Human Resources
and Pensions Newsletter
Issue
2006.3
SUMMARY OF CONTENTS
HONG
KONG CASE UPDATE
EMPLOYEES WORKED UNDER SUCCESSIVE FIXED TERM CONTRACTS OF LESS THAN 24 MONTHS MAY NOT BE ENTITLED TO STATUTORY BENEFITS!
In order for an employee to be entitled to the statutory benefits endowed under the Employment Ordinance (the "EO"), in most of the situations, he has to be under a continuous employment with their employer for a certain minimum period. As a result, what constitutes a continuous employment and what breaks its continuity are important to both employers and employees. In a recent Court of Appeal case, Lui Lim Ka & others v. Nice Creation Development Limited (CACV205/2003), the Court considered these issues.
This case demonstrated that employees who are under successive contracts with breaks of more than one week in between may not be under a continuous employment with their employers unless there is a covering global contract. The employer was completely entitled to make such arrangement for the purpose of breaking the continuity of employment of the employees and take advantage of what he is entitled to do under Schedule 1 to the EO.
Background
The defendant operated a seafood restaurant and the claimants were its employees working as waitresses and captain at the restaurant. The claimants had been employed by the defendant restaurant since 1996 under three 18-month contracts. The claimants' employments were terminated by the defendant on 15 March 2001 by serving on them one-month's notice. The reason for the termination was reduction of operation scale of the defendant restaurant.
The appeal concerned the payment of severance payment under section 31B of the EO, which for the purpose of the appeal, depends on whether the claimants had been "employed under a continuous contract for a period of not less than 24 months ending with the date of termination of employment". The appeal only concerns the 2nd and the 3rd claimants.
The Court of First Instance and the Court of Appeal considered the matter on the basis that there was indeed a break of two weeks.
The Court of First Instance held that even if there was an absence from work by the claimants for two weeks, their continuity of the employment was preserved by law as the facts showed that there was a global contract covering the 2nd and the 3rd contracts.
However, the Court of Appeal unanimously overturned the earlier decision of the Court of First Instance and held that on the basis that there was indeed a break of two weeks, it would effectively break the continuity of the employment and accordingly, the claimants had not been employed for a continuous period of not less than 24 months at the date of termination of employment and were not entitled to severance payment. The case was remitted back to the Tribunal for decision on the factual matters.
Continuity of Employment
According to Schedule 1 to the EO, generally speaking, a person who has worked for a minimum of 18 hours per week for four continuous weeks will be regarded as having been employed on a continuous contract. A break of working less than 18 hours within one week is sufficient to break the continuity of employment for the purpose of Schedule 1. However, paragraph 3(2) of Schedule 1 to the EO provides that if in any hour the employee is, for the whole or part of the hour absent from work in circumstances such that, by law, he is regarded as continuing in the employment of his employer for any purpose, then that hour shall count as an hour in which he has worked.
Court of First Instance
In the Court of First Instance, the judge considered that the inescapable conclusion on the evidence before the Labour Tribunal was that there was at least a tacit understanding between the claimants and the defendant that the claimants would be re-engaged after the expiry of their second contracts and considered that this amounted to a global contract situation. As a result, by law, the claimants were regarded as continuing in the employment of his employer even if there was a 2-week break in between the 2nd and the 3rd contracts.
Insofar as the defendant could show that there was an agreement to break the continuity of the contract, such agreement would be contrary to the EO and void under section 70 as it was aimed to extinguish the right of the claimants to severance or long service payments.
The judge further commented that the arrangement of successive contracts was a scheme to avoid liabilities for payment and the break was artificial and if the law was otherwise, the employer could easily escape liabilities to payment by offering to re-engage an employee after a short break.
Court of Appeal
The Court of Appeal after considering the relevant case authorities held that there was no global contract in the present case.
The concept of a global contract might become relevant in cases where the evidence disclosed what on the fact of them was a series of contracts for services entered between the same parties and covering a substantial period of time. On the particular facts of such a case it might be open to infer from the parties' conduct the existence of a continuing overriding arrangement which governed the whole of their relationship and itself amounted to a contract of employment. Such a contract was refereed to as a "global" or "umbrella" contract.
The Court considered that to constitute a global contract, there had to be the irreducible minimum of mutual obligation between the parties otherwise there would be no contractual link between the individual engagements with the result that there would be no global contract. The case authorities relied on by the Court also showed that no global contract could exist in the absence of mutual obligations subsisting over the entire duration of the relevant period and mutuality of obligation was essential to the issue of whether there was a global contract. Examples of mutual obligations include, obligations to provide and perform work, or an obligation by one party to accept and do work if offered and an obligation on the other party to pay a retainer during such periods as work was not offered. There must be something said or done by the employer such as to justify the conclusion that the parties regarded the employment relationship as continuing despite the termination of the contract. Mere high expectation of re-employment on the part of the employee, even when shared by the employer, was not sufficient to create a global contract.
Considering the evidence in this case, the Court of Appeal was of the view that there was no inescapable inference that there was a global contract.
The Court of Appeal considered that it was quite obvious from the evidence that the defendant had adopted the practice of entering into employment contract of 18 months only with its employees with the view to avoid liability to pay e.g. severance payment. The Court was concerned with the legal rights of the parties and not with the morality of such a practice. The defendant was acting perfectly within its legal right not to employ a worker for a continuous period of 24 months. There was nothing unreal about the break and it was designed to break the continuity of the employment and the employer was entitled to arrange its affairs to take advantage of the provisions of Schedule 1 to the EO.
The Court of Appeal was of the view that entering into successive contracts with appropriate breaks so that they did not constitute a continuous contract was NOT covered by section 70 of the EO as the employer was only dong what it was entitled to do under the EO.
The Court of Appeal allowed the appeal and remitted the case to Labour Tribunal for decision on whether the claimants did work for the defendant during the alleged break of two weeks.
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NEW IMMIGRATION POLICIES
The Hong Kong Immigration Department has recently implemented two new immigration policies to enhance Hong Kong's competitiveness in attracting professionals, talents and investors.
Permission to take up employment for dependant visa holders
Effective from 15 May 2006, dependant visa holder whose sponsor has been admitted into Hong Kong for employment (as professionals, investors or for training) or as capital investment entrant is permitted to take up employment without the need to obtain independent work visa. If the dependant visa holder has already been issued with a visa label which states that employment is prohibited unless with prior approval from the Immigration Department, he/she should make an application with the Immigration Department to cancel such condition of stay before he/she can take up employment in Hong Kong. For dependant visa issued since 15 May 2006, there should be no such restriction stated on the visa label. As regards the length of stay of the dependant visa holder, it will still be dependent on that of his/her sponsor. However, such removal of restriction does not apply to dependant visa holder whose sponsor has been admitted into Hong Kong for study and prior approval from the Immigration Department is still required if such person would like to work in Hong Kong.
Quality Migrant Admission Scheme
Background
Since 28 June 2006, the Immigration Department has commenced to accept applications for the Quality Migrant Admission Scheme which was initiated in the 2005 Policy Address. This scheme has a quota system and is point-based. Initially, a maximum of 1,000 applicants per annum may be admitted into Hong Kong under the scheme. The assessment is carried out under either the General Points Test or the Achievement-based Points Test. Candidates should fulfil basic requirements in order to be admitted, including financial capacity of supporting themselves and their dependants, proficiency in Chinese or English, absence of criminal or adverse immigration record, good education background, etc.
Assessment Criteria
A minimum passing mark is set in the General Points Test and candidates are evaluated on the basis of five factors, namely age, academic or professional qualifications, working experience, language proficiency and family background. Candidates assessed under the Achievement-based Points Test will be awarded with a maximum mark of 165 if they have exceptional achievement (e.g. Nobel Prize) or their contribution or work has been significantly recognised in a certain industry.
Short-listed applicants in either the General Points Test or the Achievement-based Points Test will then be considered by an advisory committee which will make the selection with regard to needs of the community and the candidate's area of expertise.
Length of Stay
Successful candidates will be granted a 12-month stay initially. Thereafter, a person admitted under the scheme has to apply for extension of stay and he/she needs to demonstrate to the Immigration Department with supporting documentation that he/she has taken steps to settle in Hong Kong by securing a gainful employment or establishing a business.
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CHINA
EMPLOYMENT
The PRC Labour Contract Law (draft law):
中华人民共和国劳动合同法（草案）:
The Standing Committee of the National People's Congress made public China's draft law on "The PRC Labour Contract Law" on 20 March 2006, with a view to collecting opinions thereon from relevant departments and the public, for further amendments to be made to this draft law.
The PRC Labour Contract Law is intended to be promulgated pursuant to the PRC Labour Law (中华人民共和国劳动法), and sets out to clarify certain ambiguities to give employees better protection.
Outlined below are certain key issues covered under the draft law:
| 1. |
Concept of an employment relationship: Employment relationship is defined, to hopefully eliminate disputes over the existence or not of an employment relationship. |
| 2. |
Form of a labour contract: In general, the employer and employee are expected to enter into a labour contract in writing. The labour contract is required to contain certain basic information pertaining to the employer and employee, and cover basic terms and conditions pertaining to contract duration and termination conditions, job specifications, work venue, working hours, leave entitlement, remuneration, etc. |
| 3. |
Probation period: The employer may set a probation period, once only, and only where the job position is intended for a period of no less than three months. The probation period may not exceed the stipulated maximum determined in accordance with the job nature: maximum probation period of one month for a non-technical job; two months for a technical job; and six months for a senior, professional technical position. It is quite obvious that this is intended to make it impossible for an employer to unduly delay commencement of a normal employment relationship with an employee by setting unreasonably long or multiple probationary periods. |
| 4. |
Validity and revocation of a labour contract: A labour contract which comes about through deceit, threat, or wherein material misunderstanding exists, or which is otherwise devoid of fairness or contrary to the prospective employee's real intention, may be held an invalid contract by the relevant authority upon application by the affected party. However, any such application for revocation of contract must be made within one year of knowing (or should have known) the ground of revocation, otherwise, such right of revocation of contract is lost. |
| 5. |
Performance and termination of labour contract: These aspects are clarified to primarily (i) require performance in accordance with the terms of the contract save where exempted under special circumstances; (ii) stipulate circumstances under which the employer and employee may terminate the contract; and (iii) deal with payment of economic compensation or severance pay by the employer to the employee upon termination of contract. |
| 6. |
Payment of severance pay: Where severance pay is payable (such as where contract is not renewed upon its expiration), the applicable amount is determined with reference to the duration of service rendered by the employee. Basically an amount equivalent to one month's salary for each year of service, and a half month salary for a six-month service period or less. A service period of more than six months but less than one year is treated as one year for purposes of calculating the severance pay. The severance pay is subject to a reduction of 10% thereof for every five years of continuous employment, and this is obviously intended to encourage employers to offer long term continuous labour contracts rather than multiple short-term labour contracts to prospective employees. |
| 7. |
Non-Compete Clause: A non-compete clause may be imposed only upon employees who have gained commercial secrets of the employer. The non-compete clause may cover a period of no more than two (2) years counting from the termination of the labour contract. Economic compensation of a minimum amount equal to the employee's last drawn annual salary is payable to he employee upon termination of the labour contract, failing such payment, the non-compete clause would not be enforced by the PRC court. The geographic scope of the non-compete clause is limited to those areas where the employer is subject to competition. The penalty payment which the employee may be required to pay for failure to observe non-competition is capped at three times the amount of economic compensation paid to him by the employer in respect thereof. |
| 8. |
Full-time training provided free of charge: Employers who provide employees with full-time training free of charge for six months or longer may agree on a minimum term of service with the employee. If the employee fails to complete the agreed term of service, the employer may require the employee to pay a penalty sum equivalent to (but not exceeding) the amount of training cost yet to be amortised with reference to the remaining term of service. |
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Whilst every effort has been made to ensure the accuracy of this publication, it is for general guidance only and should not be treated as a substitute for specific advice.
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