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Employment Legal Update – May 2018

  • Asia
  • Employment law

30-05-2018

1.    Avoiding reinstatement in Hong Kong is about to get more expensive

The Employment Ordinance, Hong Kong’s main legislation governing the employment relationship, will soon be amended to give employees the right to be reinstated or reengaged even if the employer objects. Currently, these remedies are available only if both parties agree, effectively giving employers the right to veto a decision by the Labour Tribunal.

Going forward, the Tribunal will be entitled to make an order for reinstatement or re-engagement if it thinks that it is appropriate and practicable. If an employer does not comply with the Tribunal’s order, it can be fined three times the employee’s monthly wage, up to HK$72,500. Employers can already be ordered to make “terminal payments” if an employee is dismissed without a valid reason, and this fine would be in addition. If the employer does not pay the fine, it can be prosecuted and convicted of a criminal offence.

Take away point: Employers are unlikely to reinstate or re-engage employees who have been dismissed if they can afford to pay the fine, so the short term result of this change will be to make dismissal more expensive rather than change workplace culture.

 2.    Taskforce works overtime – and still no legislation on Standard Working Hours

Hong Kong is an international finance hub that is infamous for its long working hours; Hongkongers work more than 50 hours a week on average, the highest amongst 71 jurisdictions surveyed.

Currently, there is no statutory provision regarding minimum or maximum working hours, overtime limits or overtime pay in Hong Kong. These are contractual benefits which the employer may agree with the employee. There is a minimum wage.

For the past two decades, the government has taken various actions to standardise working hours, including setting up a “Standard Working Hours Taskforce”. Last year former Chief Executive CY Leung and his Executive Council endorsed the non-binding “contractual working hours” guidelines, proposing to pay workers overtime at a rate not less than their regular salary provided that their monthly salary is HK$11,000 (Euros 1,210 / GBP1,050 / USD1,400) or less.

Many expected that the new Chief Executive, Carrie Lam, would take this further and protect employees by instituting mandatory payments for overtime. However, in late May 2018, the government revealed that instead of legislating on standard working hours, by 2020 they will issue non-binding guidelines for 11 labour-intensive industries. These will cover low-income workers such as cleaners, carers for elderly, and caterers. These guidelines will be prepared by working groups comprising officials and representatives from the business and labour sector. The officials intend to conduct a review on whether they are effective in 2023.

Unions have criticized the government and accused it of siding with business and offering no protection for employees. In particular professionals such as teachers and accountants are not covered under these guidelines. Some industries like security guards already have guidelines in place specifying the number of recommended working hours per day. It is unclear how useful these  guidelines will be and whether they will be voluntarily adopted.

3.    Competition Commission warns employers on non-poaching agreements

Hong Kong’s Competition Commission (the “Commission”) has issued a warning bulletin to employers. Under the Competition Ordinance, the First Conduct Rule prohibits businesses from agreeing or engaging in concerted practices, or making or giving effect to a decision of an association if the objective or effect is to harm competition in Hong Kong.

In the bulletin, the Commission warned companies not to coordinate with each other when hiring employees and determining their employment terms and conditions. In particular, employers are advised to avoid:

  • exchanging information, whether between businesses or through a third party, on employee benefits including salaries, wages, commissions and allowances to fix price of labour;
  • agreeing (whether expressly or impliedly, in writing or oral) with other businesses in relation to compensation or any element of compensation; and
  • agreeing (whether expressly or impliedly, in writing or oral) not to poach or solicit each other’s employees or classes of employees in the recruitment or hiring process, therefore preventing allocation of supply freely.

Price fixing and market sharing arrangements may deter competition in the labour market as they obstruct better employment terms including higher salaries and favourable benefits and more opportunities for employees. The Commission emphasized that companies may compete within a market for the procurement of labour even if they do not compete in the provision of same products or services downstream.

Where the Commission has reasonable cause to suspect that a business is engaged in the above practices, they will take appropriate enforcement action. They will, instead of issuing a warning notice (which is for a minor breach) to remedy, inform the Commission Tribunal of the infringement and request them to impose a penalty of up to 10% of a company’s group turnover in Hong Kong. Cartels who are involved in the above misconduct may also self report and agree to cooperate in the investigation and any enforcement action, thereby obtaining immunity from a penalty.

Takeaway

To ensure compliance with the Competition Ordinance, the Commission recommends businesses and employers to determine their policies independently and keep information confidential if it relates to the recruitment practices and employees’ terms and conditions, such as compensation. Employees, and especially HR practitioners, should be trained to ensure that they are aware of the issues and are compliant with the competition laws. Market surveys to benchmark compensation and benefits should be done through independent and reliable third parties. This should be done by collecting historical data with results published in an aggregate and anonymous form.

4.    Court case: Is continued employment valid consideration for a change in terms?

Background

On 12 May 2015, Dragonway Group Holding’s Limited (“Dragonway”) employed Wu Kit Man (“Wu”) to assist and participate in the listing of Dragonway on the Hong Kong Stock Exchange. In October 2015, the parties executed an addendum to the employment contract, rewarding Wu with a cash bonus of HKD350,000 (the “Cash Bonus”) if Dragonway ceased the listing plan or if Wu left Dragonway for any reason before 31 December 2016.

Wu left Dragonway on 21 December 2015 and was not paid the Cash Bonus. She filed a claim in the Labour Tribunal. The Labour Tribunal found the addendum to be valid and binding, and granted her the Cash Bonus accordingly. Dragonway appealed to the Court of First Instance (“CFI”) which held that the addendum was void as Wu failed to provide consideration in exchange for the new benefits; she was only required to continue to fulfil her existing role.

Wu appealed to the Court of Appeal (“CA”). She alleged that the CFI was incorrect in concluding that there is no consideration when an employee continues to be employed by the employer. The factors which the court should consider in assessing whether consideration exists should include (1) whether the employer received practical benefits and (2) whether the employee exercised her right to terminate the employment contract. If she did not exercise her right to terminate her contract, it can be good consideration.

Decision

The CA allowed the appeal. It held that the ultimate test for consideration for variation of employment terms is one of real benefit. The court must assess the overall circumstances to conclude that continuance in employment did provide a real benefit to the employer which can amount to consideration for the variation.

CA further held that there are inconsistencies in this case which require further investigation (e.g. the witnesses for Dragonway provided that Wu had performance issues in October 2015 but the addendum for the bonus was entered into in October 2015). It concluded that it is not the function of the CA to evaluate the facts so it remitted the case back to the Labour Tribunal for retrial.

Takeaway

Practitioners should make note that basic contract law principles still apply when entering into employment-related agreements. There must be offer and acceptance, consideration, intention to create legal relations, capacity to enter into the contract, and sufficiently certain terms.

Mutual exchange of consideration in the form of either a benefit accrued to one party or some detriment suffered by the other is required. If no consideration is provided, the document should be executed as deed. (Note, however, that the statute of limitations for deeds is 12 years, while the limit for standard contracts is six years.)

Case: Wu Kit Man (胡潔敏) v Dragonway Group Holdings Ltd (龍威集團控股有限公司) [2018] HKCA 107

5.    Court case: High threshold for summary dismissal

Background

In the case of Cheung Chi Wah Patrick v Hong Kong Cement Co Ltd [2017] HKCU 2291, Mr Cheung (the “Employee”) was employed as the financial controller of Hong Kong Cement Company Limited (the “Employer”) and the financial controller and company secretary of the Employer’s parent company (the “Parent Company”), a listed company in Hong Kong. He was instructed to obtain external legal advice on the number of rights shares the Parent Company can issue without breaching the Hong Kong Listing Rules. However, the Employee misunderstood the legal advice (which was poorly given over a telephone call) and applied for the incorrect number of rights shares, causing the Parent Company to be in breach of the Listing Rules and the irrevocable undertaking to the underwriters.

Although the problem was rectified by the management, the Employee was summarily dismissed for serious misconduct. He commenced proceedings in the Labor Tribunal and claimed wrongful termination. The Tribunal found for the Employee and awarded him payment in lieu of notice and end of year payment. The Employer appealed to the Court of First Instance (“CFI”).

Decision

The CFI dismissed the appeal and held that the Employee had honestly not understood the legal advice. To justify summary dismissal on the ground of misconduct, it is relevant to consider why the employee had committed the conduct in question to identify whether the misconduct is inconsistent with the due and faithful discharge of his duties. If he or she has manifested an intention not to be bound by the essential terms and conditions of his or her employment contract, the employer can summarily dismiss him.

Although the Employee relied on the advice incorrectly, the Employee was found to have acted faithfully in the discharge of his duties to the Employer as he obtained legal advice as instructed. It was emphasized that he was not a trained legal professional and the advice was poorly given. The court held that misunderstanding of the poorly given advice is not a serious neglect of duty.

Takeaway

Employers are reminded of the high threshold they need to overcome to justify summary dismissal in Hong Kong. If the employer would like to summarily dismiss an employee for gross misconduct, apart from demonstrating neglect of duty or breach of confidence or incompetence, it is required to prove that the employee has the intention not to be bound by the terms and conditions of the employment contract. Otherwise, the employer should terminate by giving notice or payment in lieu.

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