement scheme; any commission which is of a gratuitous nature or which is payable only at the discretion of the employer; any attendance allowance or attendance bonus which is of a gratuitous nature or which is payable only at the discretion of the employer; any travelling allowance which is of a non-recurrent nature;

24

25 26

Section 2(1) of the EO. The term however designated is used in the denition of wages to prevent unscrupulous employers from circumventing the legislative intent of the EO by describing any part of an employees earnings as a non-wage item. In Yan Tak Cheung v Famous Horse Garment Factory Ltd (unrep., HCLA 3/1992, [1992] HKLY 453), it was held that the label is not conclusive. It is not what the parties call it but what it is in substance that matters. One has to look at the nature of the payment, the reasons therefor, and the circumstances or conditions under which such payment is made (per Deputy Judge P Chan). See Chapter 5. Section 2(1) of the EO.

DEFINITION OF WAGES

101

any travelling allowance payable to the employee to defray actual expenses incurred by him due to the nature of his employment; the value of any travelling concession; any sum payable to the employee to defray special expenses incurred by him due to the nature of his employment; any end-of-year payment, or any proportion thereof, which is payable under Pt IIA of the EO; any gratuity payable on completion or termination of a contract of employment; and any annual bonus, or any proportion thereof, which is of a gratuitous nature or which is payable only at the discretion of the employer.

Each of the above excluded categories will be examined in turn. The value of any accommodation, education, food, fuel, light, medical care or water provided by the employer. Employers may offer employee benets in the form of free accommodation, education, food and other utilities to their employees in addition to the payment of a basic salary.27 Such benets are not regarded as amounting to wages since they are provided by the employer in kind. If an employer provides such benets in cash rather than in kind, such a payment will cease to be exempted and will be regarded as wages.28 A typical example is the provision of free food by an employer to his or her foreign domestic helper. 29 An employer has an option of paying a food allowance in lieu of the provision of free food; in which case, the food allowance forms part of the foreign domestic helpers wages. Any contribution paid by the employer on his or her own account to any retirement scheme. In Hong Kong, save for certain exempted employees, every employer is required to enrol its employees in a recognised retirement scheme which provides benets on retirement or termination of employment and to make monthly contributions to such scheme.30 The amount of contributions paid by an employer to 4.014

4.015

27 28

29 30

Section 28(1) of the EO. In Castro Evelyn Dimalanta v Wong Choi Wah (unrep., HCLA 9/2002, [2002] HKEC 1114) the court considered the food allowance in the context of a wrongful dismissal claim. The cases of Faridha Sulistyoningsih v Mak Oi Ling (unrep., DCPI 1575/2005, [2007] HKEC 653); Achacoso v Liu Man Kuen (unrep., HCPI 121/2001, [2004] HKEC 705); Wong Kin Chung v Fenban Shipping Co Ltd (unrep., HCPI 1184/1998, [2002] HKEC 1420); Ting Kwok Keung v Tam Dick Yuen (unrep., DCEC 382/1998, [2001] HKEC 1167); Law Ngan v Ng Kai Hau [1976] HKLR 208 relate to the assessment of damages in personal injuries cases. See Cl.5(a) of the Standard Employment Contract for Foreign Domestic Helpers (ID 407). Sections 7 and 7A of the Mandatory Provident Fund Schemes Ordinance (Cap.485). A person who belongs to any one of the following categories is exempt from joining a mandatory provident fund scheme: (i) domestic employees; (ii) self-employed hawkers; (iii) people covered by statutory pension or provident fund schemes, such as civil servants and subsidised or grant school teachers; (iv) members of occupational retirement schemes which are granted exemption certicates; (v) people from overseas who enter Hong Kong for employment for less than 13 months or who are covered by overseas retirement schemes; and (vi) employees of the European Union Ofce of the European Commission in Hong Kong.

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a retirement scheme for the benet of its employee is not considered as part of the employees wage.31 4.016 Any commission which is of a gratuitous nature or which is payable only at the discretion of the employer. Under the EO, any commission which is gratuitous or is payable at the discretion of the employer is not considered to be wages. In determining whether a commission is contractual or gratuitous, the court will decide on a case-by-case basis. For details relating to the distinction between contractual or discretionary payments, see paras 4.101 to 4.109. Any attendance allowance or attendance bonus which is of a gratuitous nature or which is payable only at the discretion of the employer. Under the EO, if an attendance allowance or bonus is of a gratuitous nature or is payable at the absolute discretion of an employer, such payment will not be recognised as wages. In ascertaining the nature of the payment, the court will consider the circumstances under which the attendance allowance is paid. If an attendance allowance is of a xed sum and is payable upon an employees full attendance at work during a wage period, the employer does not have any right not to pay the attendance allowance. In such a case, it forms part of the employees wages.32 For details, see paras 4.027 to 4.029. Any travelling allowance which is of a non-recurrent nature. Under the EO, any non-recurrent travelling allowance falls outside the denition of wages. Although the EO does not dene what amounts to a non-recurrent payment, it would appear that this statutory exclusion is intended to cover those one-off travelling allowances paid to an employee due to the requirements of particular tasks on hand. Any travel allowance payable to the employee to defray actual expenses incurred by him or her due to the nature of his or her employment. If actual travel expenses incurred by an employee pertinent to the nature of his or her employment are reimbursed by his or her employer, such reimbursement falls outside the scope of wages. If, however, any travel allowance given is not to defray actual expenses incurred by an employee due to the nature of his or her work, such travel allowance forms a part of the employees wages. An allowance which is paid by an employer in relation to an employees cost of travelling between his or her place of work and place of residence generally forms part of the employees wages. Any travelling concession. Travelling concessions may take various forms. For instance, an employer may offer free transportation to his or her employees where the cost of transportation incurred is settled directly by the employer with the transportation service providers. Some employers may offer their expatriates home visits, together with free air tickets purchased directly by the employer on a yearly basis. Further, it is common practice in the airline industry to offer staff free or discounted air tickets. The value of these travelling concessions is not regarded as wages for the purpose of the

4.017

4.018

4.019

4.020

31

32

Note that the amount of contribution made by an employee to a retirement scheme will be considered as the employees wages. Chow Wai Yee v Fongs National Engineering Co Ltd [1996] 2 HKLR 52; New Bright Industrial Co Ltd v Wong Sau Chi [1995] 2 HKC 357.

DEFINITION OF WAGES

103

EO. Travelling concessions should be distinguished from other forms of travel benets such as passage allowance and air baggage allowance.33 Any sum payable to the employee to defray special expenses incurred by him or her due to the nature of his or her employment. As in the case of travel allowances payable by employers to defray actual expenses incurred by employees in the course of their employment in 4.017, if an employee is reimbursed a sum for the special expenses incurred by him or her in the course of his or her employment, such payment falls outside the scope of wages for the purpose of the EO.34 Kwan Siu Wa Becky v Cathay Pacic Airways Ltd. In Kwan Siu Wa Becky v Cathay Pacic Airways Ltd,35 the plaintiffs were cabin attendants. They sued their employer for insufcient payment in lieu of statutory holiday and annual leave pay. During their employment by Cathay Pacic, they were contractually entitled to receive, among other things, an outport allowance. Some of the outport allowance components, such as meals and travelling expenses, were paid to them to cover expenses incurred by them when they stayed overseas between ights. This is because cabin attendants are likely to incur extra meal and travel expenses when they stay overseas. The issue was whether the outport allowance was a sum payable to the employee to defray special expenses incurred by them by the nature of his employment excluded from the denition of wages. The cabin attendants contended that the term special expenses in the EO denoted something which is of a non-recurrent nature and should be a one-off expenditure pertinent to the nature of the employment. Such contention was rejected by the court since there was nothing in the EO which provided that special expenses must be non-recurrent in nature. The extra meals and travel expenses which they were likely to incur when they stayed overseas were regarded as special expenses incurred by them due to the nature of their employment. On that basis, the court held that the outport allowance fell within the statutory exception and did not form part of the cabin attendants wages. The court further held that, even if the payments were pre-determined and non-accountable xed monthly payments, they could constitute reimbursement of expenses and fall within the statutory exception. Any end-of-year payment, or any proportion thereof, which is payable under Part IIA of the EO. If, under a contract of employment, an employee is entitled to an annual payment or bonus which is of a contractual nature and falls within the denition of end-of-year payment, such annual payment or bonus does not form part of the employees wages. For details, see paras 4.098 to 4.131. 4.021

4.022

4.023

33

34 35

In Nkasu v City University of Hong Kong (unrep., HCA 7982/1996, [2000] HKEC 316), the claimant was contractually entitled to a passage allowance and an air baggage allowance. Following the termination of his employment, there was a dispute over the amount of payments the claimant was entitled to. City University contended that the passage and air baggage allowances were mere travelling concessions. This was rejected by the court. The court relied on the judgment of Jerome Chan J in New Bright Industrial Co Ltd v Wong Sau Chi [1995] 2 HKC 357 (at p 362 DE), where he stated that travelling allowance in s.2(1) of the EO means an allowance payable in respect of expenses or payments incurred in or made in connection with travelling to and from his place of work. Kwan Siu Wa Becky v Cathay Pacic Airways Ltd (unrep., LBTC 2827, 2828, 2829/2008, [2009] HKEC 924). (unrep., LBTC 2827, 2828, 2829/2008, [2009] HKEC 924); (unrep., LBTC 2827/2008, [2009] HKEC 925); (unrep., HCLA 3, 4, 5, 7, 8, 9/2009, [2009] HKEC 1816).

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4.024

Any gratuity payable on completion or termination of a contract of employment. If an employee receives a gratuity in recognition of his or her completion of a contract of employment or an ex gratia payment upon the termination of his or her employment, such payment will not be considered as part of his or her wages. Any annual bonus, or any proportion thereof, which is of a gratuitous nature or which is payable only at the discretion of the employer. Even if an annual payment does not amount to an end-of-year payment, if it is gratuitous in nature it does not form part of an employees wages. (c) Judicial determination of wages

4.025

4.026

Examples of wages. Given that wages form the basis for the computation of an employees statutory benets and entitlements, in the case of disputes following the termination of employment, whether a particular kind of payment or employee benet constitutes wages for the purpose of the EO invariably becomes a key issue. The court has in the past been called upon to determine the nature of various items of remuneration. (i) Attendance allowance or attendance bonus

4.027

Attendance allowance or attendance bonus. To encourage employees to maintain an efcient working environment and to avoid any disruptions which may be caused by the absence of their employees, an employer may offer an attendance allowance or attendance bonus to those employees who report for duty on time and do not take any days of absence during a wage period. Whether an attendance allowance or bonus forms part of an employees wages has been considered in a number of Hong Kong cases. In New Bright Industrial Co Ltd v Wong Sau Chi,36 a dispute arose between an employer and its employees as to whether the attendance bonuses paid by the employer formed part of the employees wages for the purpose of calculating the employees payment in lieu of notice, annual leave pay and severance payments. In upholding that such attendance bonuses fell within the denition of wages under the EO, the court considered that attendance bonuses were paid only to those employees who reported to work punctually and were a form of reward for punctuality. The same conclusion was reached in the subsequent case of Chow Wai Yee v Fongs National Engineering Co Ltd.37

36 37

[1995] 2 HKC 357. [1996] 2 HKLR 52. In Chow Wai Yee, the court followed the decision of the Wong Ping Kong v Tai Hing Cotton Mill case [1994] 2 HKLR 107 where the court was asked to determine the nature of an attendance bonus. In delivering his judgment in the Tai Hing Cotton Mill case, Keith J said: At the end of each wage period, the employee received his pay for the work he had done in that wage period. His pay uctuated because it depended on a number of variable factors. One of those factors was his attendance at his place of work. If he attended at his place of work regularly, he qualied for a higher rate of pay for the work he had done. The higher rate of pay for the work he had done to which his regular attendance at his place of work entitled him was reected in the attendance bonus. His regular attendance at his place of work, in other words, was one of the factors which determined the amount of his pay for the work he had done in the wage period, and the attendance bonus was the component in his pay for the work he had done which was attributable to his regular attendance at his place of work.

DEFINITION OF WAGES

105

Implied term to pay attendance bonus. Even if a contract of employment is silent on an employees entitlement to attendance bonuses, an employer may, through its conduct, be deemed to have agreed to make such payment. This can be illustrated by the case of Fong Mung Yan v ISS Hong Kong Services Ltd.38 In Fong Mung Yan, the plaintiffs employment contract did not contain any provisions relating to the payment of attendance bonuses. However, it was the practice of his employer to pay attendance bonuses to all employees, including the plaintiff, at the month end, provided that the employees had not been absent from work. The employer had followed such a practice for a substantial period of time. It was held that annual bonuses were part of the plaintiffs wages. Does the formula for the attendance bonus calculation affect an employees entitlement? In determining whether an attendance bonus constitutes an employees wages, the mechanism for the calculation of attendance bonus is not a relevant factor. In Wong Ping Kong v Tai Hing Cotton Mill Ltd,39 a dispute arose between an employer and his employees as to whether, in calculating the employees severance payment, the attendance bonus received by them should be included. Under the employment contracts, the employees were contractually entitled to attendance bonuses if they reported to work every day during a wage period (except Sundays). The amount of the attendance bonus was equivalent to a percentage of their basic wage. The court held that attendance bonuses fell within the meaning of wages under the EO as they were payable to the employees in respect of work done under their contract of employment.40 The method of calculating the attendance bonus did not affect the employees attendance bonus entitlement. (ii) Commission Commission. The EO expressly excludes from the calculation of wages any commission which is of a gratuitous nature or which is payable only at the discretion of the employer. The question of whether certain commission payments should be included as wages for the purposes of statutory entitlements has been considered by the courts on numerous occasions. A recent example is the case of Laing Agnes v Lisbeth Enterprises Ltd.41 Legal position pre 2007. In Laing Agnes v Lisbeth Enterprises Ltd,42 the plaintiffs commenced proceedings against their employer and contended that their employer failed to make sufcient payments in lieu of unused annual leave and statutory holidays since, in calculating the amount of payment, their employer failed to take into account the commissions earned by them during their employment. The plaintiffs received a low basic salary, and a substantial part of their remuneration comprised of

4.028

4.029

4.030

4.031

38 39 40

41

42

[2008] 1 HKLRD 63. [1994] 2 HKLR 107. In Tai Hing Cotton Mill (fn 41), Deputy Judge Yeung, in his unreported judgment, said I am of the view that the mere attendance at the factory by a worker at the request of the employer in order to carry out work should such work be available per se is work to be done within the Employment Ordinance. When the workers attended the factory, they were ready, willing and able to carry out work assigned to them. Work to be done in the context of the Employment Ordinance must necessarily mean work to be done as and when the work become available. (unrep., HCLA 133/2003, [2004] HKEC 781); [2005] 2 HKLRD 150; see also the Court of Final Appeal decision in Lisbeth Enterprises Ltd v Mandy Luk [2006] 1 HKLRD 1005. (unrep., HCLA 133/2003, [2004] HKEC 781).

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contractual commissions which were determined by reference to their achievement of sales targets. Such commission accrued and was calculated on a daily basis and the amounts of commission varied from day to day. Whether the contractual commissions earned by the plaintiffs fell within the denition of wages under the EO was the crux of the dispute. At the time of the judgment, the EO provided that the amount of annual leave pay and statutory holiday pay was equivalent to the wages which an employee would have earned if he or she had worked during that leave period. The court held that the plaintiffs commission only related to what they might have earned if specic targets were met. It was held that the plaintiffs commission payments which were not capable of being determined on a daily basis should not be included in the denition of wages for the purpose of calculating statutory benets.43 Following the Lisbeth case, the Labour Department put forth a proposal for changes to the EO in order to reect the legislative intent that wages should include contractual commissions for the purposes of calculating all statutory benets.44 (iii) Tips and service charges 4.032 Tips and service charges. The term tips and service charges is dened in the EO to mean sums of money received, directly or indirectly, by an employee in the course of and in connection with his or her employment which are (a) paid or derived from payments made by persons other than the employer; and (b) recognised by the employer as part of the employees wages.45 Whether tips and service charges form part of wages is decided on a case-by-case basis. Not all tips and service charges amount to wages under the EO. The court determines whether certain tips or service charges fall within the scope of wages based on the circumstances of each case.46 In Li Shuk Man v Ho Wai Ling Rebecca,47 the plaintiffs were employees working in a sauna establishment. After completing each massage session, the employer collected the tips paid by its customers. The amount of tips received by the individual plaintiff was generally substantially higher than their basic salary. The plaintiffs employer maintained a system to record the tips for each massage session. After deductions were made by the employer, the employer would pay the tips to the plaintiffs. One of the matters under the consideration of the court was whether the tips received by the plaintiffs should be part of their wages in the calculation of their claims. In assessing the nature of the tips, the court considered that the tips paid by the customers were notorious, habitual and closely connected with the employers business, they were received by the plaintiffs in the course of and in connection with their employment, and were paid or derived from payments made by persons other than the

4.033

43

44

45 46 47

The decision of Lisbeth was subject to severe criticism since it failed to reect the legislative intent of the EO. Following Lisbeth, the Employment (Amendment) Ordinance 2007 was enacted. Under the Employment (Amendment) Ordinance 2007, all components of wages (including contractual commissions) are included in the calculation of different forms of statutory entitlements, namely payments in lieu of notice; damages for wrongful termination; maternity leave pay, sickness allowances; holiday pay; and annual leave pay. All these statutory benets are now calculated by reference to the average wages earned by an employee during the preceding 12 months. See Employment (Amendment) Ordinance 2007. The provisions relating to the calculation of statutory entitlements came into operation on 13 July 2007. Section 2(1) of the EO. See Star Express Ltd v Cheng Tak (unrep., HCLA 86/1998, [1999] HKLRD (Yrbk) 402). (unrep., HCA 5446/1996, [2000] HKEC 591).

DEFINITION OF WAGES

107

employer.48 Given that the tips were collected and distributed openly in the employers establishment, the court considered that they were recognised by the employer. It was therefore held that the tips in question formed part of the plaintiffs wages and were not mere personal payments between the plaintiffs and the customers. Tips and service charges of a discretionary nature per se will not preclude them from being part of an employees wages. The same conclusion was reached in the case of Lam Pik Shan v Hong Kong Wing On Travel Service Ltd.49 In this case, the plaintiff, a tour guide, received tips and service charges from her employers customers following the completion of leisure tours. During her employment by Wing On Travel, Wing On Travel provided different package tours to its customers and had provided its customers with the recommended daily rate of tips which it encouraged customers to pay to its tour guides, including the plaintiff. Wing On Travel also issued tour guides which set out information relating to tipping, and had, in letters to credit card companies, stated that the plaintiffs total annual income included the tips received by her. Similar reporting was made by Wing On Travel to the Inland Revenue Department. Following the termination of her employment during the outbreak of SARS, the plaintiff claimed that tips and service charges received by her should be included as wages under the EO and, therefore, be taken into account in determining her statutory annual leave pay and holiday pay. Wing On Travel, on the other hand, asserted that the tips and service charges were not part of the plaintiffs wages and that her wages should be capped at the basic salary. The presiding ofcer at the Labour Tribunal held that the tips were not payable as part of the plaintiffs employment, but were part of a collateral agreement and therefore did not fall within the denition of wages. The decision of the Labour Tribunal was overturned by the Court of First Instance. The court considered the factual circumstances of the case and concluded that Wing On Travel did not merely recognise the existence of tips, but had actively participated in collecting tips from its customers. It was held that, even if tour participants retained full discretion to decide on the amount of tips to be paid to a tour guide, this would not preclude the tips from forming part of an employees wages. (iv) Overtime payments Overtime payments. There is nothing in the law which confers a right on employees to receive any overtime payments.50 The fundamental basis for an employees entitlement 4.035 4.034

48

49 50

This follows the approach adopted in Madam Leung Ho v Hong Kong Macau Hydrofoil Co Ltd, District Court Workmens Compensation Case No. 190/82, where the District Court, in considering whether the tips earned by a sailor for carrying passengers luggage fell within the denition of earnings under the former Workers Compensation Ordinance, held that, given that the practice of tipping was notorious, habitual and closely connected with the business, the tips would be part of the sailors wages. [2007] 4 HKC 531; [2008] 3 HKC 578; (unrep., FAMV 55/2008, [2009] HKEC 97). In Leung Ka Lau v Hospital Authority (2009) 12 HKCFAR 924, the plaintiffs commenced proceedings against the Hospital Authority seeking, among other things, overtime payments. They asserted that they worked unacceptably long hours and had a contractual right to time off or, in default, to monetary compensation, for working on-call after normal hours, where no rest days or holidays are involved. The plaintiffs contracts of employment clearly provided that the plaintiffs were expected to work overtime and perform on-call duties and that, a xed rate honorarium may be payable to them in recognition of the additional work done. In support of their contention that they were entitled to overtime payments, the plaintiffs purportedly relied on certain statements contained in Hospital Authoritys Human Resources Policy Manual and Human Resources Administration Manual (collectively the HA Manuals) which suggested that overtime work would be recompensed by time-off in lieu or payments in lieu of time-off, it was held that such statements could not be read in isolation from the rest of the HA Manuals.

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to overtime payments lies in the contract of employment. Although overtime payments are generally expressed in monetary terms and are payable in respect of work done under a contract of employment, the EO specically excludes them from the denition of wages. The only exception is when overtime payments are constant in character or the monthly average of the overtime payments over a period of 12 months is equal to or exceeds 20 per cent of the employees average monthly wages during the same period.51 In such case, such overtime payments form part of the employees wages. The net effect of the exclusion of overtime payments from an employees wages is that an employees statutory benets will be affected.52 4.036 What is overtime work? An overtime payment is a payment made by an employer in respect of the period of work done by an employee over and above his or her normal working hours. However, the term overtime is not dened in the EO. An employees normal working hours may not be easily dened. What amounts to the normal or regular working time of an employee is a question of fact to be decided on all the evidence pertaining to his employment, including the terms of the written contract. The label of overtime payment is never determinative. In New Bright Industrial Co Ltd v Wong Sau Chi,53 a number of employees were dismissed by reason of redundancy. The employees income comprised their basic wages as well as various payments under a variety of labels, including overtime pay and overtime allowance. Following the redundancy, dispute arose between the employer and the employees as to the manner in which the wages for the employees should be calculated for the purposes of payments in lieu of notice, annual leave pay and severance payments. The employer calculated such payments based on their daily basic wages alone. The parties had agreed in their contracts of employment that the ofcial hours of work were between 8am and 12 noon and 1pm to 5pm and were paid an overtime payment if they worked after 5pm on weekdays and after 1pm on Saturdays. The employees worked overtime irregularly and for an irregular duration. The presiding ofcer of the Labour Tribunal held that the additional payments received by the employees (including overtime pay and overtime allowance) were included as wages for the purpose of calculating statutory entitlements. The employer appealed against the Labour Tribunals decision. In considering what amounted to overtime work, the court held that the key was the substance and nature of the actual regular working hours, irrespective of how the parties attempted to label the payment. The court found that there was no established pattern of regular overtime hours to justify any inference that any particular number of hours outside the specied eight hours had by the conduct of the parties been adopted as regular hours and held that the employees overtime pay and allowance was excluded in the calculation of wages for the employees claims.54

4.037

51

52

53 54

Section 2(2) of the EO. If an employee has been employed for less than 12 months, reference shall be made to the average monthly earnings for the shorter period of employment. However, note in Kin Man Garment Factory v Lam Suk Ching [1985] 2 HKC 290, that the court failed to take into account the provisions of s.2(2) and, in considering the amount of payment in lieu payable by an employee, it rejected the employees contention that overtime payments should be deducted from the amount of wages. In Lau Wai Tak v Wong Hok Sing [1995] 2 HKC 179, the trial judge overlooked the special provision in s.2(2) of the EO and held that the holiday awardable to an employee ought to be calculated by reference to the employees overtime payments. [1995] 2 HKC 357. New Bright conrmed Pang Tin Yee v Fongs National Engineering Co Ltd (unrep., LTA 65/1993).

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109

The substance and nature of regular working hours is key. New Bright can be contrasted with the case of Chow Wai Yee v Fongs National Engineering Co Ltd.55 In Chow Wai Yee, a claim was lodged by more than 200 employees against their employer for severance payment as a result of their dismissal by way of redundancy. One of the issues considered by the court was whether the employees had worked overtime. In that case, the plaintiffs contracts of employment prescribed that the ofcial working hours were from 8.10am to 5pm. The plaintiffs wages were calculated on the basis of the rst eight hours until 5pm at the normal rate. If the plaintiffs worked overtime, they would be paid Overtime Pay at the rate of 1.5 times the normal rate. Notwithstanding the ofcial hours of work, all employees were expected to work for two additional hours every day and the employer only provided free transport to staff who worked such additional hours. An employee who wanted to be excused from doing the overtime would have to verbally apply for permission from the superior, failure to do so would result in disciplinary action. In determining the amount of severance payment, the presiding ofcer of the Labour Tribunal included Overtime Pay. The employer appealed against the decision, claiming that Overtime Pay should be excluded. The court relied on the judgment of Jerome Chan J in New Bright where he observed [i] t is true to say that it matters not how the parties attempted to label, it is the substance and nature of the actual regular working hours that the court should have regard to in nding what is overtime work. It was held that the work done by the plaintiffs after the scheduled working hours (i.e. 5pm) could not be properly regarded as overtime work since, based on the circumstances of the case, it was part and parcel of their normal working day. Thus, the overtime pay to the plaintiffs for the work done after 5pm every day was not, in truth, overtime pay and should not be excluded in the computation of the plaintiffs severance payment. Non-recurrent overtime payments as part of an employees wages. For the purpose of determining whether non-recurrent overtime payment exceeds 20 per cent of an employees average monthly earnings, the employees earnings are averaged over the previous 12 months.56 Depending on the statutory benet in question, the 12 months (or lesser) period is the period ending as follows:

4.038

4.039

for end-of-year payments, the expiry date of the payment periods; for maternity leave pay, the commencement date of the maternity leave; for severance or long service payments, the date of termination (which differs according to whether the employment is terminated by notice or payment in lieu of notice); for sickness allowances, the rst sickness day; for holiday pay, the rst day of the holiday; and for annual leave pay, the rst day of the annual leave.

55 56

[1996] 2 HKLRD 52. Section 2(2A) of the EO.

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(v) Housing allowance 4.040 Housing allowance. Although the EO does not explicitly provide that housing allowance is characterised as a form of wages, the value of housing allowance is regarded as an employees wages. In Neckel Nils v Dual Voltage Co Ltd,57 the court considered the meaning of the value of items specically excluded from the denition of wages. In particular, it considered whether a housing allowance, which was paid in cash to the employee, was within the denition of wages. It was held that the housing allowance in question, which was paid on a non-accountable basis, was a consideration for work done or to be done under a contract of employment, payable to the employee under those terms, and that the exclusion only applied to cases where quarters or housing were provided to staff on a non-pecuniary basis. By way of an obiter, the court expressed the view that even an accountable housing allowance or one which is payable on a reimbursement basis was not the value of accommodation provided by the employer and therefore should not be excluded as wages under the EO.

3. PAYMENT OF WAGES
4.041 General. Employers are required to pay wages to their employees punctually and in a proper manner. The EO sets out strict requirements in relation to the timing and manner of wage payment. It also makes provisions for the time, manner and place of payment. While some sections operate where the contract is silent, others override any contractual agreement and the common law. (a) Timing of payment 4.042 Time of wage payment. Wages become due on the expiry of the last day of the wage period and must be paid as soon as is practicable, but in any case not later than seven days after the end of the wage period.58 The court has construed the meaning of as soon as practicable narrowly by holding that it means much more than at the mere convenience of the employer.59 If for any reason it is not practicable for an employer to pay wages as soon as is practicable, he or she should in any case do so no later than seven days after the expiry of the end of the wage period.60 Wage period. A wage period is the period in respect of which wages are payable.61 An employer and employee are free to agree upon the wage period. However, there is a statutory presumption that, unless the contrary is proved, the wage period under a

4.043

57

58 59 60

61

(unrep., HCLA 110/1996, [1996] HKLY 713). The decision of Neckel Nils was adopted in the case of Lau Bun Hay v Mass Transit Railway Corp (unrep., HCA 1893/1997, [2001] HKEC 136). Section 23 of the EO. Dorman Long (Steel) Ltd v Bell [1964] 1 WLR 333. The cases of Wong Kam v R [1977] HKLR 458; Chan Tak Fai v R [1978] HKLR 443; R v Lee Shek Ching [1986] HKLR 304; R v Ma Kui [1985] HKLR 414; and Derek Aplin v R [1976] HKLR 1028. In the case of Secretary For Justice v Sing Pao Newspaper Management Ltd [2008] 5 HKC 154 (CA), in defending the criminal prosecutions, Sing Pao attempted to rely on the fact that its failure to make payments in full on a timely basis was due to the resignation of the management team which had mislaid accounting records and that Sing Pao did not wilfully make late payments to its employees. It was held that these were not sufcient to constitute reasonable excuse. Section 2(1) of the EO.

PAYMENT OF WAGES

111

contract of employment is one month.62 This presumption, however, can be rebutted by evidence which demonstrates that the employment period is for any other period. Timing of termination payments.63 When a contract of employment is terminated, an employer is required to make termination payments to the employee as soon as is practicable, but in any event the payment day shall not be later than seven days after the day of termination.64 Termination payments shall include the amount earned by the employee for work done which accrued between the end of the last wage period and the day of termination of the contract of employment, payment in lieu of notice, payment in lieu of unused annual leave, long service payments etc.65 This should include any payment in lieu of notice, payment in lieu of unused annual leave, long service payments etc.66 However, if an employee has terminated his or her employment without giving the required notice period, an employer may deduct an amount of payment in lieu of the outstanding notice from the employees termination payments.67 Timing of payments on completion of contract. The EO sets out requirements in relation to the payment of wages on the completion of an employees contract of employment. An employees wages on completion of a contract of employment (for example, upon expiry of a xed term contract) must be paid to the employee as soon as is practicable after it has become due on the day of completion of the contract but in any case not later than seven days after the completion of employment.68 Absence of prescribed time limit within which employees are required to make payments in lieu. The EO does not specify the time limit within which, in the case of termination of employment by an employee, a payment in lieu of notice or any sum due by the employee to his or her employer must be settled. This is unsurprising and may be explained by the fact that the legislative intent of the EO is to provide for the protection of the wages of employees only.69 (b) Manner and place of wage payment Manner of payment. The EO sets out restrictions in relation to the manner of wage payment. An employee is entitled to receive payment of wages directly from his or her employer on a working day in legal tender.70 However, with the consent of the employee, wages may be paid in another manner such as cheque, money order, postal order or by direct payment into a bank account in the employees name or to an agent 4.047 4.044

4.045

4.046

62

63

64 65 66 67 68 69

70

Section 22 of the EO. According to s.3 of the Interpretation and General Clauses Ordinance (Cap.1), month shall be interpreted as a calendar month. The term termination payment is used throughout this chapter. It denotes all sums due to an employee following the termination of his employment contract. Section 25 of the EO. Sections 25(2)(a) and 25(2)(ba) of the EO. Note special provisions apply in relation to severance payments. Section 25(2)(ba) of the EO. Section 25(3) of the EO. Section 24 of the EO. The long title of the EO provides that the EO aims [t]o provide for the protection of the wages of employees and for matters connected therewith. The term legal tender is not dened in the EO. Pursuant to s.4 of the Legal Tender Notes Issue Ordinance (Cap.65), all banknotes issued in Hong Kong shall be legal tender in Hong Kong to any amount.

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appointed by the employee.71 An employer should ensure that the employees consent is expressly obtained before paying the employee in any manner other than legal tender. 4.048 Place of payment. The EO sets out the conditions and restrictions in relation to the place of payment of wages or termination payments. Payments are required to be made at the employees place of employment or any other ofce or place customarily used by the employer for the purpose of paying wages. With the consent of the employee, payment may be made at any other place.72 The EO specically provides that, unless the employee is employed in the following place, shop or store, no payment is allowed to be made in the following places:

any place of amusement; any place where cash-sweeps, xed odds betting or pari-mutuel betting is organised or conducted with the permission or authorisation under the Betting Duty Ordinance;73 any place where intoxicating liquor or a dangerous drug is sold; or any shop or store for the retail sale of merchandise.74

It is acceptable for employers to establish shops, stores or places for the sale of commodities to their employees. However, employers must not bind any employee to make use of such facilities for the purchase of commodities.75 Further, an employer is not permitted to make any agreement in consideration of a contract of employment which species the place, manner or person with whom the employee must spend his wages.76 If an employer fails to comply with these requirements, it commits an offence. The maximum penalty is a ne at level 3.77 (c) Remuneration items outside the scope of wages 4.049 Wages and non-wage remuneration items. The EO envisages that an employer may provide an employee with benets in kind such as food, accommodation and other allowances or privileges, in addition to wages as remuneration for the employees services.78 However, it strictly prohibits employers from giving employees any intoxicating liquors, dangerous drugs, or any tickets or other substitutes for tickets for any cash-sweeps, xed odds betting or pari-mutuel betting organised or conducted with the permission or authorisation under the Betting Duty Ordinance (Cap.108) as

71 72 73 74 75 76 77 78

Section 26(2) of the EO. Section 26(1) of the EO. Cap.108. Section 27 of the EO. Section 30 of the EO. Section 29 of the EO. Pursuant to Sch.8 of the Criminal Procedure Ordinance (Cap.221), the amount of the ne at level 3 is HK$10,000. Section 28(1) of the EO.

PAYMENT OF WAGES

113

remuneration for his or her service.79 An employer who is in breach of this prohibition commits an offence and is liable to a ne at level 3.80 (d) Legal consequences of late payment General. Late payment of wages or termination payments may give rise to criminal and civil liabilities. For details relating to the timing for the payment of wages and to make termination payments, see paras 4.042 to 4.045. (i) Criminal liability Criminal liability. Under the EO, any employer who wilfully and without reasonable excuse fails to pay wages or make termination payments on time commits an offence.81 The maximum penalty is a ne of HK$350,00082 and imprisonment of up to three years.83 What is a reasonable excuse? The offence of failure to pay wages or termination payments on time is not a strict liability offence. It is committed only if an employer wilfully and without a reasonable excuse fails to pay wages or termination payments on time. The EO allows the defence of reasonable excuse to be raised in any prosecution for this offence. Although the term reasonable excuse is not dened in any statute, there are ample cases in which courts have been called upon to decide whether a reasonable excuse existed, given the factual circumstances of the case. Generally, it means a cause which a reasonable man would regard as an excuse or a cause consistent with a reasonable standard of conduct.84 This does not include the employers subjective standard; otherwise, this would mean that, no matter how oppressive an employers act might be, it would fall outside the purview of the EO as long as it genuinely thought that its act was reasonable.85 Withholding wages vs deduction of wages. The EO prescribes the timing of payment of wages and termination payment. An employers failure to pay wages on time is closely interlinked with the offence of deduction from wages, which is strictly prohibited under the EO.86 Can an employer get around the statutory prohibition by withholding a certain amount from its employees wages? This was a matter under 4.051 4.050

4.052

4.053

79 80 81 82

83 84

85 86

Section 28(2) of the EO. Section 63D(2) of the EO. Section 63C of the EO. In Secretary for Justice v Sing Pao Newspaper Management Ltd (fn 54), the prosecution put forth the statistics in relation to summonses issued in 2005 which showed that the average nes imposed per summons for late payment of wages and late payment of termination payments were HK$3,208 and HK$3,211 respectively. The median ne was HK$3,000 per summons. For 2005 and 2006, the median nes for defendants which were corporations and where the period of late payment did not exceed six weeks were HK$3,000 and HK$4,000 respectively. Section 63C of the EO. HKSAR v Ching Yeung Development Co Ltd [20012003] HKCLRT 343; Yu Hao Jan v Wan Yuen Kong trading as Luen Hop Metal Co (unrep., DCEC 784/1998); Roles v Pascall & Sons [1911] 1 KB 982 (per Buckley LJ); Pascoe v The Nominal Defendant (Queensland) (No. 2) [1964] Qd R 373 (per Manseld CJ). HKSAR v Ching Yeung Development Co Ltd (ibid). For details relating to the unlawful deduction of wages, see para 4.071 to 4.095.

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the consideration of the court in the case of HKSAR v Ching Yeung Development Co Ltd.87 4.054 Does an employer have the right to withhold wage payments to offset its claim against an employee? In Ching Yeung Development, the appellant withheld its employees wages because it suspected that the employees in question had committed theft. The appellant was convicted of the offence of unlawful deduction of wages and appealed against the conviction. The appellant sought to rely on the defence that the non-payment of wages was neither wilful nor without reasonable excuse, since it had merely withheld payment of wages so that it could offset those amounts against the value of the stolen property. The court concluded that the appellants act was wilful and without reasonable excuse. In delivering the judgment, the court noted that making a deduction from wages was conceptually different from withholding wages but, relying on the judgment of Manseld CJ in Pascoe v The Nominal Defendant (Queensland) (No. 2),88 held that if the appellant refused to pay wages to its employee because it intended to offset the amount of wages against certain claims that it might have against the employee, the withholding of wages was tantamount to a deduction of wages. Such deduction was unlawful unless made in accordance with the EO. The EO contains no provisions allowing the employer to withhold wages. Thus, it was held that the withholding of wages could not possibly constitute a reasonable excuse. Difculty in ascertaining exact amount of payment. In ICAP (Hong Kong) Ltd v Elaine Chan,89 several employees entered into xed term employment contracts with ICAP and were contractually entitled to bonuses. The employees attempted to buy out their notice period by making payments in lieu which failed to take the bonuses into account. ICAP contended that insufcient payments in lieu of notice were made by the employees, since the bonuses formed part of the employees wages and should be counted. In delivering the judgment, the court noted that there were situations where the amount of wages could not be ascertained immediately following the termination of a contract of employment. One example was the contractual commission payable to a salesperson that was to come from the proceeds of sale received. Given that the receipt of the proceeds may be delayed by the credit period given to the purchaser, an employers failure to include the commission in the wages in lieu of notice paid within seven days from the termination would not be a wilful failure since there was a good reason for paying the commission at a later date upon receipt. Are employers good character and nancial position relevant factors? In determining whether an employers act is wilful and without reasonable excuse, the fact that the employer has a good record or is a person of good character is of little relevance.90 Further, matters such as the scale of the employer and the vulnerability to losses caused by employees are not factors to be considered in applying the EO.

4.055

4.056

87 88 89 90

[20012003] HKCLRT 343. [1964] Qd R 373. (unrep., HCA 636, 637/2007, [2009] HKEC 530). HKSAR v Ching Yeung Development Co Ltd (fn 91).

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115

The EO is predicated on the basis that employees require protection and that, if not protected, the employees may be overreached.91 Criminal prosecution. Under the EO, before an employer is prosecuted for the offence of failure to pay wages on time, it is necessary to obtain the written consent of the Commissioner for Labour.92 The Commissioner for Labour will not give such consent unless the employer has had an opportunity to be heard.93 Thus, the court is unlikely to be concerned with trivial cases with a good defence or strong mitigation factors.94 Parties to the criminal sanction. If the wilful default of due payment of wages is committed by a body corporate, the company directors and ofcers are not immune from liability. Under the EO, if such offence is committed by a body corporate and is proved to have been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other similar ofcer, that person shall be guilty of a like offence.95 Company directors and other ofcers therefore have a personal responsibility to ensure that wages are paid to employees in compliance with the requirements under the EO. Similarly, if the offence of late payment of wages is committed by a partner in a rm or is proved to have been committed with the consent or connivance of any other partner of the rm or any person concerned with the management of the rm, that partner or person shall be guilty of a like offence.96 A body corporate cannot be subject to custodial sentence. However, company directors, ofcers, partners or any person concerned with the management of a partnership are potentially liable to a custodial sentence since a custodial sentence is regarded as an available and necessary means of deterrence in respect of natural persons who commit wage payment offences.97 Sentencing. Once a person is convicted of a wage payment offence, the court will take mitigating factors into account before sentencing. The case of Secretary for Justice v Sing Pao Newspaper Management Ltd 98 sets out a number of useful principles relating to mitigating factors. In that case, the respondent, a member of the Sing Pao Group of Companies, was charged with 11 offences for late payment of wages and termination payments to three employees. Following a plea of guilty by the respondent, the magistrate imposed nes ranging from HK$200 to HK$500 in respect of each conviction. The Secretary of Justice applied for a review of the sentence on the basis that the sentence was manifestly inadequate and/or wrong in principle. A number of mitigating factors were put forth by the respondent as follows: Chaotic management. In the course of sentence mitigation, the respondent contended that the offences were committed due to the recent change of management which resulted in disarray. It was held that disarray in management arising out of change of 4.057

4.058

4.059

4.060

91 92 93 94 95 96 97 98

Ibid. Section 64(1) of the EO. Section 64(2) of the EO. This can be in the form of a conciliation meeting held at the Labour Department. HKSAR v Kamfaith Industrial Ltd (unrep., HCMA 580/2005, [2005] HKEC 1470). Section 64B(1) of the EO. Section 64B(2) of the EO. Secretary for Justice v Sing Pao Newspaper Management Ltd (fn 54). Ibid.

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management was not a special reason for a lighter sentence even if the management had made bona de and reasonable efforts to improve its position. 4.061 Lack of culpability. The respondent submitted that it was not culpable for the late payment offence. The lack of culpability on the part of the employer was held to be of little relevance with respect to sentence mitigation.99 The court expressed that, if an employer deliberately delays payment in order to punish or harass its employees, it may warrant a custodial sentence. Short delay and insubstantial amount of late payment. The court held that the insignicant amount of late payment should not be regarded as a mitigating factor since there was a correlation with the low wages payable to the employee in question. Further, short delays in wage payments should not attract lenient sentences. However, if wages were never paid, non-payment of wages would generally make the offence more serious; in which case, the nes would be much more substantial, and, in suitable cases, imprisonment would be appropriate. First offender. Generally, if an employer is convicted for the rst time for an offence, the court is prepared to impose a more lenient sentence on rst offenders. However, if an employer appears before the court for the rst time but is charged with a number of offences, it will not be treated as a rst offender. For repeat offenders, substantial nes and imprisonment are generally considered to be real options.100 Financial means of employer. The court recognised that the nancial means of the employer was a relevant mitigating factor. This is because the court would not wish to push a struggling employer over the brink, especially if the employer has fallen on hard times, but would encourage the employer to make honest and reasonable efforts to salvage its business. Legal cost. Once an employer has put forth the defence, the burden is on the employer to provide evidential proof to substantiate its defence. If, for instance, an employer merely put forth a bare assertion of reasonable excuse, it might be ordered to pay the costs of the criminal proceedings. This occured in the case of HKSAR v Kamfaith Industrial Ltd. 101 (ii) Civil liability 4.066 Payment of interest. Late payment of wages or termination payments entitles the employee to claim interest from the date the wages become due up to the date of actual payment.102 Thus, if an employer does not pay wages or termination payments within seven days of the date on which they become due, it is liable to pay interest on the

4.062

4.063

4.064

4.065

99 100

101 102

Ibid. Ibid. See also Shum Ming v The Queen [1978] HKLR 41 and 42; Secretary for Justice v Au Man Kei, Alex (unrep., CAAR 2/2000) where Stuart-Moore VP said at page 27: It has long been regarded, as this court said in Shum Ming v The Queen (1978) HKLR 41 at p 42, as difcult to regard persons who appear before the court for the rst time, and who are charged with a number of offences, as true rst offenders. We conrm, should it be necessary to do so, that the approach taken in Shum Ming towards offenders committing a series of offences remains the proper one to adopt. (unrep., HCMA 580/2005, [2005] HKEC 1470). In that case, the defendant was ordered to pay HK$3,000 costs. Section 25A of the EO.

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117

outstanding amount. The rate of interest is xed by the Chief Justice under s.50 of the District Court Ordinance.103 Ground of termination of employment. If wages are not paid within one month from the due date of payment, an employee is entitled to deem his or her contract of employment to have been terminated by his or her employer without notice.104 Under such circumstances, the employer is deemed to have agreed to make a payment of wages in lieu of notice to the employee together with any other statutory and contractual benets.105 (e) Legal consequences of failure to settle awards Employment (Amendment) Ordinance 2010. It has been the concern of the government that employers fail to settle awards granted by the Labour Tribunal or Minor Employment Claims Adjudication Board. The Employment (Amendment) Ordinance 2010 was enacted to counter this.106 Under this Ordinance, an employer who wilfully and without reasonable excuse fails to pay any sum awarded by the Labour Tribunal or the Minor Employment Claims Adjudication Board comprising wages and entitlements underpinned by criminal sanctions under the EO will be liable to prosecution.107 The maximum penalty is a ne of HK$350,000 and imprisonment for three years. Personal liability. Under the Employment (Amendment) Ordinance 2010, if a body corporate is wilfully in default of settling awards granted by the Labour Tribunal or Minor Employment Claims Adjudication Board which is proved to have been committed with the consent, connivance or neglect of a director or responsible person of the body corporate, the director or responsible person commits the like offence.108 There is a statutory presumption that failure to settle an award granted by the Labour Tribunal or Minor Employment Claims Adjudication Board is committed with the consent or connivance of, or to be attributable to the neglect on the part of, any director, manager, secretary or other similar ofcer of the body corporate, if it is proven that, at the time the offence was committed, the director, manager, secretary or other similar ofcer (a) was concerned in the management of the body corporate; or (b) knew or ought to have known that the award of the tribunal in respect of which the offence was committed had been made against the body corporate.109 Similarly, if the wilful default of an award by a partner of a rm is committed with the consent, connivance or neglect of any other partner or person concerned in the management of the rm, that other partner or person commits the like offence.110 The statutory presumption also applies to partners or persons concerned in the management of a rm.111 4.068 4.067

4.069

103 104 105 106

107

108 109 110 111

Cap.336. The current rate of interest is 8 per cent per annum. See http://www.ird.gov.hk/eng/tax/jir.htm. Section 10A(1) of the EO. Section 10A(2) of the EO. The Employment (Amendment) Ordinance 2010, which was passed by the Legislative Council on 28 April 2010, was gazetted on 7 May 2010. Under s.43P of the EO, an employer is required to settle any sum awarded by the Labour Tribunal or the Minor Employment Claims Adjudication Board within 14 days from the date on which it is due. Section 43Q(1) of the EO. Section 43Q(3) of the EO. Section 43Q(2) of the EO. Section 43Q(4) of the EO.

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(f ) Further employers obligations 4.070 Prohibition against employers entering into contracts of employment without reasonable belief of their ability to pay wages. An employer is strictly prohibited from entering into an employment contract with an employee unless it has reasonable grounds to believe that it is able to pay the wages due under the contract of employment when such wages fall due either before or at the time when the contract of employment is renewed or continued.112 Further, after an employer enters into a contract of employment with an employee, if the employer ceases to believe upon reasonable grounds that the wages can be met, the employer must forthwith take all necessary steps to terminate the contract of employment in accordance with its terms.113 Duty to provide information relating to employment terms. Employers are required to notify their employees of the details of their wages and the wage period under which the employees are to be employed before entering into the employment contract.114 If the contract is not in writing, a prospective employee may, before entering into a contract of employment, serve a written request on the prospective employer requesting such information. Upon receipt of the written request, the prospective employer is required to provide a written response to the prospective employee forthwith. Such written response should set out the details relating to the prospective employees wages and wage period.115 If a contract of employment is in writing, the employer is required to provide his or her employee with a copy of the contract immediately after it is signed or, if a certain procedure for the validation of employment contracts is required by the employer, immediately after the validation procedure is completed.116 If the wages or the period of payment changes after the commencement of employment, the employer must inform the employee.117 Contravention of these statutory requirements constitutes an offence under the EO. The maximum penalty is a ne at level 3.118 Duty to maintain records. Employers are under a duty to maintain a record of, among other things, the wages paid, wage periods and any end-of-year payments paid or due to an employee, if applicable. The employer is required to retain these records for six months.119 An employer should consider entering into written contracts of employment with his or her employees in order to satisfy the employers obligation to keep records of employment and to establish the duration of the contract, since there is a statutory presumption that all continuous contracts are for one month, unless there is an express agreement to the contrary.120

4.071

4.072

112 113 114 115 116 117 118 119 120

Section 31(1) of the EO. Section 31(2) of the EO. Section 44(1) of the EO. Section 44(2) of the EO. Section 44(3) of the EO. Section 45 of the EO. Section 63D of the EO. Section 49A of the EO. Section 5(1) of the EO.

DEDUCTIONS FROM WAGES

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4. DEDUCTIONS FROM WAGES

(a) General Restriction on deductions from wages. In Hong Kong, an employer is not permitted to make any deductions from its employees wages or from their termination payments unless the deductions fall within one of the permitted categories of deductions recognised by the EO.121 Any agreement which purports to contract out of the statutory restrictions is void.122 Thus, even if an employee agrees to deductions being made from his or her wages, if the nature of the deductions falls outside the categories of permissible deductions, such deductions are unlawful and the employer is liable to make a repayment to the employee. Even if a deduction falls within one of the categories recognised by the EO, it is important to appreciate that the EO places a limit on most categories of deductions. (b) Exceptions General. The EO sets out a number of categories of deductions which an employer is permitted to deduct from its employees wages or termination payments.123 Lawful deductions only apply to an employees wages and do not apply to other heads of employee benets, such as end-of-year payments, sickness or maternity allowance etc. Categories of lawful deductions. The categories of lawful deductions are below:124 4.074 4.073

4.075

deductions for absence from work; deductions for damage to or loss of goods, equipment or property belonging to or in the possession or control of the employer, or for loss of money for which an employee is required to account where such damage or loss is directly attributable to his neglect or default; deductions in respect of meals supplied by the employer at the request of the employee; deductions for accommodation provided by the employer for the employee or his family made in respect of the period such accommodation has been in the occupation of the employee or his or her family; deductions for recovery of any advance or overpayment of wages by the employer to the employee; deductions for the recovery of any loan by the employer to the employee with the written consent of the employee;

121 122 123

124

Section 32(1) of the EO. Section 70 of the EO. Section 32(2) of the EO. In this chapter, the term lawful deduction is used to denote the deductions which an employer is permitted to deduct from his employees wages under the EO. Ibid.

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deductions for the employees contributions to any medical benet scheme, superannuation scheme, retirement scheme or thrift scheme lawfully established for the benet of the employee and his or her dependents, with the written consent of the employee; deductions which are required or authorised under any enactment; and other deductions made at the request in writing of the employee and with the approval of the Commission of Labour.

4.076

Deduction from termination payments. The EO further permits deductions to be made by employers if an employee terminates his or her employment without giving sufcient notice of termination or payment in lieu of notice. In which case, the employer is entitled to deduct from the payment on termination an amount equal to the payment of wages in lieu of the outstanding notice.125 Each of the above will be elaborated upon below. (c) Types of lawful deductions

4.077

Deductions for absence from work. An employer may deduct wages from its employee if the employee is absent from work.126 In making a deduction from wages for any period of absence, no deduction may be made to offset an employers liability to pay holiday pay or sickness allowance.127 Although the amount of deductions for absence from work is generally not subject to any limit, a special restriction is applicable to time-rated employees. Prohibition against disproportionate deductions. For those employees whose wages are calculated based on time, no deductions are permissible if they are disproportionate to the duration of absence.128 Any payment which is of a xed monthly sum (e.g. a basic salary) is not considered to be calculated on the basis of time and is not subject to any limit in terms of deduction. In the case of Wong Yin Fong v ISS Hong Kong Services Ltd,129 the employees in question were contractually entitled to a good attendance allowance which was a xed sum payable on a monthly basis if they had neither been absent from work nor taken days of annual leave during the relevant month. Following the termination of their employment, the employees contended that their employer had wrongfully withheld their good attendance allowance. Whether it was legal for an employer to specify that part of an employees wages, namely good attendance bonus, would not be payable if an employee has taken annual leave during a wage period was under consideration by the court. It was held that, in the context of s.32 of the EO, the term absence from work covered the situation where an employee was absent from work on account of holidays. The court took into account the nature of the attendance allowance, namely it was a xed sum payable upon full attendance within a wage

4.078

125 126 127 128 129

Section 25(3) of the EO. Section 32(2)(a) of the EO. Section 32(2)(a)(ii) of the EO. Section 32(2)(a)(i) of the EO. [2005] 2 HKLRD 648.

DEDUCTIONS FROM WAGES

121

period and was not calculated on the basis of time, and held that it was legitimate for the employer to stipulate that payment of the attendance bonus is subject to certain conditions. Consequently, the non-payment of the attendance allowance did not render the employer liable for an unlawful deduction of wages. Deduction for damage to, or loss of, goods, equipment, property or money. An employer may deduct wages from his or her employee if the employee has caused damage to or the loss of any goods, equipment or property which either belongs to, or is in the possession or control of the employer or is expressly entrusted to the employee for custody, or for loss of money for which the employee is required to account if the damage or loss is directly attributable to the employees neglect or fault.130 In Lam Yau Kuen v Easy (Hang Fung) Transportation Co Ltd,131 the defendants alleged that the plaintiff was liable to pay the costs relating to trafc accidents and other expenses and withheld monies from the plaintiffs wages. Given that the defendants failed to produce any account or receipts relating to the relevant costs and expenses, the court unequivocally held that the defendants were not entitled to make deductions as this was in blatant breach of s.32 of the EO. The total amount which can be deducted from an employees wages for each item of damage or loss in a wage period is limited to the value of the property (capped at HK$300).132 Further, the maximum amount of total deductions in a wage period is one quarter of the wages payable to the employee in respect of that wage period.133 Deductions for meals supplied by the employer, at the request of the employee. If an employee requests his or her employer to pay for any meals, the employer may deduct the costs of providing meals from the employees wages.134 The amount of deduction cannot exceed the cost of the meals. Deductions for accommodation provided by the employer to the employee or the employees family. If an employer provides accommodation to an employee or his or her family members, it is permissible for the employer to make deduction from the employees wages in respect of the period in which such accommodation has been in the occupation of the employee or his or her family members.135 Deductions for the recovery of any advance or overpayment of wages to the employee. If an employer has provided any advance or overpayment of wages to an employee, the employer has an equitable right to seek repayment based on the principle of unjust enrichment.136 An employer may deduct from the employees 4.079

4.080

4.081

4.082

130 131 132 133 134 135 136

Section 32(2)(b) of the EO. [2007] 1 HKC 373. Section 32(2)(b)(i) of the EO. Section 32(2)(b)(ii) of the EO. Section 32(2)(c) of the EO. Section 32(2)(d) of the EO. In Zielona Transport Ltd v Au Sou Lin (unrep., HCLA 46/2008, [2010] HKEC 848), the employer offered its workers a choice of working as contractor or employee. The remuneration offered to a contractor under a contractor agreement was higher than the amount received by an employee under a labour agreement. The difference represented the employee benets renounced by a contractor. The claimant voluntarily chose to work as a contractor. Given that the parties had, in truth, entered into an employment relationship, it was held that the contractor agreement was void. However, based on the equitable principle of unjust enrichment, the employer was entitled to recover the amount paid to the claimant under the contractor agreement which exceeded what the claimant would have received had the claimant chose to enter into a labour contract.

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wage for the recovery of such advance or overpayment of wages.137 However, unless the Commissioners written approval is obtained, no employer is permitted to deduct wages by way of discount, interest or any similar charge in consideration of such advance or overpayment.138 The total amount of wages which can be deducted in any wage period for the recovery of advance or overpayment of wages is, however, limited. The maximum amount of the deductions must not exceed one quarter of the wages payable to the employee in that wage period.139 This means that, even if the amount of advance or overpayment of wages made by an employer exceeds one quarter of an employees wages for a particular wage period, it is necessary for the employer to spread the deduction over another wage period. 4.083 Treatment of early partial payment of wages. The EO has dealt with the situation whereby an employer makes a partial payment of wages to his or her employees at any time during a wage period, and the partial payment is proportionate to the work done by the employees.140 Such payment of wages for work done prior to the end of the wage period will not be considered as an advancement of wages. It is not unlawful for the employer to adjust the amount of partial payment against the total amount payable at the end of the wage period. Thus, an employer is entitled to take into account such partial payment and offset this payment against the amount of wages payable at the end of the wage period. Such set-off is not subject to any limit in terms of monetary amount. Deductions for the recovery of any loan made by the employer to the employee, with the written consent of the employee. An employer is allowed to deduct an employees wages for any loan made by him or her provided that the written consent of the employee is obtained. However, before an employees wages are deducted, the employer must be able to prove that there is a genuine underlying loan. In New York Life Insurance Worldwide Ltd v Fong Hok Yin also known as Fong Hok Yin Matthew,141 an agreement was entered into with an insurance agent, under which the insurance agent was required to repay a development allowance if he joined a competitor after leaving his service with the employer. The employer sought to recover the development allowance. The court held that the arrangement relating to the repayment of development allowance amounted to an unenforceable restraint of trade and the development allowance was not recoverable. Deductions in respect of an employees contributions to any medical benet scheme, superannuation scheme, retirement scheme or thrift scheme, with the written consent of the employee. With the written consent of the employee, an employer is allowed to deduct an employees wages in respect of the employees contributions to any medical benet scheme, superannuation scheme, retirement scheme or thrift scheme lawfully established for the benet of the employee or his or her dependants.142

4.084

4.085

137 138 139 140 141 142

Section 32(2)(e) of the EO. Section 32(2)(e)(i) of the EO. Section 32(2)(e)(ii) of the EO. Section 32(4) of the EO. (unrep., DCCJ 4042/2002). Note that the EO provides no guidelines on what constitutes a thrift scheme.

DEDUCTIONS FROM WAGES

123

Deductions which are required or authorised by law. An employer may deduct wages from an employee if such deduction is required or authorised by law. A classic example is the employers duty to withhold payment of wages under the Inland Revenue Ordinance (IRO).143 Under the IRO, an employer is required to withhold the payment of the last month of wages if an employees employment is due to be terminated and the employee intends to leave Hong Kong permanently thereafter, until a letter of release is issued by the Inland Revenue Department (IRD) or 30 days after of the date of notication to the IRD.144 If an employer complies with the relevant statutory requirement, it is indemnied in respect of such payment against all criminal or civil proceedings.145 Deductions made in writing at the request of employee and approved by the Commissioner for Labour. It is permissible for an employer to make deductions from his or her employees wages if such deductions are made at the written request of the employee and are duly approved by the Commissioner for Labour. Deductions on termination of employment. If an employee has wrongfully terminated his or her employment contract without giving sufcient notice or making an adequate payment of wages in lieu of notice, it is lawful for the employer to deduct an amount equal to the outstanding payment of wages in lieu from the employees termination payments.146 Unlawful deduction from employees wages in other legislation. Apart from the EO, there are statutory provisions which prohibit deductions from an employees wages. For instance, under the Employees Compensation Ordinance (ECO), it is an offence if an employer makes a deduction from its employees earnings in order to offset the employees liability under the ECO.147 Any right to deduct payments other than wages? The EO prescribes that employers are required to pay wages to an employee as soon as practicable but, in any event, no later than seven days after the expiry of the wage period. Under the EO, no deductions can be made by an employer from the wages of his employee or from any other sum due to the employee otherwise than in accordance with the statutory provisions set out in the EO. The EO allows limited deductions to be made in respect of an employees wages. The only circumstances in which an employer is permitted to make deductions from any other sums due to an employee occurs when an employee fails to give sufcient notice or payment in lieu of notice of termination. The EO does not provide for any corresponding deductions to be made from any other sums due to an employee. It is arguable that an employee is not allowed to make deductions from

4.086

4.087

4.088

4.089

4.090

143 144

145 146 147

Cap.112. Section 52 of the IRO. See also, for instance, s.76(1) of the IRO which authorises the Commissioner of Inland Revenue to require that a third party (including an employer) who owes money to a taxpayer, holds money for or on account of a taxpayer, holds money on account of some other person for payment to the taxpayer, or has authority from some other person to pay money to the taxpayer to pay such money to the IRD in settlement of the taxpayers tax liability. Section 76(2) of the IRO. Section 25(3) of the EO. Cap.282. Under s.47 of the Employees Compensation Ordinance, any person who contravenes the relevant statutory requirement commits an offence. The maximum penalty is a ne at level 3 and imprisonment of six months.

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any sum due to an employee. The term any other sum due means any monetary payments or benets other than wages. This may cover, for instance, overtime payments, end-of-year payment etc. which fall outside the denition of wages.148 (d) Maximum amount of total deductions 4.091 Maximum amount of total deductions during employment. Apart from the monetary limit imposed on each category of deductions as set out above, the EO further imposes an upper limit on the total amount of deductions in a single wage period.149 Unless the written approval of the Commissioner for Labour is obtained, except in respect of deductions for absence from work, the maximum amount of total deductions is one half of an employees wages. Thus, if the total amount intended to be deducted from an employees wages exceeds the statutory maximum, an employer is required to spread the deductions over more than one wage period.150 Maximum amount of total deductions after employment. The EO does not provide any exceptions in relation to the maximum amount of deductions which an employer is allowed to make in the event of the termination of employment. Thus, the maximum amount of deductions which an employer can make from an employees termination payments remains one half of the employees termination payments. However, in practice, the judiciary seems to be prepared to allow an employer to deduct amounts that exceed the statutory upper limit. In Aquino Celestina Valdez v So Mei Ngor Betty,151 in dealing with the issue relating to the deduction of an employees termination payments for damage to the employers property, it was held that the ceiling of one quarter of a months wages applies if the employment is subsisting when the deductions could be carried over from month to month until the full amount of $300 per item deductible is fully recovered by the employer. However, when the employment is terminated, it would be convenient to have all money deductible settled once and for all rather than for the employer to take out proceedings in the Small Claims Tribunal for the balance not so deducted. I think this makes practical sense. Deduction to settle tax in other jurisdictions. Given the geographical proximity between mainland China and Hong Kong, many organisations and corporations have assigned their employees to work in mainland China. This gives rise to cross-border employment and tax issues. One issue commonly faced by employers is the duty to withhold tax in respect of employees working in mainland China. In Leung Yung v First Pacic Davies (China) Ltd,152 in order to encourage employees to work in the PRC (which imposes individual income tax at a rate signicantly higher than the salaries tax rate in Hong Kong), the employer offered a tax equalisation benet to its employees. Under the contract of employment, the employer would be responsible

4.092

4.093

148 149 150

151 152

For details of wages, see paras 4.09 to 4.011. Section 32(3) of the EO. See Iqbal Zafar v Hong Yip Service Co Ltd (unrep., HCPI 809/2004, [2005] HKEC 1585) in which the court commented While those restrictions do not prevent a deduction they limit the employers ability to make an immediate recovery. (unrep., DCEO 3/2004, [2005] HKEC 1407). (unrep., HCA 792/2001, [2003] HKEC 380).

DEDUCTIONS FROM WAGES

125

for the employees tax liabilities in the PRC and would deduct 15 per cent of the employees salary (which reects the maximum tax liability he would have incurred if he had been employed to work in Hong Kong). Counsel for the employer conceded that the employers contractual right to deduct 15 per cent of an employees salary in order to pay PRC tax authorities might well be void and amounted to an unlawful deduction of wages. The court, by way of obiter, concurred. (e) Legal consequences of unlawful deductions from wages Criminal sanction. Any employer who makes any deductions from an employees wages which fall outside the permitted categories of lawful deductions commits an offence. The maximum penalty is a ne at level 6 and imprisonment for one year.153 The EO imposes personal liability on the partner, director, manager, secretary or other ofcer of an unincorporated or corporate body if the offence is committed by the unincorporated or corporate body with their consent, connivance or neglect.154 Written consent required. Before criminal prosecution is commenced for the offence of unlawful deduction of wages, it is necessary to obtain the written consent of the Commissioner for Labour who should give the party against whom an offence is alleged an opportunity to be heard.155 Civil liability. Even if an employee consents to deductions being made, if a deduction does not fall within one of the categories of deductions recognised by the EO, the deduction is unlawful. Irrespective of whether an employer is convicted of the offence of unlawful deductions of wages, the court is empowered to order the repayment of outstanding wages and the employer is liable to pay the deducted amount to the employee.156 In Kotron Industrial Ltd v Su Shun Juan,157 an employer wrongfully deducted various sums from the wages of four employees who were immigrant workers from mainland China. The employer contended that the deductions represented the lodging, meals and fees paid by it to an employment agency. The employer further contended that it was more convenient administratively to make deductions from the employees wages, instead of making wage payments and immediately seeking repayments. Such contentions were rejected by the court, and the employer was ordered to repay of all of the amounts wrongfully deducted in total. Grounds for constructive dismissal. Unlawful deductions of wages may result in an employer being liable for the constructive dismissal of an employee. In Yip Pak Hung v YPT International Ltd,158 the Labour Tribunal upheld an employees contention that the employee was constructively dismissed as a result of the employers wrongful deductions from his monthly commissions. 4.094

4.095

4.096

4.097

153

154 155 156 157 158

Section 63B(1) and (3) of the EO. Schedule 8 of the Criminal Procedure Ordinance (Cap.221) currently provides for a ne of HK$100,000 for level 6 offences. Sections 63B and 64B of the EO. Section 64 of the EO. Section 65 of the EO. [1993] 1 HKC 327. (unrep., HCLA 46/1989, [1990] HKEC 108).

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5. END-OF-YEAR PAYMENT AND BONUSES

(a) Overview 4.098 General. In Hong Kong, there is no legal requirement for employers to make end-of-year payments to their employees. Employers have absolute freedom to decide whether to make any end-of-year payments, and, if so, the amount and timing of payment, although it is common for employers in Hong Kong to pay an end-of-year payment to their employees especially administrative and supporting staff around the Chinese New Year period. An employees entitlement to an end-of-year payment is usually reected in his or her contract of employment. Such payment is therefore contractual in nature. It is essential to distinguish between payments which are discretionary or of a gratuitous nature and those which are contractual in nature, since the EO has no application to end-of-year payments which are non-contractual in nature. Thus, discretionary end-of-year payments fall outside the scope of the EO. This is because the legislative intent of the EO in relation to end-of-year payments is not to interfere with the parties contractual agreement, but to regulate matters relating to the payment of end-of-year payments if no clear agreement has been reached between the parties.159 (b) Contractual nature of end-of-year payments 4.099 Meaning. An end-of-year payment must be contractual in nature. The term end-of-year payment is dened under the EO to mean any annual payment (whether described as a thirteenth month payment, fourteenth month payment, double pay, end-of-year bonus or otherwise) or annual bonus of a contractual nature.160 Thus, an end-of-year payment can generally be classied in two broad categories, namely annual payment and annual bonus.161 The EO specically provides that any annual payment or annual bonus which is of a gratuitous nature or is payable only at the discretion of the employer falls outside the scope of end-of-year payment.162 Contractual undertaking of end-of-year payment. The EO does not compel employers to make end-of-year payments to their employees. An employees right to receive an end-of-year payment is based on the contractual undertaking made by his employer. Such contractual undertaking may be given expressly (e.g. a written agreement or an oral promise) or by implication.163 Nature of annual payment or annual bonuses contractual or discretionary? Whether an employee is entitled to receive an end-of-year payment invariably depends

4.100

4.101

159 160 161 162 163

Section 11B of the EO. Section 11A(1) of the EO. Bruce Gordon Hut v Special Assets Ltd (unrep., HCA 2668/2002, [2006] HKEC 1743). Section 11A(1) of the EO. Section 11B of the EO. In Leung Lai Bun v Sam Woo Bore Pile Foundation Ltd [2003] 2 HKC 210, although the contract of employment in question did not make reference to the payment of a year-end payment, such a payment was indeed made to the employee after the completion of his rst year of employment and was again referred to in a document said to comprise a settlement agreement. It was held that the employee was entitled to a contractual year-end payment and that the employers contractual obligation to make an end-of-year payment need not be expressed but could be implied.

END-OF-YEAR PAYMENT AND BONUSES

127

on whether such payment is contractual or discretionary in nature. The nature of certain annual payments or bonuses has been considered frequently by the court. In doing so, the court may take into account a number of factors. Below are some of the relevant factors which the court will take into consideration in dealing with a claim for end-of-year payments. Wording used in the contract or employment documentation. The wording used in the contract of employment or the bonus scheme plan is crucial in determining whether, on its true and proper construction, an annual payment or bonus is contractual in nature or not. The terms of the employment contract and related documentation are invariably the rst items under the close scrutiny of the court. If an employer offers a formulaic bonus scheme to its employees under which the employer only reserves its discretion to decide the amount of the payment, any payment under such a bonus scheme will be considered to be contractual in nature. This occurred in the cases of Wong Huey Lan v Colgate-Palmolive (HK) Ltd164 and Thomas Vincent v South China Morning Post Publishers Ltd.165 Wong Huey Lan v Colgate-Palmolive (HK) Ltd. In Wong Huey Lan, the court was asked to determine the nature of annual bonuses which was described as discretionary. Under the bonus scheme, annual bonuses were calculated based on the employees achievement of operating targets. It was held that the scheme operated by the employer was not purely discretionary since the discretion could only be exercised by the employer in relation to clearly objective targets. Under the bonus plan, the employer was liable to pay annual bonuses to its employees when the employee could demonstrate that the objective targets had been achieved. Thus, even if the annual bonuses were described as discretionary, they were in fact contractual in nature. Thomas Vincent v South China Morning Post Publishers Ltd. In Thomas Vincent, the plaintiff was red by the South China Morning Post (SCMP) as editor of Premier Soccer shortly after he produced an article in Premier Soccer magazine since he had unlawfully copied substantial parts of an article appearing in The Sunday Times newspaper. One of the plaintiffs claims was that the SCMP failed to pay a bonus to him under the SCMPs staff regulations which provided that the SCMP may award a discretionary annual staff bonus to those permanent employees who did not receive any commission from the SCMP if they were under employment by the SCMP as at a specied date. On a close examination of the staff regulations, the court held that the bonus was not an individual bonus since it was payable to a class of employees and that, once the decision to pay was made, it applied to all qualied employees, including the plaintiff. Thus, the plaintiff had a contractual entitlement to receive the annual staff bonus. Oral undertakings not reected in written agreement. If an employer has made oral undertakings to make an end-of-year payment to its employee but such oral undertakings were not reected in the written contract of employment subsequently 4.102

4.103

4.104

4.105

164 165

Ibid. (unrep., HCA 6233/1999, [2002] HKEC 539).

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entered into between the parties, the oral undertaking may not be capable of giving rise to a contractual entitlement to end-of-year payments.166 4.106 Customary practice. In considering a claim for end-of-year payments, the court adopts the principle of substance over form and looks at the substance of the payment, instead of the label attached to such payment.167 Thus, even if an end-of-year payment is said to have been paid on a discretionary basis, this does not preclude the court from deciding otherwise. Employers should therefore not assume that labelling a bonus discretionary will necessarily protect them from claims for a contractual bonus. For an end-of-year payment to be properly discretionary, discretion must be exercised.168 Payment of the same amount on xed dates over an extended period of time may change the nature of a bonus from being discretionary to a contractual entitlement.169 Post-contractual circumstances. In considering a claim for end-of-year payments, the court may consider the conduct of the parties after they have entered into a contract of employment.170 In Law Ying Chung v Lo Chun Kie, there was a dispute between the employer and the employee as to whether the yearly bonuses regularly paid by the employer were discretionary in nature. The court took into account an agreement signed by the parties which enabled the employer to deduct the employees bonuses if he failed to perform satisfactorily and held that, if the bonuses were discretionary in nature, there was hardly any need for the parties to enter into such agreement. Consequently, the employee was held to have a contractual right to receive yearly bonuses.171 Past practice. The court may rely on written documents made after a contract of employment is signed to uphold an employees right of payment. For instance, in the case of Law Ying Chung v Lo Chun Kie,172 although the employee in question had received a yearly bonus of at least the equivalent of one months salary from the employer throughout the previous 16 years, there was nothing in his contract which provided for such entitlement. One of the issues was whether the yearly bonuses received by the employee were contractual in nature. In upholding the contractual nature of the employees end-of-year payments, the court relied on, among other things, the Employers Returns prepared by the employer and submitted to the Inland Revenue Department which recorded the yearly bonuses and the fact that bonuses of the same or similar amount were paid throughout the previous 16 years.

4.107

4.108

166 167

168

169 170

171 172

Gammon (HK) Ltd. v Wong Leung Bong (unrep., CACV 49/1972). Chung Wo Sang Future v Tai Lin Radio Services Ltd (unrep., HCMP 3042/2003, [2003] HKEC 1130); (unrep., HCLA 112/2002, [2003] HKEC 867). Chu Wing v Quali-Hing Enterprise (unrep., HCLA 21/1993, [1994] HKEC 241); Fan Man Yiu v General Locks & Metalwares Factory Ltd [1984] HKC 486. Ibid. Chitty on Contract (29th ed.) Vol.1 at para 12126. In Hui Sing Pan v Rose Knitting (Asia) Ltd (unrep., DCEC 178/2002, [2007] HKEC 1236), in concluding that the employee was entitled to an end-of-year payment, the court relied on the letter given by the employer to its employee upon the employees dismissal which contained a reference to a layoff payment breakdown under which a sum of money was labelled as double pay pro-rata. (unrep., CACV 28/2004, [2005] HKEC 359). (unrep., CACV 28/2004, [2005] HKEC 359).

END-OF-YEAR PAYMENT AND BONUSES

129

Statutory presumption. There is a rebuttable presumption that an end-of-year payment is not of a gratuitous nature and is not payable only at the discretion of the employer unless it is clearly stated in the contract of employment otherwise.173 The statutory presumption performs a useful function of clarifying what exactly is meant by an annual payment or annual bonus within the denition of end-of-year payment under the EO. In brief, an annual payment or annual bonus will not be within the meaning of an end-of-year payment if there is a written term or condition in the contract of employment which states that it is gratuitous in nature or is payable only at the discretion of the employer. The statutory presumption does not have the effect of interfering with the true construction of a contractual term between an employer and an employee if there is a written term or condition in the contract of employment which states that an annual payment or annual bonus is gratuitous in nature or is payable only at the discretion of the employer. However, if the relevant term or condition is not in writing, such unwritten term or condition will be rendered ineffective by virtue of the statutory presumption.174 (c) Statutory requirements in relation to end-of-year payments General. The EO does not intend to override the parties agreement on the amount of end-of-year payment and the timing of payment. The relevant statutory provisions only apply if the contract is silent on these aspects. (d) Amount of end-of-year payment Amount of end-of-year payment for employees employed throughout the payment period. Employers and employees are free to agree on the amount of end-of-year payments. The EO does not prescribe a particular level, or limit on, the amount of end-of-year payments contrary to the parties agreement. If, however, the contract of employment is silent on the amount of the end-of-year payment, an employer is required to make an end-of-year payment at the default amount set by the EO, namely, a sum which is equivalent to the employees full months wages.175 The full months wages of an employee is calculated by reference to the monthly average of the wages earned by the employee during the period of 12 months immediately preceding the day on which the end-of-year payment (or the proportion of end-of-year payment) becomes due.176 Thus, the amount of end-of-year payment should be either the contractual amount or an employees one full months wage.

4.109

4.110

4.111

173

174 175 176

Section 11AA(1) of the EO. In the case of Cheung Siu Ngon v Edge Design Communication Ltd (unrep., DCCJ 19251/2001, [2003] HKEC 269), although the employer argued that an annual bonus was a discretionary one, the court held that in the absence of an express provision to the contrary, any year-end payment was regarded as contractual. But note that the statutory presumption does not apply to contracts of employment made before 27 June 1997. Bruce Gordon Hut v Special Assets Ltd (unrep., HCA 2668/2002, [2006] HKEC 1743). Section 11D(b) of the EO. If an employee has been employed by the employer for less than 12 months immediately before the due day, the monthly average of the wages is determined by reference to such shorter period (see s.11A(3) of the EO). For details on the calculation of an employees monthly average wage, see Chapter 5.

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4.112

General rules. The following are derived from the statutory provision relating to the amount of end-of-year payment:

If a contract of employment (whether oral or in writing) merely provides that the employee is entitled to an end-of-year payment in addition to his or her salary, but the amount of the end-of-year payment is not specied, then the employee is entitled to one full months salary as his or her end-of-year payment. If a contract of employment is entered into in writing and the written contract provides that the employee may be paid an end-of-year payment which is payable completely at the discretion of the employer, the employee does not have any contractual right to receive an end-of-year payment if the employer decides not to pay him or her. If a contract of employment (whether oral or in writing) provides that an employee shall be entitled to an end-of-year payment and the amount of the end-of-year payment will be determined by the employer completely at its discretion, then the employee cannot challenge the employers decision on the amount of end-of-year payment. (e) Time of payment

4.113

Payment period. Employers are free to designate the period in respect of which an end-of-year payment shall be paid and the payment period specied in a contract of employment will be respected. In Hong Kong, it is common for employers to adopt the Chinese Lunar New Year as the end-of-year payment period but it is equally acceptable if they choose any other period (e.g. the end of a calendar or nancial year) as the payment period for end-of-year payments. If a contract of employment is silent on the payment period, the EO provides that the payment period of end-of-year payments is deemed to be a lunar year (i.e. a Chinese Lunar Year ending immediately before Lunar New Year Day).177 Time of payment for employees employed throughout the payment period. The EO prescribes the time when an end-of-year payment becomes due to an employee and, in certain circumstances, has the effect of modifying the time specied in the contract of employment.178 Generally, an end-of-year payment becomes due on the date specied in the employment contract. However, if an employment contract is silent on the time of payment, an end-of-year payment is payable on the last day of the payment period.179 Employers are required to make end-of-year payments as soon as practicable after it is due or, if for any reason it is not practicable, no later than seven days after the expiry of the end of the payment period.180

4.114

177 178 179 180

Section 11C of the EO. Section 11E of the EO. Section 11F(3)(b) of the EO. Section 11E(1) of the EO.

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(f ) Pro rated end-of-year payment Pro rated end-of-year payment. Save for certain exceptions, an employee is entitled to pro rata payments if he or she has been employed under a continuous contract for not less than three months in a payment period and is dismissed by his or her employer.181 Any term or condition which purports to prevent the payment of a proportion of an end-of-year payment shall be void.182 There is, however, nothing which prevents an employer from agreeing to make a pro rated end-of-year payment to an employee even if the employee has served less than three months in a payment period. Exceptions. An employee whose employment is terminated during a payment period is not entitled to any pro rated end-of-payment if (i) the employee terminates his or her contract of employment unless his contract of employment provides otherwise or there exist circumstances which amount to constructive dismissal; or (ii) the employment is terminated by the employer summarily under s.9 of the EO.183 Eligibility of pro rated end-of-year payment. In considering whether an employee qualies to receive a pro rated end-of-year payment and meets the three months threshold requirement, special regard shall be made to an employee who works on probation. Any probationary period (capped at three months) served by an employee during the payment period shall not be taken into account in calculating the qualifying three-month period.184 However, once an employee has satised the three months service requirement, the whole period of his employment period (including the probationary period) is counted.185 Amount of pro rated end-of-year payment. If an employee whose employment is terminated during a payment period is eligible to receive a pro rated end-of-year payment, the amount of payment depends on the terms of the employment contract. However, if the employment contract is silent on this, the EO provides that the amount of pro rated end-of-year payment shall be in proportion to an employees full months wages and the length of employment in the payment period.186 Time of payment on termination. The EO prescribes the timeline within which a pro rata payment becomes due to an employee. It recognises two distinct situations in which a pro rated end-of-year payment becomes due and payable on termination, namely termination of employment during a payment period and termination of employment after the expiry of the payment period but before the time of payment. It is important to distinguish between those two distinct situations because they give rise to different implications. 4.115

4.116

4.117

4.118

4.119

181 182 183

184 185 186

Section 11F(1A) of the EO. Section 11B(2) of the EO. See Chapter 7. Section 11F(1B) of the EO. Employers should note that where they have grounds for dismissing an employee for serious misconduct but choose to terminate the employment by providing notice (under ss.6 or 7 of the EO), this will not amount to a summary dismissal. Consequently, they are still liable to a pro rated end-of-year payment. Section 11F(1A) of the EO. Section 11F(1) of the EO. Section 11F(2) of the EO.

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4.120

Termination of employment during the payment period. If the contract of employment of an employee is terminated during a payment period and the employee has served at least three months in the payment period, a pro rated end-of-year payment is due on the day when the employment contract terminates or, if the prots of the employer are required for the calculation of the end-of-year payment, the day on which the prots of the employer are ascertained.187 Such end-of-year payment shall be paid as soon as practicable after it is due or, if for any reason it is not practicable, no later than seven days after the expiry of the end of the relevant day.188 However, if the termination is made voluntarily by the employee or the employee is dismissed summarily, the employee is not entitled to any pro rated end-of-year payment. Termination of employment after the expiry of the payment period but before the time of payment. An employee whose employment is terminated after the expiry of a payment period but before the agreed time of payment will be entitled to receive a pro rated end-of-year payment regardless of the reason for the termination. For example, an employer may adopt a tax year (ending on 31 March) as a payment period for bonuses. However, bonuses are payable only on 1 July. If the employee has worked through the bonus year but resigned with termination taking effect before 1 July, the payment is due on the day on which the contract terminates. If the bonus is calculated by reference to the companys prots (and the bonus cannot be paid at the time the contract of employment terminates), it is due on the day on which the prots of the employer become ascertained. In which case, the payment must be paid within seven days after it falls due.189 (g) Offences

4.121

4.122

Offences. Any employer who, wilfully and without reasonable excuse, fails to make an end-of-year payment on time commits an offence. On conviction, the maximum penalty is a ne at level 5.190 For the meaning of reasonable excuse, see para 4.052. (h) Discretionary bonuses

4.123

Duty of employer to exercise discretion rationally, properly and in good faith. In respect of some employees especially those in the nancial services sector a discretionary bonus forms a signicant part of their remuneration. Even if an annual bonus is discretionary in nature and falls outside the scope of the EO, when

187 188

189 190

Section 11F(3)(a) of the EO. Section 11E(2) of the EO. In the case of Hong Kong Four Seas Tours Ltd v Wong Yuen Sheung (unrep., HCLA 74/1996), it was held that even though an employer may require an employee to remain employed with the employer until the due date of the end-of-year payment to be entitled to such payment, it would not be able to impose such condition and must pay the employee his or her entitlements to the end-of-year payment as long as he or she stays until the end of the payment period. Section 25 of the EO. Sections 63(1) and 63(7) of the EO. Schedule 8 of the Criminal Procedure Ordinance (Cap.221) provides that a ne at level 5 is for HK$50,000.

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operating discretionary bonus schemes, employers are bound by a duty to exercise their discretion rationally and in good faith. However, it is essential to note that the court will not interfere in the exercise of an employers discretion unless it can be shown that no reasonable employer would have exercised its discretion in that particular way. Discretion is not free from restrictions. The leading case is the English case of Clark v Nomura International Plc.191 This was the result of a dispute between Mr Clark, a proprietary trader, and his employer over Mr Clarks bonus entitlement. According to his employment contract, Mr Clark was entitled to a discretionary bonus that was dependent on his performance. After Mr Clarks employment was terminated, his employer refused to pay him a bonus, although his track record showed that he had made a lot of money for the company during his employment. The UK court held that the employers discretion regarding bonus payments was not free from restrictions and that the defendant had been under a contractual obligation to assess Mr Clarks individual performance for the purpose of the discretionary bonus and not to do so irrationally or perversely. As a result, the court awarded Mr Clark a substantial amount of damages, adding that an employer exercising its unfettered or absolute discretion would be in breach of contract if no other reasonable employer would have exercised its discretion in a similar way. Hong Kong position. The Hong Kong courts have adopted a similar test. This can be illustrated as follows: Whether discretion is exercised irrationally or perversely is determined based on factual circumstances. In Post Vanessa Jane v Nomura International (Hong Kong) Ltd,192 the High Court considered the claim by an employee for an unpaid bonus, which included a discretionary element. Nomuras employee handbook contained a clause which provided that the employee was entitled to be considered for the discretionary award of a bonus. The court adopted the test laid down in Clark v Nomura and looked at the nature of the employers obligation and how far it extended in respect of discretionary bonuses. The court examined a number of facts, including the employees performance, the absence of special contribution by the employee and the employers negative nancial results and held that it was unable to say that the employers decision not to award a bonus to the plaintiff was irrational. Discretion is a subjective test. In Wood v Jardine Fleming Holdings Ltd,193 the Court of First Instance considered the claim of an investment bank employee who had been dismissed and whose bonus, which formed a large part of the employees remuneration, had not been paid. In that case, the contract of employment expressly provided that the employee had no contractual entitlement to a bonus but that the employer would at its discretion pay one. The amount (if any) would depend on the nancial results of the employer and the performance of the employee. It was held by Deputy Judge 4.124

4.125 4.126

4.127

191 192 193

[2000] IRLR 766. (unrep., HCA 7259/1997, [2001] HKEC 600). [2001] 2 HKC 735.

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Woolley that the employees contract stated in no uncertain terms that the employee had no contractual right to a bonus and that payment was at the employers discretion. The court noted that the discretion was not an unfettered discretion but expressed that it would be reluctant to interfere with the exercise of a clearly stated discretion, unless it was such that the discretion was exercised irrationally or perversely. The test was subjective. Based on the facts of the case, however, the employer had genuine and serious concerns about the employees work and behaviour, and the court could not see any valid reason for challenging the exercise of the discretion of the employer. Consequently, the employees claim was dismissed. 4.128 Reluctance of the court to interfere unless discretion exercised irrationally or perversely. In Bruce Gordon Hut v Special Assets Ltd,194 a dispute arose between Mr Hut, an investment manager, and his employer over, among other things, Mr Huts bonus entitlement. Where Mr Clarks bonus scheme had been based on an employees individual performance, the scheme offered to Mr Hut provided that all employees (including Mr Hut) were granted a number of bonus points at the beginning of each year. However, the payment of bonuses to employees was subject entirely to the discretion of the defendant companys board of directors. In Mr Huts case, the board had decided to suspend the bonus plan, taking into account the companys nancial situation. As a result, Mr Hut did not receive a bonus. Highly dissatised with the boards decision, Mr Hut took the matter to court but his application was unsuccessful. In its ruling, the court stated that it would be reluctant to interfere with the exercise of a clearly stated discretion unless the discretion was exercised irrationally or perversely. Is there an implied term not to terminate employment to avoid payment of discretionary bonuses? It is common for discretionary bonus payments to be made on the condition that, on the payment date, an employee is not working or on notice. Employees would certainly take issue if their employment was terminated before the payment date of the discretionary bonus. Whether such an employee has a claim against his employer for unpaid discretionary bonus was considered in the case of Sunny Tadjudin v Bank of America, National Association.195 An employers right to terminate an employment relationship by notice may be subject to implied term. In Tadjudin, a dispute arose between an employer and employee who was employed as a vice-president out of an employment contract which provided that the employee would be eligible to participate in the employers discretionary performance incentive programme and that payment of any performance bonus was conditional upon the employee being under employment at the time of payment. Under the employment contract, either party was entitled to terminate the contract by serving a notice of termination or making a payment in lieu of notice. The employment was terminated by the employer by way of a payment in lieu of notice before any incentive bonus was due to be paid. The employee alleged that the employment contract contained an implied term that the employer would not terminate her employment in order to avoid paying her incentive bonus and that the

4.129

4.130

194 195

(unrep., HCA 2668/2002, [2006] HKEC 1743). [2009] 4 HKLRD 662, and [2010] 3 HKLRD 417, CA. See also Chapter 6, para 6.084.

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employer was in breach of such implied term. The employee commenced proceedings against her employer seeking an amount exceeding HK$10 million for loss of her incentive bonus. The employer succeeded in having the employees claim struck out. On the employees appeal one of the issues considered by the court was whether the implied anti-avoidance term was part of common law and whether such a term could be implied into the employment contract. It was held that an implied term must be consistent with the legislative intent of the EO. The court also relied on the case of Johnson v Unisys Ltd196 and held that any term implied into a contract must be consistent with and cannot override express terms. Carlye Chu J at rst instance held that it was clear that the legislative intent is not to provide remedies for loss owing from the manner in which an employee was dismissed and that it would be inappropriate for the courts to imply a common law remedy which goes contrary to the intention of the legislature. It was held that there was no justication for the court to imply a term that could have the effect of diminishing the clear statutory right of termination. The Court of Appeal was not so ready to dismiss the notion of extending the common law so as to imply an anti-avoidance term of the type pleaded by the employee, and allowed the employees appeal on the grounds that this was an area of law in the process of developing. Accordingly it was not appropriate to have the matter determined on an interlocutory basis. Until the argument has been fully canvassed at a full hearing the position remains unclear. (i) Recovery of paid bonuses Recovery of paid bonuses. To deter employees from departing after receiving a substantial bonus, a common measure adopted by employers is to implement a clawback mechanism so as to enable them to recoup the payment. Before implementing a bonus clawback mechanism, the rationale for the bonus payment, the reasons for the clawback and the mechanics of repayment should be considered carefully and set out clearly in any scheme documentation. This can be illustrated by the English case of Tullett Prebon Plc v BGC Brokers LP.197 Existence of rationale and mechanics of repayment. In Tullett, the former Chief Operating Ofcer of Tullett joined a competitor and put into action a plan to recruit brokers to join BGC from Tullett. As a result, a large number of Tullett brokers signed contracts to join BGC. All the contracts with Tullett contained provisions which empowered Tullett to seek the recovery of signing payment and certain discretionary and loyalty bonuses paid to the employees in certain circumstances. Tullett commenced proceedings against BGC and several employees for conspiracy, inducing breach of contract and misuse of condential information in connection with the recruiting from Tullett. Apart from general damages, Tullett claimed for the recovery of signing payments and the discretionary and loyalty bonus. The employee defendants sought to argue that the repayment provisions were an unlawful restraint of trade and/or an unenforceable penalty. However, the court considered that, in the circumstances, the provisions were not a restraint of trade and that the law relating 4.131

4.132

196 197

[2003] 1 AC 518. [2010] EWHC 484 (QB).

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to penalties was not applicable. The fact that the rationale for the bonus payment (i.e. for loyalty rather than past performance) and the mechanics of repayment were both clear was relevant.

6. LIABILITY OF PRINCIPAL CONTRACTOR FOR WAGES

(a) Introduction 4.133 Overview. Based on the common law doctrine of privity of contract, an employee is only entitled to receive wages from his employer. Part IXA of the EO, however, provides a mechanism which enables the employees of subcontractors engaged in building and construction works to recover unpaid wages directly from the principal contractors or superior subcontractors.198 Employees of nominated subcontractors do not have direct recourse against principal contractors since principal contractors generally do not have control over nominated subcontractors (who are generally nominated by the building site owner or occupier).199 The EO provides a separate mechanism which, if followed, enables employees of nominated subcontractors to seek wage payment directly from the superior nominated subcontractors. Application of Part IXA of the Employment Ordinance. The statutory provisions contained in Pt IXA of the EO only affect contracts of employment entered into by principal contractors, nominated subcontractors or subcontractors on or after 1 November 1977.200 (b) Denitions 4.135 General. The aim of Pt IXA of the EO is to protect employees who are engaged to provide labour to their employers for the purposes of or in connection with building works.201 Under the EO, distinctions are made amongst principal contractors, subcontractors, superior subcontractors, nominated subcontractors and main nominated subcontractors, and different individuals are subject to different liabilities. In order to understand the nature of employee protections conferred by Pt IXA of the EO, it is essential to understand various terms used in Pt IXA of the EO. Nature of work engaged by employees. The EO aims to protect employees who are engaged for the purposes of or in connection with building works. The term building works is dened to mean the construction, site formation, reconstruction, maintenance (including redecoration and external cleaning), repairs, alterations or demolition of the whole or any part of (a) any building, dock, pier, bridge, viaduct or other structure; or (b) any harbour or port works, reclamation, road, tunnel, sewer, drain, well or waterworks, and any installation works in respect of such building works.202

4.134

4.136

198 199 200 201 202

Sections 43C to 43F of the EO. Tunis Ltd v Ng Yick [1987] 3 HKC 426. Section 43B of the EO. Section 43A(1) of the EO. Ibid.

LIABILITY OF PRINCIPAL CONTRACTOR FOR WAGES

137

For those who are employed by a subcontractor, if their duties fall outside the scope of building work, they will not be able to seek protection under Pt IXA of the EO. Principal contractor. A principal contractor is a person who enters into a contract directly with the owner or an occupier of property, or with an agent or authorised architect, surveyor or civil, municipal or structural engineer of such owner or occupier, to perform any work for such owner or occupier.203 Subcontractor. A subcontractor means any person who enters into a contract, whether express or implied, with a principal contractor (or a subcontractor of the principal contractor) to perform all or any part of the work which the principal contractor or its subcontractor (as the case may be) has contracted to perform. It does not, however, include a nominated subcontractor.204 Superior subcontractor. A superior subcontractor is a subcontractor if all or any part of the work which he or she has contracted to perform is subcontracted to another subcontractor, irrespective of whether such work is performed by that other subcontractor or further subcontracted by that other subcontractor.205 Nominated subcontractor. A nominated subcontractor is dened to mean any person who is nominated by the owner or occupier of property, or by an agent or authorised architect, surveyor or civil, municipal or structural engineer of such owner or property and enters into a contract with a principal contractor to perform work which the principal contractor has contracted to perform. A person who subsequently enters into a contract (whether expressly or implied) to perform all or any part of the work agreed to be performed by a nominated subcontractor may also be a nominated subcontractor.206 Main nominated subcontractor. A main nominated subcontractor is a nominated subcontractor who enters into a contract, whether express or implied, directly with a principal contractor to perform all or any part of the work which the principal contractor has contracted to perform.207 (c) Liability of principal contractor and superior subcontractor for unpaid wages of subcontractors employees Liability to subcontractors employees wages. To ensure that employees are able to receive their wages in full punctually, the EO provides that a principal contractor who contracts with a subcontractor is liable for the unpaid wages of its subcontractors employees when they become due and payable.208 If a subcontractor has contracted 4.142 4.137

4.138

4.139

4.140

4.141

203 204 205 206 207 208

Ibid. Section 43A(1) of the EO. Section 43A(2) of the EO. Section 43A(1) of the EO. Section 43A(1) of the EO. See ss.43C to 43F of the EO. Generally, wages become due under s.23 of the EO on the last day of the wage period or seven days thereafter. Wages and any other sum due to an employee become due under s.24 of the EO on the day of completion of a contract or within seven days. In respect of employees whose employment is terminated, under s.25 of the EO, wages and any other sum become due to the employee upon the termination of a contract or seven days thereafter.

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with a superior subcontractor, the principal contractor and every superior subcontractor of the subcontractor will be liable, jointly and severally, for any unpaid wages of the subcontractors employees. 4.143 Limits of liability. Principal contractors and any superior subcontractors are only liable for the wages of their subcontractors employees whose employment relates wholly to the work that the principal contractor has contracted to perform, and those places of employment are wholly at the principal contractors building site. Further, the monetary amount is limited to the employees rst two months of wages alone.209 Thus, if the amount of wages owed by a subcontractor to its employee exceeds twice the employees monthly wages, the liability of the principal contractor (and the superior subcontractors) is capped at two months of the employees wages. Procedure for employees to claim outstanding wages from principal contractors and superior subcontractors. In order to seek unpaid wages from the principal contractor and the superior subcontractors, an employee is required to serve notice on the principal contractor within 60 days (or an additional period of 90 days if the deadline is extended by the Commissioner for Labour210 after the wages become due.211 The intention of the notice is to alert the principal contractor to the claims of employees of its subcontractors. Upon receipt of the notice served by the employee, the principal contractor is required to serve a copy of the notice on every superior subcontractor to that subcontractor, if known, within 14 days of his or her receipt of the notice.212 Any principal contractor which fails to do so without any reasonable excuse commits an offence and, on conviction, is liable to receive a ne at level 5.213 Content requirements. In order for the notice to be valid, it is essential for the employee to set out the details relating to (i) the name and address of the employee; (ii) the name and address of his or her employer; (iii) the address of the place of employment of the employee; (iv) the particulars of the work in respect of which the wages are due; and (v) the amount of wages due and the period to which they relate.214 If an employee fails to serve a notice on the principal contractor which materially complies with the statutory notice requirement, the principal contractor and the superior subcontractors may not be liable for his or her unpaid wages.215 Mode of service. Written notice may be served by an employee on the principal contractor in one of three ways. First, written notice may be served by personal

4.144

4.145

4.146

209 210

211 212 213 214

215

Section 43C(1) of the EO. In the case of Chan Hau Hin v Wan Chung Construction Co Ltd (unrep., HCLA 38/1998, [1999] HKLRD (Yrbk) 401), it was held that consideration shall be given to the circumstances of each individual case. The court expressed that it must take into consideration the intention of the legislature to protect the wages of employees, the fact that the public may have inadequate knowledge of this provision and to prevent injustice to the principal contractor when deciding on whether to grant any extension. Section 43D(1) of the EO. Section 43D(2) of the EO. Section 43E(2) of the EO. Section 43D(1) of the EO. If the written notice served by an employee contains some minor omissions or deciencies, this should not affect the validity of the employees claim. In Tunis Ltd v Ng Yick [1987] 3 HKC 426, the court expressed that any requirement for absolute compliance with the statutory notice requirement may result in absurdity contrary to the legislative intention of the EO (i.e. to secure the payment of employees wages). Section 43D(3) of the EO.

LIABILITY OF PRINCIPAL CONTRACTOR FOR WAGES

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delivery to the principal contractor. It may also be served by leaving it at the principal contractors usual address or last known residential or business address. Finally, such notice may be sent by registered post to the principal contractors usual address or last known residential or business address.216 (i) Request for particulars of the principal contractor and superior subcontractors Request for particulars of principal contractor and superior subcontractor. In the building industry, subcontracting of building work is a common phenomenon. Thus, an employee of a subcontractor may not know who the principal contractor or the superior subcontractors are. To assist the employees, the EO provides a procedure which enables employees to obtain the relevant information. Under the EO, once a subcontractor fails to pay wages and any other sum due and owing to its employee, the employee is entitled to serve a written request on the subcontractor for the name and address of the principal contractor and every superior subcontractor. Such details must be provided by the subcontractor within seven days of receipt of the request.217 Any principal contractor who fails to do so without any reasonable excuse commits an offence and, on conviction, is liable for a ne at level 5.218 (ii) Service of request for particulars by subcontractors Service of request for particulars by subcontractors. It is a legal requirement that, once a subcontractor receives a request from its employee for the particulars of its principal contractor and every superior subcontractor, the subcontractor must serve a copy of the request on its principal contractor and every superior subcontractor. A subcontractor commits an offence if, without reasonable excuse, it fails to do so. The maximum penalty is a ne at level 5. Timing of payment. After the due service of written notice by an employee on a subcontractor, within 30 days of the receipt of the notice, the outstanding wages as set out in the notice must be paid by the principal employer (if the employee is employed by a subcontractor which has contracted with the principal contractor) or by the principal contractor and every superior subcontractor jointly and severally (if the employee is employed by a subcontractor which has contracted with a superior subcontractor).219 If an employee has lodged a claim with the Minor Employment Claims Adjudication Board or the Labour Tribunal and obtains a favourable award, payments are required to be made within 30 days after the award or order.220 Recovery of wages by principal contractor and superior subcontractor. The wages paid by a principal contractor or superior subcontractors shall be a debt due from the subcontractor who employs the relevant employee and can be recovered through 4.148 4.147

4.149

4.150

216 217 218 219 220

Section 43L(1) of the EO. Section 43E(1) of the EO. Section 43E(2) of the EO. Section 43C(3) of the EO. Section 43C(4) of the EO.

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civil proceedings.221 The wage payment made by the principal contractor or superior subcontractors provides the latter with a right of statutory set-off in respect of amounts due to the subcontractor that relate to the work which the subcontractor has contracted to perform and work for which the employee of the subcontractor was employed. Further, given that the principal contractor and the superior subcontractors are jointly and severally liable to the employees of a subcontractor, those who have paid wages to the employee of the subcontractor are entitled to seek contribution from each other or exercise a right of set-off in respect of any sum due (or which may become due) to any subcontractor to whom he or she has subcontracted the work and in respect of the work that he or she was subcontracted.222 It is essential to note that the amount recoverable by a principal contractor or a superior subcontractor from the relevant subcontractor is limited to the amount of wages paid by them. No other payments (e.g. legal costs) can be recovered.223 (d) Liability of superior nominated subcontractor to pay wages of employees of nominated subcontractors 4.151 General. The EO provides a similar mechanism for employees of nominated subcontractors to seek payment of unpaid wages from superior nominated subcontractors.224 Generally, superior nominated subcontractors are liable jointly and severally in respect of the unpaid wages due to the employees of a nominated subcontractor.225 Right to seek payments from superior nominated subcontractors. The requirements and conditions of wage payment which apply to principal contractors and superior subcontractors apply equally to superior nominated subcontractors. For instance, an employee of a nominated subcontractor is entitled to request the particulars of the main and every superior nominated subcontractor. If a nominated subcontractor fails to provide the name and address of the main nominated subcontractor and every superior nominated subcontractor, it is guilty of an offence and is liable to a ne at level 5.226 The content requirements in respect of the written notice required to be served by employees of nominated subcontractors are the same.227 Under the EO, a nominated subcontractor who has received a written notice from an employee must

4.152

221

222 223

224

225 226 227

Section 43F(1) of the EO. See Re Finbo Engineering Co Ltd [1998] 2 HKLRD 695 where the court held that equitable set-off could apply where the claim was based on a debt owed under s.43F of the EO. In the case of Lee Chau Mou v Kin Sing Engineering (HK ) Co Ltd (unrep., HCCT 3/2006, [2007] HKEC 367), the court held that the wages paid by the principal contractor to the subcontractors employees under s.43C shall be a debt due by the subcontractor to the principal contractor. In Law Ming Chiu v Maeda Corp (unrep., HCCT 7/2007, [2010] HKEC 431), in which a principal contractor paid the unpaid wages of employees of an inferior subcontractor, it was held that the latter becomes indebted to the former for the amount paid. Sections 43F(2) and (3) of the EO. In Lee Chau Mou v Kin Sing Engineering (HK) Co Ltd (fn 225), the court held that For under Part IXA, the plaintiff is only entitled to recover the wages as a debt and no more Part IXA makes no provision for a general indemnity to cover all the loss and damage that a principal contractor may have suffered as a result of its operation. Under the EO, principal contractors are not liable for any unpaid wages of the nominated subcontractors employees. Section 43G of the EO. Section 43I(2) of the EO. Section 43H of the EO.

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141

serve a copy of the employees notice on all other superior nominated subcontractors, failing which it commits an offence. The maximum penalty is a ne at level 5.228 Limit on liability. The liability of a main or superior nominated subcontractor in relation to the unpaid wages of an employee of a nominated subcontractor is limited to two months of the employees wages. Also, the wages must be paid by a main or superior nominated subcontractor within 30 days after receipt of a notice. The right of recovery in respect of the payments made by a superior nominated subcontractor from the nominated subcontractor is the same as those conferred on principal contractors and superior subcontractors.229 4.153

7. MANDATORY PROVIDENT FUND SCHEMES

(a) Introduction Overview. Mandatory provident fund (MPF) schemes are employment-based retirement protection schemes. Under the Mandatory Provident Fund Schemes Ordinance (the MPF Ordinance), except certain exempted employees, every employer is required to enrol his relevant employees to a MPF scheme.230 Denition of relevant employees. A relevant employee for these purposes is an employee between the ages of 18 years and 65 years who has been employed under a continuous employment contract for at least 60 days. Exempted employees. The following categories of employees are exempted from the provisions of the MPF Ordinance:231 4.154

4.155

4.156

employees who are covered by certain specied retirement schemes;232 employees who are 64 years of age or above; an employee who has been employed for less than 60 days (other than a casual employee); domestic workers; self-employed hawkers; expatriates working in Hong Kong who are already covered by a scheme outside Hong Kong; and any employee who participates in a retirement scheme registered or exempted under Occupational Retirement Schemes Ordinance, subject to certain specic requirements.

228 229 230 231 232

Section 43H(2) and (4) of the EO. Section 43J of the EO. Section 7(1A) of the MPF Ordinance. Section 4 and Sch.1 of the MPF Ordinance. For example, public sector retirement schemes which have been established by legislation for civil servants.

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(b) Duties of employers 4.157 4.158 General. Employers are required to comply with the obligations as set out in the MPF Ordinance. The main statutory obligations of employers follow below: Duty to enrol relevant employees. Every employer of a relevant employee must take all practicable steps to ensure that relevant employees are enrolled in a registered MPF scheme.233 If an employer fails to enrol relevant employees in a registered MPF scheme without a reasonable excuse, he or she commits a criminal offence. The maximum penalties are a ne of HK$350,000 and imprisonment for three years.234 Duty to calculate relevant income. An employer is required to calculate the amount of relevant income for each relevant employee who is a member of a registered MPF scheme.235 The MPF Ordinance places a limit upon the sum to be treated as relevant income in respect of each relevant employee, being HK$20,000 per month for contribution purposes. The relevant income of the employee is dened as any wages, salary, leave pay, fee, commission, bonus, gratuity, perquisite or allowance expressed in monetary terms paid or payable by an employer (directly or indirectly) to that employee in consideration of his employment under the contract. Severance and long service payments are excluded from the calculation of relevant income. Accordingly, the maximum monthly contribution which is required to be made by an employer is HK$1,000 (5% HK$20,000).236 However, if the relevant employee earns less than HK$5,000 per month, that employee is not required to make any contributions, although the employer must still contribute towards the registered scheme.237 Duty to make appropriate deductions from employees relevant income. An employer who employs a relevant employee is required to contribute to the relevant registered scheme from the employers own funds and to deduct the employees contribution from the employees relevant income on a monthly basis.238 In respect of the rst 30 days of an employees relevant income (other than that of a casual employee), an employer must not make any deductions in respect of an employees mandatory contribution.239 Duty to make mandatory contributions. Under the MPF Ordinance, every relevant employer is required to pay mandatory contributions to the approved trustee within the prescribed period and in the manner prescribed under the MPF Regulation.240 The prescribed time period for making the contribution is on or before the contribution day.241 Further, an employer must make contributions after the relevant employee has been employed for

4.159

4.160

4.161

233 234 235

236 237 238 239 240 241

Section 7 of the MPF Ordinance. Section 43B of the MPF Ordinance. Section 122(2) of the Mandatory Provident Fund Schemes (General) Regulation (the MPF Regulation). However, an employer shall not make any deduction from an employees relevant income in respect of the employees contribution for the rst 30 days of his employment (see s.7A(7) of the MPF Ordinance). Sections 7A(5) and 10 and Sch.3 of the MPF Ordinance. Section 9 and Sch.2 of the MPF Ordinance. Section 7A(1) of the MPF Ordinance. Section 7A(7) of the MPF Ordinance. Section 7A(8) of the MPF Ordinance. Section 122(3) of the MPF Regulation.

MANDATORY PROVIDENT FUND SCHEMES

143

60 days (even if the relevant employee has not completed his or her probationary period). A mandatory contribution is treated as being in arrears if it is not paid on or before the contribution day. An employer who, without reasonable excuse, fails to pay mandatory contributions on time commits an offence. On conviction, the maximum penalties are a ne of HK$350,000 and imprisonment for three years.242 Duty to rectify defaults and discrepancies. Trustees of registered schemes are required to give written notice to any person who fails to pay the mandatory contribution by the contribution day.243 This includes the failure to pay the full amount of the mandatory contribution as a result of errors in calculations as set out in the remittance statement submitted to the trustee. The trustee can by written notice require the employer to pay the mandatory contribution or to rectify the discrepancy in payment. If the employer fails to pay the contribution or rectify the discrepancy in payment within the settlement period, the trustee shall, within 10 days of the contribution day, give notice to the MPF Authority of the non-payment or discrepancy in payment of the mandatory contribution.244 An employer who is in default is liable to pay the contribution in arrears together with a contribution surcharge.245 Duty to provide remittance statements to the approved trustee. Employers are required to provide remittance statements to the approved trustee.246 When paying contributions to the trustee of a registered scheme, an employer must ensure that the contributions are accompanied by a remittance statement, in the form specied or approved by the MPF Authority, and this must be for the contribution period to which the contribution relates. Duty to give monthly pay records to scheme members. Employers are required to give monthly pay records to employees who are scheme members.247 An employer must prepare a pay record for each month in respect of each relevant employee who is a scheme member. It must also ensure that the record is given to the employee not less than seven working days after the payment of mandatory contribution in respect of the month concerned (or the last payment if there is more than one payment). The pay record must either be in written form or in a form which enables the information contained to be easily read by employees.248 Duty to keep records. An employer of a relevant employee must ensure that a record of each payment of the relevant income made by it is kept for at least six months after such payment.249 Such record must include the total amount of each payment, a breakdown of the total amount of payment and the date on which each payment is made. An employer is also required to ensure that a record of the commencement dates of the employment of its employees is retained for a period of at least six months 4.162

4.163

4.164

4.165

242 243 244 245

246 247 248 249

Section 43B of the MPF Ordinance. Section 133(1) of the MPF Regulation. Section 135 of the MPF Regulation. Section 18 of the MPF Ordinance. Under s.207 of the MPF Regulation, the contribution surcharge is an amount equal to 5 per cent of the amount of the arrears. Section 123 of the MPF Regulation. Section 139(1) of the MPF Regulation. Section 139(3) of the MPF Regulation. Section 140(1) of the MPF Regulation.

144

REMUNERATION AND BENEFITS

after their cessation of employment.250 Employers are specically under a duty to keep records of the following particulars:251

4.166

the name and correspondence address of the employee and the commencement date of the employment of the relevant employee; any notice of election, given by the employee under the Mandatory Provident Fund Scheme (Exemption) Regulation; and any notice given by the employee authorising the employer to deduct voluntary contributions from the relevant income for payment to the registered scheme.

Duration of record retention. Such records must be kept by the employer for at least six months after the employee ceases to be employed by the employer.252 The employer must also ensure that the information required to be included in the remittance statement is maintained for at least seven years after the date of the remittance statement.253 An employer which, without reasonable excuse, fails to comply with these requirements commits an offence. On conviction, the maximum penalty is a ne of HK$25,000.254 Duty to respond to enquiries. An employer must, as soon as reasonably practicable after receiving an enquiry from a relevant employee, provide a response regarding contributions which have been made or are required to be made to a registered scheme.255 The reply may be given orally unless the employee requests that it be given in writing. Any employer who fails to respond to such enquiries is liable to a nancial penalty of HK$5,000 for the rst failure. The nancial penalties for the second and subsequent failures are HK$10,000 and HK$20,000 respectively. Duty to inform approved trustee of any change of particulars. An employer must give written notice to the trustee of the date on which relevant income is paid to each relevant employee when the employee becomes a scheme member.256 An employer must also notify the trustee in writing of any change in its business address, telephone number or fax number, changes in the relevant employees residential address, telephone number or date of payment of relevant income and change of the employers name as shown in the participation certicate.257 The notication must be made within 30 days of the change of particulars.258 Any employer who fails to comply with this provision is liable, on the rst occasion, to a ne of HK$5,000 and, on second and subsequent occasions, to nes of HK$10,000 and HK$20,000 respectively.259 Duties in relation to the portability of accrued benets. One of the main features of MPF schemes is that upon a change of employment, an employee may, at his or

4.167

4.168

4.169

250 251 252 253 254 255 256 257 258 259

Section 140(3) of the MPF Regulation. Section 140(4) of the MPF Regulation. Section 140(5) of the MPF Regulation. Section 140(6) of the MPF Regulation. Section 140(8) of the MPF Regulation. Section 141 of the MPF Regulation. Section 143(1) of the MPF Regulation. Section 143(2) of the MPF Regulation. Ibid. Section 205 and Sch.4 of the MPF Regulations.

MANDATORY PROVIDENT FUND SCHEMES

145

her option, leave his or her accrued benets with the current provider of the master trust scheme or he may transfer the total accrued benets to his or her new employers scheme or an industry scheme of which he or she is eligible to be a member, where it must be held until such time as the employee becomes eligible to receive those benets.260 An employer is under an obligation to comply with the requirements with respect to those benets. As soon as practicable after the new employer has received a notice of election, the new employer must give written notice of the election to the transferee trustee.261 The former employer is required to notify the current scheme trustee of the cessation of an employees employment and the date of cessation.262 An employer commits a criminal offence if it fails to follow the notices and procedures set out in the Regulation.263 The employer would be liable to a ne of HK$100,000 and to an imprisonment term of six months on the rst conviction; the ne is HK$200,000 and an imprisonment term of 12 months for each subsequent conviction. Personal liability of directors and ofcers. Under the MPF Ordinance, if an offence is committed under the MPF Ordinance by a company and is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any ofcer, or any person concerned in the management of the company, or any person who was purporting to act in that capacity, the ofcer or person as well as the company commits the offence and is liable to be proceeded against and punished accordingly.264 4.170

260 261 262 263 264

Section 14 of the MPF Ordinance. Sections 145(5), 146(7) and 147(5) of the MPF Regulation. Sections 145(6), 146(3) of the MPF Regulation. Section 43B(2) of the MPF Ordinance. Section 44 of the MPF Ordinance.

CHAPTER 5

LEAVE ENTITLEMENT
Para. 1. Introduction ............................................................................................................................... 5.001 2. Maternity leave ........................................................................................................................ 5.002 (a) Entitlement to statutory maternity leave ........................................................................... 5.003 (b) Notice ................................................................................................................................ 5.007 (c) Maternity leave pay ........................................................................................................... 5.012 (d) Prohibition against termination ......................................................................................... 5.019 (e) Prohibition of assignment of heavy, hazardous or harmful work ..................................... 5.026 (f) Records ............................................................................................................................. 5.031 3. Statutory holidays .................................................................................................................... 5.032 (a) Entitlements to statutory holiday ...................................................................................... 5.032 (b) Holiday pay ....................................................................................................................... 5.036 (c) Statutory holidays interaction with general holidays ........................................................ 5.041 4. Statutory rest day ..................................................................................................................... 5.042 (a) Entitlement to statutory rest days ...................................................................................... 5.042 (b) Work on rest days .............................................................................................................. 5.050 (c) Rest day pay ...................................................................................................................... 5.053 5. Sick leave ................................................................................................................................. 5.054 (a) Entitlement to sickness allowance .................................................................................... 5.054 (b) Sickness allowance ............................................................................................................ 5.060 (c) Prohibition against termination ......................................................................................... 5.064 (d) Record keeping ................................................................................................................. 5.067 6. Annual leave ............................................................................................................................. 5.073 (a) Entitlement to annual leave ............................................................................................... 5.073 (b) Granting of annual leave ................................................................................................... 5.076 (c) Annual leave pay ............................................................................................................... 5.082 (d) Payment of annual leave pay upon termination of employment ....................................... 5.086 (e) Annual leave shutdown ..................................................................................................... 5.087 (f ) Record keeping ................................................................................................................. 5.091 7. Other benets ........................................................................................................................... 5.093 (a) Jury service ....................................................................................................................... 5.093 (b) Typhoon and rainstorm ..................................................................................................... 5.096 (c) Leave entitlements above the statutory minimum ............................................................. 5.102

1. INTRODUCTION
Overview of chapter. The Employment Ordinance (EO) prescribes certain minimum leave entitlements to an employee under a continuous contract of employment in Hong Kong with only a few minor exceptions. These leave entitlements include maternity leave, statutory holiday, rest day, sick leave and annual leave. An employer may provide leave entitlements to employees in excess of the requirements set out in the EO but may not lawfully provide less than the statutory minimum. To the extent that the employer provides leave entitlements less favourable than required under the EO, the EO will prevail. This chapter will discuss the eligibility for and the arrangement of various leave entitlements and how payment for these leave entitlements should be calculated. 5.001

2. MATERNITY LEAVE
Maternity leave for pregnant employees. Part III of the EO sets out the minimum statutory entitlements to maternity leave for pregnant employees. A pregnant employee is dened in the EO to mean a female employee whose pregnancy has been conrmed by a medical certicate.1 A medical certicate may be issued by a registered medical practitioner, registered Chinese medicine practitioner or a registered midwife.2 As such, to be entitled to statutory maternity leave it does not matter if the pregnant employee is legally married, divorced, separated or single. (a) Entitlement to statutory maternity leave Entitlement to statutory maternity leave. A female employee who is employed under a continuous contract of employment3 immediately before taking any maternity leave shall be entitled to maternity leave in accordance with the EO.4 However, if the employer has agreed under the contract of employment to provide more favourable maternity leave entitlement than under the EO, the employer will be obliged contractually to provide such more favourable maternity leave entitlement. The period of statutory maternity leave. An employee is entitled to take a continuous period of 10 weeks maternity leave starting from and inclusive of the date of commencement of maternity leave or the actual date of connement, whichever is the earlier.5 If the employee delivers after the expected date of connement, she is entitled to a further period of maternity leave equal to the duration between the expected date and the actual date of connement, which is to be taken immediately following the initial 10 weeks of maternity leave.6 An employee is also entitled to a further period of up to four weeks of maternity leave on the grounds of illness or disability arising out of 5.003 5.002

5.004

1 2 3 4 5 6

EO s.12A. EO s.13. EO Sch.1: see also Chapter 2. EO s.12(1). EO s.12(2)(a). EO s.12(2)(b).

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LEAVE ENTITLEMENT

the pregnancy or connement which may be taken wholly or partly before or after the initial 10 weeks of maternity leave mentioned above or after any extended maternity leave due to late delivery.7 The EO provides for 10 weeks of paid maternity leave.8 Any extended maternity leave due to late delivery and/or illness or disability will be unpaid. However, if the employee is unable to work due to illness or disability, the employee may take any accrued sick leave and be paid statutory sickness allowance. 5.005 Taking of maternity leave. A pregnant employee can agree with her employer on the commencement date for taking her maternity leave provided the commencement date is not less than two weeks before, and not more than four weeks before, the expected date of connement. If the pregnant employee does not exercise her option to decide on a commencement date or she cannot reach an agreement with her employer on the commencement date of her maternity leave, the maternity leave shall commence four weeks immediately before the expected date of connement.9 Offence and penalties. An employer who fails to grant maternity leave to an eligible pregnant employee is liable to prosecution and, upon conviction, to a ne at level 5, currently at HK$50,000.10 The offence is one of strict liability, which can be committed without any requisite knowledge on the part of an employer that an offence has been committed.11 (b) Notice 5.007 Notice of pregnancy or connement date. A female employee who intends to take maternity leave under the EO is required to give notice to her employer of her pregnancy and of her intention to take maternity leave after her pregnancy has been conrmed by a medical certicate.12 Notice may be given orally or in writing. There is no minimum period within which an employee must give notice of her pregnancy. However, if the pregnant employee does not give notice she will not be entitled to statutory maternity leave. There is no obligation under the EO for a pregnant employee to notify her employer of her pregnancy if she does not intend to take statutory maternity leave.13 The presentation of a medical certicate to the employer by the female employee conrming her pregnancy shall be deemed to be a notice of intention to take maternity leave.14 If requested by the employer, the female employee is required to produce a medical certicate specifying the expected date of connement.15 The medical certicate may be issued by a registered medical practitioner, a registered Chinese medicine practitioner or a registered midwife.16

5.006

7 8 9 10 11 12 13 14 15 16

EO s.12(2)(c). Assuming all qualifying criteria is satised. See para 5.012. EO s.12AA. EO s.15A; Criminal Procedure Ordinance (Cap.221) Sch.8, a ne at level 5 is for HK$50,000. A-G v Ng Chung Hing [1991] 1 HKLR 225; A-G v Demand Enterprises Ltd [1987] HKLR 195. EO s.12(4), 12(6). The employee may elect to take, say, annual leave or another type of leave instead of statutory maternity leave. EO s.12(4). EO s.12(6). EO s.13(1).

MATERNITY LEAVE

151

Notice of early connement. If the female employee gives birth before giving notice of pregnancy to her employer or before the commencement of the maternity leave if she has given notice of pregnancy to her employer, she is required within seven days of her connement to give notice to her employer of the date of connement and of her intention to take any period of maternity leave.17 If requested by the employer, the female employee shall produce a medical certicate issued by a registered medical practitioner or registered midwife specifying the date of connement.18 Notice of late birth. If the female employee gives birth after the expected connement date and intends to take extended maternity leave, being the additional period beginning the day after the expected date of connement up to the actual date of connement under the EO, she is required to produce a medical certicate specifying the date of connement if so requested by the employer.19 The medical certicate should be issued by a registered medical practitioner or a registered midwife.20 Notice of intention to take maternity leave on the grounds of illness or disability. If the female employee intends to take maternity leave on the grounds of illness or disability arising out of the pregnancy or connement, she shall give notice to that effect to her employer. She shall also produce a medical certicate certifying as to the illness or disability if so requested by the employer.21 The medical certicate should be issued by a registered medical practitioner or a registered Chinese medicine practitioner.22 Continuity of service not broken by maternity leave. A pregnant employees continuity of employment with the employer will not be broken by any period of statutory maternity leave.23 (c) Maternity leave pay Entitlement. Not every pregnant employee will be entitled to paid maternity leave. Only a pregnant employee who: (1) has been employed by the same employer for a period of not less than 40 weeks immediately before the expected date of commencement of maternity leave;24 has given the required notice of pregnancy as stated in para 5.007 above; and has complied with the requirements for the provision of medical certicates,

5.008

5.009

5.010

5.011

5.012

(2) (3)

17 18 19 20 21 22 23 24

EO s.12(5). EO s.13(2). EO s.12(7A). EO s.13(2). EO s.12(8). EO s.13(3). EO s.12(10) Sch.1 para 3(2)(a). EO s.12(2).

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LEAVE ENTITLEMENT

will be entitled to paid maternity leave. The statutory requirement of paid maternity leave is conned to the 10-week maternity leave period.25 If an employee works for another employer during the 10-week maternity leave period without the employers consent, the employee will forfeit her entitlement to maternity leave pay during that period of maternity leave.26 5.013 Rate of maternity leave pay. The daily rate of maternity leave pay is four-fths of the daily average of wages (DAW) earned by the employee during the period of 12 months immediately before the commencement of her maternity leave, or if the employee has been employed for a period shorter than 12 months immediately before the commencement of her maternity leave, such shorter period.27 However, no maternity leave pay is payable in respect of a day on which the female employee would not have worked had she not been on maternity leave and for which no wages would normally be payable by the employer.28 For instance, if an employee receives a daily wage and does not get paid for Sundays, the application of s.14(3A) means that the employer does not need to pay the employee for a Sunday on which the employee is on maternity leave. However, there are no cases clarifying the circumstances when no wages would normally be payable by the employer. If the employee would have been on unpaid leave at the time of taking statutory maternity leave, it may be argued that normally refers to the normal contractual situation on full pay as opposed to the abnormal situation where the employee is on unpaid leave. Furthermore, if the employer provides a payment to the employee in respect of a period of maternity leave, then the statutory maternity leave pay payable to the employee in respect of that period shall be reduced by that payment paid by the employer.29 Determining DAW. The starting point for determining DAW is what wages are provided to the employee.30 Once the wage items have been determined then in determining the DAW earned by the female employee during the period of 12 months or shorter period, any period where the employee was not paid her wages or full wages by reason of: (1) (2) (3) (4) any maternity leave, rest day, sickness day, holiday or annual leave taken by the employee; any leave taken by the employee with the agreement of her employer; her not being provided by her employer with work on any normal working day; or her absence from work due to temporary incapacity for which compensation is payable under s.10 of the Employees Compensation Ordinance (Cap.282) (ECO), and any wages paid to her during such period are to be disregarded.31

5.014

25 26 27 28 29 30 31

EO s.14(2). EO s.14(5). EO s.14(3A). EO s.14(3A). EO s.14(7). See Chapter 4 for a detailed discussion of what amounts to wages under the EO. EO s.14(3B).

MATERNITY LEAVE

153

If the amount of wages paid to a female employee in respect of a day is only a fraction of the amount earned by the employee on a normal working day, the wages and the day are to be disregarded in accordance with the above provision.32 The expression wages is dened broadly in the s.2 of the EO.33 DAW can generally be determined by the following formula: DAW = (W L Wages)/(365 L) where W is the wages earned by the employee in the preceding 12 months (or the shorter period if the employee has been employed for a period of less than 12 months), L is the disregarded days, L Wages is the amount of wages paid in respect of the L days. If for any reason it is impracticable to calculate the DAW earned by a female employee, the amount of maternity leave pay may be calculated by reference to the wages earned by a person who was employed at the same work by the same employer during the period of 12 months immediately before the female employees rst day of maternity leave, or, if there is no such person, by a person who was employed in the same trade or occupation and at the same work in the same district during the period of 12 months immediately before the female employees rst day of maternity leave.34 This may apply to a situation where the employee has received periodic payments under the ECO at four-fths of her normal earnings, or has taken unpaid leave for the entirety of the 12 months preceding maternity leave (and she would have worked and been paid wages but for having taken maternity leave).35 Time for payment of maternity leave. Maternity leave pay must be paid by an employer on the same day and in the same manner as he or she would have been required to pay wages to the female employee if she had not taken maternity leave and had continued in his employ.36 Offence and penalties. An employer who fails to pay maternity leave pay to an eligible pregnant employee is liable to prosecution and, upon conviction, to a ne at level 5, currently at HK$50,000.37 Other statutory leave occurring during maternity leave. Statutory rest days and statutory holidays occurring during paid maternity leave are counted as part of the maternity leave entitlement.38 The female employee will not be entitled to any additional rest day or statutory holiday, substituted holiday or additional holiday. However, where no maternity leave pay is paid to the female employee for a statutory holiday falling 5.015

5.016

5.017

32 33 34 35 36 37 38

EO s.14(3B). See Chapter 4 for a detailed discussion of what amounts to wages under the EO. EO s.14(3D). Note EO s.14(3A). EO s.14(4) and Pt V . EO s.15A; Criminal Procedure Ordinance (Cap.221) Sch.8, a ne at level 5 is for HK$50,000. EO s.12(11).

154

LEAVE ENTITLEMENT

within the maternity leave, she shall be paid holiday pay for that holiday provided that she has been employed under a continuous contract of employment for three months or more before the statutory holiday. Statutory maternity leave shall be granted in addition to statutory annual leave. 5.018 Payment in lieu of maternity leave. No payment of maternity leave pay or other sum may be made in lieu of the grant of maternity leave, except where the employer has unlawfully terminated the employment of the employee.39 (d) Prohibition against termination 5.019 Prohibition against termination after service of notice of pregnancy. The employer shall not terminate by way of notice or give notice to terminate the employment of a pregnant employee under a continuous contract of employment after she has served notice of pregnancy, until the date she is due to return to work on the expiry of her maternity leave or the date of cessation of pregnancy (otherwise than by reason of birth).40 In Hong Kong Ming Wah Shipping Co Ltd v Sun Min,41 the employee commenced employment on the mainland and had been continuously employed by various companies in the employers group of companies. She was seconded to Hong Kong, ultimately being transferred to work for the employer. Although she had no written contract, it was accepted that her contract of employment included an express power to enable the employer to transfer her back to the mainland subsidiary. After she notied the employer that she was pregnant, the employer purported to exercise its power to transfer her back to work for the mainland subsidiary and notied the Inland Revenue Department that her employment would cease and told her to report for duty in Shenzhen. She expressly refused the transfer, did not report for work on the appointed day and brought a claim, inter alia, for breach of s.15(1) EO and claiming payments under s.15(2) EO. The employer claimed that it had merely exercised its express power to transfer her to the mainland subsidiary, that this was an internal transfer and her failure to report for duty in Shenzhen was a repudiatory breach of contract by the employee. Therefore it was the employee, and not the employer, who terminated the contract. The presiding ofcer at the Labour Tribunal agreed with this analysis. The Court of First Instance held that the notice to transfer given to the employee amounted to a notice to terminate the employees employment with the employer. There was, therefore, a breach of s.15(1). The fact that the employer had the express power to transfer the employee to the mainland was not relevant. This conclusion was upheld by the Court of Appeal and the Court of Final Appeal dismissed the employers application for leave to appeal, holding that there was no basis for cutting down the protection offered by s.15 to exclude its application to situations where the employee has been offered alternative employment.

39 40 41

EO s.15C and s.15(2). EO s.15(1). (2006) 9 HKCFAR 49.

MATERNITY LEAVE

155

Employer may summarily dismiss a pregnant employee. However, an employer may summarily dismiss a pregnant employee where grounds exist to do so under s.9 of the EO.42 The onus is on the employer to demonstrate that he had grounds to terminate the employment of the employee under s.9.43 As such and given the consequences of getting things wrong,44 (as is normally the case) an employer should ensure that it has cogent evidence supporting its case for summary dismissal under s.9 before terminating a pregnant employees employment. In HKSAR v S Space Design (HK) Co Ltd,45 an employee was dismissed because she had not satisfactorily performed her duties. The employer did not provide any notice of termination or payment of wages in lieu of notice of termination pursuant to ss.6 and 7 of the EO. The Magistrate found that there was no basis for the employer to the termination on the grounds of unsatisfactory performance because another Tribunal had made an order that the employer compensate the employee for wrongful dismissal. In the circumstances, the termination by the employer was contrary to s.15(1) of the EO and the employer was convicted of an offence under that section. On appeal, the Court of First Instance held that there was no provision in the EO or anywhere else which provided that a wrongful dismissal pursuant to s.9 of EO was deemed to be a dismissal pursuant to s.6 or 7 of the EO. The Court of First Instance quashed the conviction. Section 15(1B) of the EO, enacted after this case, provides that the employer shall be taken as terminating an employee contrary to s.15(1) of EO unless the contrary is proved. In the case of criminal proceedings for breach of s.15(1) EO, the employer may demonstrate that at the time of termination he purported to terminate the employment of the pregnant employee under s.9 of the EO and he reasonably believed that he had grounds to do so. Employer may terminate a pregnant employee during the rst 12 weeks of probation. An employer is not prohibited from terminating the employment of a pregnant employee during the rst 12 weeks of a probation period for reasons other than pregnancy.46 Equally, the prohibition on termination of employment does not apply to a resignation by an employee and where the employer and employee mutually agree on the cessation of the employees employment because s.15(1) refers to termination by the employer or notice of termination given by the employer. This latter exception is important because it may be the only practical option available to an employer who wishes to transfer a group of employees (including a pregnant employee) to, say, a

5.020

5.021

42

43

44 45 46

EO s.9 deals with the circumstances in which an employer may terminate a contract of employment without notice or payment in lieu (e.g. wilful disobedience, misconduct, fraud or dishonesty, habitual neglect of duties). EO s.15(1B)(a), see Wan Wah Sum v Tai Hing Cotton Mill Ltd (unrep., HCLA 1/2000, 17 Feb 2000), the employee was summarily dismissed by the employer for the reason that he was involved in a ght with his colleague. The Court ruled that the employer has the onus to prove that the employee had in fact engaged in a ght with his colleague and Wu Lai Wah v Winner Co (Garments) Ltd (unrep., HCLA 88/1994), the Court held that summary dismissal is justiable as the employee fails to explain long periods of unauthorised absences, albeit she was employed on a no work no pay basis. In the case of criminal proceedings for breach of s.15(1) EO, the employer may demonstrate that at the time of termination he purported to terminate the employment of the pregnant employee under s.9 of the EO and he reasonably believed that he had a ground to do so: see EO s.15(1B)(b). See para 5.012. [1997] HKLRD 1320. EO s.15(1A). The employer will need to be able to demonstrate that it has not unlawfully discriminated against the employee on the basis of her pregnancy: see para 5.029.

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purchaser of a business or if the employer wishes to close down a business or part of a business that employs a pregnant employee. 5.022 Withdrawal of notice to terminate. If a pregnant employee has served notice of pregnancy on her employer immediately after being informed of the termination of her contract of employment, the employer shall immediately withdraw the termination or notice of termination in which event the termination or notice of termination shall be treated as if it had not taken place.47 The EO does not dene what period may be considered immediately after being informed of the termination of her contract of employment and this phrase has not received judicial interpretation. However, it is submitted that this should be a relatively short period (e.g. a matter of days and possibly a couple of weeks) adopting its ordinary meaning rather than any extended period (e.g. a month or more). Notice of pregnancy. The prohibition in s.15(1) applies when the employee has served a notice of pregnancy on the employer. There is no express requirement for the employee to provide a medical certicate certifying her pregnancy before the prohibition will apply. In s.15(1)(a) the prohibition on termination of employment applies in respect of the period from the date on which the employees pregnancy is conrmed by a medical certicate to the date on which she is due to return to work on the expiry of her maternity leave or the date of cessation of pregnancy. Therefore, the employee must provide a medical certicate to the employer to evidence the period of protection. The prohibition in s.15(1)(b) from giving notice of termination does not expressly require the employee to provide a medical certicate to evidence her pregnancy. However, s.15(1) applies in respect of a pregnant employee. The expression pregnant employee is dened in s.12A to mean a female employee whose pregnancy has been conrmed by a medical certicate. Consequences of breaching section 15(1). Any termination of employment by the employer in breach of the prohibition in s.15(1) of the EO is an offence and the employer shall be liable on conviction to a ne at level 6, currently at HK$100,000.48 Further, the employer shall also be liable to pay to the employee:49 (1) the sum which is payable if the contract had been terminated by the employer by payment of wages in lieu of notice (provided the employee has not received any such payment from the employer); a further sum equivalent to the monthly average of the wages50 earned by the employee during the 12 months immediately before the date of termination of the contract of employment (or if the employee has been employed for shorter than 12 months, such shorter period); and

5.023

5.024

(2)

47 48 49 50

EO s.15(1)(b). EO s.15(4); Criminal Procedure Ordinance (Cap.221) Sch.8, a ne at level 6 is for HK$100,000. EO s.15(2). See EO ss.15(2A)(2C) and (1D). The method of calculating the monthly average of the wages earned by the employee is similar to the method for calculating the daily average wages of the employee set out in s.14(3)(3D) of the EO. See also para 5.014.

MATERNITY LEAVE

157

(3)

where the employee is or would have been entitled to maternity leave pay,51 maternity leave pay for 10 weeks.

Section 2 of the EO denes employer to mean any person who has entered into a contract of employment to employ any other person as an employee and the duly authorized agent, manager or factor of such rst mentioned person. As such, the prohibition and penalties mentioned above may arguably apply to any staff of the employer acting in, say, a management position when terminating the employment of a pregnant employee. Where the employer is a corporate entity, the courts have been reluctant to lift the corporate veil and look to the individuals behind the corporate entity.52 Further, if the offence was committed with the consent or connivance of a director or other ofcer concerned in the management of the company, or any person purporting to act as such director or ofcer, the director or other ofcer shall be guilty of the like offence.53 Unlawful dismissal. An employee who is dismissed by her or his employer other than for a valid reason and in contravention of s.15(1) of the EO may make a claim for unlawful dismissal under Pt VIA of the Ordinance (dealing with employment protection) and, if successful, obtain (among other things) an award of compensation from the Labour Tribunal of up to HK$150,000.54 (e) Prohibition of assignment of heavy, hazardous or harmful work General. A pregnant employee may, on producing a medical certicate with an opinion as to her untness to handle heavy materials, or to work in places where gas injurious to pregnancy is generated or to do other work injurious to pregnancy, request her employer to refrain from giving her such work during her pregnancy period.55 Upon receiving such request the employer may not allocate the work specied in the medical certicate to the employee. If the employee is performing such work, the employer shall within 14 days after receipt of the request remove her from that work.56 There is no obligation on an employer to comply with an employees request to be transferred from heavy, hazardous or harmful work after her pregnancy period, whether due to birth or miscarriage. The EO does not state what work the employer may transfer the employee to perform. This will be governed by the terms of the contract of employment, both express and implied terms. Employer may request second opinion. Regardless of whether the medical certicate produced by the employee was issued by a registered medical practitioner or registered 5.026 5.025

5.027

51

52

53 54 55 56

maternity leave pay is dened as the pay in respect of maternity leave payable to a female employee under s.14 of the EO. See para 5.014. See Salomon v Salomon & Co Ltd [1897] AC 22; Kwok Chuck Sang v Hong Kong Security Guarding Services Ltd (unrep., HCLA 3/1999); China Ocean Shipping Co v Mitrans Shipping Co Ltd [1995] 3 HKC 123; Caesars Empire Karaoke v Lam Chuen Ip (unrep., HCA 4594/2003, 24 Mar 2004); Lee Thai Lai v Wong Chung Kai (unrep., HCLA 64/2003, [2003] HKEC 1465). Criminal Procedure Ordinance s.101E. EO s.32A, 32P. Please see Chapter 7 for details on Pt VIA of the EO regarding remedies for unlawful dismissal. EO s.15AA(1). EO s.15AA(2).

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Chinese medicine practitioner, an employer may, within 14 days upon receipt of the medical certicate, at her or his own expense, arrange for the pregnant employee to attend another medical examination conducted by a registered medical practitioner or registered Chinese medicine practitioner named by the employer to obtain a second opinion as to the pregnant employees tness to undertake the work at issue.57 The employer shall give the pregnant employee at least 48 hours notice of the medical examination and the medical examination shall be carried out within 14 days after the date of the receipt of the employees request not to assign her with heavy, hazardous or harmful work.58 5.028 Refusal by employee to attend medical examination. If the employee refuses to attend the medical examination arranged by the employer, or in the circumstances where the second medical opinion provides that the employee is t to handle heavy materials, work in places where gas injurious to pregnancy is generated, or do other work injurious to pregnancy, the employer may refer the employees request to the Labour Commissioner for appropriate action, including seeking further medical advice, to assist him in bringing about a determination. The Labour Commissioner may uphold the employees request, rule that the employees request is not supported or make such other rulings as he considers reasonable. The employer and the employee concerned shall comply with any determination made by the Labour Commissioner.59 Offences and penalties. An employer who without reasonable excuse fails to comply with the above requirements is liable to prosecution and, on conviction, to a ne at level 5, currently HK$50,000.60 In order for a defence to operate, the employer must prove that having regard to all the circumstances relating to the contravention, there was a reasonable excuse for failing to comply with the requirement. Effect on the calculation of DAW. If the earnings of the pregnant employee is affected as a result of the transfer away from heavy, hazardous or harmful work, the maternity leave pay61 shall be calculated on the basis of the DAW earned by the pregnant employee in the 12-month period (or if the employee has been employed by the employer concerned for a period shorter than 12 months immediately before her transfer from heavy, hazardous or harmful work, the shorter period) preceding the transfer.62 (f ) Records 5.031 Records. An employer who employs females shall maintain a record of maternity leave taken by and maternity leave pay paid to her or his female employees in the form specied by the Labour Commissioner.63

5.029

5.030

57 58 59 60 61 62 63

EO s.15AA(3) and (3A). EO s.15AA(4). EO s.15AA(5),(6) and (7). EO s.15A(2); Criminal Procedure Ordinance (Cap.221) Sch.8, a ne at level 5 is for HK$50,000. See para 5.014. EO s.15AA(8). EO s.15B.

STATUTORY HOLIDAYS

159

3. STATUTORY HOLIDAYS
(a) Entitlements to statutory holiday Entitlement to statutory holidays. An employee, irrespective of her or his length of service, is entitled to the following statutory holidays: (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) the rst day of January; Lunar New Years Day; the second day of Lunar New Year; the third day of Lunar New Year; Ching Ming Festival; Labour Day, being the rst day of May (except for year 1998); Tuen Ng Festival; Hong Kong Special Administrative Region Establishment Day, being the rst day of July; the day following the Chinese Mid-Autumn Festival; Chung Yeung Festival; National Day, being the rst day of October; and Chinese Winter Solstice Festival or Christmas Day (at the option of the employer).64 5.033 5.032

Substituted holiday or alternative holiday. Instead of granting an employee a holiday on a statutory holiday, an employer may decide unilaterally to grant an alternative holiday on another day in lieu of any statutory holiday provided the following conditions are met: (1) (2) (3) the alternative holiday must not be another statutory holiday or a substituted holiday (see below); the alternative holiday must be a day within 60 days before or following the statutory holiday; and the employer must notify the employee either orally or in writing or by notice posted in a conspicuous place in the place of employment of the alternative holiday on the earlier of (at least) 48 hours before the alternative holiday or statutory holiday.65

64 65

EO s.39(1). EO s.39(2); HKSAR v Yus Tin Sing Enterprises Co Ltd [2002] 1 HKC 491.

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The employer and the employee may alternatively agree another day, a substituted holiday, be taken instead of a statutory holiday or an alternative holiday provided the substituted holiday falls within the period of 30 days of such statutory holiday or alternative holiday.66 5.034 Statutory holidays must be not less than 24 hours where the employee is entitled to abstain from work. Although the denition of statutory holiday under the EO does not specify the period of a statutory holiday, Ribeiro PJ held in Leung Ka Lau v Hospital Authority:67 ... it is my view that the word holiday in the present context68 should be construed as bearing the same meaning, that is, as a day on which an employee is entitled to abstain from working for his employer and is free to spend as he sees t. That, in my opinion, is the natural and ordinary meaning of the word holiday. Ribeiro PJ continued at para 103 in providing declaratory relief to the plaintiffs: ... each such holiday consisting of a continuous period of not less than 24 hours during which they are entitled to abstain from working for the HA and that, in default of being granted such a holiday or a substituted or alternative holiday, they are entitled to damages to be assessed in an amount equivalent to a full days wages in respect of each missed holiday ... 5.035 Statutory holiday and rest day. Where a statutory holiday falls on a rest day,69 or in the case of an employee who is a young person, on a day on which, by virtue of the Employment of Young Persons (Industry) Regulations (Sub. Leg. Cap.57C), the employment of the employee in an industrial undertaking is not allowed, the employee shall be granted a holiday on the next day thereafter which is not a statutory holiday or an alternative holiday or a substituted holiday or a rest day. Where a statutory holiday falls on the same day as that of another statutory holiday, an employee shall be granted a holiday on the next day thereafter which is not a statutory holiday or an alternative holiday or a substituted holiday or a rest day.70 From a practical standpoint, it would be prudent for an employer to notify the employee of an alternative holiday and any agreed substituted holiday within the timeframe specied in writing even though the Court of Appeal in Tam Wai Mei v Cathay Pacic Airways Ltd71 had taken a pragmatic

66 67 68

69 70

71

EO s.39(3). (2009) 12 HKCFAR 924 at para 95. It is clear from the decision that the reference to holiday by Ribeiro PJ was to the 17 general holidays (excluding Sundays) under the General Holidays Ordinance which includes the 12 statutory holidays under the EO; it being agreed by the parties that the doctors were contractually entitled to the these 17 holidays, which were called public holidays in the relevant contractual documentation. Discussed at para 5.042. EO s.39(4); Fu Hong Choi v Ho King Restaurant Co Ltd (unrep., HCLA 131/1995, [1996] HKEC 364), the Court ruled that as statutory holidays were in addition to rest days, it was not open for an employer to offset an employees statutory entitlement to rest days against an employees corresponding right to be granted paid holidays. (unrep., CACV 232/2005, [2005] HKEC 1727).

STATUTORY HOLIDAYS

161

approach to the notication requirements under s.39. The plaintiff in the Tam Wai Mei case, was a former employee of Cathay Pacic Airways Limited, the defendant. She commenced proceedings against the defendant for failure to provide an additional statutory holiday which fell on her rest days. The plaintiff was employed on shift work working ve in every seven days. She received a regular roster specifying the dates upon which she was required to work. Those days where she was not required to work were marked off on the roster. The plaintiff, on occasions, worked on a statutory holiday and was not provided with an additional day off. The plaintiff claimed that the defendant had failed to comply with its statutory obligations under s.39 of the EO to provide her with either a statutory holiday off or a substituted or alternative holiday in return. The defendant, however, argued that the plaintiff had received 104 days off in each calendar year (being two days off in each week) which more than adequately compensated her for working on any statutory holiday. Both the Labour Tribunal and the Court of First Instance ruled in favour of the plaintiff and held that days off which the plaintiff had been granted by the defendant should be treated as statutory rest days granted under s.17 of the EO and the rest days cannot also be substituted or alternative holidays. The defendant appealed to the Court of Appeal who overturned the decisions of the Labour Tribunal and the Court of First Instance and stated that it could see no reason why the two off days in the roster should be treated as statutory rest days. Having reached this conclusion, the Court of Appeal then took a pragmatic interpretation of any notication requirements concerning alternative and substituted holidays under ss.39(2) and (3). Rogers CJ, who gave the leading judgment, said: The Presiding Ofcer appears to have approached the case on the basis that section 39(2) requires that the notice given to the claimant should have specied which of the off days marked on the roster were in lieu of each particular statutory holiday. In my view this is taking too narrow a construction of the Ordinance. It is not warranted by anything in the Ordinance. There is nothing to prevent the employer saying, in effect, to an employee You are entitled to a statutory a holiday next month. You will see from next months roster that I have required you to work on that statutory holiday but I have specied 4 days when you are not required to work, these you will see on the roster marked off. Which of those days you chose to regard as the alternative holiday for the statutory holiday is of no relevance either to you or me, the fact is that you have at least a day when you are not required to work. Since I cannot give you 4 days when you are not required to work, I will compensate you by paying you one working days pay in lieu. It seems to me that this course adequately complies not only with the letter of the Ordinance but, importantly, with the spirit of the Ordinance which requires the employer to inform the employee in writing when he or she will be given an alternative holiday in substitution that for a statutory or public holiday.72 The plaintiff has not appealed this decision.

72

(unrep., CACV 232/2005, [2005] HKEC 1727) at para 17.

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(b) Holiday pay 5.036 Entitlement to holiday pay. Not all employees are entitled to holiday pay. An employee having been employed under a continuous contract73 (i.e. under a contract of employment for four or more consecutive weeks and having worked for 18 hours or more in a week) for not less than three months immediately preceding a statutory holiday is entitled to statutory holiday pay.74 Therefore, there is no statutory requirement to pay statutory holiday pay in respect of any statutory holiday falling within the rst three months of an employees employment. Rate of holiday pay. The daily rate of holiday pay is a sum equal to the daily average of the wages earned by the relevant employee during the period of 12 months immediately before the holiday or rst day of the holidays (or the shorter period if the employee has been employed for a period of less than 12 months). See para 5.014 above on discussion regarding the determination of daily average wages. Time for payment of statutory holiday pay. An employer is obliged to pay statutory holiday pay to an eligible employee no later than the day on which the employee is next paid his wages after the statutory holiday, regardless of whether or not the employee takes a holiday on the statutory holiday or on an alternative or substituted holiday.75 There is an argument that if the employee worked the statutory holiday and is paid full wages or his daily average wages in respect of that day, then the employer has paid statutory holiday pay in respect of that statutory holiday, even if the employee receives less pay (e.g. has not received any variable pay) in respect of the alternative holiday because he has not worked that day. That is, there is no statutory obligation to pay statutory holiday pay in respect of an alternative or substituted holiday, except in accordance with s.40A(2). Section 40A(2) provides: where a contract of employment of an employee is terminated, holiday pay in respect of a holiday granted as an alternative holiday or substituted holiday under section 39(2), (2A) or (3) prior to the termination of the contract of employment but falling after such termination shall be paid to that employee as soon as is practicable but in any case not later than 7 days after the day of termination; and such holiday pay shall be calculated in accordance with section 41 as if the contract of employment had not been terminated (emphasis added). This would tend to support the argument mentioned above, because why would s.40A(2) need to be included if there were an obligation to pay statutory holiday pay in respect of an alternative or substituted holiday? 5.039 Offences and penalties. An employer who without reasonable excuse fails to grant statutory holidays, alternative holidays or substituted holidays, or fails to pay holiday

5.037

5.038

73 74 75

See para 5.003. EO s.40(3). EO s.40.

STATUTORY HOLIDAYS

163

pay to an employee is liable to prosecution and, upon conviction, to a ne at level 5, currently HK$50,000.76 Restriction on pay in lieu of holiday. An employer is prohibited from making a payment of holiday pay in lieu of the grant of a statutory holiday, substituted holiday or alternative holiday.77 However, where a contract of employment is terminated, holiday pay in respect of a substituted holiday or alternative holiday granted prior to the termination but falling after such termination shall be paid to the employee as soon as practicable and in any event, not later than seven days after the day of termination.78 Any employer who breaches the above obligations commits an offence and is liable to prosecution and, upon conviction, to a ne at level 5, currently HK$50,000.79 This offence is one of strict liability, i.e. one which may be committed without any requisite knowledge on the part of a person that an offence has been committed. (c) Statutory holidays interaction with general holidays General holidays. The General Holidays Ordinance (GHO) provides for the following 17 general holidays (in addition to every Sunday) which overlap with the 12 statutory holidays under the EO: (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) the rst day of January; Lunar New Years Day; the second day of Lunar New Year; the third day of Lunar New Year; Ching Ming Festival; Good Friday; the day following Good Friday; Easter Monday; Labour Day, being the rst day of May (except for 1998); Buddhas birthday; 5.041 5.040

76

77 78 79

EO s.63(4); Criminal Procedure Ordinance (Cap.221) Sch.8, a ne at level 5 is HK$50,000. In June 2009, a restaurant was ned HK$18,000 at the Fanling Magistrates Court for failing to grant statutory holidays for Christmas Day, the rst day of January and the second and third days of Lunar New Year to two employees; in Nov 2007, an employer was ned HK$10,400 at the Tsuen Wan Magistrates Courts for failing to grant two statutory holidays to four employees within the statutory time limit under the EO; in June 2006, an employer was ned HK$60,000 at the Fanling Magistrates Courts for failure to give holiday pay of ve statutory holidays to four employees within the statutory time limit under the EO. EO s.40A(1). EO s.40A(2). EO s.63(5). In April 2007, an employer was ned HK$20,000 at the Tsuen Wan Magistrates Courts for failure to grant statutory holidays of the National Day and Chung Yeung Festival to two employees and making payment to the two employees in lieu of granting statutory holidays; in Aug 2006, an employer was ned HK$44,000 for making payments in lieu of granting statutory holidays to eleven employees.

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(11) (12) (13) (14) (15) (16) (17)

Tuen Ng Festival; Hong Kong Special Administrative Region Establishment Day, being the rst day of July; the day following the Chinese Mid-Autumn Festival; Chung Yeung Festival; National Day, being the rst day of October; Christmas Day; and the rst weekday after Christmas.

An organisation that is not a bank, educational establishment, public ofce or government department is not obliged by the GHO to observe general holidays. The GHO does not oblige an employer who does grant general holidays to an employee to pay a certain minimum amount in respect of the general holiday (which is not a statutory holiday). The employer and the employee may agree on the amount of payment in respect of a general holiday (which is not a statutory holiday). An employer who does not clearly identify whether an employee is entitled to general holidays or only statutory holidays (e.g. describing it in the contract as public holidays) may nd that it may be agreeing to provide general holidays. In Leung Ka Lau v Hospital Authority80 the Human Resources Policy Manual, which formed part of the relevant doctors contract of employment, provided that all employees ... are eligible for ... public holidays. There was no dispute between the parties that public holidays was understood to cover the 17 specied holidays (leaving aside Sundays) under the GHO, which included the 12 statutory holidays under the EO. The Court of Final Appeal awarded declaratory relief that the doctors were entitled to be granted a statutory or public holiday on each of the 17 holidays listed in s.39 of the EO and in the GHO: Each such holiday consisting of a continuous period of not less than 24 hours during which they are entitled to abstain from working for the HA and that, in default of being granted such a holiday or a substituted or alternative holiday, they are entitled to damages to be assessed in an amount equivalent to a full days wages in respect of each missed holiday.81 Where an employer agrees to provide general holidays, it should also set out the circumstances when an employee may be required to work on a general holiday (which is not also a statutory holiday) and how the employee might be compensated (e.g. providing another day off) for having worked that holiday. This is because the GHO does not contain similar sections to the EO in relation to nominating an alternative holiday or agreeing a substituted holiday for a statutory holiday worked.

80 81

(2009) 12 HKCFAR 924. (2009) 12 HKCFAR 924 at para 103.

STATUTORY REST DAY

165

4. STATUTORY REST DAY

(a) Entitlement to statutory rest days Eligibility for rest day. Every employee who has been employed by the same employer under a continuous contract82 (i.e. under a contract of employment for four or more consecutive weeks and worked for 18 hours or more in a week) is entitled to be granted not less than one rest day in every period of seven days.83 An employee who works for less than 18 hours per week will not be entitled to any statutory rest day as he will not be employed under a continuous contract. Obligation to provide not less than one statutory rest day in every period of seven days. The obligation is to provide not less than one rest day in every period of seven days. As such, an employer may (and this may be inadvertent) grant more than one statutory rest day in every period of seven days. Each statutory rest day that an employer grants is subject to the obligations under the EO. For example, if an employer grants Saturdays and Sundays as statutory rest days, the obligations in relation to no compulsory work84 on a statutory rest day and the obligation to provide another holiday if a statutory holiday falls on a statutory rest day85 will apply in respect of both rest days. For employers who provide more than one day off work in every period of seven days, it is therefore prudent to expressly identify to the employee which day off is the statutory holiday and which day is a contractual day off. Furthermore, it is also prudent to set out in the contract of employment how any contractual day off may be used (e.g. it may be used as an alternative or substituted holiday in respect of any statutory holiday worked). Otherwise an employer may be faced with a similar style of argument made by the plaintiff in Tam Wai Mei v Cathay Pacic Airways Ltd,86 namely that both days off provided by the employer were statutory rest days and could not be used as an alternative holiday in respect of a statutory holiday worked by the employee. Employer should ensure 24 hours off work for a statutory rest day. A statutory rest day is dened as a continuous period of not less than 24 hours during which an employee is entitled to abstain from working for his employer.87 An employer should therefore ensure that the rest day granted to an employee is not less than 24 hours. Any period of time less than 24 hours will not qualify as a statutory rest day. Therefore, employers who operate a shift work system (e.g. morning and night shift) should ensure that the period between shifts equate to at least 24 hours. Another area where a dispute may arise is whether being on-call can be considered a period where the 5.042

5.043

5.044

82 83

84 85 86 87

See para 5.003. EO s.17(1); In Hang Fook Lau Seafood Restaurant v Kwok Sik Yuen [2001] 2 HKC 69, the contract of employment of the employees provided that they were allowed to take two rest days per month. The Court ruled that such provision is void by reason of s.70 of the EO as the employees entitlements were less than the statutory requirement. The Court held that the employees could not be regarded as working on the rest days voluntarily, as the employees had no choice whether to work or not. EO s.19(1). EO s.39(4)(a). (unrep., CACV 232/2005, [2005] HKEC 1727). EO s.2.

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employee is entitled to abstain from working for his employer within the denition of a rest day under the EO. 5.045 Leung Ka Lau v Hospital Authority. In Leung Ka Lau v Hospital Authority88 165 doctors sued the Hospital Authority for, among other things, failing to provide statutory rest days. The plaintiffs alleged that they were rostered to work on days which would have been their weekly statutory rest days (agreed by the parties to be a Sunday) in breach of s.19 of the EO. The doctors were rostered to be on-call after normal working hours until the beginning of work the next day, for example, the Saturday on call would be the period from 1pm Saturday (when the doctor nished normal work) to 9am Sunday (when the doctor commenced the next days work). Two types of on-call were identied. The rst, resident call, is where a doctor is required to be on-site (but entitled to utilise call-rooms for rest or sleep). The second is being on-call outside the hospital or non-resident call. While a doctor would essentially be free to go about her or his social family life while on-call outside the hospital, there were restrictionssuch as the doctor being required to be contactable and within 30-minutes of the hospital. Finally, doctors are sometimes required to undertake duty ward rounds after being on call for a period of 24 hours. The Court of Appeal held that doctors on residential call are to be considered as being at their place of work and working for the entire period whilst they are on such residential call. The Court of Appeal found that the Hospital had breached s.17 of the EO but not s.19. Subject to the exception contained in s.19(2),89 there would have been a breach of both sections if the doctor had to work on the rest day whether by rendering telephone advice that objectively could be said to constitute work or by actually returning to the hospital and where s.19(2) applied, a substituted rest day had not been given within 30 days thereafter. On appeal, Ribeiro PJ with whom the other Justices of the Court of Final Appeal agreed, considered the denition of rest day in s.2 of the EO and held: Clearly, when a doctor is on [non-resident] call, he is required to provide patient treatment should the need arise. He is not entitled to abstain from working for the HA. It follows that a day rostered on [non-resident] call cannot qualify as a rest day under the [Employment] Ordinance.90 5.046 5.047 Rest day and statutory holiday. Statutory rest days shall be granted in addition to any statutory holiday, alternative holiday or substituted holiday91 (see s.4 above). Appointment of rest days. Statutory rest days shall be appointed by the employer. The employer may grant different rest days for different employees.92 A statutory rest day may be granted on a regular or irregular basis. If the rest day is granted on an irregular basis, the employer shall, before the commencement of the month, inform each

88 89

90 91 92

(2009) 12 HKCFAR 924. An employer may require an employee to work on his rest day if it is necessary to do so by reason of a breakdown of machinery or plant or other unforeseen emergency of any nature. (2009) 12 HKCFAR 924 at para 82. EO s.17(2). EO s.18(1).

STATUTORY REST DAY

167

employee orally or in writing of her or his rest days in that month.93 The posting of a roster showing the days appointed to be rest days of each employee during the month in a conspicuous place in the place of employment would be sufcient.94 An employer may substitute another rest day for a rest day appointed for the month with the consent of the employee. The substituted rest day must be within the same month before the original rest day or within 30 days after the original rest day.95 If the rest day is granted on xed days on a regular basis, the employer does not need to inform the employee of her or his rest day every month in accordance with the above arrangement.96 Failure to grant a statutory rest day will entitle the employee to damages. In Leung Ka Lau v Hospital Authority97 the Court of Appeal upheld Stone Js ruling that a doctor on non-resident call on a rest day or statutory/public holiday but not called upon to provide patient treatment that day should only receive nominal damages for the breach by the Hospital Authority (HA) in providing the statutory rest day or statutory or public holiday; and a doctor who provided patient treatment as a result of having been called or contacted that day should be awarded damages for the entire lost rest day or holiday, giving credit for any whole day granted under the HAs Compensatory Leave Scheme. On appeal, the HA sought to defend the Court of Appeals decision in relation to nominal damages and argued that where a doctor rostered on-call is not in fact called upon to work, he or she is able to engage in her or his own activities on the relevant day without interruption and therefore suffered no loss so that nominal damages were appropriate.98 Ribeiro PJ, with whom the other Justices of the Court of Final Appeal agreed, held: That argument is, with respect, plainly fallacious. The doctors loss in such a case is the loss of a rest day, that is, of a day when he should have been entitled to abstain from working for the HA over a continuous 24-hour period. His complaint is that he was not granted such a day, being placed on-call instead. The fact that he may or may not actually have been required to treat any patient during that on-call day is beside the point. Missing a rest day involves a real and substantial loss. Nominal damages, which are awarded where there has been a breach but no actual loss,[35] are therefore quite inappropriate. The damages awarded should aim to place the doctor in the position he would have been in if the HA had duly granted him a rest day in accordance with its obligations under section 17. He should therefore, if practicable, be granted an alternative day off. Where this is impracticable, he is entitled to damages designed to compensate him for the entire day lost.99 Offences and penalties. An employer who without reasonable excuse fails to grant rest days to the employees or compels an employee to work on her or his statutory 5.049 5.048

93 94 95 96 97 98 99

EO s.18(2), 18(4). EO s.18(3). EO s.18(5). EO s.18(4). (unrep., CACV 57/2007, [2008] HKEC 111); see also (2009) 12 HKCFAR 924 at para 15. (2009) 12 HKCFAR 924 at para 84. (2009) 12 HKCFAR 924 at para 85.

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rest day is liable to prosecution and, upon conviction, to a ne at level 5, currently at HK$50,000.100 If the rest day is granted on an irregular basis and the employer fails to inform each employee orally or in writing of her or his rest days in that month before the commencement of the month the employer shall be guilty of an offence and shall be liable on conviction to a ne at level 3, currently at HK$10,000.101 (b) Work on rest days 5.050 Employer cannot require compulsory work on statutory rest days. An employer may not require an employee to work on a rest day unless it is necessary to do so in the event of a breakdown of machinery or plant or in any other unforeseen emergency.102 If an employee is required to work in these circumstances, the employer shall substitute another rest day within 30 days after the original rest day and must give notice of this substituted rest day to the employee within 48 hours after he or she is required to work.103 The EO does not dene the precise nature of the breakdown of machinery or plant or what may constitute an unforeseen emergency. An employee may be required to work on a statutory rest day provided it is because of the breakdown of machinery or plant. In terms of an emergency, this is quite broad, but to fall within the section the emergency must be unforeseen. So, a foreseeable shortage in labour requiring overtime work will not fall within s.19. Contractual provisions contracting out of statutory rest days void. Any condition in a contract of employment which makes the payment of any annual bonus, or any end of year payment or any proportion thereof, subject to working on rest days, is void.104 However, an employee may agree voluntarily to work on a statutory rest day, either at his or her own request or at the request of his or her employer.105 The agreement by an employee to work on a statutory rest day must be voluntarily given and there must be no element of compulsion, coercion or duress on the employee to work by the employer. In Hang Fook Lau Seafood Restaurant v Kwok Sik Yuen106 the employees were only allowed two rests days per month. The Court held that the arrangement resulted in less favourable treatment to the employees than that required under the EO and the contractual provision was void under s.70 of EO and the arrangement under the contract could not be regarded as a voluntary request to work on rest days. In (Hsin Kuang Restaurant Co Ltd v Yum Yue Wei)107 the Court held that it was not open for an employer to impose a condition that resulted

5.051

100

101 102

103 104 105 106 107

EO s.63(2); Criminal Procedure Ordinance (Cap.221) Sch.8, a ne at level 5 is for HK$50,000. In Jan 2006, an employer was ned HK$28,000 at the Kwun Tong Magistrates Courts for failing to grant two statutory holidays and rest days to two employees. In Sept 2005, an employer was ned HK$42,000 for failing to grant statutory holidays and rest days to ve employees for the period between Jan and Mar 2005. EO s.63D; Criminal Procedure Ordinance (Cap.221) Sch.8, a ne at level 3 is for HK$10,000. EO s.19(1) and 19(2); In Van Leuven Lode v Univan Ship Management Ltd (unrep., HCLA 29/2006, [2006] HKEC 1615), the employee alleged that he was forced to work on Sundays and public holidays. The Labour Tribunal rejected his claim as evidence showed that he had voluntarily agreed to work on those days. EO s.19(3). EO s.21. EO s.20. [2001] 2 HKC 69. (unrep., HCLA 9/2001, 19 July 2001).

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in employees being compelled to surrender their full entitlements to statutory rest days. In Pun Pabitra v Wong Kan Hing,108 the employee claimed, among other things, HK$4,000 in respect of 32 rest days between 9 June 1996 to 12 January 1997. The Court of First Appeal held that working on a rest day on a voluntary basis does not mean a gratuitous basis and its voluntary nature connotes the absence of duress or coercion and does not entail working without pay. Section 40A does not bar payment of wages for work on a rest day but only prohibits payment of wages in lieu of holiday, which includes a rest day. The EO does not stipulate the wages which must be paid for work on a rest day, which is a matter for agreement between the employer and the employee. Offences and penalties. An employer who, without reasonable excuse, compels his employees to work on their rest days is liable to prosecution and, upon conviction, to a ne at level 5, currently at HK$50,000.109 (c) Rest day pay Rest day pay is subject to agreement between the parties. The EO is silent as to whether a statutory rest day is paid or not. As such, whether a statutory rest day is paid or unpaid is a matter for agreement between the employer and her or his employee.110 5.053 5.052

5. SICK LEAVE
(a) Entitlement to sickness allowance Accrual of paid sickness days. An employee accrues paid sickness allowance at the rate of two paid sickness days for each completed month of the employees employment under a continuous contract111 with his employer during the rst 12 months of such employment, and four paid sickness days for each such month thereafter up to a maximum of 120 sickness days.112 An employee must be in continuous employment113 with his or her employer for at least one month immediately preceding a sickness day to be entitled to sickness allowance.114 Sickness allowance will continue to accrue so long as the employee remains in continuous employment with the employer. So, if the employee takes unpaid leave or even while the employee is on sick leave, provided the employee 5.054

108 109 110

111 112 113 114

(unrep., HCLA 30/1997, 16 Sept 1997). EO s.63(2); Criminal Procedure Ordinance (Cap.221) Sch.8, a ne at level 5 is for HK$50,000. In Wong Pui Tuen v Crown Motors Ltd (unrep., HCLA 108/2003, [2004] HKEC 1440), the claimants, who were former employee of the defendant, commenced proceeding in the Labour Tribunal for, among all other things, compensation for rest day they worked. The Presiding Ofcer dismissed their claim. On appeal, the Court ruled that none of the provisions in the EO on rest day requires the employer to make compensation payment to an employee for her or his work on rest days. The question of rest day pay is essentially a matter of contract between the employer and the employee. See para 5.003. EO s.33(2). See para 5.003. EO s.33(1).

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remains in continuous employment,115 the employee will continue to accrue sickness allowance. However, the sickness allowance that accrues while the employee is taking statutory sick leave (the current sick leave) may not be taken by the employee until after the employee has returned to work from the employees current sick leave.116 5.055 Sickness allowance only available for employees own injury or sickness. A sickness day is dened in the EO as a day on which an employee is absent from work by reason of his being unt on account of injury or sickness.117 So, to qualify as a sickness day, the absence must be because of the employees sickness and not, say, because the employee is required to take time off to care for a family member who is sick. The EO also deems certain other types of absences to be a sickness day. Any day on which a female employee who is pregnant or who has given birth to a child is required to attend a medical examination in relation to her pregnancy or post connement medical treatment is deemed to be a sickness day.118 Also, any day on which a female employee is absent from work by reason of a miscarriage is deemed to be a sickness day.119 An employee who takes sick leave and qualies for sickness allowance but voluntarily works from home is not entitled to demand payment at the full rate of pay (as opposed four-fths of wages) in respect of that sickness day from the employees employer.120 Eligibility for sickness allowance. An employee will be entitled to statutory sickness allowance if the following requirements are met: (1) (2) (3) the employee has worked under a continuous contract with the employer for one month or more;121 the days taken by the employee are sickness days;122 the employee takes four or more consecutive sickness days.123 Any sick leave taken by an employee less than four or more consecutive days will be unpaid. An exception to this four-day rule where sickness allowance would be payable from the rst day of sickness is: (a) Where a female employee who is pregnant or who has given birth to a child and is required to attend a medical examination in relation to her pregnancy or post connement medical treatment, any day on which she is absent from work for such examination or treatment,124 and

5.056

115 116

117 118 119 120 121 122 123 124

See Chapter 2. See EO s.33(4) which provides that an employee will be entitled to paid sickness allowance for the total number of sickness days taken by him, but not exceeding the number of paid sickness days accumulated by him ... immediately before the commencement of the sickness days taken by him. That is, any sick leave accrued during the current sick leave taken by an employee would not have been accumulated by the employee before the commencement of the of the [current sick leave]. EO s.2. EO s.33(3A). EO s.33(3B). Suzuya International (HK) Co Ltd v Chung Chun Hei (unrep., DCCJ 5251, 6016/2004, [2007] HKEC 438). EO s.33(1). EO s.2, ss.33(3A), (3B) and (3C), see para 5.050. EO s.33(3). EO s.33(3A).

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(b) (4) (5) (6)

Where a female employee suffers a miscarriage, any day on which she is absent from work by reason of such miscarriage,125

The employee has accumulated a sufcient number of paid sickness days immediately before the commencement of the sickness days taken,126 The sick leave is supported by an appropriate medical certicate,127 and None of the circumstances where an employer is not required to pay sickness allowance set out in s.33(5) of the EO apply.128 5.057

Circumstances where employer is not required to pay sickness allowances. An employer is not liable to pay sickness allowance to an employee in respect of a sickness day in the following situations: (1) If the sickness day is not supported by an appropriate medical certicate issued by the registered medical practitioner, registered Chinese medicine practitioner or registered dentist certifying the employee as being unt for work on account of sickness or injury.129 An employee is entitled to submit a medical certicate from a registered medical practitioner, registered Chinese medicine practitioner or registered dentist of her choosing for sick leave falling within Category 1 (i.e. the rst 36 days).130 So, any term or condition in the employees contract of employment requiring the employee to provide a medical certicate from a medical practitioner, Chinese medicine practitioner or dentist of the employers own choosing before being entitled to statutory sickness allowance may be void under s.70 of the EO. If the employer is operating a recognised scheme of medical treatment, the employee at any time during the sickness or injury, unless he or she is a patient in a hospital, refuses without reasonable excuse to submit for treatment under the scheme.131 If the employee has a reasonable excuse then the employee will not be required to submit for treatment. If the employer is operating a recognised scheme of medical treatment, the employee disregards, without reasonable excuse, the advice of the employers registered medical scheme medical practitioner, registered Chinese medicine practitioner or registered dentist, or the advice of a registered medical practitioner, registered Chinese medicine practitioner or registered dentist who is attending the employee in a hospital.132 Again, if the employee has a reasonable excuse, the employee may disregard the medical advice.

(2)

(3)

125 126 127 128 129 130 131 132

EO s.33(3B). EO s.33(4), see para 5.049. EO s.33(5), see para 5.064. See para 5.052. EO s.33(5)(a). See para 5.064. EO s.33(5)(b). EO s.33(5)(c).

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(4)

If the untness for work of the employee is caused by the employees serious and wilful conduct.133 The EO does not provide guidance on what conduct may fall within this exception other than it must be serious and wilful. Some guidance may be provided by cases134 dealing with s.5(3) of the ECO which uses a similar phrase, serious and wilful conduct.135 What is clear from these cases, starting from, Yuen Yuk Ying v Chan Kam Wing, is that where the duties involve driving, the courts will interpret serious and wilful misconduct as no tolerance for impairment by drugs or alcohol.136 If the untness for work of the employee is on account of any injury or occupational disease in respect of which compensation is payable in accordance with the ECO.137 An employees entitlement to compensation under the ECO will take precedence over any entitlement to sickness allowance. An employee will continue to accrue sickness allowance over any period the employee is receiving compensation under the ECO and may take such sick leave after the employee has ceased receiving compensation under the ECO. If the employee has received holiday pay in respect of that sickness day.138 An employee who has been employed by her or his employer under a continuous contract for a period of three months immediately preceding a statutory holiday (except for an employee on maternity leave) shall be paid statutory holiday pay.139 So, an employee will be entitled to statutory sickness allowance in respect of any eligible sickness day taken during the second and third month of employment and will be entitled to statutory holiday pay in respect of any statutory holiday falling within a period of sickness after the employees third month of continuous employment.140 The amount of statutory holiday pay payable to an employee is higher than statutory sickness allowance.141

(5)

(6)

133 134

135

136

137

138 139 140 141

EO s.33(5)(d). Yuen Yuk Ying v Chan Kam Wing (unrep., CACV 126/1996, [1996] HKLY 718); Ma Shiu Wai v Chun Fai Container Transportation Co Ltd (unrep., DCEC 877/2002, [2003] HKEC 1463); Chan Ka Leung Bee v Golden Island Metal Manufactory Ltd (unrep., DCEC 813/2003, [2005] HKEC 567). Section 5(3) of the ECO provides: In any proceedings under this ordinance where it is proved that the injury to an employee is attributable to the serious and wilful misconduct of the employee or that an injury by accident arising out of and in the course of his employment is deliberately aggravated by the employee, any compensation claim in respect of that injury shall be disallowed except that where the injury results in death or serious incapacity the court on consideration of all the circumstances may award the compensation provided by this ordinance or such part thereof as it shall think t (emphasis added). (unrep., CACV 126/1996, [1996] HKLY 718), per Godfrey JA at para 9 citing with approval the quoted sentence from a Canadian decision, namely, Decision No. 763191 (1994) WCAT Rep 45 (a decision of a Workmens Compensation Act Tribunal panel). EO s.33(5)(e), For example, under s.10(1) of the ECO where the employee suffers temporary incapacity as a result of the injury, the employee will be entitled to (among other things) periodical payments at a rate proportionate to monthly payment of four-fths of the difference between the monthly earnings which the employee was earning at the time of the accident and the monthly earnings which he is earning, or is capable of earning, in some suitable employment or business during the period of the temporary incapacity after the accident. An employee may receive periodical payments for a period of 24 months from the commencement of the temporary incapacity or for a further period not exceeding 12 months as extended by a Court, after which the employee shall no longer be entitled to periodical payments but shall be deemed to have suffered permanent incapacity: s.10(5) ECO. EO s.33(5)(f ). EO s.40. See para 5.033. See para 5.034.

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Sickness allowance is only payable in respect of a day on which the employee is required to work. Not all days certied in a medical certicate submitted by an employee will qualify as a sickness day. The EO clearly provides that an employer will not be obliged to pay sickness allowance in respect of a sickness day for which he or she has received holiday pay. What about if the employees medical certicate certies the employee as being sick on a rest day such as Saturdays and Sundays, for an employee who is usually provided with these days off work? Is the employer obliged to pay sickness allowance in respect of these days? The issue was considered in Suzuya International (HK) Co Ltd v Chung Chun Hei.142 In that case, the employee was paid a monthly salary each month. It was not in dispute that the method of calculating a days pay was to take the monthly salary and divide it by the calendar days in the month, which meant that the employee was paid for every day during the month, even on those days on which she did not work.143 The Court was required to determine whether the employee was entitled to the full amount of a days pay in respect of a sickness day falling on a rest day or four-fths of that days pay in accordance with the EO formula for statutory sickness allowance. In this regard, the Court said: To put it simply, sickness allowance is pay made to an employee on a sickness day (see generally Part VII of the Ordinance). Sickness day is dened under Section 2(1) of the Ordinance to mean a day on which an employee is absent from his work by reason of his being unt therefor on account of injury or sickness. This denition presupposes there is the need to work that day. The corollary is that when there is no need to work, then that day does not qualify as a sickness day and considerations of sickness allowance are irrelevant. The Defendant is entitled to full (and not only 4/5) daily pay for rest days and holidays (when there is no need to work) within the sick leave period covered by sick leave or medical certicates.144 A difculty which was not addressed in the Suzuya case is how an employee is able to satisfy the requirements in s.33(4) (which provides that an employee is required to take four or more consecutive days as sickness days before being entitled to be paid a sickness allowance) if a day where the employee is not obliged to work does not qualify as a sickness day. Adopting the reasoning in the Suzuya case a statutory holiday or rest day could serve to break the requirement to have four or more consecutive days as sickness days. This would be a strange result and is contrary to actual practice by the majority of employers in Hong Kong. Deduction of sickness days. Section 33(4A) of the EO provides that the number of sickness days in respect of which an employee has been paid sickness allowance shall be deducted in accordance with s.37(1B)145 from the total number of sickness days accumulated by the employee. Any unpaid sick leave granted to an employee may not be deducted from the employees balance of accumulated paid sickness days. Also, if

5.058

5.059

142 143

144 145

(unrep., DCCJ 5251, 6016/2004, [2007] HKEC 438). It should be noted that this case was decided based on the law before the commencement of the Employment (Amendment) Ordinance 2007. (unrep., DCCJ 5251, 6016/2004, [2007] HKEC 438) at para 54. See para 5.067.

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an employer provides more generous benets than required under the EO and pays the employee for sick leave taken which is not four or more consecutive days, such days would not be days on which the employee has been paid sickness allowance and therefore the employer may not deduct these days from the employees accumulated sick leave balance. (b) Sickness allowance 5.060 Rate of sickness allowance. The daily rate of sickness allowance is four-fths (i.e. 80 per cent) of the daily average of wages earned by the employee during the period of 12 months immediately before the commencement of the sickness day or rst sickness day, or if the employee has been employed for a period shorter than 12 months immediately before the commencement of her sickness day or rst sickness day, such shorter period.146 The determination of daily average wages is discussed at para 5.014 above. Time for payment of sickness allowance. Except in the case of an employee who is normally paid her or his wages daily, sickness allowance shall be paid to the employee or her or his duly appointed agent not later than the day on which the employee is next paid his wages.147 In the case of an employee who is normally paid her or his wages daily, sickness allowance shall be paid to her or him or the duly appointed agent at least once in every seven days.148 Sickness allowance payable where employee is terminated on a sickness day. Where an employer terminates a contract of employment of an employee on any sickness day taken by the employee, the employer shall, notwithstanding the termination of the contract of employment, pay to that employee sickness allowance for the total number of sickness days in respect of which the employee would have been entitled to be paid sickness allowance, subject to compliance with the usual provisions149 relating to the payment of sickness allowance, as if the contract of employment had not been terminated.150 The employee will need to comply with the usual obligations to be entitled to sickness allowance, such as tendering the requisite medical certicate. It is unclear whether the period for which the employee would be paid sickness allowance post-termination of employment pursuant to s.33(4C) is required to be one continuous period or whether the employee may receive sickness allowance in separate periods until the employees balance of accrued sick leave has been exhausted. The better argument (and perhaps more commercial approach) would appear to be the former.151

5.061

5.062

146 147 148 149

150 151

EO s.35(2). EO s.36(1); see also Chapter 4 for details on timing for payment of wages. EO s.36(2). The usual requirements are that the employee must take four or more consecutive days as sickness days, the employee has accumulated a sufcient number of paid sickness days immediately before the commencement of the sickness days taken and the sick leave is supported by an appropriate medical certicate. See para 5.055. EO s.36. If it was the case that an employee could supply medical certicates certifying broken periods of four or more sickness days to be entitled to sickness allowance, then arguably, the employee could continue to do this, say, two to three years after her or his employment has ceased with the employer until he or she has exhausted his sick leave balance.

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175

The words of s.33(2) of the EO would suggest that the employee would not continue to accrue sickness allowance in respect of the period of sick leave taken after the cessation of employment with the employer as the employee will not be employed under a continuous contract with the employer during the period for which the employee is receiving sickness allowance post-termination of employment. An employer would not be obliged to pay statutory sickness allowance to the employee if the employees employment was terminated during the rst three days of sickness after the termination of the employees employment, assuming that the employee takes in total no more than three consecutive sickness days. However, the risk with terminating the employment of an employee during the rst three sickness days of sickness is that the employee may extend his or her sickness days so that he or she takes four or more consecutive sickness days thereby triggering the entitlement to statutory sickness allowance. This would place the employer in breach of s.33(4B) which prohibits an employer from terminating the employment of an employee on a sickness day taken by the employee (other than in accordance with s.9 of the EO) in respect of which sickness allowance is payable.152 Liability for failing to pay sickness allowance to eligible employee. An employer who fails to pay sickness allowance to an eligible female employee who takes sick leave (a) in respect of a medical examination in relation to her pregnancy or post connement medical treatment or (b) where the employee is absent from work by reason of a miscarriage is liable to prosecution and, upon conviction, to a ne at level 5, currently at HK$50,000.153 The offence is one of strict liability, and can be committed without any requisite knowledge on the part of an employer that an offence has been committed. An employer who without reasonable excuse fails to pay to any employee any sickness allowance payable under s.33 shall be guilty of an offence, liable on conviction to a ne at level 5.154 This offence is not one of strict liability as a defence is available if the employer can demonstrate a reasonable excuse for the failure to pay the sickness allowance. (c) Prohibition against termination Prohibition against termination. It is unlawful for an employer to terminate the employment of an employee, otherwise than pursuant to s.9 of the EO, on any sickness day taken by the employee in respect of which statutory sickness allowance is payable.155 This restriction does not prohibit an employer summarily dismissing the employee for gross misconduct or terminating the employment of an employee who is taking sick leave in excess of the minimum required under the EO. This restriction also does not prohibit an employer terminating the employment of an employee by payment of wages in lieu of notice on any day during the rst three sickness days taken by an 5.064 5.063

152 153

154 155

See para 5.059. EO s.15A(1)(c); Criminal Procedure Ordinance (Cap.221) Sch.8, a ne at level 5 is for HK$50,000. In Oct 2005, an employer was ned HK$12,000 at the Shatin Magistrates Courts for failing to pay the full amount of sickness allowance to an employee on the normal pay day as required by the EO. The amount of sickness allowance involved was about HK$11,000. EO s.63(4)(b)(i). EO s.33(4B).

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employee because the employee will not be entitled to sickness allowance in respect of any of these days, unless the employee takes four or more consecutive sickness days. However, given s.33(4C) of the EO provides the employee with an entitlement to statutory sickness allowance even after the termination of the employees employment, terminating the employment of an employee on any of the rst three sickness days would be risky because the employee could end up taking four or more consecutive sickness days which would then entitle the employee to statutory sickness allowance. This in turn would place the employer in breach of s.33(4B). The prohibition in s.33(4B) does not restrict an employer giving the employee notice of termination to expire on the latter of the employee returning to work from statutory sick leave and the expiry of the contractual notice period. In this regard s.33(4B) can be contrasted with the prohibition in s.15(1) of the EO which does prohibit an employer from giving notice of termination to an employee after the employee has given notice of her pregnancy to the employer. An employee cannot turn a working day into a sickness day by obtaining a medical certicate after she has been summarily dismissed.156 5.065 Presumption that termination of employment on a sickness day is not in accordance with s.9. An employer who terminates the continuous contract of employment of an employee on any sickness day taken by the employee in respect of which sickness allowance is payable shall be taken for the purposes of s.33(4B) to terminate the contract otherwise than in accordance with s.9 unless the contrary is proved.157 This places the onus on the employer to demonstrate that it had grounds to terminate the employees employment under s.9. It is insufcient, in civil proceedings, for the employer to merely demonstrate that it reasonably believed that it had a ground to terminate the employees employment under s.9. However, in criminal proceedings, the employer will be taken for the purposes of s.33(4B) to terminate the contract otherwise than in accordance with s.9 unless the employer proves that it purported to terminate the contract of employment in accordance with s.9 and at the time of such termination the employer reasonably believed that it had a ground to do so.158 Offences and penalties. An employer who terminates an employee on a sickness day on which the employee is entitled to sickness allowances will be liable to pay to the dismissed employee statutory compensation being (a) the sum which would have been payable if the contract had been terminated by payment in lieu of notice and (b) a further seven days wages calculated by reference to the employees daily average wages.159 The employee may also be entitled to sickness allowance for the total number of sickness days for which the employee is entitled to be paid under the EO.160 Further, the employer is liable to prosecution and, upon conviction, to a

5.066

156 157 158 159 160

Sin Bik Yin v Carat Jewellery Ltd (unrep., HCLA 49/2004, [2005] HKEC 801). EO s.33(4BAA)(a). EO s.33(4BAA)(b) and (4BAB). See para 5.014. EO s.33(4BA). EO s.33(4C); see also para 5.057.

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ne at level 6, currently at HK$100,000.161 The offence is one of strict liability, i.e. one which may be committed without any requisite knowledge on the part of an employer that an offence has been committed. In addition, the employee may bring a claim for unlawful termination under Pt VIA of the EO and claim compensation (currently up to a maximum of HK$150,000) under s.32P of the EO. (d) Record keeping Obligation of the employer. An employer shall keep a record of: (1) (2) (3) (4) the date of commencement and termination of employment of each employee; all paid sickness days accumulated by each employee split into Category 1 and Category 2;162 all paid sickness days taken by each employee; and all sickness allowances paid to each employee and the sickness days in respect of which sickness allowances were paid.163 5.068 5.067

The two categories of paid sickness days. The record required to be kept by an employer regarding all paid sickness days accumulated by each employee must contain the following heads and details:

Category 1the rst 36 days of the accumulated paid sickness days, and Category 2every paid sickness day in excess of 36 days but the number of paid sickness day shall be capped at 84 days.164

Employer may request an employee who takes Category 2 paid sickness days to produce, in respect of each such sickness day, a medical certicate that is issued by a registered medical practitioner, registered Chinese medicine practitioner or registered dentist attending the employee as an out-patient or in-patient in a hospital.165 Updating the record. An employee shall sign the entry in the record kept by the employer as soon as practicable and in any event not later than seven days after her or his return to work after a sickness day.166 The employees entitlement to paid sickness days shall be rst deducted from the total number of paid sickness days in Category 1. 5.069

161

162 163 164 165 166

EO s.33(4BB); Criminal Procedure Ordinance (Cap.221) Sch.8, a ne at level 6 is for HK$100,000. In Sept 2004, an employer who failed to pay, among other things, sickness allowance to a foreign domestic helper was ned HK$8,000. The employee was granted sick leave from 30 Jan to 27 Feb 2004. He submitted a sick leave certicate on 14 Feb but was dismissed on 18 Feb. The employer failed to pay the employee the balance of sickness allowance. See para 5.064. EO s.37(1). EO s.37(1A). EO s.33(5A). EO s.37(2).

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If the total sickness days exceed 36 days, the excess sickness days shall be deducted from Category 2.167 5.070 Inspection of record. An employee shall be entitled to inspect the part of the record which relates to her or him at any reasonable time during working hours. If the employment is terminated, the employee may inspect the part of the record which relates to her or him at any reasonable time during working hours within two months of the date of termination.168 Missing record. If an employer fails to maintain a record in relation to the sickness days of the employees or if the record is lost or destroyed, the employee shall, notwithstanding any sickness allowance paid to him or her be entitled to be paid sickness days for each completed month of his or her employment in accordance with para 5.054 above.169 Records to be produced to the Commissioner. The Commissioner for Labour may by written notice served by registered post or by notice in the Gazette require any employer or class of employers to send to her or him all or any records of sickness days in respect of any period not exceeding two years preceding the date of the notice.170

5.071

5.072

6. ANNUAL LEAVE
(a) Entitlement to annual leave 5.073 Statutory annual leave and contractual annual leave. The EO provides that an employee who has been employed under a continuous contract for not less than 12 months will be entitled to statutory annual leave and statutory annual leave pay in accordance with the EO.171 An employer may provide contractual annual leave to an employee in excess of the statutory minimum on such terms as the employer determines. Where an employer is unable to distinguish between statutory annual leave and the more generous contractual annual leave, the employer is at risk of a court nding that all annual leave provided to the employee shall be treated in accordance with the minimum requirements relating to statutory annual leave under the EO.172 So, for example, an employer may be required to calculate annual leave pay in accordance with the statutory formula (i.e. using daily average wages) for contractual annual leave or be required to allow an employee to carry over contractual annual leave from one leave year to the next. As such, if an employer intends to treat statutory annual leave differently to contractual annual leave, it should clearly distinguish between them and their different treatment.

167 168 169 170 171 172

EO s.37(1B) and 37(2). EO s.37(2). EO s.37(3). EO s.38. EO s.41AA(1). For example, Kwan Siu Wa Becky v Cathay Pacic Airways Ltd (unrep., LBTC 2827, 2828, 2829/2008, [2009] HKEC 924).

ANNUAL LEAVE

179

Entitlement to statutory annual leave. An employee who has been employed under a continuous contract (i.e. under a contract of employment for four or more consecutive weeks and worked for 18 hours or more in a week) for not less than 12 months shall, in respect of each leave year (see para 5.075 below), be entitled to statutory annual leave for each period of 12 months employment as follows:173 Period of employment At least 1 year but less than 3 years At least 3 years but less than 4 years At least 4 years but less than 5 years At least 5 years but less than 6 years At least 6 years but less than 7 years At least 7 years but less than 8 years At least 8 years but less than 9 years At least 9 years Number of days annual leave 7 8 9 10 11 12 13 14

5.074

In the circumstances, employees will have accrued and be entitled to take statutory annual leave only after completing 12 months of service. The EO provides for two exceptions, namely: (1) (2) the employer has adopted a common leave year (see para 5.075 below); the contract of employment is terminated before the rst 12 months period and the employee has completed not less than three months service (see paragraph 5.077 below). 5.075

Leave year. For the purposes of calculating the period of employment of the employee, a leave year may either be: (1) (2) the anniversary of each employees employment; or the common leave year determined by the employer.

The employer may, at her or his option, elect to use a 12 month period determined by him as the leave year for the purpose of calculating the annual leave for all his employees.174 This is known as a common leave year. Should the employer wish to make this arrangement, he shall give one months notice to each of her or his employees in writing or by posting a notice in a conspicuous place in the place of employment stating her or his intention to make the election, the 12-month period he or she intends to elect to use and the date from which he or she will commence using it.175 It is not uncommon for an employer in Hong Kong to adopt a common leave year. This will

173 174 175

EO s.41AA(1) and 41AA(2). EO s.41AB(1). EO s.41AB(2).

180

LEAVE ENTITLEMENT

usually mean that an employee on commencement of employment with the employer part way through the common leave year will need to have her or his annual leave entitlement pro rated to align with the common leave year. This should be expressly set out in the contract of employment. (b) Granting of annual leave 5.076 Granting of annual leave. An employee is entitled to statutory annual leave only after completion of the 12 months of service. Under the EO statutory annual leave is required to be taken in the leave year following its accrual.176 However, in practice, it is not uncommon for an employer to allow an employee to take annual leave in the leave year in which it accrues. If the request to take annual leave is made by the employee, then there should be little risk to the employer for not granting statutory annual leave in the year following its accrual. But an employer may not force an employee to take statutory annual leave in the year of its accrual. One exception is where the employer adopts a common leave year and the employee accrues pro rata annual leave during the leave year, he or she may elect (after consultation with the employer) to take that pro rata annual leave or carry it forward and combine it with her or his leave entitlement for the rst full leave year.177 Any provision in a contract of employment that obliges an employee to take statutory annual leave in the year that it accrues against her or his wishes is likely to be void under s.70 of the EO. An employer is entitled to determine when annual leave is to be taken after consulting with the employee or her or his representative and giving not less than 14 days notice in writing to the employee of the time that it has selected (unless a shorter period has been agreed with the employee).178 One exception to this is where the relevant statutory annual leave has not been taken in the year following its accrual. In these circumstances, the employee may elect to take the statutory annual leave or be paid a payment in respect of the statutory annual leave.179 Statutory annual leave shall be granted for an unbroken period.180 However, if the employee requests, annual leave can be divided as follows: (1) where leave entitlement does not exceed 10 days, up to three days of the leave entitlement can be granted on separate days and the balance must be taken consecutively; and where leave entitlement exceeds 10 days, seven days of the leave entitlement shall be granted consecutively while the balance could be granted on separate days.181

(2)

176 177 178

179 180 181

EO s.41AA(5)(a). EO s.41AB(3) and (4). EO s.41AA(3) and 41AA(4); In Chan Lok Mei v Sze Chi Sing (unrep., HCME 9/1995, [1996] HKEC 29), the Court ruled that as the employer had not provided written notice to the employee as to which days were to be taken as annual leave, the employer could not unilaterally declare that school holidays taken were to be regarded as annual leave. Notice should be given in advance of the leave. EO s.41AA(8); see also para 5.074 above. EO s.41AA(5)(b). EO s.41AA(5).

ANNUAL LEAVE

181

Pro rata annual leave. If an employee has not been employed for 12 months in the common leave year (see para 5.075 above), the employer should calculate the employees leave entitlement on a pro rata basis, and any fraction of a day resulting from the calculation should be counted as a full days leave.182 After consultation with his employer, the employee may opt to take the pro rata annual leave accrued preceding the commencement of the common leave year or carry it forward and combine it with his leave accrued in the next full leave year.183 Similarly, where the employer commences to operate a common leave year, any pro rata annual leave upon commencement of the common leave year will also be treated in the same manner.184 Accrued but unused annual leave in a leave year. Where an employer has not granted annual leave in the year following its accrual then, at the option of the employee, the employer shall either: (1) pay to the employee, in addition to any pay due to her or him, annual leave pay which the employee would have received had the leave been granted so as to end on the expiration of the leave year when the annual leave should have been taken; or grant the employee paid annual leave equal to the leave which should have been granted.185

5.077

5.078

(2)

If the employee opts to take paid annual leave, the leave shall be taken on such day or days as may be agreed to by the employer and her or him, and if there is no agreement, the annual leave shall be taken on such day or days as specied by the employer.186 It is clear from s.41AA(8) that the employee is entitled to elect whether to take the leave or receive a payment in lieu of taking such leave. Thus, an employer cannot compel the employee to take the relevant annual leave. For example, statutory annual leave accrued in 2008 (assuming a calendar year being the common leave year) should be taken in 2009. At any time during 2009 the employer can direct the employee to take the statutory annual leave accrued in 2008 by consulting with the employee and (if no agreement is reached) giving not less than 14 days written notice to the employee of when the leave should be taken. The employee cannot object to the time nominated by the employer after consulting with the employee. However, if the annual leave accrued in 2008 is not taken in 2009, then in 2010 while the employer may still direct the employee to take annual leave accrued in 2008 by consulting and giving not less than 14 days written notice, if the employee elects to have such accrued leave paid out instead, then the employer must comply with that election. Section 41AA(8) does not say that annual leave not taken in the year following its accrual will cease to have the character of statutory annual leave and cannot be treated in the usual way under Pt VIIIA of the EO. That is, an employer will still be entitled to direct the employee to take the accrued leave after consulting with her or him (in accordance with s.41AA(3))

182 183 184 185 186

EO s.41AB(3)(a). EO s.41AB(3)(b). EO s.41AB(4). EO s.41AA(8)(a). EO s.41AA(8)(b).

182

LEAVE ENTITLEMENT

and giving her or him not less than 14 days notice in writing (in accordance with s.41AA(4)). If the employee takes the relevant accrued annual leave without objection, the employer would have an argument that the employee has elected under s.41AA(8) to take such leave (rather than receive payment in respect of it). However, if the employee objects to taking the accrued annual leave (after being requested to do so under s.41AA(3) and (4)), then under s.41AA(8) he or she would be entitled to elect to receive a payment rather than take that leave. 5.079 Prohibition against payment in lieu of annual leave. The employer is prohibited from making a payment of annual pay in lieu of the grant of all or any part of the employees annual leave except on termination of employment, where the accrued annual leave is not taken in the year following its accrual and where the employee is entitled to more than 10 days annual leave in respect of a particular leave year.187 If the employees annual leave entitlement exceeds 10 days in a leave year, if the employee agrees, he or she may work on those days that exceed 10 days and be paid annual leave pay in lieu in respect of those days.188 Any contractual provision which purports to allow the employer to make payment in lieu of annual leave (other than annual leave which exceeds 10 days with the employees consent) shall be void.189 Rest days, holidays and maternity leave falling within the annual leave. Annual leave shall be granted in addition to rest days, statutory holidays and maternity leave which the employee is entitled to under the EO.190 In the circumstances, if a rest day or statutory holiday falls on the annual leave of the employee, such day will be treated as the annual leave of the employee and the employer shall arrange for another rest day or substituted or alternative holiday for the employee.191 In practice, however, many employers will not treat the employee as having taken annual leave on a statutory holiday or statutory rest day falling within a period of leave and therefore will not deduct the employees annual leave balance in respect of these days. Offences and penalties. An employer who, without reasonable excuse, fails to grant statutory annual leave to an employee is liable to prosecution and, upon conviction, to a ne at level 5, currently HK$50,000.192 In order for a defence to operate, the employer must prove that having regard to all the circumstances relating to the contravention, that there was a reasonable excuse for failing to comply with the leave. (c) Annual leave pay 5.082 Entitlement to annual leave pay. An employee having been employed under a continuous contract (i.e. under a contract of employment for four or more consecutive weeks and worked for 18 hours or more in a week) for not less than 12 months is entitled to paid annual leave.

5.080

5.081

187

188 189 190 191 192

EO s.41E(1) provides that subject to ss.41AA(8)(a), 41D and 41E(2), no remuneration shall be paid to an employee in lieu of his taking all or any part of the annual leave. EO s.41E(2). EO s.41EA. EO s.41AA(10). EO s.41AA(6). EO s.63(c); Criminal Procedure Ordinance (Cap.221) Sch.8, a ne at level 5 is for HK$50,000.

ANNUAL LEAVE

183

Rate of annual leave pay. The daily rate of annual leave pay is a sum equal to the daily average of the wages earned by the relevant employee during the period of 12 months immediately before the annual leave or rst day of the annual leave (or the shorter period if the employee has been employed for a period of less than 12 months).193 See para 5.014 above on discussion regarding the determination of daily average wages. Time for payment of annual leave pay. The employer shall pay annual leave pay no later than the day on which the employee is next paid his wages after the annual leave.194 Offences and penalties. An employer who, without reasonable excuse, fails to pay annual leave pay to an employee is liable to prosecution and, upon conviction, to a ne at level 5, currently HK$50,000.195 In order for a defence to operate, the employer must prove that having regard to all the circumstances relating to the contravention, that there was a reasonable excuse for failing to comply with the leave. (d) Payment of annual leave pay upon termination of employment An employer must pay out accrued untaken annual leave on cessation of employment. Where an employee ceases to be employed and annual leave is due to him, the employer must pay to the employee annual leave compensation equal to the amount of annual leave pay the employee would have received had the annual leave been granted immediately after the cessation of employment.196 Annual leave will be due to the employee once it has accrued at the end of the relevant leave year. Section 41D(1) deals with the payment of compensation in respect of any accrued untaken annual leave accrued to the end of the leave year immediately preceding the cessation of employment. Section 41D(2) deals with the payment of compensation in respect of any annual leave that may have been accrued in the leave year in which the employees employment ceases. Where the employee ceases employment at least three months into the annual leave year, other than by way of summary dismissal under s.9, the employee will be entitled to a payment in respect of the accrued untaken annual leave in the leave year in which employment terminates calculated based on a notional leave pay.197 The notional leave pay is the amount of annual leave pay which would have been due to the employee, had her or his contract of employment terminated at the end of the leave year in which the employment actually terminated.198 The amount of notional leave pay is pro rated to the actual period of service during the employees nal leave year using 365 days. The employer shall make the payment under s.41D(1) and (2) as soon as practicable and in any case, not later than seven days after the date of termination.199

5.083

5.084

5.085

5.086

193 194 195 196 197 198 199

EO s.41C(2). EO s.41B. EO s.63(c); Criminal Procedure Ordinance (Cap.221) Sch.8, a ne at level 5 is for HK$50,000. EO s.41D(1). EO s.41D(2). EO s.41A, see denitions of notional leave pay and appropriate day. EO s.41D(1) and (2).

184

LEAVE ENTITLEMENT

(e) Annual leave shutdown 5.087 General. An employer may close down its business or part of the business for the purposes of granting annual leave to its employees. Employees will have to take annual leave or stop working during this period of time. Obligations of the employer. An employer who intends to close down its business or part of the business for the purposes of granting annual leave to its employees shall give one months written notice of such intention to the employees. An employer shall exhibit in a conspicuous place in the place of employment: (1) (2) a notice of the closure; and names of all employees who will have to take annual leave or otherwise stop working (or a description or details enabling such employees to be clearly identied).200

5.088

5.089

Employee who is not entitled to paid annual leave during the shutdown. Where an employee is not yet entitled to paid annual leave in respect of any day during the period of shutdown but has to stop work as a result of the shutdown, he or she should be granted paid annual leave calculated in accordance with the following formula:201 A 365 where (1) A is the number of days in the period beginning on the relevant day (see below) and ending on the day preceding the rst day of the close down as regards which the entitlement arose. Relevant day is dened as: (a) where the employee previously became entitled to any annual leave as a result of closure of business in the immediately preceding period of 12 months the rst day of the close down as regards which the entitlement arose, to where he or she became so entitled more than once in such period of 12 months, the rst day of the more or most recent, as appropriate, of such close downs; or where there is no previous closure of business for the purposes of granting annual leave, the day following the end of the employees last (or only) leave year; or where there is no such leave year, the day on which her or his employment commenced.202 B

(b)

200 201

202

EO s.41F(1) and 41F(2). EO s.41F(3); In Renown Industrial Co Ltd v Tam Wing Kei [1979] HKDCLR 5, it is held in the event that the employer closes the business for the propose of granting annual leave, all employees are entitled to seven days of annual leave with pay irrespective of their length of service. EO s.41F(7).

ANNUAL LEAVE

185

(2)

B is the annual leave to which the employee would be entitled under the EO had there been no close down (or partial close down) of the business concerned and had he been in his employment under a continuous contract for the period of 12 months beginning on the relevant day.

Where the result is not a whole number, the result shall be rounded up to the next whole number. If the result or, where appropriate, the result when rounded up (i.e. the calculated number) equals or is less than the number of days during the close down (i.e. the relevant closure days), the employees shall be entitled to annual leave which equals to the number of relevant closure days. If the calculated number exceeds the number of relevant closure days, the number of days of annual leave shall equal the calculated number.203 The employee will be entitled to annual leave which exceeds the duration of the shutdown. The remaining annual leave shall be granted by the employer and betaken by the employee during an unbroken period immediately following the shutdown.204 An employer who has elected to adopt a common leave year shall not be affected by an annual leave shutdown as the annual leave granted shall be in respect of the leave year immediately preceding the period of the shutdown.205 Offence and penalty. Any person who without reasonable excuse fails to pay annual leave pay during shut down commits an offence and is liable to a ne at level 5, currently HK$50,000.206 In order for a defence to operate, the employer must prove that having regard to all the circumstances relating to the contravention, that there was a reasonable excuse for failing to comply with the leave. (f ) Record keeping Obligation of the employer. An employer shall keep a record of the following: (1) (2) (3) date of commencement and termination of employment of each employee; date of commencement and termination of all periods of annual leave taken by each employee; date of commencement and termination of all periods if closure of business or part of the business for the purposes of granting annual leave to any of the employees; and all annual leave pay received by each employee.207 5.091 5.090

(4)

203 204 205 206 207

EO s.41F(3). EO s.41F(5). EO s.41AB(5). EO s.63(4); Criminal Procedure Ordinance (Cap.221) Sch.8, a ne at level 5 is for HK$50,000. EO s.41G.

186

LEAVE ENTITLEMENT

5.092

Offence and penalties. Any person who failed to keep records of the annual leave and annual leave pay of the employees shall be guilty of an offence and shall be liable on conviction to a ne at level 3, currently HK$10,000.208

7. OTHER BENEFITS
(a) Jury service 5.093 Duty of Hong Kong residents. Hong Kong residents between the ages of 21 and 65 years have a statutory obligation to serve as a jury in court proceedings unless they are exempted under the Jury Ordinance (JO).209 All individuals shall make themselves available to carry out the jury duty if required. Upon written application of the individual, the Registrar of the Court may excuse the attendance of an individual to serve as jury if he or she is satised that there is a good reason why he should be excused from attending that jury.210 Payment to jury. Individuals serving as a member of the jury will be paid an allowance for their service.211 The law does not provide any clear guidance on whether an employer shall pay employee wages whilst the employee is serving as a member of the jury, i.e. is not performing his or her job duties. It is common that employers will not deduct any wages from their employees for attending court as jury. However, in order to avoid any argument on the arrangement for any employee serving as jury and the payment during the service, it is advisable for employers to implement a policy or communicate all the necessary arrangement and payment of wages with the employees before they perform jury service. Prohibition against termination and discrimination. An employer is prohibited from terminating or threatening to terminate the employment of any employee whilst he or she is serving as a member of the jury.212 An employer shall not discriminate any employee whilst he or she is serving as a member of the jury. An employer who terminates, threatens to terminate or discriminates against any employee whilst he or she is serving as a member of the jury is liable to prosecution and, upon conviction, to a ne of HK$25,000 and to imprisonment for three months.213 (b) Typhoon and rainstorm 5.096 Work arrangements during typhoons and rainstorm. Rainstorms and typhoons are common in Hong Kong and normally occur during the summer months. Adverse weather can cause signicant disruption to the workplace and serious damage to life and personal property. There is no legislation governing how employers should

5.094

5.095

208 209 210 211 212 213

EO s.63D; Criminal Procedure Ordinance (Cap.221) Sch.8, a ne at level 3 is for HK$10,000. JO ss.3 and 5. JO s.2. JO s.31. JO s.33(1). JO s.33(2).

OTHER BENEFITS

187

deal with work arrangements in times of adverse weather. However, in order to avoid unnecessary disputes over work arrangement during typhoons and rainstorms, employers should clearly communicate with their employees any policies on prior work arrangements as well as the contingency measures during these adverse weather conditions. Work arrangements should clearly state which are the essential members of staff who are required to report for duty in times of adverse weather conditions; the typhoon warning signal number or the rainstorm warning under which non-essential employees are not required to work; and the time of issuance when employees are not required to report for duty. Employers should also pay due consideration to the safety of their employees both in the workplace and during their journeys to and from work, as they owe a primary obligation to ensure the health and safety of the employees. Occupational Safety and Health Ordinance. Under the Occupational Safety and Health Ordinance, employers have an obligation to maintain a safe workplace for their employees. Employers should ensure that the risks at work are properly controlled and reduced as low as is reasonably practicable, for example by maintaining a safe workplace. Employees Compensation Ordinance. An accident to an employee shall be deemed to arise out of and in the course of employment if it happens to the employee when he or she is travelling to and from work, when typhoon warning signals or rainstorm warning signals are hoisted. In the circumstances, the employer shall pay compensation to the employee under the ECO. Code of Practice in Times of Typhoons and Rainstorms. In order to assist the employers in formulating the work arrangements during typhoons and rainstorms, the Labour Department has issued a Code of Practice in Times of Typhoons and Rainstorms (a soft copy of the Code can be found on the web site of the Labour Department) (the Code), which sets out details of some practical guidelines on work arrangements in times of typhoons and rainstorms. The Code is intended to be guidelines. Employers are not compelled to adopt provisions in the Code. Employers may make reference to the Code in designing their own policies for work arrangements during adverse weather conditions. Wage deductions of employees who have not returned to work due to adverse weather. Employers should set out clear guidelines on the calculation of wages to employees who are not required to work and those who are required to work but failed to turn up or are late for work during the adverse weather. The Code also suggests that employers should not deduct the wages of employees who have not returned to work because of adverse weather conditions or other factors beyond their control. Reduction of employees statutory entitlement. It is unlawful for an employer to reduce the employees entitlements to annual leave, statutory holidays or rest days to compensate for the loss of working hours resulting from a typhoon No. 8 signal or a black storm warning. (c) Leave entitlements above the statutory minimum Leave entitlements in excess of statutory minimum. It is not uncommon for employers in Hong Kong, particularly those employers with headquarters based in 5.102 5.097

5.098

5.099

5.100

5.101

188

LEAVE ENTITLEMENT

the United Kingdom, United States or Australia, to provide leave entitlements more benecial than the minimum required under the EO. This may include: (1) (2) (3) (4) providing more annual leave, sick leave and maternity leave days than are required under the EO; paying better leave pay than is required under the EO, e.g. 100 per cent of wages in respect of sickness allowance and maternity leave pay; not requiring the employee to have been sick for four or more consecutive days before being paid sickness allowance; and providing leave entitlements in addition to those types of leave prescribed by the EO, e.g. marriage leave, parental leave, paternity leave and bereavement leave.

5.103

Additional benets may form part of contractual entitlements. Additional benets provided to an employee may form part of the contract of employment and may be enforceable as a contractual term.214 In Kwan Siu Wa Becky v Cathay Pacic Airways Ltd,215 the Presiding Ofcer in the Labour Tribunal held that the statutory formula for annual leave pay under the EO should be applied to both statutory annual leave as well as the annual leave granted by Cathay Pacic Airways Ltd to a member of its cabin crew in excess of the statutory minimum (i.e. contractual annual leave). On appeal to the Court of First Instance,216 Stone J held that the provisions of the EO relating to annual leave and annual leave pay were only applicable to statutory annual leave. They did not apply to contractual annual leave granted in excess of statutory requirement, which would be governed by the express or implied terms of the particular employees employment contract, and in respect of such the provisions of the Ordinance have no application. However, at the time of writing, this decision is subject to an appeal to the Court of Appeal. An employer may provide to an employee leave entitlements in addition to the statutory minimum required under the EO. This may include marriage leave, parental leave, paternity leave and bereavement leave. As there is no statutory obligation to provide such leave, the terms and conditions governing the granting of such leave and payment in respect of such leave will be regulated by the contract of employment and/or any policies or procedures implemented by the employer.

214 215 216

See para 3.022 in Chapter 3 for details on incorporation of policies and practices. (unrep., LBTC 2827, 2828, 2829/2008, [2009] HKEC 924). (unrep., HCLA 3, 4, 5, 7, 8, 9/2009, [2009] HKEC 1816) at para 106.