Memorandum. General Overview Employment Law/The Hong Kong Special Administrative Region of the People s Republic of China

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1 Memorandum General Overview Employment Law/The Hong Kong Special Administrative Region of the People s Republic of China

2 1. General 1. Brief Introduction Hong Kong is a fairly laissez-faire economy and parties are free to contract of their own accord. However, some basic requirements for employers and employees are covered by the following legislation of the Laws of Hong Kong, which is supplemented by the Common Law: the Employment Ordinance (Cap. 57); the Factories and Industrial Undertakings Ordinance (Cap. 59); (c) the Employees Compensation Ordinance (Cap. 282); (d) the Occupational Safety and Health Ordinance (Cap. 509); and (e) the Minimum Wage Ordinance (Cap. 608). There is some other legislation, which is also applicable to employment in Hong Kong, but to a lesser extent, and we have not discussed these in detail here. Key Points Parties are free to contract of their own accord. Under the Employment Ordinance, a contract of employment can be made orally or in writing. Persons who possess special skills, knowledge or experience of value to and not readily available in Hong Kong may apply to the Immigration Department to come to work under the General Employment Policy (hereafter the GEP ) or the Admission Scheme for Mainland Talents and Professionals (hereafter the ASMTP, for Chinese residents of the Mainland). Basic entitlements enjoyed by all employees include payment of wages, restrictions on deductions from wages, granting of statutory holidays, protection against anti-union discrimination, and employment protection in respect of unreasonable and unlawful dismissal. If an employee s contract of employment should be terminated as a result of the change of ownership of the business, he would be entitled to the usual entitlements upon termination provided that the relevant preconditions have been met. The Employment Ordinance makes provision for termination by the employer summarily without notice or payment in lieu of notice based on certain conditions. The Trade Union Ordinance (Cap. 332) and the Trade Union Registration Regulations make provision for the registration and regulation of trade unions, requiring them to draw up and register a set of union rules with the Registrar of Trade Unions. Pursuant to the provisions in the Mandatory Provident Fund Schemes Ordinance (Cap. 485), employers in Hong Kong are required to make arrangements for their employees to join a registered Mandatory Provident Fund ( MPF ) scheme available in the market if such employees are aged between 18 and 65 and employed for a continuous period of not less than 60 days by the employer. 1

3 2. Employment Contracts 1. Minimum Requirements Under the Employment Ordinance, a contract of employment can be made orally or in writing. Employees rights and benefits are protected under the Ordinance irrespective of whether the employment contract is made verbally or in writing. All employees covered by the Employment Ordinance, irrespective of their designated job titles or working hours, are entitled to statutory rights and protection such as wage payment, restriction on deductions from wages and granting of statutory holidays, etc. Any term of an employment contract, which purports to extinguish or reduce any right, benefit or protection conferred upon an employee by the Employment Ordinance shall be void. 2. Fixed -term/open-ended Contracts It is customary in Hong Kong to use letters of employment or contracts of employment governing the duration of such employment. However, in the absence of a particular duration, the Employment Ordinance provides that every contract of employment, which is a continuous contract i.e. where the employee has been employed under a contract of employment during the period of 4 or more weeks and for 18 or more hours each week immediately before the relevant date that the continuous contract arises, shall be deemed to have been in continuous employment during that period. In the absence of express agreement to the contrary, every continuous contract of employment shall be deemed to be for one month renewable from month to month, unless the contract is evidenced in writing, signed by each of the parties thereto, and provides otherwise. 3. Trial Period There is no statutory limit on the length of a probationary period and this period can be set by contract between the employer and the employee. 4. Notice Period Either party to a contract of employment may at any time terminate the contract either orally or in writing, by giving the other party notice of his intention to do so. The length of notice required statutorily to terminate a contract of employment shall be as follows: (c) for a contract for one month renewable month to month which does not make provision for the length of notice required to terminate the contract - not less than one month; for a contract for one month renewable month to month which makes provision for the length of notice required the agreed period but not less than 7 days; and in every other case, the agreed period but not less than 7 days. Shorter statutory notice is required during expressed probationary periods. 2

4 Either party would also terminate the employment immediately by paying the other party a sum calculated by multiplying the number of days/months required as the period of notice by the daily/monthly average of the wages earned by the employee during (i) the period of 12 months immediately before the date on which the party terminating the contract gives notice of the termination to the other party; or (ii) if the employee has been employed by the employer concerned for a period shorter than 12 months immediately before such date of notification, the shorter period. 3. Authorizations for Foreign Employees 1. Requirement for Foreign Employees to Work Persons who possess special skills, knowledge or experience of value to and not readily available in Hong Kong may apply to the Immigration Department to come to work under the General Employment Policy (hereafter the GEP ) or the Admission Scheme for Mainland Talents and Professionals (hereafter the ASMTP, for Chinese residents of the Mainland). In general, circumstances under which an application may be favourably considered include: (c) (d) (e) no security objection and no known record of serious crime in respect of the applicant; good education background, good technical qualifications, proven professional abilities and/or relevant experience and achievements supported by documentary evidence; there is a genuine job vacancy; the applicant has a confirmed offer of employment and is employed in a job relevant to his academic qualifications or working experience that cannot be readily taken up by the local workforce; and the remuneration package including income, accommodation, medical and other fringe benefits is broadly commensurate with the prevailing market level for professionals in Hong Kong. Persons who have been admitted under the GEP or the ASMTP may apply for change of employment provided that he/she continues to fulfill the eligibility criteria under the GEP or the ASMTP and is employed in a job relevant to his/her qualification and expertise. 4. Working Conditions 1. Minimum Working Conditions Basic entitlements enjoyed by all employees include payment of wages, restrictions on deductions from wages, granting of statutory holidays, protection against anti-union discrimination, and employment protection in respect of unreasonable and unlawful dismissal. Those working under a continuous contract of employment are entitled to further benefits such as rest days, paid 3

5 statutory holidays, annual leave, sickness allowance, maternity protection, severance payment, long service payment and the like, subject to the specific longevity requirements for each. 2. Salary Wage periods are deemed to be month to month and wages are payable on expiry of the last day of the wage period, but not later than 7 days thereafter. In the event that a contract of employment is terminated, any sum due to the employee must be paid not later than 7 days after day of termination. Any sums unpaid attract interest on late payment at a rate gazetted from time to time. The Statutory Minimum Wage applies to all employees, whether they are full-time, part-time or casual employees, and regardless of whether or not they are employed under a continuous contract as defined in the Employment Ordinance. Wages payable to an employee in respect of any wage period shall not be less than the amount of minimum wage calculated by multiplying the total number of hours worked by the employee in the wage period by the Statutory Minimum Wage rate, which may be gazetted from time to time. With effect from 1 May 2015, the Statutory Minimum Wage rate was raised to HK$32.5 per hour. 3. Maximum Working Week The Employment Ordinance provides that there must be not less than 1 rest day in every period of 7 days and the rest days shall be in addition to any statutory holiday or alternative or substituted holidays. The rest days may be with pay or without pay as agreed between an employer and an employee. 4. Overtime Hong Kong law does not confer any additional rights on employees to receive any overtime payments apart from the above-mentioned overall Statutory Minimum Wage protection that wages payable to an employee in respect of any wage period shall not be less than the amount of minimum wage, calculated by multiplying the total number of hours worked by the employee in the wage period by the Statutory Minimum Wage rate. It is good practice to state clearly in an employment agreement whether overtime is paid or unpaid and the rate of pay, if appropriate. 5. Holidays A. Statutory Holidays There are 12 annual statutory holidays in Hong Kong, which any employee is entitled to, irrespective his length of service. An employee having been employed under a continuous contract for not less than 3 months is entitled to pay on statutory holidays. The employer may, instead of granting an employee a holiday on a statutory holiday, grant the employee an alternative holiday on another day within the period of 60 days immediately preceding or following the 4

6 statutory holiday, provided that the employer has given at least 48 hours prior notice for work on a statutory holiday. B. Annual leave with pay Every employee who has been in employment under a continuous contract for not less than 12 months shall be entitled to paid annual leave. The statutory allowance for annual leave is considered as the minimum requirement and employers are often more generous than the statutory guidelines prescribe. The statutory allowance is appended hereunder: Period of Employment 1 to 3 years 3 to 4 years 4 to 5 years 5 to 6 years 6 to 7 years 7 to 8 years 8 to 9 years 9 years and over No. of days of Annual Leave 7 days 8 days 9 days 10 days 11 days 12 days 13 days 14 days Under the Employment Ordinance, statutory annual leave may be taken by the employee at any time during the 12 months following the date on which it was accrued (i.e. the date of the completion of one full working year). 5. Rights of Employees in Case of a Transfer of Undertaking 1. Employees Rights There is currently no law in Hong Kong providing for an automatic transfer of an employee s employment from one entity to another where there has been a change of ownership of business or a transfer of an undertaking. If an employee s contract of employment should be terminated as a result of the change of ownership of the business, he would be entitled to the usual entitlements upon termination provided that the relevant preconditions have been met. If however, an employee is re-engaged or re-employed by the new owner subsequent to the transfer of a trade, business or undertaking, the period of employment of an employee in the trade, business or undertaking at the time of transfer shall count as a period of employment with the transferee, and the transfer shall not break the continuity of the period of employment. 5

7 2. Requirements for Takeover Party The contractual relationship between a particular employer and employee cannot be transferred to another employer. The new owner will need to conclude new contracts of employment with those employees who continue to be employed by the business after the transfer of ownership. 6. Termination of Employment CONTRACTS 1. Grounds for Termination without Notice The Employment Ordinance makes provision for termination by the employer summarily without notice or payment in lieu of notice where the employee has, in relation to his employment: (c) (d) willfully disobeyed a lawful and reasonable order; misconducted himself, such conduct being inconsistent with the due and faithful discharge of his duties; is guilty of fraud or dishonesty or; is habitually neglectful of his duties; or on any other grounds on which the employer would be entitled to terminate his contract without notice under the Common Law. However, an employee who takes part in a strike does not entitle his employer to terminate his contract of employment. An employee may terminate his employment contract without notice or payment of wages in lieu of notice if - (c) he reasonably fears physical danger by violence or disease; he is subjected to ill-treatment by the employer; or he has been employed for not less than 5 years and he is certified by a registered medical practitioner as being permanently unfit for the type of work he is engaged. 2. Severance Payment Any employee who has been employed under a continuous contract for not less than 24 months shall be entitled to receive severance payment if: he is dismissed by his employer for reasons of redundancy; he is laid off. This includes the situation where the employer has ceased to carry on the business. An employee shall not be entitled to severance payment by reason of dismissal where his employment has been terminated by reason of the employee s misconduct. 6

8 On the other hand however, an employee shall not be entitled to severance payment if, not less than 7 days before the relevant date of termination, the employer has offered to renew his contract or re-engage him on the same terms or on no less favourable terms which would take effect on or before such relevant date and the employee has unreasonably refused that offer. Severance payment is calculated as follows: in the case of a monthly rated employee, 2/3 s of the last full month s wages, or 2/3 s of HK$22,500.00, whichever is the less, multiplied by the years of service under a continuous contract i.e. 2/3 x last monthly wage (or HK$22,500.00) x number of years of service; and in any other case, 18 days wages based on any 18 days chosen by the employee and occurring during his last 30 normal working days, or 2/3 s of HK$22,500.00, whichever is less, multiplied by the years of service under a continuous contract. However, the amount of severance payment shall in all cases be subject to a maximum payment not exceeding the maximum amounts payable as specified in the Employment Ordinance. This part of the legislation applies even where the original employer has sold all or part of his business and the new business re-employs the employee. The renewal or re-engagement shall have effect as if the renewal or re-engagement had been by the previous owner. Severance payments (or long service payments) may be reduced by any contractual gratuities or benefits, which are calculated based on length of service and payable to the employee. 3. Long Service Payment Long service payments which are calculated at the same rate as severance payments are payable where the employee has been under a continuous contract for not less than 5 years of service at the relevant date and he is dismissed, and his employer is not liable to pay him a severance payment by reason thereafter, or where he terminates his contract and at the relevant date of the termination, he is not less than 65 years of age and has been employed over 5 years. Where the employee has been working for not less than 5 years and has died, such long service payments are payable to the spouse of the employee. An employee can be entitled to either severance payment or long service payment at a time, but not both. The above mechanism of statutory severance payment and long service payment apply to all ranks of employees without differentiating between employees, managers and supervisors. 4. Protection against Wrongful Termination Where an employee has been employed under a continuous contract for not less than 24 months and he is dismissed by the employer other than for a valid reason, or where he is employed under a continuous contract and the employer, without his consent and, in the absence of an 7

9 express term in his contract of employment which so permits, varies the terms of his contract of employment other than for a valid reason, or where the employee has been unlawfully dismissed, the employee has a right of action against the employer and the following penalties may be ordered: (c) (d) reinstatement; re-engagement; award of terminal payment; and award of compensation not exceeding HK$150, Under the Employment Ordinance, the five valid reasons for dismissal or variation of the terms of the employment contract are: (c) (d) (e) the conduct of the employee; the capability or qualifications of the employee for performing his work; redundancy or other genuine operational requirements of the business; statutory requirements; or other substantial reasons. The Labour Tribunal in Hong Kong shall have jurisdiction to determine such claims. 5. Unlawful Dismissal Instances where a dismissal would be in contravention of the law include, without limitation, the following: (c) (d) (e) An employer shall not dismiss a female employee who has been confirmed pregnant and has served a notice of pregnancy. An employer shall not dismiss an employee whilst the employee is on paid sick leave. An employer shall not dismiss an injured employee before having entered into an agreement with the employee for employee s compensation or before the issue of a certificate of assessment. An employer shall not dismiss an employee by reason of his giving of evidence or information in any proceedings or inquiry in connection with the enforcement of the Employment Ordinance, work accidents or breach of work safety legislation. An employer shall not dismiss an employee for trade union membership and activities. 7. Trade Unions and Employers Associations 1. Brief Description of Employees and Employers Organizations The Trade Union Ordinance (Cap. 332) and the Trade Union Registration Regulations make provision for the registration and regulation of trade unions, requiring them to draw up and register a set of union rules with the Registrar of Trade Unions. 8

10 2. Rights and Importance of Trade Unions The Employment Ordinance provides protection against anti-union discrimination generally, while the Trade Union Ordinance sets out the rights and duties of trade union members, including the trade unions right to independence, and protection for trade union members and officers against criminal prosecution or civil suit. However, at present, there is no statutory recognition of collective bargaining agreements in Hong Kong, and there are no collective consultation obligations with regard to terminations, varying terms of an employment contract or acquisitions and mergers. The employee can only rely on the terms of the collectively bargained agreement if it is drafted in such a way that it becomes part of an individual employee s contract of employment. 8. Employee Representation In Hong Kong, this aspect of employment law is not quite developed at present. 9. SOCIAL SECURITY 1. Legal Framework Pursuant to the provisions in the Mandatory Provident Fund Schemes Ordinance (Cap. 485), employers in Hong Kong are required to make arrangements for their employees to join a registered Mandatory Provident Fund ( MPF ) scheme available in the market if such employees are aged between 18 and 65 and employed for a continuous period of not less than 60 days by the employer. An employer who fails to enroll its employees into an approved MPF scheme or who fails to make the mandatory contributions will be subject to penalties. 2. Contributions The employer is required to calculate each employee s income and the amount of contribution for each contribution period and deduct the mandatory contribution from the employee s income. The employer is to pay the employer s contribution from the employer s own funds for the employee s benefit and remit the employer s contribution together with the employee s contribution to the selected MPF scheme, which shall immediately be vested in the employee together with all investment income or profits derived from the investment as the employee s accrued benefits in the scheme. Employers are required to remit the contribution for the previous month on or before the contribution day (i.e. the 10th day of the month). 9

11 The calculation of the MPF contribution payable is based on the income of the employee, meaning all payments in monetary terms given to employees, including wages, salary, leave pay, fee, commission, bonus, gratuity, perquisite or allowance (including housing allowance or other housing benefit), but excluding severance payments and long service payments), and is calculated at 5% of an employee s relevant income for each month with the employer matching the employee s contribution, subject to a minimum and maximum level of income for the employee and a maximum level for the employer. At the same time, whilst employers contributions shall count from the first day of employment, the employee is not required to make contributions for the first 30 days of employment and the first incomplete payroll cycle immediately following such 30-day contribution holiday. An employer can offset the long service payment or severance payment as required to be paid to an employee under the Employment Ordinance with the accrued benefits derived from the contribution, which the employer (but not the employee) has made in favour of the employee in the MPF scheme. 3. Insurances Regardless of whether the employees are working full-time or part-time (including part-time domestic helpers and summer job workers, etc.), an employer of such employees is required, to have a valid insurance policy under section 40 of the Employees Compensation Ordinance taken out to cover his liabilities both under the Ordinance and at common law for injuries at work in respect of every employee. When taking out an employees compensation insurance policy, an employer should take note of the following statutory minimum insurance coverage: No. of employees Not more than 200 More than 200 Amount of Insurance Cover per Event Not less than HK$100 million Not less than HK$200 million 4. Maternity / Paternity Leave A. Statutory Maternity Leave A female employee employed under a continuous contract immediately before taking any maternity leave and whose pregnancy has been confirmed by a medical certificate, will be entitled to maternity leave at maternity leave pay in accordance with the Employment Ordinance. Maternity leave shall be a continuous period of 10 weeks from and inclusive of the date of commencement of maternity leave or the actual date of confinement and shall be in addition to annual leave and statutory rest days. 10

12 Maternity leave pay is payable if the female employee has been employed by that employer under a continuous contract for a period of not less than 40 weeks immediately before the date of her commencement of maternity leave, and is calculated at 4/5 s of the daily average of the wages earned by the female employee during (i) the period of 12 months immediately before the date of commencement of her maternity leave; or (ii) if the employee has been employed by the employer concerned for a period shorter than 12 months immediately before the date of commencement of her maternity leave, the shorter period. There is a prohibition against termination of employment of a pregnant employee after she has served notice of pregnancy, unless she is being terminated for cause as described above. B. Statutory Paternity Leave The Employment (Amendment) Ordinance 2014 on statutory paternity leave commenced on 27 February Male employees with a child born on or after 27 February 2015 are entitled to 3 days paternity leave to be taken consecutively or separately for each confinement of their spouse/partner if they fulfill other requirements as stipulated in the law. They may take paternity leave at any time during the period from 4 weeks before the expected date of delivery of the child to 10 weeks beginning on the actual date of delivery of the child. Employees who are qualified for paternity leave pay may receive a daily rate of four-fifths of their average wages as paternity leave pay. 11

13 Zhong Lun Law Firm L&E Global Hong Kong SAR Zhong Lun Law Firm ( Zhong Lun ) is a top-tier full-service law firm in China that provides comprehensive legal support for all of its clients business activities. Zhong Lun has approximately 200 partners and 1,000 lawyers with offices throughout Mainland China and Hong Kong, plus several international offices. The Labor & Employment Practice Group has extensive expertise in all aspects of PRC labor and employment law including litigation, labor relations, employment-related aspects of data protection and the full spectrum of workplace law counseling and advice. They are adept at handling cross-border labor and employment issues and consistently deliver optimal solutions for their clients. Zhong Lun and our attorneys frequently receive accolades from famous legal journals and publications including Chambers Asia, which awarded Zhong Lun PRC Law Firm of the Year in 2014, Asian Business Law, the China Business Law Journal, as well as China Law and Practice, among others. This memorandum has been provided by: Zhong Lun Law Firm 409, 4/F, Jardine House 1 Connaught Place Central Hong Kong P

14 Contact Us For more information about L&E Global, or an initial consultation, please contact one of our member firms or our corporate office. We look forward to speaking with you. L&E GLOBAL Avenue Louise 221 B-1050, Brussels Belgium Stephan Swinkels, Executive Director This publication may not deal with every topic within its scope nor cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice with regard to any specific case. Nothing stated in this document should be treated as an authoritative statement of the law on any particular aspect or in any specific case. Action should not be taken on this document alone. For specific advice on any particular feature you should seek advice from the L&E Global representative stated in this memorandum. This document is based on the law as of September

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