HONG KONG: EXECUTIVE DOUBLE-HATTING AND DEEMED EMPLOYMENT RISKS

Having executives work across group companies is common as it can allow operational and cost efficiencies while keeping the underlying employment relationships simple. In its recent decision in Yung Wai Tak Abraham William v Natural Daily (NZ) Holdings Ltd [2020] HKCFI 2067, the Court of First Instance of the High Court (“CFI”) found a group List Co liable for employment claims made by the employee of its subsidiary despite there being no written employment contract between the employee and the List Co. Companies should revisit any group resourcing arrangements to ensure they are properly structured and documented to avoid similar deemed employment risks.

Background

The Appellant (“Employee”) was employed as a company secretary by the second Defendant, Nation Resources Ltd. (“Subsidiary”), pursuant to a written employment contract with the Subsidiary (“Employment Contract”). The Subsidiary is a wholly owned subsidiary of the first Defendant, Natural Dairy (NZ) Holdings Ltd. (“List Co”), a company listed on the Hong Kong Stock Exchange. The Employee was dismissed shortly after the liquidation of both companies commenced. The Employee filed a claim in the Labour Tribunal against the Subsidiary and the List Co as joint employers for a sum of nearly HK$1 million, including unpaid wages, statutory severance payment, payment in lieu of notice and a salary adjustment payment.

Employment arrangements

During the recruitment process, the Employee responded to a job advertisement issued by the List Co and was interviewed by the List Co at an office shared between the List Co and the Subsidiary. After his employment commenced, the Employee exchanged emails with his colleagues and had business cards made stating his position as the List Co’s Company Secretary. When the Employee’s salary was reviewed, it was confirmed by a letter issued by the List Co. Only very few documents were issued by the Subsidiary, namely the Employee’s tax demand notes, MPF records, and pay slips.

It was not disputed that the Employee’s primary duties were to serve as the Company Secretary of the List Co. The Subsidiary did not have any substantial business or operations. There was no employment contract signed with the List Co, although the Listing Rules suggest that as a matter of best practice, a company secretary should be an employee of a listed company. The Employment Contract did not require the Employee to perform duties for the List Co or any other group companies. In addition, no secondment agreement or other outsourcing documents were in place to document the arrangement of the Employee’s work for the List Co.

The CFI’s decision on appeal from the Labour Tribunal

The Employee appealed to the CFI against the Labour Tribunal’s decision that the List Co was not his employer. The CFI overruled the Deputy Presiding Officer’s decision based on the following:

  1. The Employment Contract did not contemplate duties for the List Co so a separate employment relationship with the List Co must exist. The CFI examined two clauses commonly found in employment contract templates (as summarised below) and held that the Employee was not contractually obliged to be seconded to perform duties for the List Co. Accordingly, the fact that the Employee worked substantially for the List Co in the absence of such terms in the Employment Contract, suggests that he was employed by the List Co under a standalone employment contract. The CFI did not comment on any terms of this separate employment contract.
    1. The first clause states that the Employee was to “report to and take instruction from the Board of Directors or any person or persons designated by them…serve the [Subsidiary] as a [company secretary]…and perform “such other duties as the Company may assign to or vest in [the Employee] from time to time.” The CFI held that “any persons” referred to senior executives or external consultants authorised by the Subsidiary but could not be inferred to extend to the Board, directors or senior management of the List Co or another group company. In addition, the term “such other duties” has to be read in conjunction with the contractual position (i.e. the Company Secretary role for the Subsidiary) and cannot be inferred to mean duties for the List Co or other group companies.
    2. The second clause states that “…the [Employee has] no other agreements or undertakings, written or oral, with the [List Co and its subsidiaries] regarding compensation or your employment.” The CFI held that this clause merely operated to prevent the List Co or other group companies from being sued by the Employee for liabilities owed by the Subsidiary. Nevertheless, this could not operate to stop the Employee from directly claiming the List Co under a standalone employment contract, which was found after adopting the “overall impression test” as set out below.
  2. The totality of evidence showed that the List Co was an employer of the Employee. Applying the test laid down in Poon Chau Nam v Yim Siu Cheung [2007] 10 HKCFAR 156, the CFI held that the overall impression was that the List Co was the Employee’s employer, as shown by abundant contemporaneous evidence throughout the employment relationship (as summarised in the Employment Arrangements above).
  3. There was insufficient evidence that the Employee was seconded by the Subsidiary to the List Co. As a matter of fact, there was no supporting documents (such as, secondment agreement, Board resolutions and meeting minutes) or any oval evidence from witnesses that proved the existence of a secondment arrangement of Employee from the Subsidiary to the Employee.
  4. The absence of an employment relationship with the List Co did not align with regulatory requirements. Paragraph F.1.1 of Appendix 14 Corporate Governance Code and Corporate Governance Report of the Main Board Listing Rules states that the company secretary should be an employee of a listed company. There was no report or disclosure from the List Co that this rule had not been complied with. The CFI thus held that there was a rebuttable presumption that the Employee was the List Co’s employee, and that it has not been rebutted by any contrary evidence.

Key takeaways

Group companies should review their intra-group resourcing arrangements in light of the decision to ensure that the practical arrangements and underlying employment documents reflect the intended legal relationships.

Care must also be taken that the contemporaneous records throughout the employment relationship, such as, the recruitment notices, interview records, offers and contracts of employment, salary reviews or bonus letters, business card, pay slips, MPF, and tax records reflect the underlying employment relationships.

Further, when an employer seconds its employees to a member of its group companies, the employment contract or ancillary documentation, such as a secondment letter, has express terms setting out the secondment arrangements including the duties performed as part of the secondment, reporting lines and the parties’ agreement as to the underlying legal relationships (i.e. no employment relationship between the host entity and the secondee).

Finally, companies should review any regulatory requirement or presumptions regarding the employment of key executives or officers and, if these may be deviated from, the decision to do so should be documented or reported appropriately.

 

For more information, please contact Gareth Thomas, Tess Lumsdaine, Giselle Yuen, or your usual Herbert Smith Freehills contact.

Gareth Thomas
Gareth Thomas
Partner, Hong Kong
+852 2101 4025
Tess Lumsdaine
Tess Lumsdaine
Senior Consultant, Hong Kong
+852 2101 4122
Giselle Yuen
Giselle Yuen
Associate, Hong Kong
+852 2101 4191

HONG KONG: RESIGNATION, REPUDIATION OR DISMISSAL?

In the recent decision of Lam Sin Yi Sindy v Leung King Wai William [2020] HKCFI 2525, the plaintiff challenged her former employer’s treatment of the termination of employment as a resignation. The decision is a useful reminder of the legal principles in relation to valid notice of termination and the perils of accepting a resignation given in the heat of the moment.

Background

The issues leading to the dispute arose after the employee submitted a leave request for the following morning in order to take her mother to see a doctor. The following day, the principal of the employer (a law firm) told the employee via WhatsApp that her leave request was not approved and a minimum of 7 days’ notice for leave requests was required. The principal also said that employees of the firm were employed to work, and not to take leave without reasons and “I am now considering whether you have absented from work without cause.  If yes, you have to leave immediately!” The employee queried the position taken by the principal and then stated that she had been prepared to return to work in the afternoon, but this did not matter if she was to pack her things. The employee collected her personal belongings from the office that day but did not speak to the principal. She did not return to work thereafter. When the employee received her final pay, the employer had deducted an amount as payment in lieu of 7 days’ notice.

The Minor Employment Claims Adjudication Board (the “Board”) initially dismissed the employee’s claim for underpayment. The employee was then granted leave to appeal the Board’s decision on the question of whether, in construing whether her words and actions constituted a resignation, the Board should have considered the entire context and circumstances and not just the literal meaning of the words used. On appeal, the Court also considered whether the employee had accepted the employer’s repudiation of contract.

The heat of the moment

It is well established that to be valid, notice of termination must be clear and unambiguous. In its decision the Court referred to authorities which provide that the circumstances in which oral notice is purportedly given may be sufficiently special that, notwithstanding the clear and unambiguous words, the notice is not effective. For instance, where a resignation is given in an acrimonious exchange with an employer, the real intention of the employee to terminate the employment may be questionable. The authorities further provide that words used by an employee or employer in the heat of the moment should not be accepted at face value and the party should be given the opportunity to recant those words. This is on the basis that, notwithstanding the actual words spoken, when considered in the context of the exchange or the broader circumstances, there was no real intention to terminate the employment relationship.

The Court also found that, as in any type of contract, the question of whether there has been a repudiation will be fact-sensitive and must be considered in context, bearing in mind the relationship between the parties, the conduct constituting breach, and whether there is evidence of unequivocal conduct which demonstrates the intention of the party said to be in breach no longer to be bound. This can be particularly difficult when the relationship terminated is one which is personal, such as that between an employer and employee, and when the termination is charged with emotions and takes places in circumstances in which impulsive words and heated arguments are exchanged.

Decision

The Court found that the Board had failed to take into account the circumstances in which the WhatsApp messages were exchanged. The employee was obviously indignant and felt aggrieved and her comment that “it would not matter” if she returned to the office in the afternoon to pack her belongings was an impulsive statement expressed in a moment of anger and not a resignation. The Court further found that, if the employee had mistakenly thought she had been dismissed, the employer did not correct the employee’s belief or understanding nor give her any opportunity to clarify the position and she therefore had not accepted any repudiation by the employer. Instead, by requiring the employee to leave, the employer had effectively dismissed the employee.

Key takeaways

The decision serves as a useful reminder of certain principles in giving notice of termination. When giving or receiving notice of termination, employer’s should remember:

  • The notice of termination (by either party) must be clear and unambiguous.
  • Where the employment contract provides that notice must be in a certain form (e.g. in writing), this should be complied with to avoid any uncertainty about its validity.
  • The notice of termination should indicate (expressly or by easy inference) the date on which the termination of employment should occur.
  • Where there are special circumstances, such as a heated exchange between the parties, any notice of termination given should be reaffirmed.
  • An exception to the general rule that, once given notice of termination cannot be unilaterally withdrawn, may be where notice is given in the heat of the moment and then promptly retracted.

Finally, the decision reinforces that the question of whether a party has repudiated the contract or whether the other party has accepted the repudiation will often not be straightforward in the employment context and careful consideration of the specific circumstances will be required.

 

Gareth Thomas
Gareth Thomas
Partner, Hong Kong
+852 2101 4025
Tess Lumsdaine
Tess Lumsdaine
Senior Consultant, Hong Kong
+852 2101 4122

 

Hong Kong: ESG reporting on labour and safety matters from 1 July

Late last year, the Hong Kong Stock Exchange issued its consultation conclusions on proposals to enhance the Environmental, Social and Governance (ESG) Reporting Guide and related Listing Rules. Significant changes in relation to disclosure of an organisation’s safety and labour practices will be in force for firms with a reporting period commencing on or after 1 July 2020. Specifically, listed companies will be required to disclose information on the composition and turnover rate of their workforce, the details of workplace deaths and injuries, specifics of their health and safety measures and information on employee training. Such information was previously only a recommended area of disclosure whereas going forward, organisations will need to report in detail on such matters or provide considered reasons for not doing so. Continue reading

HONG KONG: UPDATES ON WAGES SUBSIDY, DISCRIMINATION LAWS, ORSO REQUIREMENTS AND MATERNITY LEAVE

June has been a busy month for employment updates in Hong Kong. Long awaited amendments to Hong Kong’s discrimination have taken effect from 19 June, with changes to maternity leave expected to pass soon. Measures to ensure ORSO schemes are genuinely employment-based will kick in on 26 June 2020. Finally, the applications for the first tranche of the Government’s Employment Support Scheme (ESS) have now closed.

Changes to Discrimination Laws from 19 June 2020

The Discrimination Legislation (Miscellaneous Amendments) Ordinance 2020 (the Ordinance) was gazetted on 19 June 2020 with the effect of amending the four anti-discrimination ordinances of Hong Kong, namely the Sex Discrimination Ordinance (SDO), the Disability Discrimination Ordinance (DDO), the Family Status Discrimination Ordinance (FSDO) and the Race Discrimination Ordinance (RDO). This takes forward the recommendations from the Equal Opportunities Commission Report on the Discrimination Law Review (see our previous bulletin).

The Ordinance implements the following amendments from 19 June 2020:

  • providing protection from sexual, racial and disability harassment in common workplaces where there is no employment relationship (e.g. consignment workers, volunteers and interns) under the SDO, RDO and DDO;
  • providing protection from racial and disability harassment where customers harass service providers under the RDO and DDO;
  • introducing protection from direct and indirect racial discrimination and racial harassment by imputation under the RDO;
  • protecting an associate of a person from direct racial discrimination and racial harassment under the RDO;
  • providing protection from sexual and disability harassment for members and prospective members of clubs by the management of the clubs; and
  • repealing requirements of an intention to discriminate as a pre-condition to awarding damages for acts of indirect discrimination under the SDO, FSDO and RDO.

Changes to breastfeeding provisions come into force on 19 June 2021. These provide protection from direct and indirect discrimination, as well as victimisation for breastfeeding women in relation to employment, the provision of services and facilities and education.

The Equal Opportunities Commission will publish further guidance to help relevant stakeholders understand the effect of the new provisions. Employers should monitor the changes and update any internal policies to ensure compliance with the law.

Amendments to maternity leave proposed

The Employment (Amendment) Bill 2019 (see our previous bulletin) will resume its Second Reading debate at the meeting of the Legislative Council on 24 June 2020.

The key proposed amendments include:

  • extending the statutory maternity leave under the Employment Ordinance from 10 weeks to 14 weeks;
  • amending the definition of ‘miscarriage’; and
  • entitling employees to sickness allowance that are able to produce a certificate of attendance in respect of a pregnancy-related medical examination.

The Government had previously announced that the laws were likely to operate from late 2021 however, employer’s should monitor progress of the changes and consider how such changes, if passed would align with their current practices and policies.

Occupational Retirement Schemes must be genuinely employment-based from 26 June 2020

On 17 June 2020, the Occupational Retirement Schemes (Amendment) Bill 2019 was passed at the Legislative Council. It has amended the Occupational Retirement Schemes Ordinance (ORSO) to prevent the misuse of schemes for purposes unrelated to employment by enhancing the powers of the Registrar (i.e. the Mandatory Provident Fund Schemes Authority) to ensure that ORSO schemes are genuinely employment-based retirement schemes and improving the governance of the ORSO schemes.

Under the employment-based criterion introduced by the amendments, ORSO schemes must limit membership to eligible persons, namely employees (whether past or present), transferred individuals in the case of business transactions and beneficiaries of deceased members. This means that ORSO schemes cannot be a collective investment scheme with open participation.

Additional documents are required to be filed with the Registrar for the purposes of ongoing compliance as well as new applications for registration. Employers who have or intend to set up ORSO schemes should take note of these changes. Changes will take effect once the bill is gazetted on 26 June 2020.

Applications for ESS closed, mostly utilised by SMEs

The HKSAR Government launched the Employment Support Scheme (ESS) to provide time-limited financial support to employers to retain employees who may otherwise be made redundant. Wage subsidies provided under the ESS are calculated on the basis of 50% of the basic salaries paid to the relevant employees in the specified month with a cap at HK$18,000, i.e. the maximum wage subsidy per employee is HK$9,000 per month.

Now the applications for the first tranche of the ESS have closed, the Government announced last week that:

  • It received a total of 428,659 applications, including 168,799 applications from employers and 259,860 applications from self-employed persons.
  • Among the employers, around 98% are micro or small and medium-sized enterprises with fewer than 50 employees.

The ESS Secretariat has notified successful applicants via SMS and email and has arranged to deposit the wage subsidies into their assigned bank accounts. Applicants can log in to the ESS portal to check the subsidy amount granted and committed head count for the months of June to August 2020.

Employers participating in the ESS are required to provide undertakings that they will not implement redundancies during the subsidy period 1 June to 30 November 2020), namely the number of employees on payroll during the subsidy period cannot be smaller than the number of employees in March 2020, and will spend all the wage subsidies on paying wages to the employees.

Details of the scheme can be found at the ESS portal. Companies who did not apply for the first tranche will still be able to apply for the second tranche (which covers the period from September to November 2020). The Government will review the arrangement of the first tranche and announce further details of the second tranche later.

 

Gareth Thomas
Gareth Thomas
Partner, Hong Kong
+852 2101 4025
Tess Lumsdaine
Tess Lumsdaine
Senior Consultant, Hong Kong
+852 2101 4122

 

With thanks to Sophia Li, Trainee solicitor, for assistance in preparing this article.

HONG KONG: RETURN TO WORK AND COST MANAGEMENT – A CHECKLIST

The COVID-19 crisis continues to create significant health, social and economic challenges world-wide. Impacted businesses are facing decrease in demand, financial distress as well as supply chain difficulties.

In Hong Kong, many organisations are moving past their initial response phase as employees begin to return to the workplace and businesses implement cost management measures to ensure their ongoing viability. Preparing for contingencies and the early consideration of a broad range of cost management options will assist businesses navigate the period ahead. Below we outline key considerations for employers.

Sustained remote working

For many businesses, mandating employees work from home has been an ad hoc response to the health crisis. It will now be a key pillar of business continuity planning as many organisation adopt split team arrangements and look to reduce office capacity as part of both safety and cost management. As greater numbers of employees work remotely on a more formal and long term basis, employers should consider the following questions:

  1. Do you need to vary the employment contract?
  1. Are your health and safety practices and policies adequate?
  1. Are there specific regulatory notifications or requirements that need to be complied with?
  1. Is appropriate technology and infrastructure available and who should pay for tools like home internet, printers, secure document destruction?
  1. Is there sufficient protection of confidential information and intellectual property where the lines between work and home become more blurred?
  1. Have your IT policies and practices been updated to reflect increased usage of online tools and applications for communications and document sharing and signing?
  1. Do you need to amend remote working policies or requirements on matters such as childcare arrangements, work expenses, recording of working hours etc?
  1. With less face to face time, are performance metrics appropriate and truly reflective of contribution?
  1. How can managers maintain team engagement and a strong corporate culture?
  1. Where employees work from another country to their usual work location, are you compliant with local laws such as those regulating employment arrangements, health and safety, workers compensation and insurance, social security, personal and company tax, and data protection?

Additional safety measures in the workplace

As employees return to the workplace, additional measures must be adopted to meet health and safety obligations and minimise business disruption. Employers may consider:

  1. Scaling down meetings and events: Non-essential events will likely continue to be deferred or held virtually for some time. Critical work meetings will be scaled down in terms of frequency, duration and attendees.
  1. Safe distancing: Employers may seek to increase the physical space between people including by reconfiguring work stations or adopting split team or staggered working hour arrangements where appropriate. Employee consent may be required for changes to contractual working hours and location.
  1. Additional safety equipment: Employers may provide equipment such as masks and hand sanitiser and require their use in the workplace. Temperature checks and health declarations for workplace attendees may also be implemented subject always to compliance with data protection and anti-discrimination laws.
  1. Health and safety training: Providing up to date training and information on health and hygiene to employees in line with guidance from the government and health advisors will be essential in complying with obligations under health and safety laws.
  1. Safety directions: Employees suspected of having COVID-19 may generally be directed not to attend the workplace until they obtain medical clearance. Organisations may also consider whether they will require employees to report suspected cases and, in doing so, how to balance protections under data protection and anti-discrimination laws with safeguarding employees and others.
  1. Incident response: A clear response plan for suspected or confirmed cases in the workplace will be critical. The plan must consider various elements such as health and safety of others in the workplace, mandatory notifications, appropriate internal and external communications and managing operational disruptions.
  1. Disciplinary matters: Employers should anticipate and plan for how they respond to disciplinary matters. For example, how will the organisation respond where an employee refuses to return to the workplace? Or where an employee is charged with breaching mandatory quarantine? Or where an employee undertakes personal travel and is then prevented returning to the workplace? While the specific circumstances will need to be considered, early consideration and planning of such issues will allow the organisation to respond quickly in a considered and consistent manner.

Cost management

The International Labour Organisation has estimated that 10.5% of working hours globally will be wiped out in the second quarter of 2020 due to COVID-19.  It is not surprising that many businesses are already adopting cost saving measures in respect of their labour force. In Hong Kong, key measures include:

  1. Mandated leave: Where there is no contractual right to direct that leave be taken, employers should obtain consent regarding taking paid annual leave or unpaid leave. Alternatively, employers may require annual leave to be taken if they have followed the consultation and notice provisions set out in the Employment Ordinance (EO) or where there is a business shutdown as envisaged by the EO.
  2. Reducing hours and pay: Any reduction in working hours and pay must be agreed by the employee and the employer failing which employers may face penalties of up to HK$350,000 and imprisonment of up to three years. In certain circumstances, wage offences committed by a company may result in a director, manager, secretary or other similar officer of company being guilty of the same offence and subject to person fines and imprisonment.
  3. Non-payment or delayed payment of bonuses: Before cutting bonus payments employers must consider whether the bonus is truly discretionary otherwise it may fall within the statutory end-of-year payments provisions of the EO.
  4. Variation of pay structures: So that pay aligns with productivity and revenue, employers may look to vary remuneration structures to a lower fixed salary and increased variable component linked to performance or revenue. Any variation in pay structures will need to be agreed in writing with affected employees and align with any regulatory expectations for example, the Guidelines on Sound Remuneration Systems issued by the Hong Kong Monetary Authority.
  5. Redundancy: While, in Hong Kong, the process of dismissing employees for redundancy is relatively straightforward, certain aspects require careful management. For instance:
    1. Impacted employees: There are broad prohibitions on dismissing certain employees who are on paid sick leave, who are making a Employees’ Compensation claim or who are pregnant or on statutory maternity leave. Further, any selection criteria for identifying impacted employees must not be unlawfully discriminatory (for example, based on an employee’s sex, disability or race).
    2. Termination payments: Employers will need to consider whether bonus payments fall within the statutory end-of-year payments provisions of the EO (see above), and ensure that all termination payments are made within seven days from the date of termination.
    3. Notifications: All relevant notifications, such as those to tax and immigration authorities and provident fund trustees, must be made in a timely manner.
  6. Government support initiatives: The Hong Kong government has announced an Employment Support Scheme (ESS) open to all employers who have been making Mandatory Provident Fund contributions or who have set up an Occupational Retirement Scheme (save for certain government institutions and government related employers). Under the ESS, the government will provide a wage subsidy of up to HK$9,000 per month for each employee for the period from June to November 2020. During the subsidy period, employers will not be permitted to implement redundancies. The Hong Kong Government has also announced sector specific relief and support for certain small and medium sized enterprises. More details are available on the government website.

For further information, please contact us or see our COVID-19 hub.

Gareth Thomas
Gareth Thomas
Partner, Hong Kong
+852 2101 4025
Tess Lumsdaine
Tess Lumsdaine
Senior Consultant, Hong Kong
+852 2101 4122

HONG KONG SAFETY SNAPSHOTS: THE ROLE OF DIRECTORS

Safety compliance is under increasing scrutiny in Hong Kong. As workplace accident rates remain high, the adequacy Hong Kong’s health and safety laws is under question and greater penalties are called for. At the same time, amendments to the Hong Kong Stock Exchange Environmental, Social and Governance Reporting Guide, make certain safety disclosures mandatory for listed companies. Accordingly, boards will need to take a more active role in ensuring strong safety governance as part of their broader mandate to oversee good governance and manage risk. This article highlights some recent developments and areas to watch.

Personal liability for directors and officers

As noted in our previous snapshot, employers are required to ensure the safety and health at work of all employees and, the failure to do so may result in criminal liability. Directors and officers must be aware of the company’s obligations under safety laws and ensure the company’s compliance with them. Otherwise, they may also be found personally liable where the company has committed an offence with their consent, connivance or, attributable to their neglect. Similar offences can be found in other statutes such as the Factories and Industrial Undertakings Ordinance.

Proposals to increase penalties

Although there have been no reported prosecutions of directors or officers under Hong Kong’s safety laws to date, there has been much discussion that current penalties are inadequate and must be increased. It is anticipated that there will be a greater focus on the role of directors and officers in safety incidents, as has occurred in other common law jurisdictions such as England, Australia and New Zealand.

Penalties under Hong Kong safety laws have not been revised for over 20 years and the Government has expressed concern that the current penalties do not appropriately reflect the seriousness of the offences committed by duty holders nor act as an adequate deterrent. The Government has acknowledged that current penalties (the current maximum fine is HK$500,000) are far lower than in many other common law jurisdictions.  The Government has submitted proposals to raise penalties under safety legislation, particularly in cases of extremely high culpability or serious negligence. Preliminary proposals include increasing the maximum fine of the general duty provisions to HK$6 million or 10% of the turnover of the convicted company, whichever is greater. Ongoing consultation with stakeholders is occurring and the amended legislation is anticipated to be finalised later this year.

Safety compliance in focus

Companies in Hong Kong with a poor safety record are already coming under greater scrutiny in the media and from employees, unions and other stakeholders. For example, there have been campaigns against major employers in Hong Kong demanding that they account for workplace accidents and improve workers’ safety.

Reputational concern is particularly important for listed companies. In December 2019, the Hong Kong Stock Exchange published amendments to the Listing Rules which implement changes to the Environmental, Social and Governance (ESG) Reporting guidance and which will apply to ESG reports for financial years commencing from 1 July 2020 onwards. Under the new requirements, listed companies will need to disclose matters related to workplace accidents, including:

  • the number and rate of work-related fatalities that have occurred in each of the last three years and the number of days lost due to work injury; and
  • health and safety measures adopted, and how they are implemented and monitored.

Such information was previously only a recommended area of disclosure whereas, going forward, listed companies will be required to report in detail or provide considered reasons for not disclosing. The Labour Department will also continue to issue work safety alerts giving accounts of workplace accidents.

With greater transparency, we expect that organisations who have poor safety records or inadequate safety measures in place will be subject to increased criticism from stakeholders and in the media.

What should directors do?

As companies are faced with greater penalties and increased scrutiny of their safety records and response, boards should take a more active role in ensuring their organisations have adequate safety governance in place. As part of this directors should:

  • obtain up-to-date knowledge of work health and safety matters and ensure they are familiar with the specific hazards and risks in the operations of the company;
  • ensure that internal policies and processes are adequate for ongoing compliance with safety laws or that remedial measures are implemented promptly;
  • verify that employees have access to and use appropriate resources and tools to identify and eliminate safety risks at work and are provided with adequate and timely training on safety matters; and
  • review and analyse the causes of significant incidents to understand any systems or process failures and oversee the implementation of improvements to address such failings.

 

Gareth Thomas
Gareth Thomas
Partner, Hong Kong
+852 2101 4025
Tess Lumsdaine
Tess Lumsdaine
Senior Consultant, Hong Kong
+852 2101 4122

 

With thanks to Sophia Li, Trainee solicitor, for assistance in preparing this article.

HONG KONG SAFETY SNAPSHOTS: NOTIFICATION OBLIGATIONS FOLLOWING A WORKPLACE ACCIDENT

Responding to a workplace incident presents particular challenges to organisations as a number of complex actions must be commenced, often immediately and often simultaneously. While the health and safety of the injured person and others is the most immediate concern, organisations need to be aware of and adhere to their notification obligations. This safety snapshot outlines the key notification obligations under Hong Kong safety laws.

Notifications to the Commissioner for Labour

The Employees’ Compensation Ordinance (ECO) requires an employer to give notice to the Commissioner for Labour of any accident resulting in an employee’s injury within 14 days of the accident or within 14 days of becoming aware of the accident. A notification must be made regardless of whether the accident gives rise to any liability to pay compensation under the ECO. For fatal work-related accidents, employers are required to report within seven days after the accident or within seven days of becoming aware of the death.

What constitutes an “accident” may not always be straight forward. There will need to be an identifiable triggering and unexpected event that causes the relevant injury to the employee. For instance, an injury caused by a continuous process such as exposure to loud noise over a prolonged period of time may not qualify as an accident (however, it may be an “occupational disease”).

An employer needs to report the accident irrespective of whether it is liable for compensation. Any employer who delays or fails to give notice of an accident without reasonable excuse or makes or furnishes false or misleading statement to the Commissioner for Labour is liable to prosecution and, on conviction, to a maximum fine of HK$50,000. Reporting the case will not necessarily amount to an admission of liability although care should be taken when doing so given the potential for prosecution which may follow.

Notifications to the Occupational Safety Officer

Mandatory notifications may also be required to be made by the “person responsible for a workplace”. The person responsible for a workplace can be the employer, or if the employer does not exercise any degree of control over the workplace, the “occupier” who controls the premises where the accident occurred. For example, where if an employee of a contractor is injured while working on a construction site, the site operator may be required to make the notification because they have control over the site.

If an accident at a workplace results in the death or serious bodily injury (being an injury that results in the employee’s admission at a hospital or clinic for treatment or observation) of an employee, the person responsible for the workplace must notify an Occupational Safety Officer at the Labour Department within 24 hours of the accident, and report the accident in writing within seven days to an Occupational Safety Officer.

Where an accident results in the employee being incapacitated from working for at least three days, the person responsible for the workplace is required to report in writing to an occupational safety officer within seven days after the date of the accident.

The report must include certain details such as the details of the activities carried on at the workplace and the particulars of the accident. This report will not be required if a notice of the accident has already been given in accordance with the ECO as set out above.

In addition, if a victim of an accident at a workplace dies after the accident has been notified or reported to an Occupational Safety Officer, the person responsible for the workplace, must report the death within 24 hours after becoming aware of the death to both the Labour Department and to the police.

Failure to comply with the above notification requirements can also amount to an offence and liability for a fine up to HK$50,000.

What should employers do?

Employers should all have in place an incident response plan to enable them to move quickly and confidently to manage the immediate site risks, investigate the causes, manage internal communications and comply with all statutory notification requirements when an incident does occur.

It is critical that supervisors and key employees are trained on and understand their responsibilities under the incident response plan. In relation to internal and external reporting, there should be clear details of what type of accidents need to be reported and to whom, how reporting is to occur, the timing of such reporting and who is responsible for managing any ongoing communications. Employees should also be required to give notice to their employer as soon as practicable after any accident.

We work with clients on all areas of incident response including the conduct of effective internal investigations, assisting when corporate entities and officers face investigations and potential prosecutions.

Gareth Thomas
Gareth Thomas
Partner, Hong Kong
+852 2101 4025
Tess Lumsdaine
Tess Lumsdaine
Senior Consultant, Hong Kong
+852 2101 4122

 

With thanks to Sophia Li, Trainee solicitor, for assistance in preparing this article.

HONG KONG SAFETY SNAPSHOTS: EMPLOYER’S LIABILITIES FOR EMPLOYEES WORKING FROM HOME

As working from home becomes the new normal, business and employees should be reminded of their key obligations in respect of employees working away from the office under Hong Kong’s safety laws.

In Hong Kong, an employer has a duty to “so far as reasonably practicable”, ensure the safety and health at work of all its employees. A person is “at work” only when he/she is at a “workplace” which is defined broadly to include “any place where employees work” with only limited exceptions.

Where employees are performing work from home, their home will generally be a “workplace” and therefore their employer will be liable, to a degree, for their safety and health while working at home.

What will employers be liable for?

The test of liability under Hong Kong safety laws centres around the requirement of reasonable practicability. The onus rests on the employer to establish, on the balance of probabilities, that compliance with the requirement or obligation was not reasonably practicable, or that reasonably practicable steps were taken to comply with the requirement or obligation.

What is reasonably practicable depends on a consideration, in light of all the circumstances at the relevant time, whether the time, trouble and expense of precautions are disproportionate to the risks involved, and an assessment of the degree of security which the measures may afford. For instance, a court may find that a particular precaution is not reasonably practicable where the risk that the precaution aims to address is very rare, and there is considerable trouble and expense required to implement the precaution.

An employer who fails to ensure the safety and health of its employees as reasonably practicable may be found to commit an offence and is liable on conviction to a fine of HK$200,000 and an employer who fails to comply with such obligation intentionally, knowingly or recklessly commits an offence and is liable on conviction to a fine of HK$200,000 and to imprisonment for six months.

What should employers do?

  1. Have a remote working policy: employers should have a policy that sets out requirements for employees when working away from the office. It may include a safety checklist, guidelines for notifying the employer of any injuries as well steps to protect company property and confidential information.
  2. Ensure the workspace is suitable: a policy alone may not be sufficient therefore employers should take certain steps to ensure that an employee’s working environment is in fact safe such as guidance and support on work station set up and safe use of any equipment used, and conducting site checks when appropriate.
  3. Remind employees of their duties: Employees also have a duty, so far as reasonably practicable, to co-operate with safety measures such as those in the company policy.
  4. Revisit insurance policies: Employers should ensure that their insurance coverage extends to employees who are working away from the office.
  5. Be ready to respond to an accident: If an employee is injured while working from home, certain notification obligations may be triggered and the employee may be entitled to compensation under the Employees’ Compensation Ordinance.

We will consider obligations when responding to an accident in our next safety snapshot.

 

Gareth Thomas
Gareth Thomas
Partner, Hong Kong
+852 2101 4025
Tess Lumsdaine
Tess Lumsdaine
Senior Consultant, Hong Kong
+852 2101 4122

 

With thanks to Sophia Li, Trainee solicitor, for assistance in preparing this article.