Human Resources
and Pensions Newsletter
Issue
2008.1
SUMMARY OF CONTENTS
MANDATORY PROVIDENT FUND SCHEMES (AMENDMENT) ORDINANCE 2008 AND MANDATORY PROVIDENT FUND SCHEMES (AMENDMENT)(NO.2) BILL 2007
Since 2002, the Mandatory Provident Fund Schemes Ordinance ("MPFSO") has not been amended. In order to enhance the efficiency and minimise the loopholes of the MPF system so as to better serve the needs of existing and future scheme members, certain changes have been made or proposed to be made recently.
First, the Mandatory Provident Fund Schemes (Amendment) Bill 2007 was passed by the Legislative Council on 9 January 2008 which resulted in the enactment of the Mandatory Provident Fund Schemes (Amendment) Ordinance 2008 (the "Amendment Ordinance") on 18 January 2008. The major amendments made by the Amendment Ordinance are summarised in section I below.
Second, the Mandatory Provident Fund Schemes (Amendment) (No. 2) Bill 2007 (the "Second Amendment Bill") was gazetted on 3 January 2008 and tabled to the Legislative Council on 9 January 2008. The proposed amendments have not been passed by the Legislative Council yet. The major proposed changes in the Second Amendment Bill are summarised in section II below.
I. Major Amendments made by the Amendment Ordinance
1. Housing allowance and housing benefits
One of the major amendments to the MPFSO is to include the housing allowance and other housing benefits in the definition of "relevant income" for the purpose of calculating MPF contributions. Only housing allowance and other housing benefits in cash will be included as "relevant income", whereas the monetary value of quarters or accommodation provided by the employer will be excluded. This provides an effective way to rectify the irregularities that some employers deliberately designate a portion of their employees' income as housing allowance or other housing benefit in order to reduce the amount of relevant income and to evade or reduce their MPF contributions.
2. Arrears recovery mechanism
Before the change made by the Amendment Ordinance, if the employer fails to pay the mandatory contributions by the contribution day, the trustee will issue a reminder to the employer requiring the employer to settle the payment by the end of the settlement period, i.e. 30 days following the contribution day. If the employer fails to do so, the trustee will report to the Mandatory Provident Fund Schemes Authority ("MPFA") within the immediately following 7 days and the MPFA will issue another notice and impose a contribution surcharge on the employer to be settled within a specified period. If the employer still fails to pay, the trustee will make a second report to the MPFA within the immediately following 10 days. The MPFA will then take legal action against the employer to recover the default contribution and the surcharge. It is however unclear as to whether the MPFA could impose contribution surcharge and institute civil proceedings against an employer to recover the default contribution and contribution surcharge only after all the recovery procedures have been complied with.
In order to clarify the above situation, a new section, section 135A, will be added to the Mandatory Provident Fund Schemes (General) Regulation (the "General Regulation") which requires approved trustees to take actions as may be reasonably required by the MPFA in connection with the recovery of arrears or a contribution surcharge. Also the arrears recovery process will be speeded up by removing the 30 day settlement period and allowing the MPFA not to issue surcharge notices in specified circumstances, where:
- the defaulter cannot be located;
- the defaulter has paid all of the arrears and contribution surcharges payable on the arrears to the approved trustee;
- the defaulter has paid part of the arrears and contribution surcharges to the approved trustee and that the outstanding arrears and contribution surcharges are irrecoverable;
- all of the arrears and contribution surcharges are irrecoverable;
- there has not actually been a default; or
- service of a notice is not reasonably practicable in all the circumstances.
If the employer fails to pay a mandatory contribution in full to the approved trustee by the contribution day, the trustee must inform the MPFA by written notice within 10 days of default of payment. The MPFA will then issue a notice requiring the employer to pay the arrears and the contribution surcharge within a specified period.
The above amendments relating to housing allowance and arrears recovery will become effective on a date to be appointed by the Secretary for Financial Services and the Treasury.
3. Enforcement of the MPF System
- To improve the effectiveness of service of MPF summonses, section 47C will be added to the MPFSO to allow leaving a summons at or sending it by post to any place at which the employer carries on business, rather than leaving it or sending it by post to the registered office as required by the Companies Ordinance or the Magistrates Ordinance.
- The MPFSO will be amended by adding section 19A which allows the MPFA to give a notice on an employer or a self employed person or any other person in writing, requiring him to produce any record for inspection within a period which is specified in the notice. The person commits an offence and is liable on first conviction to a fine of $100,000 and imprisonment for 12 months; and on subsequent conviction to a fine of $200,000 and imprisonment of 2 years if he fails to comply with such requests.
- The time limit for instituting criminal proceedings for an offence under section 43C and section 43E of the MPFSO and section 26 of the Mandatory Provident Fund Schemes (Exemption) Regulation will be extended so that criminal proceedings may be instituted within six months after the offence is discovered by or comes to the notice of MPFA or within three years of the commission of the offence, whichever period expires first.
4. Administration and regulation of the MPF Scheme
- To facilitate the transfer of accrued benefit on cessation of employment, the General Regulation has been amended to allow the trustee to accept from employees a notice of cessation of employment by statutory declaration if the employers fail to notify the trustee within 30 days for any reasons.
- MPFSO has been amended to clarify that the Official Administrator, who summarily administers the small estate of a deceased member, could be considered as a "personal representative" for the purpose of withdrawing MPF accrued benefits.
- The MPFA is allowed to disclose certain information in the following circumstances:
- comparative information about MPF constituent funds to assist members making investment decisions
- information to certain parties, e.g. the Labour Tribunal
- information to the Official Receiver or liquidator to facilitate the discharge of duties.
The above changes relating to enforcement of the MPF system and the administration and regulation of the MPF Scheme have become effective on 18 January 2008.
II. Major Amendments proposed by the Second Amendment Bill
1. Offences by employers
One major proposal of the Second Amendment Bill is to impose criminal and civil liability on employers who default on employees' MPF contributions or fail to enrol in MPF schemes without reasonable excuse within the permitted period of 60 days. It is proposed that an employer who does not enrol its relevant employee in an MPF scheme is still liable to pay mandatory contributions for the employee and such contributions become due to the MPFA by a prescribed due date. The defaulted employer who fails to comply with the enrolment or contribution obligation in accordance with section 7 of the MPFSO is liable on conviction to a fine of HK$350,000 and to imprisonment for 3 years.
In addition to the penalty, the court also has a discretionary power to compel an employer to enrol its employees in an MPF scheme within the time specified in the order and to pay the outstanding contributions and contribution surcharges as appropriate. In the case where the employer fails to pay the contribution to the approved trustee of the registered scheme of which he is a member within the required period and he has deducted a contribution from the employee's relevant income, it is proposed upon conviction, the employer is liable to a fine of HK$450,000 and to imprisonment for 4 years.
The Second Amendment Bill also proposes to create a new offence whereby an employer who knows or recklessly provides any information that is false or misleading in a material respect (e.g. stating that contributions have been duly paid on a certain date but in fact no such contributions have been made) in a pay-record given to an employee commits an offence and is liable on conviction to a fine of HK$100,000 and to imprisonment for 12 months on the first occasion and to a fine of HK$200,000 and to imprisonment for 2 years on each subsequent occasion.
2. Controllers of Approved Trustees
New provisions have been proposed to be added to the MPFSO relating to controllers of approved trustees. The proposed section prohibits persons from becoming an officer of the trustee without prior written consent from the MPFA. The person who proposes to become a director or chief executive officer has the skill, knowledge, experience and qualifications that, in the opinion of the MPFA, are necessary for the successful administration of provident fund schemes. Likewise, a person must not become a substantial shareholder controlling at least 15% of the voting shares of an approved trustee, or an indirect controller who acts in accordance with those instructions directors are accustomed to, unless the MPFA has given prior written consent to the person's becoming such persons. The MPFA may only give consent if it is satisfied that the person is of good reputation and character and has not been found guilty whether in Hong Kong or elsewhere of an offence involving fraud or dishonesty.
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WHEN CAN AN EMPLOYER TERMINATE AN EMPLOYEE WHO WAS INCAPACITATED DURING EMPLOYMENT?
According to section 48 of the Employees' Compensation Ordinance (the "Ordinance"), an employer shall not (without the consent of the Commissioner) terminate the employment or give termination notice to an employee who has suffered incapacity in circumstances which entitled him to compensation under the Ordinance before among other things, an Ordinary Assessment Board or a Special Assessment Board, as the case may be, has issued a certificate under section 16F or 16G(3), to the employee, the employer and the Commissioner for Labour. The Court of Appeal by a majority recently ruled in Ngan Yu Chiu vs. New World First Bus Services Limited (CACV122/2007) that upon a proper construction of section 48, an employer shall not terminate or serve termination notice on an employee who has suffered from work related injury even after the section 16F Certificate has been issued provided that the employer is aware that an objection to the assessment of the 16F Certificate pursuant to section 16G(1) has been lodged. In that event, the contract of service might not be terminated until after the issue of the certificate under section 16G(3).
Case Summary
The Employee was a bus driver and he suffered injury in the course of his employment. A Certificate of Assessment under section 16F of the Ordinance was issued on 26 May 2005. The 16F Certificate was received by the Employer on 30 May 2005. The Employee was dissatisfied with the assessment result under the 16F Certificate and raised an objection pursuant to section 16G(1). The Employer had notice of the Employee's section 16G objection on 30 May 2005.
On 31 May 2005, the Employee requested that he be allowed to resume work but the Employer refused to permit him to resume work unless he could provide a medical certificate certifying that he was fit to do so. The Employee was unable to provide such a certificate. As a result, the Employee brought a claim against the Employer in the Labour Tribunal and it was implicit in the Labour Tribunal decision that because the Employee was not allowed to resume work, he had been constructively dismissed on 31 May 2005.
Section 48 of the Ordinance provides that:
"(1) An employer shall not, without the consent of the Commissioner-
(a) terminate the contract of service...of an employee who has suffered incapacity in circumstances which entitle him to compensation under this Ordinance; or
(b) give notice to the employee of such termination, before ....
(iii) an Ordinary Assessment Board or a Special Assessment Board, as the case may be, has issued a certificate under section 16F or 16G(3), to the employee, the employer and the Commissioner,
whichever occurs first. "
The Court of Appeal, by a majority, concluded that under section 48(1)(iii), the Employer was not entitled to terminate the contract of service even after the section 16F Certificate had been issued if the Employer had notice that an objection under section 16G(1) had been lodged. In that event, the contract of service could not be terminated until after the issue of the certificate under section 16G(3). The judges gave different reasons for this conclusion and they are set out below:
Under section 2 of the Ordinance, an employee may suffer from temporary or permanent incapacity. Permanent incapacity is compensated by a lump sum payment whilst temporary incapacity is awarded by periodical payment of 4/5 of the monthly salary for a period of 24 months or 36 months. The Ordinary Assessment Board will assess the percentage of the loss of earning capacity permanently caused by the injury and the period of absence from duty necessary as a result of the injury and issue the section 16F Certificate.
The employer or employee may in writing to the Commissioner make objection to the assessment by the Ordinary Assessment Board within 14 days after the date of issue to him of the section 16F Certificate or within such further time as the Commissioner may allow, and to serve the notice of objection on the other party. The Special Assessment Board shall then review the assessment and shall after the review issue to the employer, employer and Commissioner a certificate under section 16G(3). Upon the issue of the section 16G(3) Certificate, the section 16F Certificate shall be cancelled.
Hon Cheung JA
Hon Cheung JA considers that the clear purpose of section 48(1) when read in the context of the aforesaid procedures is to ensure that the assessment process, which includes the assessment by the Ordinary Assessment Board and when objection is raised by the review assessment of the Special Assessment Board, is complete before the employee's contract can be terminated.
As the employee has a statutory period of 14 days to lodge the objection, hence during the 14 day period the employer is not entitled to terminate the contract. If after this period, the employer does not receive any notice of objection, the employer can then proceed to terminate the contract. Although section 48(1) provides a power to the Commissioner to extend time generally for the parties to raise objection, this does not mean that the employer will be left in a state of uncertainty. Until such time as the Commissioner grants an extension, the party who wishes to raise objections to the section 16F Certificate must observe the statutory time limit of 14 days. This means the general extension of time must be read down as far as the employer's entitlement to terminate the contract after the 14-day statutory period is concerned. In other words, the employer is entitled to terminate the contract after the 14-day period.
He therefore rules that the appeal should be dismissed with costs to the Employee because the Employer had had notice of the objection by the employee to the section 16F certificate at the time when it terminated the contract of employment.
Hon Lam J
Hon Lam J considers that there should not be a waiting period of 14 days before an employer can reply on a section 16F Certificate as the 14 days period is not conclusive to the exercise of right of objection as there was a possibility of extension of time by the Commissioner.
He highlights 3 points in respect of section 48(1)(iii). First, the embargo is imposed upon an employer only. There is no corresponding embargo imposed upon the employee as he/she can terminate the employment if he/she wishes. Hence the statement of mind of the employer shall be the primary focus for the purpose of section 48(1)(iii). Secondly, termination is a one-off event and one should determinate the validity or legality of a particular act with reference to the prevalent circumstances when the act is committed. Fairness dictates that the validity and legality of the termination should be adjudicated by reference to the position as the date of termination. Thirdly, there will not be any certificate under section 16G(3) unless there is an objection made under section 16G(1).
In view of the aforesaid three points, Hon Lam J considers that the proper application of section 48(1)(iii) requires an examination of the situation on the date of termination as known to the employer. If the employer is not aware of any objection under section 16(G)(1) when he exercises the right of termination, the reference to section 16(G)(3) in section 48(1)(iii) is irrelevant.
In this case, the Employer was aware of the objection under section 16G(1) at the time of the constructive dismissal. Hence, it was subject to the embargo under section 48(1)(iii) and the appeal should be dismissed.
Conclusion
The Court of Appeal by a majority dismissed the appeal raised by the Employer and the case was remitted back to the Labour Tribunal for consideration of an award under section 32P of the Employment Ordinance (compensation to be payable to the employee by the employer as the Tribunal considered just if the employee was dismissed in contravention of section 48 of the Employees' Compensation Ordinance).
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CAN ANNUAL LEAVE BE INCLUDED IN TERMINATION NOTICE PERIOD?
Under section 6(2A) of the Employment Ordinance, annual leave to which an employee is entitled under the Employment Ordinance shall not be included in the length of notice required to terminate a contract of employment.
However, in a recent judgement of Kao Lee & Yip v Lau Wing and Tsui Wai Yu (CACV 121/2006), the Court of Appeal confirms that section 6(2A) will not apply when it is the employee who gives notice, or even if does apply, the employee can waive the exclusion of the leave period.
Case Summary
The Plaintiff is a law firm in Hong Kong and the defendants were two solicitors in the Plaintiff's employment. Under their employment contracts, either the employer or the employee may terminate the employment relationship by serving 3 months' written notice. On 19 August 2005, the solicitors served 3 months' termination notice but stated that they would only work for one month, until 19 September 2005 and pay to the Plaintiff two months' wages in lieu of the remaining two months' notice. The Plaintiff contented, amongst others, that the 1st Defendant's termination notice was invalid as it was short by one day.
In the High Court, the Judge considered that as the leave concerned was contractual leave and not statutory annual leave, it would not affect the calculation and did not invalidate the termination notice. In addition, even if that was wrong, the higher water mark of the Plaintiff's position was that they would be entitled to one more day's wages.
In the Court of Appeal, Honourable Judge Yuen considered that the 1st Defendant was unable to point to the court any material that supported the High Court Judge's finding that the 1st Defendant was on contractual leave. However, in any event, the Court of Appeal could not see any substance in the Plaintiff's argument.
The Court of Appeal considered that it is clear that section 6(2A) is for the protection of the employee only.
When comparing the parties' position where an employee enjoys statutory annual leave, the Court considered that the employee gets the benefit of being on leave and at the same time being paid his salary whilst the employer derives no benefit. The Court then considered what the employer has to do if he wishes to terminate an employee's contract with immediate effect (without grounds for summary dismissal). Apart from having to employ a replacement, the employer has to pay wages in lieu to the departing employee. If an employer could give notice to an employee during the employee's statutory annual leave period, the employer would then be able to get rid of the employee with immediate effect but avoid having to pay him the wages in lieu which he would normally have to do for the advantage of terminating an employee's contract with immediate effect. For the same reason, an employer is not permitted to give notice to an employee during the period when she is on maternity leave.
In view of the aforesaid, the Court considered it is clear that it is for the employee's benefit that section 6(2A) was enacted, so it will not apply when it is the employee who gives notice, or if it does apply, the employee can waive the exclusion of the leave period.
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CHINA EMPLOYMENT - THE PRC LABOUR CONTRACT LAW:
On 29 June 2007, the Standing Committee of the National People's Congress approved the PRC Labour Contract Law ("Labour Contract Law"), which shall become effective on 1 January 2008. The Labour Contract Law is not intended to replace the PRC Labour Law (中华人民共和国劳动法) but imposes more obligations on the employers for the protection of the employees' interests and rights. Several unclear issues under the PRC Labour Law are also clarified.
Outlined below are certain key issues covered under the Labour Contract Law:
1. Form of a labour contract:
In general, the employer and employee are expected to enter into a labour contract in writing at the beginning of employment. The labour contract is statutorily required to contain certain basic information pertaining to the employer and employee, and cover basic terms and conditions pertaining to contract duration, job specifications, work venue, working hours, leave entitlement, remuneration, social insurance, labour protection, occupational safety etc. The labour contract may also cover terms and conditions pertaining to probation, training, confidentiality, supplementary insurance, fringe benefits, etc. Amendment of a labour contract must be made in writing.
2. Types of labour contracts:
Labour contracts can be classified into three types, namely (1) fixed-term; (2) open-term; and (3) project-based. The Labour Contract Law encourages the use of open-term contracts by requiring an employer to enter into an open-term contract with an employee who has worked for that employer for 10 years or above, or has otherwise signed two successive fixed-term contracts with that employer. An open-term contract is deemed to be made if an employer does not enter into any written labour contract with an employee who has worked for that employer for more than 1 year.
3. Probation period:
An employer may set a probation period, once only, and only where the job position is intended for a period of no less than 3 months and the employment is not project-based. The probation period may not exceed the stipulated maximum determined in accordance with the contract duration: maximum probation period of one month for contracts with a term between 3 months and 1 year, maximum probation period of 2 months for contracts with a term between 1 year and 3 years, and maximum probation period of 6 months for contracts with a term of more than 3 years. The salary payable during the probation period shall not be less than 80% of the contract salary or 80% of the minimum salary of any comparable position within the same entity.
4. Professional training provided free of charge:
Employers who provide employees with professional training free of charge 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 amortized with reference to the remaining term of service.
5. Non-Compete Clause:
A non-compete clause may be imposed only upon senior management employees, senior technical employees or employees who have acquired commercial or intellectual property related secrets of the employer. The non-compete clause may be contained in a labour contract or in a separate confidentiality agreement, and may cover a period of no more than 2 years counting from the termination of the labour contract. Economic compensation is payable to the employee monthly upon termination of the labour contract, failing such payment, the non-compete clause would not be enforced by the PRC court. If the employee fails to observe the non-competition clause, the employer may require the employee to pay a penalty sum.
6. Validity and revocation of a labour contract:
A labour contract which comes about through deceit, threat, exempts the employer's statutory liabilities or excludes the employee's rights, or is otherwise contrary to the prospective employee's real intention or the mandatory statutory requirements, shall be an invalid contract or a partly invalid contract.
7. Performance and termination of a 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. A written labour contract shall be retained by the employer for at least 2 years after its termination.
8. Payment of severance pay:
Where severance pay is payable (e.g. contract 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 part-year service of less than 6 months, but a part-year service of 6 months or longer is treated as one year for purposes of calculating the severance pay. The severance pay for an employee whose monthly salary is at least three times higher than the local average monthly salary is calculated based on a salary capped at three times the amount of the local average monthly salary, while the duration of service to be taken into account is capped at 12 years. If an employer terminates a labour contract in breach of the Labour Contract Law, the employer shall be obliged to make a severance pay which is double the amount calculated based on the aforesaid formula.
9. Collective labour contracts:
Collective labour contracts may be made by a trade union with an employer in respect of the employees' remunerations, the remuneration review mechanism, working hours, leave entitlement, work safety and hygiene, female employee protection, insurance and benefits, etc. The draft collective contract shall have been discussed and approved by the employees' representative congress. Regional collective labour contracts may be made in certain selective industries, such as the construction, mining and catering industries.
10. Secondment contracts:
A labour service provider shall have a registered capital of at least 500,000 Renminbi and enters into fixed term labour contracts with its employees for at least 2 years. The fixed-term contract shall specify the entity to which the employee shall be seconded, the secondment period and the secondment position. The secondment entity shall also enter into a secondment contract with the labour service provider and the contents therein shall be made known to the seconded employee. A seconded employee may not be sub-seconded by the secondment entity to another entity.
11. Part-time employment:
Part-time employment refers to an employee who works less than 4 hours a day and less than 24 hours a week for the same employer. The wages of a part-time employee are primarily hourly rated, payable in arrears at intervals of no longer than 15 days. A part-time employee may enter into oral or written labour contracts with multiple employers. No probation period is allowed. Both the employer and the part-time employee may terminate the employment at will and no economic compensation is payable to a part-time employee.
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NEW PUBLIC HOLIDAYS AND ANNUAL LEAVE FOR WORKERS
On 14 December 2007, the State Council amended the Measures on National Public Holidays for Festivals and Memorial Days (全国年节及纪念日放假办法) ("Public Holiday Measures"). Also on 14 December 2007, the State Council promulgated the Regulations for the Paid Annual Leave of Employees (职工带薪年休假条例) ("Annual Leave Regulations"). The Public Holiday Measures spread out the number of public holidays across the year, adding holidays for traditional Chinese festivals such as Mid-autumn Festival. The Annual Leave Measures set out the number of days of annual leave that workers may enjoy during their employment. Public holidays will not be counted into the number of days allowed for annual leave.
Public holidays
The 2007 amendment to the Public Holiday Measures has increased the number of public holidays to eleven, commencing 1 January 2008. These days are:
- New Year's Day (1 January);
- Spring Festival (the Lunar New Year's Eve and the first two days of Lunar New Year);
- "Qingming" Tomb Sweeping Day (one day);
- Labour Day (1 May);
- "Duanwu" Dragon Boat Festival (one day);
- Mid-Autumn Festival (one day); and
- National Day (1-3 October).
As Spring Festival, Tomb Sweeping Day, Dragon Boat Festival, and Mid-Autumn Festival are set according to the Lunar Calendar, their dates will change by the year. If any of the above public holidays falls on a Saturday or Sunday, the public holiday will be observed on the next working day.
Annual leave
Under the Annual Leave Regulations, employees will be allowed a certain number of days of annual leave depending on the number of years that they have worked for their employer, as set out below:
| Years worked for employer |
Days of annual leave |
| 1 – 9 |
5 |
| 10 – 19 |
10 |
| 20 + |
15 |
Workers who have not completed one full year with their Employer are not entitled to annual leave. It is unclear whether an employee who has been in the same employ for more than one year is entitled to pro-rated annual leave in his subsequent year of employment.
In certain situations, workers will not be entitled to annual leave. These situations include:
- Workers who enjoy winter or summer holidays totalling more days than their scheduled annual leave;
- Workers who have taken compassionate leave of 20 days or greater and whose employer did not deduct salary for such leave;
- Workers who have worked 1-9 years for the employer and have taken two months of sick leave;
- Workers who have worked 10-19 years for the employer and have taken three months of sick leave; and
- Workers who have worked over 20 years for the employer and have taken four months of sick leave.
Employers will give an overall consideration to employee annual leave according to the production or work schedules and the personal desires of the employees. Employers may schedule annual leave for all or particular employees. Generally, the annual leave schedules are not to spread across two calendar years (e.g. December-January). However, the Annual Leave Regulations permit the scheduling of annual leave across two years if the employer's production or work schedule so require.
With the employee's consent, employers are not obliged to schedule or grant annual leave on grounds of production or work schedule requirements. Employees who are so denied of annual leave days should however be compensated by being paid three times their regular daily wage.
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