Employment Law Alert - October 2009 - Reed Smith

Employment Law Alert ‐ October 2009
Overview
Welcome to Richards Butler in Association with ReedSmithʹs October
Employment Law Alert. In this edition, we cover several recent employment law
case developments in Hong Kong covering a wide range of regular issues for
human resource practitioners and in‐house lawyers.
Recent Decisions
Mak Kin Hung Donald v OPG Human Resources Ltd HCLA 22 and 23/2009
Employeesʹ claim of wrongful dismissal on the grounds of summary dismissal
If an employer seeks to rely upon a term of an Employment Handbook
(“Handbook”) when summarily terminating an employee for allegedly failing to
comply with such a term, the employer must ensure that (a) the relevant term of
the Handbook is incorporated into the employee’s contract of employment and
that (b) the employee has actually breached the term as described in the
Handbook.
Facts
The case concerned claims by a number of former employees for wrongful
dismissal. The employees were engaged as reporters and head reporters for the
Oriental Press Group. As part of their duties, the employees had to report on
sensitive breaking news.
The employees were summarily dismissed for alleged gross misconduct for
failing to comply with a term of the employer’s Handbook which prohibited the
employees from contacting other persons in the media industry without prior
permission, or from contacting relatives or friends in the media industry for the
purposes of discussing any ‘news or company information’. Importantly, this
particular term was introduced into the Handbook on 23 June 2008.
Prior to 23 June 2008, the same employees had been reprimanded during May
2008 for contacting friends and contacts in the industry, but no action was taken
against them at the time. Subsequent to this, the employer amended the
Handbook on 23 June 2008 and then sought to rely upon this prior conduct of the
employees for the purposes of summarily dismissing them between 28
November 2008 and 4 December 2008 for ‘contravening the work rules, serious
misconduct and divulging news information’.

The Law
Section 9 of the Employment Ordinance (Cap 57) (“EO”) states:‐
(1) An employer may terminate a contract of employment without notice or payment in
lieu‐ (Amended 51 of 2000 s. 2) [emphasis added]
(a) if an employee, in relation to his employment‐
(i) wilfully disobeys a lawful and reasonable order;
(ii) misconducts himself, such conduct being inconsistent with the due and
faithful discharge of his duties;
(iii) is guilty of fraud or dishonesty; or
(iv) is habitually neglectful in his duties; or
(b) on any other ground on which he would be entitled to terminate the contract without
notice at common law.
Whilst the employer in this case did not state exactly which specific head it had
relied upon, it would appear that it relied upon Section 9(1)(a)(i) and Section
9(1)(a)(iii) of the EO in relation to the employees’ failure to comply with the new
term of the Handbook.
It should be noted that summary dismissal under the EO is a very serious
sanction for employers to take, which can result in serious financial loss for
employees (such as for example in relation to the entitlement to a severance
payment, annual leave and notice) as well as effect an employee’s prospects for
gaining future employment. Where an employer fails to show an entitlement to
summarily dismiss an employee, the employee may successfully make a claim
for wrongful dismissal and Courts will examine an employer’s conduct carefully
in light of the serious consequences faced by employees in these circumstances.
Decision
The Labour Tribunal at first instance found that the employer was not entitled to
dismiss the employees summarily, as on the facts there was no conduct which
justified such action. The employer appealed to the Court of First Instance
alleging that the Presiding Officer of the Labour Tribunal had made several
errors of Law. However, the Court refused to grant leave to appeal and agreed
with the decision of the Labour Tribunal and held in particular that:‐
• The relevant provision of the Handbook relied upon to summarily dismiss
the employees’ employment was not incorporated into the employeesʹ
contracts of employment at the relevant time and could not therefore be
relied upon to ground the decision to dismiss summarily. As noted above, the
provision of the Handbook was introduced on 23 June 2008. However, the

vast majority of the conduct complained of occurred prior to the introduction
of the new clause in the Handbook and the employer did not at the time take
action to terminate any employees’ employment in response to the offending
conduct. Furthermore, the employer’s failure to act on the alleged misconduct
at the time when it occurred meant that the employer had ‘waived’ its right to
summarily dismiss in any event. Justice Chu stated:‐
“Having decided not to terminate the employment then, the defendant [the employer]
could not rely on these contacts to summarily dismiss these claimants some six or
seven months later. The suggestion that the defendant did not in May 2008
appreciate the gravity of the matter does not afford a justification for summary
dismissal in December 2008.”
• In addition, the employees’ conduct did not in any event factually breach the
relevant term of the Handbook as amended.
• In relation to a Mr. Lam (a single employee whose conduct did post‐date the
amendment to the Handbook), the Court interestingly found that the term had
still not been incorporated in the employee’s contract of employment.
Importantly Justice Chu stated:‐
“Before the amendments can be incorporated to become part of the employment
contract, Mr Lam [the employee] must have notice and knowledge of the
amendments. Even though he was under a contractual obligation to pay attention to
the notice board and that he had failed to observe it such that he was unaware of the
amendments, it does not mean that the amendments will, without more, become part
of the employment contract.”
Practical implications
This case demonstrates the need to carefully review and amend Employee
Handbooks, which may or may not form part of employees’ contracts of
employment, as well as the need for employers to carefully investigate matters
which may lead to the summary dismissal of an employee. In particular, an
employer should carefully consider the exact wording of conduct it wishes to
prohibit which may lead to summary dismissal and the employer should take
special care to ensure that any ‘amendment’ to the Employee Handbook is
actually incorporated into the Employment Handbook, so that it may be relied
upon – if it indeed wishes to do so. In this case, the employer failed on all counts
as the relevant term was not incorporated and nor was the wording specific
enough to match the conduct alleged.

Furthermore, an employer should be careful to ensure that employees are aware
of amendments to the Handbook in a manner that can be clearly evidenced and
which is in line with the contractual provisions of the actual employment
contract. Merely posting a notice or perhaps sending an email detailing an
amendment may not be enough.
Lastly, if an employer wishes to protect ‘confidential information’ (not that this
case necessarily concerned ‘confidential information’) it should include carefully
drafted confidentiality provisions in its employment contracts to protect such
information post employment.
HKSAR v Lam Lenor Chan MA No 125 of 2009
Employer found guilty of failing to pay wages to an employee in breach of
Section 23 of the EO and imprisoned for 3 months in accordance with Section
63C of the EO
This case involved an employer deliberately failing to pay a domestic helper her
correct wages in contravention of Sections 23 and 63C of the EO and serves as a
timely reminder for all employers (as these provisions relate to all employers in
Hong Kong) to pay their employees both correctly and on time. Failure to do so
can attract very serious criminal and civil liability, including both fines and
imprisonment.
Facts
The employer engaged the domestic helper under an employment contract
(“Contract”) which set out her salary in accordance with the legal minimum
wage for domestic helps at the time ($3,270). However, after the domestic helper
commenced working, the employer paid her $1800 to $2000 per month, for the
majority of her 2 year Contract. The domestic helper didn’t question this until
she left her employment as she claimed that she was not in the dominant
position as the employer. The Court accepted her claim.
In practice, the employer asked the employee to cash cheques for the full amount
of her salary. The employer then asked the domestic helper to pay back a portion
of her salary in cash, whilst at the same time asking her to sign a receipt
evidencing payment for the full amount. These facts were established through
the credibility of the domestic helperʹs evidence and a recording made by the

domestic helper of a discussion between herself and the employer which was
admissible despite it being recorded without the knowledge of the employer.
The Law
Section 23 of the EO states:‐
“Wages shall become due on the expiry of the last day of the wage period and shall be paid
as soon as is practicable but in any case not later than 7 days thereafter.”
Section 63C of the EO states:‐
Any employer who wilfully and without reasonable excuse contravenes section 23, 24 or
25 commits an offence and is liable to a fine of $350000 and to imprisonment for 3 years.
These provisions combine to create serious obligations and consequences for
employers to pay wages on time. As Section 63C of the EO was only recently
amended, it appears that the Courts are now more willing to hand down harsher
sentences for this offence.
The Decision
This matter involved an appeal from a Magistrates’ decision to impose a 9 month
prison sentence upon the employer. Whilst the appeal was partially successful in
reducing the sentence, Justice Line otherwise agreed with the sentiments of the
Magistrate.
Importantly in imposing a 3 month jail sentence, Justice Line noted that, whilst in
his view 9 months was a heavy sentence, the Legislative Council had recently
increased the penalties for failure to comply with Section 23 of the EO to a 3 year
imprisonment term and a fine of $350,000 and as such:‐
“Sentences which have attracted fines or community service have, in my view, to this
point been inadequate. The deliberate raising of the maximum sentence of imprisonment
to 3 years by the legislature in 2006 must have been undertaken for good reason, and the
legislative intent is only too clear.”
Therefore in this case where the employer had “deliberately and consistently”
underpaid the employee and then sought to “have her cake and eat it too” by
taking the matter to trial, the Judge commented that ʺyou cannot expect to be
shown the mercy of community service and save yourself from imprisonment”.

Practical implications
Whilst this case involved the deliberate and consistent failure to pay an
employee her proper wages, it does serve as a timely reminder that the failure to
pay an employee properly and on time can lead to some very serious
implications indeed. It should be noted that whilst this case involved the
employment of a domestic helper, the stated provisions apply equally to
employees in general. This case further demonstrates an increased willingness of
the Courts to impose harsher penalties in circumstances where past decisions are
now considered inadequate.
Employers should ensure that they pay all entitlements and wages on time and
more so, that such wages and entitlements are calculated correctly to ensure that
the employee is properly remunerated. These entitlements also do of course
include termination payments which may or may not include a calculation of an
employee’s commission (as it may fall within the definition of wages under the
EO due to recent legislative amendments).
We suggest that employers, human resource manages and pay roll managers
develop a comprehensive understanding of staff remuneration and calculation of
entitlements under contracts of employment and the EO (which can override
employment contracts to the extent that the employment contract attempts to
override the EO). As a practical consideration, it is quite possible that the Labour
Department and the Courts will take a stricter approach with a medium‐sized or
large employer which they may assume has the resources to ensure compliance.
Lastly, employers should be wary of discussions that they have with employees,
particularly over disputed remuneration as they may find themselves being
recorded, especially seeing as Courts will accept such recordings into evidence.
In this regard, we suggest that any discussions with employees over such matters
be done face to face and involve witnesses. Accurate written records of any such
discussions should also be kept.
Wong Yu Tui DCEC No. 886 of 2008
Whether an employee was an independent contractor for the purposes of the
Employees’ Compensation Ordinance and insurance coverage
Determining whether an individual is an employee or an independent contractor
can raise critical questions in terms of a party’s liability – such as in relation to

Employees’ Compensation, compliance with safety legislation and of course the
EO, as well as possible mandatory pension benefits. This case once again
demonstrates some of the factors Courts consider in determining this important
question and the need, practically speaking, to set out such arrangements clearly
and concisely in independent contractor / labour hire agreements. In this way, a
company and / or individual can reduce liability and shift risk.
The Facts
The Applicant was a construction worker specialising in demolition. The
Applicant argued that he was an employee within the common law meaning of
the phrase and therefore entitled to Employees’ Compensation under the
Employees’ Compensation Ordinance (Cap. 282) (“ECO”) for injuries he had
sustained whilst working for the two Respondents. The 1 st Respondent failed to
appear. The 2 nd Respondent argued that the Applicant was not an employee of
his, but rather an independent contractor engaged to perform demolition work
on this basis.
The issue for the Court to consider was whether the ‘person providing the
services can be said to be conducting business on his own account, or merely
working for the pay’.
The Applicant was engaged by the 2 nd Respondent to perform demolition work
on a house. The 2 nd Respondent was in turn engaged by the principle contractor
(named as the 1 st Respondent) to perform the same job. The Applicant claimed he
was employed by the Respondents.
The 2 nd Respondent and the Applicant met on 16 October 2009 and travelled to
the house where the work was to be performed and the Applicant represented
that he would bring 2 additional workers with him to complete the demolition
job. All parties agreed upon the terms of payment the following day. However,
on the second day of work the Applicant was injured at work. The 2 nd
Respondent informed the Applicant however that he did not have employees’
compensation insurance and denied that that the Applicant was employed by
him. It should be noted that the 2 workers brought in by the Applicant filed a
separate claim with the Labour Department against the 1 st Respondent for wages
in arrears and that their claim were settled by the 2 nd Respondent after
mediation.

The Law
Justice Leung stated in determining the nature of the relationship “the Court’s
role is to examine all the features of the relationship between the parties
concerned with a view to deciding whether, as a matter of overall impression, the
relationship is one of contract for service or contract of service”.
Relevant factors that the Court may have regard to include (but are not limited
to):‐
• The degree of control exercised by the party engaging the individual;
• Whether the person performing the services provided his / her own
equipment;
• Whether the person performing the services hired his / her own helpers;
• What degree of financial risk the person performing the duties exposed
himself / herself to; and
• The degree of responsibility for investment and management and whether he
/ she had a chance of profiting from sound management of the services.
In “a nutshell, the Court is to find whether the person providing the services can
be said to be conducting business on his own account or merely working for the
pay”. This test follows the test set out in the Court of Final Appeal decision of
Poon Chau Nam v Yim Siu Cheung (2007) 10 HKCFAR 156.
The Decision
The 2 nd Respondent argued that the Applicant was an independent contractor on
the basis that he was not supplying the Applicant with any equipment, he was
not supervising the Applicant’s work and was not being present during the
performance of the work – therefore lacking control of the Applicant. The 2 nd
Respondent gave evidence to the effect that if he had employed the Applicant he
would have been present and would have directed the Applicant when to take
work breaks and when he could cease work. At the very least, there would be a
requirement for the Applicant to inform him that he had ceased work, which he
did not.

However, the Court found that the Applicant was an employee of the
Respondents. The Court held that the lack of control and supervision of the
Applicant was a ‘neutral’ factor in the case of experienced individuals such as the
Applicant. Furthermore, the Court essentially dismissed the 2 nd Respondent’s
evidence as to how he would have dealt with the Applicant had he hired him as
an ‘employee’ as he again was of the view that this would not be necessary with
and experienced employee.
Although there was a dispute over who had supplied the equipment, the Court
preferred the evidence of the Applicant in finding that he was an employee
based upon all of the above factors. Consequently, the Applicant was entitled to
compensation under the ECO.
Practical implications
Businesses should be particularly careful when engaging persons as
‘independent contractors’ as Courts will not be reluctant to go behind the title of
the arrangement to examine the true nature of the relationship overall. Therefore,
businesses should carefully set out their independent contractor arrangements in
a well drafted agreement reflecting this arrangement. Furthermore, this
arrangement should reflect the reality of the situation.
Businesses should also recognise that other legislation such as the Race
Discrimination Ordinance (cap. 602) covers contractors as well as employees, so
such arrangements can not always shift risk in any event.
Lastly it is always preferable (if possible) for businesses to engage independent
contractors who are incorporated, as this places a further layer between the
business and the individual (assuming that the individual is a sole
shareholder/director of a company).
If you require any further information on any of the above articles please let us
know.

Employment Alert Case Update Seminar
Due to popular demand and feedback received Kevin Bowers, Partner and
Lincoln Kinley (a dedicated employment lawyer) will be holding three free
identical lunchtime seminars focusing exclusively on employment and antidiscrimination
law cases on 19, 24 and 26 November 2009 between 1:00 p.m and
2:00 p.m. at our offices at Level 20, Alexandra House, 16‐20 Chater Road Central
Hong Kong. To register for one of these seminars please contact Lincoln Kinley
either via email at lkinley@rsrbhk.com or telephone on 25079833.
As stated above the format of our presentation will focus on actual decided cases
and will cover various aspects of employment law including those above as well
as more recent decisions. The format will be interactive and include contributions
by participants. Please register early to avoid disappointment.
October 2009
RICHARDS BUTLER
in associated with Reed Smith LLP
Disclaimer: The information contained in this article is intended to be a general guide
only and is not intended to provide legal advice.