Human Resources and Pensions Newsletter
SUMMARY OF CONTENTS
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Non-compete covenants which are reasonable can be enforced in many countries/regions, such as Hong Kong, Mainland China, New Zealand, Australia, South Korea, Indonesia, but they are not enforceable in India and Malaysia.
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Key things to consider in preparing an employment contract which people tend to overlook
Many employment-related disputes can be avoided if the employment agreement is carefully prepared and the terms and conditions of employment are clearly set out. This article aims to highlight certain areas which people tend to overlook in preparing an employment agreement.
A. Notice Period
Under Hong Kong law, an employer and an employee may agree the notice period required in terminating the employment relationship. Under the Employment Ordinance ("EO"), the agreed period shall not be less than 7 days (save and except during the first month of the probation period in which no notice or payment in lieu of notice is required). However, if the termination notice period is not agreed, the notice period during the probationary period is deemed to be 7 days (save and except during the first month of the probation), and after the probation period, 1 month.
There is no provision in the EO requiring that the notice periods required on the part of an employer and on the part of the employee have to be the same. In fact, it has been confirmed in the case Kwong Wai Ling Candy vs. Hotel Panorama o/b Hotel Panorama Company Ltd (HCME1/2011) that the notice period imposed on an employer may be shorter than that imposed on an employee.
In the case Kwong Wai Ling Candy vs. Hotel Panorama o/b Hotel Panorama Company Ltd (HCME1/2011), the employment contract only stipulated the notice period required on the part of the employee but not the employer. The employer terminated the employment of the employee during the fifth month of the probation period by making payment in lieu of 7 days' notice. The employee disagreed and claimed that the employer should make payment in lieu of 1 month notice instead.
The case was first heard in the Small Claims Tribunal, in which the adjudicator ruled that the notice period required on the part of employer should also be the same as that of the employee though the employment agreement did not expressly say so. The case was appealed to the High Court, and the Judge considered that as there was no agreed termination notice period on the part of the employer, and under the EO, the employer was only required to give a termination notice period of not less than 7 days. The Judge further confirmed that although the termination notice periods required on the part of the employer and the employee were different, it was not in contravention of the EO.
B. Fixed Term Contract
Sometimes, the parties only agree to enter into an employment agreement for a fixed term period, ranging from a few months to a few years. If an employer wishes to terminate the employment relationship before the expiration of the fixed term period without any material breach of the employment contract on the other party, there is a risk that the employee shall claim damages against the employer for the unexpired portion of the fixed term on the ground of wrongful termination, unless there is a break clause in the employment agreement (see Horkulak v. Cantor Fitzgerald International  ICR 697). An employer may need to consider whether they wish to include a provision in the employment agreement giving a right to both parties (or only the employer) to terminate the employment relationship during the fixed term period.
C. Entire Agreement
It is not uncommon that the parties will negotiate the contents of the employment agreement and there may be different versions of the employment agreement before it is finally executed. In order to ensure that the employment agreement contains all the agreed terms, and to avoid possible arguments that any other terms shall apply, it is advisable to expressly provide in the employment agreement that it contains the entire understanding between the parties in relation to the employment relationship, and it supersedes any prior understanding or agreement (whether written or oral) in relation to the same.
D. Garden Leave
In order to avoid a leaving employee to have knowledge of the latest business secrets of the company, a lot of employers prefer to put the leaving employee on garden leave during the notice period. However if the employer is not granted such a power under the employment agreement, it may be subject to challenge that the employer is not entitled to do so even if it is paying full payments to the employee during the garden leave period because under common law, an employee has a right to work, especially for those positions requiring updated acquaintance to the market, and putting the employee out of market would adversely affect his skills (see William Hill Organization Ltd v Tucker  IRLR303).
E. Bonus Payment
Some employers grant annual bonus to their employees on the condition that they shall remain in employment at the time of payment. However, such condition may not be enforceable if the annual bonus is of a contractual nature and falls within the definition of "End of Year Payment". Under the EO, generally speaking, if the employee's employment is terminated by the employer (otherwise than by way of summary dismissal) during the payment year, he/she is entitled to a pro-rated amount of the annual bonus, even if there are contractual provisions to the contrary.
In the case of Wong Huey Lan vs. Colgate-Palmolive (HK) Limited (HCLA77/2001), the claimant's employment was terminated by the defendant on the ground of redundancy. The claimant was subject to an annual incentive plan, under which in order for an employee to receive the bonus, he/she has to meet certain pre-determined targets and his/her performance should reach certain level. It was also set out in the plan that the employer had an option to cancel the plan if its business performance was poor. The claimant asked for a pro-rated amount of the annual bonus but the employer considered that she was not entitled to the same as the bonus was of a discretionary basis. The court considered that although the assessment criteria involved certain discretionary elements (e.g. the employer has the right to set the operating target, assess the performance of the employee and to cancel the plan), the discretion can only be properly exercised with regard to clearly identifiable objective criteria. The court considered that the plan was more of a formulaic incentive payment rather than a discretionary bonus and fell within the definition of "End of Year Payment". Therefore, the claimant was entitled to receive a pro-rated amount of the bonus.
If it is the employer's intention to grant discretionary bonus, it should expressly stipulate in the employment agreement that the bonus is paid at the sole discretion of the employer. It is not advisable to set out any detailed guidelines as to the entitlement or calculation of the same.
F. Hours worked
The Minimum Wage Ordinance ("MWO") has been in place since 1 May 2011. Under the MWO, employers will be required to pay to each employee an amount of wages in every wage period (taken to be one month unless the contrary is proved) at least equal to :
"Statutory minimum wage = minimum hourly wage rate (currently fixed at HK$28) x No. of hours worked"
It is therefore important to ascertain the number of hours worked by each employee, and it is advisable to clearly set out in the employment contract the normal business hours of the employer.
In computing the number of hours worked, an employee is considered to be "at work" if he/she attends a place of employment in accordance with the contract of employment or with the agreement or at the direction of the employer. It is very common in Hong Kong for employees to work beyond the normal business hours, whether or not they are requested to do so by the employers. In order to avoid possible arguments as to whether those overtime hours should be treated as "hours worked", an employer may clearly set out in the employment contract that unless an employee is requested to work beyond the normal business hours by the office manager in writing, any hours of work beyond the normal business hours will not be treated as "hours worked" under the MWO.
Employers should also note that any payments made to an employee for any time that is not "hours worked" (e.g. rest day pay) would not be counted as part of the wages payable to the employee. In this regard, it is advisable to set out in the employment agreement as to whether rest days are paid or unpaid to avoid future disputes.
In view of the examples set out above, one can see that if an employment contract is not carefully drafted, it will easily lead to unnecessary misunderstanding and disputes. It is therefore beneficial to both employers and employees if they pay special attention in preparing their contracts or seek legal assistance in relation thereto.
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Court's approach in hearing a Sexual Harassment Case with no eye witness
The Complainant and the Defendant were co-workers at the Food and Environmental Hygiene Department (the "FEHD"). According to the Complainant, during June/August 2005 to March 2007, the Defendant sexually harassed her in the place of work contrary to section 23(3) of the Sex Discrimination Ordinance.
The alleged sexual harassments include inappropriate touching, languages and/or conducts of a sexual nature.
In particular, on 10 March 2007, the Complainant alleged that the Defendant sexually harassed her again in the office. The Complainant called her supervisor Mr. Lau at night to complain about the harassing incidents that day, and on 11 March 2007, the Complainant set out the harassing incidents on 10 March 2007 in writing as suggested by Mr. Lau.
On 13 March 2007, the Complainant formally wrote to FEHD to complain against the Defendant. FEHD conducted an internal investigation about the complaint but concluded that since there was no witness or other concrete evidence to support the Complainant's complaints, the sexual harassment allegations against the Defendant could not be sustained.
The Complainant lodged her claims against the Defendant in the District Court.
The Complainant did not have any eye witness confirming the harassing incidents, and the Defendant denied the Complainant's allegations. The Court has to consider the overall evidence including the evidences given by other witnesses to determine whether the Defendant sexually harassed the Complainant as alleged.
According to the Complainant's supervisor Mr. Lau, the Complainant mentioned some of the harassing incidents to him in two occasions before 10 March 2007, though he did not witness any of them. Mr. Lau also mentioned that in his view the Defendant liked to take advantage of the opposite sex. With respect to the incident on 10 March, Mr. Lau did not witness any of the incidents alleged by the Complainant. He just noted when he saw the Complainant at around 3:30pm on 10 March, she was very angry and when he asked the Complainant what happened to her, the Complainant just scolded the Defendant.
According to another witness, Mr. Ho, the immediate supervisor of the Defendant, he also did not witness any of the harassing incidents alleged by the Complainant. However, he also noted that the Complainant was very angry in the afternoon of 10 March 2007. He also saw the Complainant scolded the Defendant whilst the Defendant was smiling at that time.
The Court pointed out that when FEHD was conducting the internal investigation, the standard of proof adopted by it was "beyond all reasonable doubt" which was applicable in criminal proceedings. However for sexual harassment case (which is in fact a civil claim), the standard of proof should be on a "balance of probability".
After considering all the evidence, the Court considered that the Complainant's evidence was more consistent with the other witnesses and was more reliable, whilst the Defendant's evidence was in many aspects inconsistent with the other witnesses, and the contents of his evidence were less reliable. The Court adopted the evidence provided by the Complainant and ruled that the Defendant did commit the harassing incidents.
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Proposed Amendments to the Reinstatement and Re-engagement provisions under the Employment Ordinance
Currently, under Part VIA of the Employment Ordinance ("EO"), an employee may claim remedies against his employer in cases of unreasonable and unlawful dismissal, and request an award of remedies made by the Labour Tribunal ("LT") which includes an order for reinstatement or re-engagement subject to mutual consent of the employer and the employee.
However, the limitation of the existing provisions is that, even if the LT finds that an order for reinstatement or re-engagement is appropriate, the LT has no power to make such an order without the employer's agreement.
As such, the Labour and Welfare Bureau is currently preparing a draft bill to the Legislative Council to amend the EO to provide that where an employee who has been found to be unreasonably and unlawfully dismissed makes a claim for reinstatement or re-engagement, the LT may make an order for reinstatement or re-engagement without the need to secure the consent of the employer if the LT considers it appropriate and that the employer's compliance with the order is reasonably practicable ("Compulsory Order").
LT to consider circumstances of individual cases when making a Compulsory Order
It is proposed that in determining whether to make a Compulsory Order, the LT must take into account the circumstances of the claim such as the relationship between the employee and the employer, the circumstances surrounding the dismissal and whether the employer may face any genuine difficulties in complying with the order. Whether the employer and the employee are willing to accept such an order would continue to be an important consideration before the LT would make any order for reinstatement or re-engagement.
"Further Sum" payable on breach of Compulsory Order
Currently, when making an order for reinstatement or re-engagement subject to mutual consent, the LT shall specify the terms on which the reinstatement or re-engagement is to take place, including the date by which the employer must comply with the order, and in the event the employer fails to comply with the order, the amount of terminal payments and compensation that would be payable to the employee.
It is proposed that with the introduction of a Compulsory Order, the employer shall be liable to pay a "further sum" to the employee over and above the termination payments and award of compensation in the event the employer fails to comply with the Compulsory Order. The "further sum" will be a fixed amount that is not subject to the circumstances of individual cases and is to be set at three times of the monthly wages of the employee, subject to a maximum of $50,000.
It is further proposed that wilful non-payment of the "further sum" without reasonable excuse will amount to a criminal offence punishable by a fine of up to $350,000 and 3 years of imprisonment on conviction.
Re-engagement order to be directed at the employer only
Amendments have been proposed to clarify the existing provisions on re-engagement. It is proposed that the provisions on re-engagement should state clearly that a re-engagement order made by the LT shall be directed at the employer only and not at his successor or associated company. However, with the consent of the employee, an order for re-engagement can be taken to have been complied with by the employer if the successor or associated company of the employer re-engages the employee on the terms specified in the order.
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New Proposed Labour Regulations in Guangdong Province
The Government of Guangdong Province has recently put forward and is currently seeking public opinions on a series of draft labour law related regulations, namely, the Provisions of the Implementation of the Labour Contract Law of the People's Republic of China in Guangdong Province
(《广东省实施 〈中华人民共和国劳动合同法〉若干规定》) the Regulations on Administration of Employment of Chinese Employee by the Representative Office of Foreign Company in Guangdong Province
( 《广东省外国企业常驻代表机构聘用中国雇员管理规定》) and the Regulations on Administration of Labour Dispatch Relationship in Guangdong Province (《广东省劳务派遣管理规定》).
The public consultation period for the draft regulations will end on 2 March 2012 whereupon the draft regulations will be subject to further revision and deliberation by the Legislative Affairs Office of the Guangdong Provincial Government before submitting to the competent legislative authorities for approval.
Although these regulations have yet to be finalised, they do provide an idea on how the relevant labour regulations are likely to be interpreted, implemented and developed in the near future in China in particular in the Guangdong area. Here are some of the salient points which may be of interest to foreign investors:
Provisions of the Implementation of the Labour Contract Law of the People's Republic of China in Guangdong Province (《广东省实施 〈中华人民共和国劳动合同法〉若干规定》)
A similar draft in relation to the implementation of the Labour Contract Law was once released in 2009. The draft released this time has been shortened and contains fewer provisions as compared with the draft in 2009. Among others, the following issues which are not clearly specified in the Labour Contract Law or other existing labour related laws and regulations are being clarified:
- Article 4 provides that a labour contract shall be written in Chinese. Where another language version exists, in the event there is any discrepancy between that language version and the Chinese version, the Chinese version shall prevail.
- Article 5 clarifies that in the event that the term of a labour contract which should have been expired is extended due to any of the events as stipulated in Article 42(1), (3) and (4) of the Labour Contract law (e.g. an employee currently within the medical treatment period or an employee currently in the pregnancy, confinement or nursing period) such that, after such extension, the employee concerned has continuously worked with the employer for ten years, an open term labour contract shall be entered into at the employee's request.
- It has long been debated as to whether an employer has the right to terminate an employment relationship at the end of the second fixed term labour contract. Article 6 provides that after the second fixed term of the Labour Contract, if the employee is not under any of the circumstances as stipulated in Article 39 or Article 40(1) – (2) (i.e. circumstances under which the employer is entitled to terminate the employment unilaterally), an open term labour contract shall be entered into at the employee's request.
- Where an employer fails to pay the economic compensation for non-compete as agreed by the parties, Article 11 allows an ex-employee subject to non-compete obligations to request the employer to settle such outstanding economic compensation in one lump sum within 30 days after such breach. The ex-employee may choose to notify the employer to terminate the non-competence obligations if he chooses not to request for the one off payment within the said 30-day period.
Regulations on Administration of Employment of Chinese Employee by the Representative Office of Foreign Company in Guangdong Province (《广东省外国企业常驻代表机构聘用中国雇员管理规定》)
The draft regulation mainly regulates the establishment, obligations, and activities of foreign labour services enterprises (e.g. FESCO). However, representative offices of the foreign company ("RO") should also be aware of its content, in particular:
- Article 4 provides that a RO must engage a lawfully established foreign labour services enterprise to engage PRC national staff and is prohibited from recruiting such staff itself or through other entities or individuals.
- Article 9 states that a foreign labour services enterprise shall enter into a written contract with a RO to govern their respective rights and obligations under the labour dispatch relationship. Among others, it requires a RO to deposit RMB20,000 per staff engaged through the labour dispatch arrangement into a designated account for the purpose of covering the losses of such staff as caused by the RO. This may increase the labour costs of a RO.
- Article 19 provides that in the event a RO recruits PRC staff directly or through entities or individuals other than a foreign labour services enterprise, a penalty ranging from RMB1,000 to 5,000 per month per PRC staff up to a maximum of RMB30,000 may be imposed.
Regulations on Administration of Labour Dispatch Relationship in Guangdong Province (《广东省劳务派遣管理规定》)
The draft regulation regulates the general labour dispatch relationship among the labour dispatch entity, the host entity and the dispatched employee. In addition to restating the relevant provisions concerning the labour dispatch relationship as stipulated in the Labour Contract Law and the Regulation for Implementation of the Labour Contract Law, the following provisions are worth to note:
- Article 12 imposes a filing obligation with the relevant labour administrative authority on the host entity in the event that the number of dispatched employees is more than 20 and which accounts for over 10% of the host entity's total workforce. Further, the dispatched employees shall not exceed 30% of the host entity's total workforce.
- Article 22 states that the labour dispatch entity or the host entity shall be jointly and severally liable to the dispatched employees where damage is caused to the dispatched employees.
- Article 26 provides that where the percentage of the dispatched employees exceeds 30% of the total workforce of the host entity, a penalty ranging from RMB100 to 300 per month per dispatched employee exceeding such threshold may be imposed.
- The Labour Contract Law provides that labour dispatch shall generally apply to "temporary position", "ancillary position" and "substitute position" without providing any definition for such positions. Article 31 now clarifies that (i) "temporary position" refers to position the term of which does not exceed 6 months; (ii) "ancillary position" refers to position which provides services to the host entity's main business; and (iii) "substitute position" refers to position which is required temporarily because the original employee is not in a position to provide labour services due to sick leave, maternity leave, training, military service etc.
- Article 32 provides that where a host entity uses dispatch employees in positions other than temporary position, ancillary position or substitute position, the host entity will be deemed as having established an employment relationship with the dispatched employees from the commencement date of service.
The draft regulations are still pending for further revision. It is uncertain when they will be formally promulgated. However, it is advisable to keep a close eye on their future development as they may have an impact on the structure of the employment relationship and the potential costs that may be involved.
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Top 10 questions to ask when you HIRE or FIRE an employee in New Zealand
by Phillipa Muir, Partner of Simpson Grierson
1. Does the employee have a right to work in New Zealand or does the employee need a work visa?
2. Is the employment offer subject to any condition precedent (e.g. satisfactory reference check, criminal record check, credit check, obtaining the necessary qualification/s)?
3. Is the recruitment screening and decision making process compliant with the NZ Human Rights Act and free from challenge of discrimination?
4. Is the employee free from restrictive covenants to accept the offer of employment?
5. Is the personal information of the candidate/employee collected and used with in accordance with New Zealand Privacy Act?
6. Does the remuneration of the employee meet the statutory minimum wage requirement?
7. All employees are entitled to statutory required benefits granted under New Zealand Holidays Act (e.g. statutory annual leave, public holidays, sick and bereavement leave, etc) but does the employer wish to provide enhanced entitlements and/or redundancy compensation?
8. Is the employee intended to be hired subject to the statutory 90-day trial period, or alternatively a probationary period?
9. Has the employee been provided with a reasonable opportunity to seek independent legal advice regarding the offer of employment?
10. Has the employer received a signed copy of the employee's employment agreement before the employee starts work?
1. Does the employer have a valid reason for the termination (as all terminations must be for "cause" and there is no concept of "at will" employment in New Zealand)?
2. Has the employer followed a fair and reasonable process before making the decision to terminate (e.g. did the employer sufficiently investigate the allegations, raise concerns with the employee, give the employee a reasonable opportunity to respond, genuinely consider the employee's explanation (if any), follow a performance management plan, etc.)?
3. Has the employer provided the employee with an opportunity for feedback on the employer's preliminary view on sanction/s (e.g. dismissal on notice, summary dismissal) before making a decision to terminate?
4. Has the employer complied with any company disciplinary policy and/or the employee's employment agreement to ensure compliance?
5. Has the employee been offered the opportunity to have a support person/representative present during all disciplinary investigation meetings?
6. Has the employer checked the employee's personnel file for past instances of similar conduct, work history, years of service and previous warnings?
7. Is the termination free from challenge that it was based on one of the prohibited grounds of discrimination – i.e. sex, marital status, religious belief, ethical belief, colour, race, ethnic or national origins, disability, age, political opinion, employment status, family status or sexual orientation?
8. What payments upon termination of employment (e.g. outstanding salary/wages, payment in lieu of notice, annual holiday pay, long service payments, etc.) will the employee be entitled to?
9. Will the employer seek to enforce any restrictive covenants in the employee's employment agreement?
10. If the employee raises a personal grievance for unjustified dismissal and/or unjustified disadvantage, will the employer enter into without prejudice negotiations/offer to pay an ex-gratia payment and/or compensation for hurt and humiliation under s123(1)(c)(i) of the Act in return for the employee entering into a settlement agreement in full and final settlement of all claims which the employee has or may have?
Simpson Grierson is the New Zealand member firm of the Employment Law Alliance of which Deacons is the Hong Kong member firm.
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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.