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Parent Company Held Liable as Joint Employer of Subsidiaries’ Employees

  • Hong Kong
  • Employee benefits
  • Employment law

21-10-2020

Recently the Hong Kong High Court held that a Hong Kong listed company was liable as an employer in relation to an employee of a subsidiary company. In the recent High Court case Yung Wai Tak v. Natural Dairy (NZ) Holdings Ltd (in Provisional Liquidation) [2020] HKCFI 2067, it was held that a Hong Kong listed company (the “Listed Company”) and its wholly-owned subsidiary (the “Subsidiary”) were joint employers of an employee. The employee had signed an employment contract with the Subsidiary but mainly served as the company secretary of the parent Listed Company. The parent Listed Company, as a joint employer, was held jointly liable for unpaid wages and other employee benefits due to the employee.

Background

The claim was initiated at the Labour Tribunal. The plaintiff employee was the company secretary of the Listed Company, but had a written employment contract only with the Subsidiary. He claimed for wages and other employee benefits against the Subsidiary and the Listed Company as joint employers in the Labour Tribunal.

The Labour Tribunal ruled that the Subsidiary was the sole employer and dismissed the plaintiff’s claim against the Listed Company. The plaintiff appealed the decision to the Court of First Instance. The main points for employers to note are set out below.

Did an Employment Contract with the Listed Company Exist?

The Court adopted the test in the Court of Final Appeal case Poon Chau Nam v Yim Siu Cheung[2007] 10 HKCFAR 156 to determine whether an employment relationship existed. This requires the Court to consider the “overall impression” arising from the factual circumstances in relation to the relationship between the parties.

In this particular case, the Court considered, among other things, the following factors:

  • in recruiting the plaintiff, the job advertisement was published by the Listed Company, the Listed Company and the Subsidiary shared the same office, and the plaintiff was interviewed by a senior personnel of the Listed Company;
  • there were email correspondences indicating that it was the common intention of the parties for the plaintiff to be an employee of the Listed Company;
  • the plaintiff has always referred himself as the company secretary of the Listed Company on his business card;
  • most of the services provided by the plaintiff were being provided to the Listed Company, and the plaintiff headed two substantial operating departments of the Listed Company;
  • a notice that requires adjustment of salary was issued to the plaintiff in the name of the Listed Company; and
  • there were instances when senior management admitted that the Listed Company was an employer of the plaintiff.

Further, under Appendix 14 of the Listing Rules, the company secretary of a listed company is required to be its own employee. Where there is a deviation from observing Appendix 14, the listed company should state and explain the deviation in its interim and annual reports.

As a result, although the employee’s written employment agreement was with the Subsidiary, the Court was ready to infer an employment relationship between the Listed Company and the plaintiff.

Considering the entirety of the factual circumstances, the Court held that the plaintiff, while being an employee of the Subsidiary under the employment contract, at the same time, was in an employment relationship with the Listed Company. The Listed Company was a joint employer of the plaintiff and was jointly liable for the wages and other employee benefits due to the plaintiff under his employment contract with the Subsidiary.

Implications for Employers

  • The Court can infer an employment relationship considering the “overall impression” and the conduct of the parties.
  • Entities that share the services of an employee within the same group may be regarded as joint employers of that employee depending on the factual circumstances. As such, the joint employers may be liable for the employee’s wages and other employee benefits.
  • Employers who operate more than one company should review their existing engagements with their staff, and consider if any implied employment relationship exists. If yes, employers should consider their rights and liabilities against these employees.
  • If the employer is a listed company, and its company secretary is not its employee, the listed company should make a clear disclosure of the reasons for such arrangement to comply with the Listing Rules as well as protect itself from assuming liabilities as an employer of the company secretary.