HONG KONG UPDATE: REMOVAL OF MPF OFFSETTING ARRANGEMENTS ON THE WAY

The long-awaited changes, which will abolish the current MPF offsetting arrangements against severance or long service payment, have been published, introduced and passed as one of the first bills for the 2022 legislative session. This article gives an overview of the changes and transitional arrangements.

Abolishing the offsetting arrangement

Currently, employers are permitted to offset severance payments or long service payments (SP/LSP) against their contributions under the Mandatory Provident Fund system (the MPF) or other occupational retirement schemes. This means that employees may not receive substantial compensation following redundancy or for long service.

After years of consultation, in February 2022 the Government published the Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Bill 2022 (the Bill), which has been passed by the Legislative Council on 9 June 2022. The Bill seeks to abolish the arrangement that allows employers to offset SP/LSP against the employer’s mandatory MPF contributions. Employers will still be able to offset SP/LSP against employer’s voluntary MPF contributions and gratuities.

These amendments will take effect from a date to be set from around 2025 onwards (the Effective Date) as follows:

  • SP/LSP accrued before the Effective Date is not affected by the amendments, i.e. SP/LSP payments can be offset against all of the employer’s MPF contributions and gratuities. The SP/LSP calculation will be based on the employee’s monthly wages immediately preceding the Effective Date; and
  • SP/LSP accrued after the Effective Date can only be offset against the employer’s voluntary MPF contributions and gratuities. The SP/LSP calculation will be based on the employee’s monthly wages immediately preceding the date of termination of employment.

The arrangements under the Bill will also apply to other occupational retirement schemes.

Other amendments introduced by the Bill

Other notable proposed amendments include:

  • amending the Inland Revenue Ordinance to make clear that SP/LSP will not be subject to salaries tax; and
  • amending the Employment Ordinance to require that employers keep records of wages and employment for the 12 months preceding the Effective Date, or, if the employee has been employed for less than 12 months preceding the Effective Date, for the whole employment period.

Designated Savings Accounts scheme and a 25-year subsidy scheme

In connection with the Bill, the Hong Kong Government also intends to:

  • permit employers to set up a Designated Saving Account (DSA) to save up for potential future SP/LSP liabilities. Employers will be required to contribute 1% of their employee’s monthly income (subject to a cap) to the DSA; and
  • implement a two-tier subsidy scheme to share the employers’ SP/LSP expenses, in particular to alleviate the financial burden on micro, small and medium-sized enterprises (MSMEs), for 25 years after the Effective Date.

The Government indicated that the Effective Date will follow the full implementation of the eMPF Platform, which is being developed by the Mandatory Provident Fund Schemes Authority.

The amendments under the Bill will impact the employers’ float and SP/LSP liabilities. Employers will need to stay on top of the changes and put in place measures compliant with the amendments.

Tess Lumsdaine
Tess Lumsdaine
Senior Consultant, Hong Kong
+852 2101 4122
Ben Harris
Ben Harris
Executive Counsel, Sydney
+61 2 9322 4929
Ellie Cheung
Ellie Cheung
Associate, Hong Kong
+852 2101 4179

Hong Kong: Taking Mental Health Conditions into Account – Discriminatory or Obligatory?

In a recent District Court decision C v The Chinese University of Hong Kong [2022] HKDC 77, the Court considered whether the University’s decision to discontinue the studies of a student, C, who suffered from mental health conditions, was discriminatory. This case provides helpful guidance on navigating employment decisions, such as whether dismissal or disciplinary action is permitted, in respect of an individual with disabilities including a mental health condition. Merely acknowledging the existence of a disability when such a decision is made will not necessarily mean that the decision was discriminatory provided that the real reason for the decision is not the disability.

Background

In early 2011, C was admitted to the University’s Master of Arts in Gender Studies Programme (MA Programme) as a part-time postgraduate student which, according to the University’s regulations, she was required to complete within a maximum study period (MSP) of 4 years, i.e. by 31 July 2015. C suffered from depression and generalised anxiety disorder (Disabilities) and was granted leave from the MA Programme that lasted 2 years in total, and extensions of time in respect of certain outstanding assignments.

By the end of the MSP, C was not able to complete four outstanding assignments to meet the graduation requirements. In August 2015, C submitted a late application to extend the MSP for two months (Extension Application), in order to complete the outstanding assignments. As support to the Extension Application, C enclosed a medical certificate issued by her psychiatrist to explain her mental health conditions.

In a letter to C (Termination Letter), the University rejected the Extension Application, and accordingly discontinued C‘s studies. Relevantly, the University stated in the Termination Letter that:

  • it did not believe that her work to date had clearly demonstrated that she would be able to complete these assignments by the new deadline;
  • the pressure to complete the outstanding assignments in such a short period of time, “considering [C’s] recent medical history, would also not be in [her] best interests”;
  • C’s exceptional circumstances had always been taken into account and, the University had on numerous occasions granted C lengthy extensions for her assignments.

Following a complaint to the Equal Opportunity Commission, C commenced proceedings at the District Court. The focus of C’s claims was that the University’s refusal of the Extension Application and discontinuance of her studies constituted both direct and indirect discrimination, as well as victimisation.

Were the Disabilities the reason for the Extension Application being refused?

The Court focused on whether the Extension Application was refused because of C’s Disabilities.

C relied on the references to her medical history in the Termination Letter and claimed that the Disabilities were a reason for the University’s decisions, which also involved “patronising and offensive” stereotyping in which the University had made incorrect and unfair assumptions about the pressure C would face to complete the outstanding assignments.

The Court was unable to find direct discrimination in the University’s decisions noting the following:

  • The Court was not concerned with the merits of the reasons for the University’s decision only whether such decision was made because of C’s Disabilities.
  • The University was entitled to refuse to grant the Extension Application if C had not satisfactorily explained:

(i) why she was unable to complete the graduation requirements, or

(ii) whether she would be able to complete the graduation requirements within the extended study period applied for.

The Court found that, as a matter of common sense, the Termination Letter provided that the sole reason of the University’s refusal was on ground (ii) above.

The reference to C’s medical history was included in the Termination Letter to highlight that the pressure for C to complete the outstanding assignments in such a short period of time would not be in her best interests. Naturally, as C submitted a copy of her medical certificate to support the Extension Application, the University “could and should have” taken into account C’s mental health conditions in its decisions. It did not mean that the subsequent decisions made by the University must be because of C’s Disabilities. In fact, C’s medical history did not form any part of the reason why the Extension Application was rejected.

No evidence that those with disabilities less able to comply with MSP requirement or that requirement was unreasonable

C also claimed that she had been subject to indirect discrimination because a student with her other relevant attributes, but without the Disabilities, would have been able to comply with the MSP, or alternatively a significantly greater portion of students without a disability (or without the same disability) would have been able to so comply.

The Court also rejected C’s claim of indirect discrimination, and instead found:

  • on the balance of probabilities (and in the absence of statistical evidence), there was no basis to find that the proportion of students with a disability who can comply with the MSP is considerably smaller than the proportion of students without a disability. While the Court acknowledged that, in some cases statistical evidence was not necessary as the Court could make an assessment based on its own knowledge and experience, the Court found that this approach was not suitable for this case; and
  • in any event, the MSP has a legitimate objective, and was justified by the University’s policy considerations. Further, there was provision for an application for extension of the MSP for certain students unable to finish their studies within the MSP.

The Court also dismissed C’s victimisation claim as being unfounded after finding her direct and indirect discrimination claims unsustainable.

One final point of interest is that the Court acknowledged that ‘there is nothing conceptually wrong or objectionable’ in a claimant bringing, and potentially succeeding in, claims of both direct and indirect discrimination in a single proceeding. However, the claimant would of course need to prove the material facts for both claims.

Key takeaways

This case provides helpful guidance to employers on decision making that may involve considerations relating to an employee’s disability, including mental health conditions. In particular:

  • Employers are entitled to take into account the employee’s disabilities in decision making processes, where it is clear that the employees expected them to do so (e.g. where employees offer information of their disability to the employers in relation to the decision to be made, for instance, internal promotion or transfer, etc.).
  • Employers should take care not to make the decision on the ground of the employee’s disabilities. Often, it will be a fine line between merely taking the employee’s disabilities into account, and making the decision by reason of the disabilities. As such, it is crucial for the employers to be very clear about the reasons for the decision and ensure any decision is based on reasons that do not include the disability. Employers should also document the reasons carefully.
  • Employers should always consider the individual circumstances of an employee, not just their policies or business objectives, and what accommodations can be made as an alternative.
Tess Lumsdaine
Tess Lumsdaine
Senior Consultant, Hong Kong
+852 2101 4122
Ellie Cheung
Ellie Cheung
Associate, Hong Kong
+852 2101 4179

HR INVESTIGATION INSIGHTS: SUSPENSION OR ADMINISTRATIVE LEAVE?

Where there is an ongoing investigation into the alleged misconduct of an employee, the employer wish to suspend an employee’s duties until the investigation is concluded. In Lengler Werner v Hong Kong Express Airways Ltd [2021] HKCFI 1333, the Court of First Instance (CFI) clarified the scope of an employer’s right under the Employment Ordinance (EO) to suspend an employee’s duties. This case highlights the importance of employers being clear about both their right to suspend an employee from their duties during an investigation, and the scope of such suspension, so as to reduce the risk of the employee bringing a claim for constructive dismissal.

Background

Mr Werner, a pilot formerly employed by Hong Kong Express Airways Limited (HK Express), was involved in an oral dispute with two other captains during his employment (Incident). HK Express conducted an internal investigation against Mr Werner and he was suspended from his flying duties on reduced pay in the meantime. Around seven weeks into the internal investigation, Mr Werner asked about the progress of the investigation and was informed that two warning letters would be sent to him. He resigned at that point and stated that HK Express’ actions constituted a constructive dismissal. Mr Werner then commenced proceedings before the Labour Tribunal against HK Express, seeking back pay, payment in lieu of notice, and overtime pay. HK Express counterclaimed for payment in lieu of notice.

Statutory vs contractual right to suspend employee

A statutory right of suspension is set out in section 11(1) of the EO, which provides that in specified circumstances – including where there is a pending decision by an employer as to whether it will summarily dismiss an employee – an employer may, without notice or payment in lieu, suspend an employee from employment for up to 14 days. Under section 11(2) of the EO, an employee who is suspended from employment under section 11(1) may, at any time during the suspension, terminate his/her employment contract without notice or payment in lieu.

In Mr Werner’s case, the Labour Tribunal (Tribunal) allowed his claim and dismissed HK Express’ counterclaim, holding that:

  1. Given the minor nature of the Incident, HK Express was not entitled to rely on section 11(1) of the EO to suspend Mr Werner. However Mr Werner, having been suspended, was entitled to rely on section 11(2) to terminate his employment contract without notice or payment in lieu.
  2. HK Express was in repudiatory breach of the employment contract and its actions constituted constructive dismissal, since it suspended Mr Werner’s flying duties for almost seven weeks with no apparent justification or progress, and had not contacted Mr Werner for almost two weeks prior to his resignation. HK Express’ inaction was unfair and unreasonable, and breached the implied terms of the employment contract that an employer should maintain the relationship of trust with its employee, and should not exercise its rights and discretion arbitrarily, capriciously or inequitably.

On appeal, the CFI held that section 11 of the EO only applies to a suspension from employment, as opposed to a suspension from duties. The judge held that this (i) was clear from a literal reading of section 11, which relates to “suspension from employment” and is not concerned with any partial suspension from an employee’s duties; and (ii) it was the probable legislative intention, since section 11(1) allows suspension in circumstances relating to potential summary dismissal and criminal prosecution, being circumstances where suspension from employment is more likely than a mere suspension from a part of the employee’s duties. The CFI referred to previous cases which make clear that, a partial suspension of an employee’s duties with a reduced salary is very different from “suspension from employment” under section 11 of the EO. The latter which relates to “the suspension of the rights and obligations of the contract of employment so that the employee was not required to do any work and the employer was not required to pay the employee“.

The distinction between a suspension from employment and partial suspension of duties was also made clear in the contractual documents between Mr Werner and HK Express. The employment agreement provided HK Express with a contractual right to suspend Mr Werner from work during any investigation, and the employee handbook drew a distinction between (a) suspension from employment for not more than 14 days (ie mirroring section 11(1) of the EO); and (b) suspension from part of an employee’s duties, when the employee “may or may not be required to perform other duties“.

On the facts, there was no dispute that Mr Werner’s employment had not been suspended, but only his flying duties. Mr Werner continued to be paid his normal wages while his flying duties were suspended, and any reduction in what he received related only to overtime or productivity bonus. The CFI held that, since there was no suspension from employment, section 11 of the EO had no application and Mr Werner was therefore not entitled to rely on section 11(2) to terminate his employment contract without notice or payment in lieu.

Key takeaways

While it is common practice for employers to suspend employees on full pay during an investigation, it is important that employer’s ensure that their employment contracts contain a clear contractual right for them to do so and it is clear that this right is distinct from the statutory rights provided under the EO.

It is also critical that, at the point of suspension, the proposed arrangements are clearly set out and communicated to the employee, including the duration of the suspension (and any right the employer has to vary this), any impact on their pay or benefits and other expectations during the suspension period (for instance, around communications with the employer or its employees, clients etc.).

To avoid a claim that the suspension constitutes a constructive dismissal, employers will generally need to continue paying the employee’s usual wages until the investigation is concluded. The investigation should also be conducted promptly, and regular updates should be given to the employee regarding the status of the investigation; a lengthy investigation during which the employee is not informed of what is happening may cause the employee to resign and/or allege that he/she has been constructively dismissed.

Finally, employers may consider using alternative language such as “administrative leave” when describing the suspension of an employee’s duties, so as to make clear that the suspension is not punitive, and that the employer is not relying on the statutory right of suspension under section 11 of the EO.

Our previous piece in the Investigation Insights series, on the need for prompt and thorough investigations, can be viewed here.

Tess Lumsdaine
Tess Lumsdaine
Senior Consultant, Hong Kong
+ 852 2101 4122

Hong Kong HR Investigation Insights: Prompt and thorough investigation justifies summary dismissal for secret business

In the recent case of Cosme De Net Company Limited v Lam Kin Ming [2021] HKDC 445, [2021] HKEC 1655, an employee had been engaging in secret business in contravention of his employment terms. Upon discovery of the potential misconduct, an internal investigation was carried out revealing compelling evidence of serious misconduct leading to the employee’s summary dismissal. Given the high threshold required to justify summary dismissal, this case reinforces the importance of conducting a prompt and in-depth internal investigation for the sake of preserving evidence before it is deleted or removed by the wrongdoers and therefore reducing litigation risk.

Background

The Plaintiff, Cosme De Net Company Limited (“Cosme De Net”), was a Hong Kong company which sold cosmetics and beauty products on its website as well as on third party e-commerce platforms. The Defendant, Lam Kin Ming (“Employee”), was employed by Cosme De Net as a Senior Business Development Manager (E-Commerce) pursuant to a written employment agreement, which was subsequently varied by a letter signed by the Employee with the Staff Handbook enclosed (the “Employment Terms”). The Defendant was in charge of the overall implementation of Cosme De Net’s e-commerce business, including management and maintenance of Cosme De Net’s websites.

In February 2016, Cosme De Net discovered that the Employee had been involved in a secret business conducted under the name of Best Online Cosme, which sold cosmetic products identical to those traded by Cosme De Net, but at a lower price. Following an investigation, Cosme De Net terminated the employment without notice for breach of the employment terms, the fiduciary duty of good faith and infringement of the company’s intellectual property rights.

Cosme De Net claimed against the Employee for engagement in secret business and infringement of its intellectual property rights (as many product images and descriptions used by that Best Online Cosme, belonged to Cosme De Net) in breach of his employment agreement and fiduciary duties. The Employee counterclaimed against Cosme De Net for wrongful dismissal claiming that Best Online Cosme was not owned by him but by a wholesale customer of Cosme De Net by the name of Miss Angel Yu, and he only sold to her.

The Employment Terms

Pursuant to the Employment Terms:

  1. all files, records and documents used or prepared by the Employee during his employment were the property of Cosme De Net;
  2. any violation of the intellectual property rights of Cosme De Net would lead to summary dismissal;
  3. the Employee undertook not to disclose any confidential information obtained or which had come to his knowledge during and after his employment; and
  4. during his employment, the Employee was not permitted to engage in any outside employment, trade, business, occupation or activities without the prior approval of Cosme De Net.

Investigation and dismissal

The wrongdoing was first discovered by the Employee’s immediate subordinate in early 2016, who carried out some preliminary factual investigations and subsequently escalated the matter to the Head of HR in late February 2016.

In early March, the Head of HR initiated an in-depth internal investigation into the matters which included reviewing the employee’s IT usage and looking at online records related to Best Online Cosme. The investigation established that purchases using an email account linked to the Employee, were entered manually onto Cosme De Net’s order system as wholesale orders, instead of being remotely placed through the website (as was the usual case). The sales records of Best Online Cosme, obtained from eBay for the investigation, matched to these wholesale transactions. Furthermore, Cosme De Net retrieved files from the company computer assigned to the Employee which included designs for a business card of Best Online Cosme in the name of the Employee and a virtual office agreement entered into by Best Online Cosme (HK) Co Ltd with the Employee as the contact person. Cosme De Net also retained an external investigator who made a purchase from Best Online Cosme and inspection of the purchased products further verified that they were products sourced from Cosme De Net.

As Cosme de Net provided compelling evidence of the connection between the Employee and the secret business which supported the summary dismissal, the Court accepted the claim put forward by Cosme De Net over the Employee’s version. The Court found that the Employee was in breach of the Employment Terms and his fiduciary duty to act in good faith in the best interest of his employer. The Court also ruled that the Employee’s counterclaim of wrongful dismissal lacked factual footing and summary dismissal was justifiable in the circumstances.

Key takeaways

The case provides a good reminder of the following:

  • Have an internal whistleblowing or ‘Speak Up’ process in place so that employees can raise any irregularities or conduct concerns so these can be investigated promptly.
  • Upon discovery of any potential misconduct, a thorough internal investigation should be carried out with a view to capturing relevant information and preserving evidence before it is deleted or destroyed. The investigation process may involve coordinating IT analysis and retrieval of digital data and, in some cases, retaining an external investigator.
  • To protect the best interest of the company, it is prudent to clearly set out employees’ duties of fidelity and good faith in their employment terms, as well including clear provisions requiring employees to avoid conflicts of interest and, where appropriate, impose post-employment non-competition and non-solicitation obligations.
  • Where any breach of the employment agreement is discovered, prompt steps should be taken to enforce these contractual obligations (see our previous article).
Tess Lumsdaine
Tess Lumsdaine
Senior Consultant, Hong Kong
+852 2101 4122
Giselle Yuen
Giselle Yuen
Associate, Hong Kong
+852 2101 4191

HONG KONG SAFETY SNAPSHOTS: PROTECTIONS FOR ILL AND INJURED WORKERS

Like many jurisdictions, Hong Kong has various statutory measures in place to protect injured workers. It can be complex in understanding the scope of various protections and what employers can and cannot do when managing the employment of an ill or injured employee. This Safety Snapshot highlights the key protections and provides practical tips for employers when managing ill or injured employees. Continue reading

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