The Employment Law Review: Hong Kong

Introduction

Hong Kong's employment environment and its employment legislation are widely recognised as being generally employer-friendly. The legislation applying to employees in Hong Kong is a combination of statutory and common law. The common law origins of Hong Kong employment law include decisions of the courts of other common law jurisdictions, in particular the English courts.

The principal piece of employment legislation providing protection to employees is the Employment Ordinance (EO). Since its enactment in 1968, there has not been any general overhaul of its underlying principles; however, it has been amended to address particular issues as they have arisen. Certain local structural constraints have ensured that only modest or compromise reforms have tended to occur. The result is that although the EO provides an important basis for protection for employees, when compared with other jurisdictions that have more advanced labour laws, Hong Kong has fallen some way behind.

In addition to the EO, there is legislation relating to employment in respect of minimum wages, employee compensation, health and safety, discrimination and insolvency.

The EO applies to any employee with employment in Hong Kong. It prescribes the minimum rights and benefits to be enjoyed by any such employee. It also contains a no-contracting-out provision, which will render void any term of a contract of employment that purports to extinguish or reduce any right, benefit or protection conferred on the employee by the EO.

The relevant courts and tribunals in which employment claims can be brought are:

  1. the Minor Employment Claims Adjudication Board – for claims of up to HK$8,000;
  2. the Labour Tribunal – this specialist tribunal seeks to provide a quick, simple, cheap and informal forum for resolving disputes between employers and employees.2 Legal representation is generally not permitted. The Tribunal's jurisdiction includes claims arising under employment legislation, principally the EO and the Minimum Wage Ordinance;
  3. the District Court – generally, claims falling outside the Labour Tribunal's jurisdiction will be heard in this court;
  4. the High Court – for appeals from the Labour Tribunal, and for claims falling outside the Labour Tribunal's jurisdiction exceeding HK$1 million;
  5. the Court of Appeal – for appeals from the District Court or the High Court; and
  6. the Court of Final Appeal – for appeals from the Court of Appeal.

Year in review

i Extension of period of maternity leave

In July 2020, legislation was passed (but is not yet in force) to amend the maternity protection provisions of the EO, to extend the period of maternity leave from 10 to 14 weeks. Unlike the first 10 weeks of maternity leave (see Section IX), the amount of wages payable during the further four weeks is capped at HK$80,000. Given the resistance to this amendment encountered by the government from employers, the government has agreed that it will implement an administrative scheme under which employers who have paid maternity leave pay to employees for the extended period will be able to apply for reimbursement up to the amount of the cap.

ii Amendments to anti-discrimination legislation

In our 2019 review, we referred to a bill introduced by the government in late 2018 to amend the four discrimination ordinances to take forward eight priority recommendations of the Equal Opportunities Commission in its 2014 Discrimination Law Review. The bill was passed and came into force in June 2020 (subject to the amendments stated below) and includes the following provisions:

  1. amendments to the Sex Discrimination Ordinance to protect a breastfeeding woman from direct and indirect discrimination in the workplace, on the same terms as the existing protection for a woman who is pregnant (to come into force on 19 June 2021); and
  2. amendments to the Sex Discrimination Ordinance, the Disability Discrimination Ordinance and the Race Discrimination Ordinance to give protection under each Ordinance from sexual, racial and disability harassment in common workplaces where there is no employment relationship (e.g., consignment workers, volunteers and interns).

Significant cases

The decision of the High Court in Yung Wai Tak Abraham William v. Natural Dairy (Nz) Holdings Ltd (in Provisional Liquidation)3 reiterates the point that in the context of employment within a group of companies, the employment contract should be explicit about any group employment and secondment arrangements that should reflect the substance of the actual arrangements. The brief facts of this case are that the employee was employed as company secretary to a Hong Kong listed group under an employment contact made with a subsidiary of the listed parent. Following the appointment of provisional liquidators to the parent, and the insolvency of the subsidiary, the employee brought claims against both the subsidiary employer and the listed parent for terminal payments. The Court construed the employment contract with the subsidiary as limiting the duties of the employee within the group to that entity only, and given the absence of any obligation of the employee to perform duties for the listed parent, or any obligation preventing the employee from working for the parent, the Court inferred that there was a second employment contract between the employee and the parent under which the employee was performing duties for the parent. The employee was therefore jointly employed by the listed parent under a second contract. Notably the defendants sought to argue that the employee had been seconded to the listed parent, but this line of argument was rejected by the Court on the basis of a lack of evidence of the existence of the arrangement.

The decision of the Court of Appeal in Xu Yi Jun v. GF Capital (Hong Kong) Limited4 is a salutary reminder of the importance of care in drafting clauses in the context of the payment of a guaranteed bonus. The brief facts are that the employee who was hired by a financial services firm was entitled by her employment contract to a guaranteed bonus payable a year after joining. The guaranteed bonus payment was expressed to be subject to forfeiture by the employer if the employment was voluntarily terminated by the employee without cause or the employee had been found guilty of gross misconduct, in each case before the due date for payment of the bonus. On the recommendation of the employee, the employer had made a loan to a third party. The third party then loaned those funds to a borrower that subsequently defaulted. Following an internal investigation into the project, including the employee's conduct as to whether she had properly discharged her duties in relation to the project, a report was produced and a copy provided to the employee after the due date for payment of the bonus. She did not respond and resigned from her employment two months later. The employer withheld the bonus, and she claimed for payment. The Court's interpretation of the wording of the guarantee provision was that the forfeiture event must crystallise before the due date and not after it. Given that there had been no finding of misconduct before the due date, the employer was not entitled to forfeit or withhold the guarantee payment. The argument was also made that the employer was entitled to exercise an equitable set-off against its liability to pay the bonus based on the employee's breaches for alleged poor performance of her work. The Court rejected this argument on the basis of a prohibition contained in the EO against the employer making any deductions either from the 'wages' of the employee or 'from any other sum due to the employee'. The latter prohibition applied in this instance as the guaranteed bonus did not fall within the definition of 'wages'.

Basics of entering into an employment relationship

i Employment relationship

The normal principles for the formation of a contract under Hong Kong law apply to the creation of an employment contract. Although there is no requirement for a contract to be in writing, a written contract is always advisable for an employer not only to fulfil certain minimum informational requirements under the EO, but also for the sake of certainty in the employer-employee relationship. An employer would be well advised to have clarity around these terms in all circumstances. An employee must also sign the employment contract, if it is in writing.

Fixed-term employment contracts are permissible under Hong Kong law, although these generally tend to be seen in the context of specific projects or for the most senior levels of management.

The key provisions recommended for inclusion in an employment contract are:

  1. term;
  2. job title;
  3. scope of job responsibilities and duties;
  4. probation period;
  5. salary;
  6. bonuses (contractual or discretionary);
  7. other benefits, such as medical insurance and housing;
  8. annual leave;
  9. sick leave;
  10. period of contractual notice and right to make a payment in lieu of notice;
  11. termination for breach or summary dismissal;
  12. confidential information;
  13. governing law and jurisdiction; and
  14. personal information collection statement (PICS).

An employment contract would usually be entered into before the term of the contract commences, but it should in any event be entered into no later than that time. The parties may amend or change an employment contract at any time after it has been entered into, and should do so in writing. Care should be taken by an employer to ensure that if an employee is giving up any rights, or accepting any new obligations, any change to the contract complies with Hong Kong's contractual rules, requiring the presence of some fresh consideration to ensure the enforceability of the employee's amended obligations. If there is any doubt as to the presence of consideration, the amendment should be executed by the employee as a deed under seal. Care should also be taken to ensure that the contract is not changed by oral agreement. This could occur if the elements for a variation were present and satisfied, and, if so, an employer may be found to have inadvertently agreed to an amendment to the contract.

ii Probationary periods

Probation periods in employment contracts are permitted under Hong Kong law and it is customary to use them.

The EO provides that, regardless of whether a notice period is expressly provided in the contract, during the first month of employment, while an employee is on probation, the contract may be terminated by either party without notice or payment in lieu of notice. After expiry of the first month and during the remainder of the probation period, a minimum of seven days' notice must be given or, if it is longer, the agreed notice period.

iii Establishing a presence

If a company that is incorporated outside Hong Kong establishes a place of business in Hong Kong (i.e., a branch), it must apply to the Hong Kong Companies Registry for registration as a non-Hong Kong company within one month of the date of establishing the place of business. It must also register with the Hong Kong Inland Revenue Department (IRD). If a non-Hong Kong company without a place of business in Hong Kong hires an employee locally, the requirement to apply for registration may be triggered by the activities of that employee in Hong Kong if those activities amount to the carrying on of a business by the employing company in Hong Kong. Whether a business is being carried on is a factual question that will depend on the circumstances. This possible outcome can be avoided if the company engages an independent contractor to represent it in Hong Kong, which it would do by entering into a contract with that person clearly describing that person's status (e.g., as a local agent or consultant) and the scope of the services to be provided.

Before establishing a branch, or appointing an agent to act on its behalf, the non-Hong Kong company would need to consider whether profits sourced from those activities (whether directly or through an agent) would be subject to Hong Kong profits tax. Hong Kong's tax system is territorial and generally will only tax profits that have been generated locally. Profits tax is charged if (1) the person carries on a business in Hong Kong, (2) profits have been earned from that business in Hong Kong, and (3) those profits have arisen in or been derived from Hong Kong (i.e., they must have a Hong Kong source).

A company that hires employees must provide the following statutory benefits: sickness allowance, annual leave, statutory holidays, rest days, contributions to the employees' mandatory provident fund (MPF), and maternity and paternity leave.

Assessment for salaries tax on the remuneration and benefits paid to or received by an employee is made directly on, and therefore is the liability of, the employee, not the employer. The employer must file returns with the IRD, reporting the commencement and termination of employment of an employee, as well as an annual return reporting aggregate remuneration and benefits paid to that employee for the prior tax year. The employer does not have any tax-withholding responsibilities for the employee's salaries tax liability, except when the employer is aware that the employee intends to leave Hong Kong for more than one month, typically on termination of employment.

Restrictive covenants

Hong Kong law permits the inclusion in employment contracts of post-termination restrictions (restrictive covenants). The following restrictions are typically included:

  1. non-competition with the business of the ex-employer;
  2. non-solicitation of employees of the ex-employer;
  3. non-solicitation of customers of the ex-employer; and
  4. non-dealing with customers of the ex-employer.

The approach of the Hong Kong courts to these types of clauses is, at the outset, to treat them as unreasonable on the basis that they are in restraint of trade on the employee, and thus unenforceable. The burden of proof to reverse this presumption is on the employer, who must demonstrate to the court that the scope of the restriction is no wider than is strictly necessary to protect its legitimate business interests. In considering whether any such restriction is enforceable, the courts will generally have regard to the following three components:

  1. the scope of the restricted activities;
  2. the duration of the restriction; and
  3. the geographical scope of the restriction.

Given the small size of Hong Kong's territory, the courts tend to adopt a very restricted approach to the enforceability of these types of clauses. Consequently, the scope for employers to impose these types of restrictions on their employees can be quite limited and, therefore, great care is needed in drafting the wording of the clause. It is also normal to include in a contract of employment express non-compete obligations that apply during the contract term.

Commonly, in the case of more senior employees, an employer will include an express garden leave provision in the contract, to be able to control the activities of the employee once he or she has given notice of resignation. The limitations on the duration of garden leave are not clear. In addition, any restrictive covenant period should interlock with the garden leave provision so that the duration of the covenant is reduced by any period actually spent on garden leave.

Wages

i Working time

Currently there are no maximum working hours regulations in Hong Kong, nor are there any regulations as to the amount of night work that may be performed, and in neither case does the government have any concrete proposals for introducing any such regulations. Nevertheless, a person employed under a continuous contract is entitled to one rest day in every seven days and to all statutory holidays.

Under the Minimum Wage Ordinance, the current minimum wage, which was set on 1 May 2019, is HK$37.50 per hour.

ii Overtime

Overtime work is not regulated by legislation. Consequently, the right of an employer to ask an employee to work overtime, the rate of overtime pay and the amount of overtime that the employee may be asked to work will be determined in each case by the terms of the contract of employment between the employer and employee.

Foreign workers

Any person seeking to work in Hong Kong who does not have the right of abode in Hong Kong (i.e., permanent residence) must first obtain a work visa from the Hong Kong Immigration Department.

There is no requirement for an employer to keep a register of employees holding work visas, and there is no upper limit on the number of such employees that an employer may have. When applying for a visa, the applicant must demonstrate that he or she is in a job that is relevant to his or her academic qualifications or work experience and that cannot readily be taken up by the local workforce. This will require the employer to demonstrate that efforts have been made to search for suitable candidates in the local labour market. It should also be noted that the Immigration Department has significantly increased its level of scrutiny of sponsors and applicants during the application process. Successful applicants will normally be permitted to extend their stay in Hong Kong on a two–two–three years pattern without other conditions of stay, after which they may be eligible for right of abode status.

An employee holding a work visa will be subject to tax on his or her remuneration and benefits on the same basis as a local employee. If that person's employment is located in Hong Kong (i.e., generally he or she performs his or her work in Hong Kong), he or she will have the benefit of statutory protection provided under local employment laws. This is likely to be the case even if the contract of employment is governed by a different governing law. An employee holding a work visa may be able to claim an exemption from the MPF scheme if the employee is already a member of a provident or retirement scheme outside Hong Kong. The exemption will cease to apply if the employee acquires right of abode status.

Global policies

A company is not required by law to apply its global policies, and in particular its internal disciplinary rules, to employees working in Hong Kong. Although this will be a matter of policy for the employer, the presence of and adherence to a mature set of disciplinary rules can provide an effective evidential trail to demonstrate due grounds for dismissal of an employee in breach of contract. There is no requirement that these rules be agreed or approved by a representative body of the employees (if any), or that they be filed with, or approved by, any government authority. It is not essential for employees to have agreed to the rules, but it is recommended that they be incorporated into the employees' contracts of employment.

As mentioned in Section II, Hong Kong has four pieces of legislation dealing with discrimination. Under each of these, an employer can incur vicarious liability for acts of discrimination against an employee, regardless of whether the employer knew about the act or whether it was carried out with its approval. The employer will have a defence to a claim for discrimination if it can prove that it took such steps as were reasonably practicable to prevent an employee from carrying out that act, or from carrying out acts of that description in the course of employment. Given this, it will be important for the employer to include a robust anti-discrimination policy in its internal rules. This should be backed by training for employees, particularly those in the human resources department, on the employer's anti-discrimination practices. A record should be kept of the application of these rules and the policy to be able to support the aforementioned defence. The Equal Opportunities Commission has published codes of practice for each of the areas of discrimination covered by the legislation and these should be used as reference points for the drafting of any internal rules on discrimination applicable to Hong Kong-based employees.

There is no requirement that an employer's rules must be written in any particular language. However, it is important that the employer be sensitive to cultural and linguistic differences between employees of different ethnic backgrounds to ensure that all employees are able to read and understand these rules in their first language.

At the time that an employee signs an employment contract, he or she should be asked to sign an acknowledgement that he or she has received a copy of the rules and has read and understood them. The rules would ordinarily be posted on the employer's intranet, but it is also good policy to distribute a hard copy of the rules to each employee.

Parental leave

Female and male employees are entitled to statutory maternity and paternity leave, respectively, and are entitled to receive maternity and paternity pay, paid by the employer, provided that she or he has been employed under a continuous contract for no fewer than 40 weeks before the start of the scheduled leave.

Maternity leave is for a continuous period of 10 weeks (but see Section II), and a further period of unpaid leave of up to four weeks for illness or disability occasioned by the pregnancy or birth. The rate of statutory maternity pay is four-fifths of the employee's average daily wage. Paternity leave is for five days, and paternity leave pay is payable at the rate of four-fifths of the employee's average daily wage.

It is both a civil and a criminal offence for an employer to terminate the contract of an employee who has given notice of her pregnancy until she is due to return to work on the expiry of her maternity leave. There is no equivalent protection for an employee taking paternity leave.

Translation

As mentioned in Section VIII, there is no specific requirement that any employment documents must be translated into an employee's first language. However, it is recommended that where it is clear that the employee is not proficient in the language of the contract or the document in question, it should be translated into that employee's first language.

There are no particular formalities required for obtaining a translation, but any translation should be checked and verified by a senior member of staff who is able to do so. If an employee is provided with a contract or document in a language that he or she does not fully understand, there may be scope for misunderstanding, which could lead to or exacerbate a claim by that employee.

Employee representation

Hong Kong has legislation permitting the formation of trade unions. There is no statutory provision for the recognition of collective bargaining agreements or for works councils of any kind; neither is there any requirement for employers to consult employees in situations where such a requirement might typically be found in other jurisdictions, such as in the event of termination of employment or business sales or combinations. Instances of industrial action in Hong Kong are uncommon.

Data protection

i Requirements for registration

The collection, processing, use, disclosure and transfer of personal data is governed by the Personal Data (Privacy) Ordinance (PDPO). It is a principles-based regime with six data protection principles (DPPs) set out in the PDPO, which are drawn from the 1981 Guidelines issued by the Organisation for Economic Co-operation and Development and the EU Directive at the time of its enactment in 1996, with some modifications. The employer as a data user will be required to comply with the DPPs and with the PDPO. Compliance with the PDPO is generally overseen by the Privacy Commissioner. Employers are not required to register with the Privacy Commissioner.

Personal data is defined in the PDPO as any data (1) relating directly or indirectly to a living individual (2) from which it is practicable for the identity of the individual to be directly or indirectly ascertained, and (3) in a form whereby access to or the processing of the data is practicable. Data that would typically fall within this definition would include the employee's name, address, telephone number, and passport and identity card numbers.

Before an employer can collect any personal data from an employee, it must first provide the employee with a PICS, which would usually be attached to the employee's offer of employment. Its content should include explicit statements as to the purposes for which the data is to be used, the classes of persons to whom the data may be transferred and whether it is obligatory or voluntary for the individual to supply the data.

If it is later proposed that the data be used for a purpose not expressly included in the PICS, the employer must obtain separate consent from the employee for that use. An employee is entitled to request access to his or her data and to correct it if necessary.

The employer should only retain personal data for as long as is necessary to fulfil its purpose. It is also required to take 'all practicable steps' to ensure that personal data held is protected against unauthorised or accidental access, processing, erasure or other use.

ii Cross-border data transfers

Although the PDPO contains a provision for the regulation of transfers of personal data to a place outside Hong Kong, it has not been enacted.5 The DPPs, as described in Section XII.i, require that an employee be informed explicitly of the purpose for which the data is to be used (i.e., in a PICS), including a transfer out of the jurisdiction. If the purpose of this transfer does not fall within the original purposes stated in the PICS, then the consent of the employee must be obtained. In this circumstance, there is no requirement to enter into a data protection agreement.

iii Sensitive data

No distinction is drawn between different types of personal data.

iv Background checks

Background checks are permitted in Hong Kong and are commonly carried out in respect of prospective employees. Criminal record checks made with the Hong Kong police are also permitted in limited situations, with the consent of the prospective employee. Hong Kong has legislation for the rehabilitation of offenders under which certain convicted offences will be treated as spent with the lapse of time, but they will remain on record.

Discontinuing employment

i Dismissal

The usual events by which a contract of employment may be terminated include:

  1. one party giving contractual notice to the other;
  2. one party making a payment in lieu of notice to the other; and
  3. summary dismissal by the employer (i.e., for cause).

Termination by contractual notice from one party to another

The EO lays down minimum periods of notice that must be given to terminate a contract. Usually, the period of notice in a contract of employment will be longer than that prescribed by the legislation, in which case the longer period must be used. Subject to this, the minimum statutory notice period for a continuous contract (including in a redundancy situation) is seven days.

Hong Kong law does not recognise the concept of termination at will.

Termination by one party making a payment in lieu of notice to the other

The EO permits an employer to make a payment in lieu of notice to an employee (including in a case of redundancy), and likewise for the employee to make a payment in lieu of notice to the employer. The payment can be made either at the time that the notice is given or at any time during the period of notice. This is a mutual provision (but available only to the party who gives the notice), so the employee may also use it to bring his or her employment to an early end. A new employer might also 'buy out' the notice period of the employee from the previous employer.

Assuming that the termination of the employment contract by a payment in lieu of notice is made in accordance with its terms, the employee will be entitled to receive contractual pay and benefits (with some exceptions) that he or she would have received had he or she instead served out the full notice period, and any other payments to which he or she may be entitled under the contract.

Termination by the employer by summary dismissal (for cause)

This type of termination permits an employer to dismiss an employee immediately and with no further entitlement to pay or benefits. In a well-drafted contract, the grounds of termination would be clearly laid out. In the absence of express grounds of termination, the EO provides for a number of grounds for summary dismissal, including any ground available at common law.

In the case of senior employees, it is not unusual for an employer and an employee to enter into a settlement agreement if, given the seniority of the employee, the employer may want to manage termination of the relationship in a more discreet way.

ii Redundancies

An employee whose contract is terminated, whether by notice or unlawfully, and who satisfies the eligibility requirements, may be entitled to receive either a statutory severance payment or long-service payment. Entitlement to one form of payment will exclude entitlement to the other.

An employee will be entitled to a long-service payment in several situations, including if he or she is dismissed, has been in continuous employment with the employer for no fewer than five years and the employer is not liable to pay a severance payment. The amount of the payment is calculated on the same basis as a severance payment.

An employee will be entitled to a severance payment if he or she has been employed under a continuous contract for a minimum of 24 months and is dismissed by reason of redundancy or is laid off. There is no requirement to notify any government department other than the IRD, and no requirement to notify any trade union, unless the employer is bound by an agreement with the union to do so.

Except for the requirement that the employee must be given a statement of the calculation of the severance payment, termination of an employee's contract for redundancy would follow the same procedure for termination as in a non-redundancy situation.

The amount of a severance payment (or long-service payment) due to an employee is calculated by reference to the number of years of service (pro rata for any part year) and the last full month's wages. For each year of service, the employee will be entitled to receive either two-thirds of his or her last full month's wages or two-thirds of HK$22,500, whichever is less. This sets a ceiling of HK$15,000 on the monthly amount. This amount has not changed for several decades and, consequently, has fallen well behind overall wage levels as compared with those prevailing when it was set. After a statutory payment has been made to an employee, an employer is entitled to reimbursement of the amount of that payment from its mandatory contributions to the employee's MPF account, thereby in all likelihood setting off in full (or very nearly) the statutory payment made to the employee.

iii Notifications to government departments

An employer who wishes to cease to employ a person in Hong Kong must notify the IRD at least one month before the date of cessation. The IRD will accept a shorter notice period where reasonable, such as in the event of a summary dismissal.

Additionally, if an employee is due to leave Hong Kong for more than a month, the employer must notify the IRD at least one month before he or she actually leaves. This requirement does not apply to an employee whose job requires him or her to leave Hong Kong at frequent intervals.

An employer whose employment relationship with an employee holding a work visa has been terminated must inform the Immigration Department as soon as possible.

Transfer of business

There is no provision under Hong Kong law for the automatic transfer of contracts of employment upon transfer of the ownership of a business. Consequently, it is necessary in that context for the selling employer to terminate the contracts of employment of all transferring employees, and for the buyer to make offers of re-engagement to those employees.

The EO provides a mechanism for a form of compliant transfer. This requires broadly that the offer of re-engagement must be on terms that are substantially equivalent to those under the existing contract of employment. Subject to the offer being made no fewer than seven days before the transfer of the business occurs, an employee who accepts the offer will be treated as having his or her continuity of employment and statutory protection rights preserved and transferred to the new employment with the buyer.

Conversely, an employee who rejects the offer unreasonably, and who would otherwise be eligible for a severance payment or long-service payment, will lose that statutory protection.

Outlook

The 2020 policy address of the Chief Executive did not include any proposals for changes to the employment regime in Hong Kong. Details of the government's administrative scheme to reimburse employers under the amended provisions of the EO (see Section II) are awaited.

Footnotes

1 Jeremy Leifer is a partner at Proskauer Rose.

2 Legislative Council Brief for the Administration of Justice (Miscellaneous Provisions) Bill 2014 (22 April 2014).

3 HCLA 26/2018.

4 CACV 502 and 577/2019.

5 In December 2014, the Privacy Commissioner published guidance on cross-border data transfers to help data users to prepare for the implementation of this statutory provision. Although no date has been set for this, the Privacy Commissioner nonetheless encourages data users to adopt the recommended practices contained in the guidance.

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