Employment Law Alert - October 2009 - Reed Smith

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The <strong>Law</strong> 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.
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Employment Law Alert - October 2009 - Reed Smith

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