Minimum statutory terms
Termination of employment
Discrimination and harassment
Occupational health and safety
Regulation of outsourcing and contracting
Industrial relations

Acknowledgment
This Guide was prepared by the Employee Relations – Asia practice of Freehills International Lawyers, with assistance from the following firms:

Key Contacts:

Celia Yuen
Practice Leader
+65 6236 9941
celia.yuen@freehills.com

Lucy Twomey
Senior Legal Associate
+65 6236 9944
lucy.twomey@freehills.com

Note:     This Guide:

• is current to 31 March 2011;
• contains general introductory information only, without an assumption of a duty of care by Freehills or the other firms listed;
• does not contain legal advice; and
• is not intended to be, nor should it be relied on as, a substitute for legal or other professional advice.

If employers have workplace relations issues or requirements in particular jurisdictions, then Freehills Employee Relations - Asia can assist, working with local counsel.

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Minimum statutory terms

Key statutes
Employment law in the Hong Kong Special Administrative Region (SAR) is a mix of common law (derived from English law) and legislative enactments known as Ordinances, together with supporting regulations.

The main Ordinances include:

• the Employment Ordinance
• the Minimum Wage Ordinance
• anti-discrimination Ordinances, that is, the Sex Discrimination Ordinance, the Disability Discrimination Ordinance, the Race Discrimination Ordinance and the Family Status Discrimination Ordinance
• the Employees’ Compensation Ordinance
• the Occupational Safety and Health Ordinance, and
• the Mandatory Provident Fund Schemes Ordinance (MPF Ordinance).

The Employment Ordinance, the most important piece of legislation regulating the rights of employees and the duties of employers, was enacted in 1968 essentially to protect the rights of lower-paid workers. Since 1990, however, this Ordinance has been applied to all local employees and (for the most part) all foreign nationals engaged under an employment contract in Hong Kong, with only a few minor exceptions (for example, seamen and family members employed in a family business).

Employer work rules
There is no statutory requirement in Hong Kong for an employer to establish work rules. An employer may choose to formulate work rules, company policies, employee handbooks, or similar documents. An employer may choose to incorporate some or all of its company policies into employee contracts of employment, though in doing so should be aware that employee consent may be required for any amendment to such policies. For this reason, many employers establish policies or handbooks that are expressed not to form part of the contract of employment, but with which employees are nevertheless required to comply.

Forms of employment
An important distinction in Hong Kong employment law is between ‘continuous’ and ‘non-continuous’ employees. Some protections under the Employment Ordinance are afforded only to employees employed under a ‘continuous’ employment contract, which exists where an employee has been employed on a continuous basis for at least four weeks and has worked 18 hours or more in each week, regardless of whether they have been employed on a full-time, part-time or casual basis. Employees employed under a non-continuous employment contract are still covered by the Employment Ordinance, although not all of the provisions of the Ordinance apply to them.

The Hong Kong common law recognises that employment may take the form of an ongoing or a fixed/limited term employment contract.

Probationary period
The provision of a probationary period is common practice in Hong Kong. Under the Employment Ordinance, the employment contract may be terminated during the probationary period:

• In the first month: without notice
• After the first month:
• by not less than seven days notice, or the longer period provided in the employment contract, or
• by payment in lieu of notice.

There is no statutory limit on the duration of the probationary period, but it commonly ranges from four weeks to six months, depending on the employee’s seniority.

Minimum wage
A minimum wage of HK$28 per hour will be implemented under the Minimum Wage Ordinance, with effect from 1 May 2011. Employers and employees cannot agree to contract out of the application of the Ordinance. Under the Ordinance, the minimum wage must be reviewed once every two years. The Ordinance includes special arrangements for employees who have disabilities, such that they may be paid below the minimum wage level in accordance with their productivity.

The Ordinance applies to all employees employed under both continuous and non-continuous employment contracts, with certain exceptions such as live-in domestic workers, apprentices and student interns. There are also separate minimum wage provisions for certain groups of migrant workers such as domestic helpers.

Remuneration structure
For the purposes of the Employment Ordinance, ‘wages’ means all remuneration, earnings, allowances, commission, overtime pay, tips and service charges, however designated or calculated, payable to an employee in respect of work done or work to be done pursuant to the contract of employment. Certain items are excluded from the definition (for example, retirement contributions and discretionary benefits). The definition is significant because an employee’s entitlements under the Employment Ordinance to maternity leave pay, severance payment, long service payment, sickness allowance, holiday pay, annual leave pay and wages in lieu of notice are calculated according to this definition.

While there is no statutory entitlement to receive bonuses, the Employment Ordinance regulates the payment of end-of-year bonuses where these are provided for under an employment contract and the bonus is not expressed as being payable solely at the discretion of the employer. Usually employers pay an automatic annual bonus equivalent to one month’s salary at Chinese New Year, although the trend is increasingly to prefer a performance-related bonus.

Working hours

Hours of work—There are no statutory provisions on working hours for employees aged 18 years or over. Restrictions are provided under the Employment of Young Persons (Industry) Regulations for young persons (that is, between 15 and 18 years old) working in an industrial environment. For such employees, the maximum working period is usually eight hours per day, 48 hours per week and six working days per week.

Overtime—Considering that there are no statutory provisions regulating working hours, overtime and its relevant payment is regulated by the parties in the employment contract. Restrictions apply only for young workers (that is, under the age of 18 years) in an industrial environment.

Rest periods—The Employment Ordinance provides that every employee is entitled to not less than one rest day in every period of seven days, in addition to paid statutory holidays.

Public holidays
Every employee is entitled to statutory holidays, but only employees with at least three months of service immediately preceding the statutory holiday are entitled to be paid for that holiday. According to the Employment Ordinance, there are 12 statutory holidays. The employer may request an employee to work on a statutory holiday. However, the employer must give 48 hours notice to the employee and appoint another day, within 60 days before or after the statutory holiday, as an alternative holiday.

Paid annual leave
The number of days of paid annual leave ranges from seven to 14 depending on the employee’s length of service. Seven days are granted to an employee with more than one year’s service but less than three years and an additional day is granted for each additional year of service, up to a maximum of 14 days for an employee with nine years of service. Employers are entitled to determine when annual leave is to be taken and must give 14 days notice in writing of their determination.

Other types of leave

Sick leave—The Employment Ordinance envisages that an employee may take ‘sickness days’. It does not provide for the accrual of a specific number of sickness days nor for a limit on the number of sickness days that may be taken by an employee.

All sickness days are unpaid, unless the employee is entitled to receive a ‘sickness allowance’ in respect of that day, in which case it will be a ‘paid sickness day’. The sickness allowance payable in respect of a paid sickness day is 80% of the employee’s average daily wages over the previous 12 months.
In order to be entitled to payment of sickness allowance in respect of a sickness day, an employee must meet the following criteria:

• the employee must have been employed for at least four weeks (with more than 18 working hours per week) immediately prior to the sickness day
• the sickness day must be one of at least four consecutive sickness days. That is, an employee who takes less than four consecutive sickness days is not entitled to payment in respect of those days
• the employee must have sufficient accrued paid sickness days to cover the sickness days in question, and
• the sickness day must be specified in an appropriate medical certificate as a day on which the employee was, is or will be unfit for work on account of sickness or injury. The certificate may be issued by a registered medical practitioner, registered Chinese medicine practitioner or registered dentist.

Sickness allowance entitlements accrue at the rate of:

• two paid sickness days for each completed month of employment during the first year of employment (that is, 24 days per annum), and
• four paid sickness days for each month of employment thereafter (that is, 48 days per annum).

Paid sickness days accumulate from month to month, up to a maximum of 120 days.
Note however that special rules apply for access to paid sickness days for female employees who are pregnant or have given birth.

Maternity/paternity leave—Female employees are entitled to:

• unpaid maternity leave if they are employed under a continuous employment contract for at least four weeks (with more than 18 working hours per week) before the confinement, and
• paid maternity leave if they are employed under a continuous employment contract for at least 40 weeks (with more than 18 working hours per week) before the confinement.

The employee must notify the employer of her intention to take maternity leave after the pregnancy has been confirmed by a medical certificate, which must be produced if requested by the employer. In general, maternity leave consists of a continuous period of 10 weeks, plus a further period of not more than four weeks on grounds of illness or disability arising out of the pregnancy or confinement. The 10-week maternity leave period starts on the date agreed with the employer, between two and four weeks before the expected date of confinement. If the parties do not reach agreement regarding the commencement date of the maternity leave, the maternity leave commences four weeks immediately before the expected date of confinement. For eligible employees, the 10 weeks maternity leave is paid with an allowance equal to 80% of the daily average of the wages earned by the employee during the 12 months preceding the commencement of the maternity leave.
There are no statutory provisions regarding paternity leave.

Other leave—There are no statutory provisions for other types of leave. Many employers grant paid leave under special circumstances or on compassionate grounds. This may be prescribed in the employment contract or policies.

Mandatory Provident Fund (MPF Scheme)
The MPF System was set up to put in place a formal system of retirement protection in Hong Kong and it applies to employers, employees and self-employed persons.

Employers—An employer has a number of legal obligations under the MPF Ordinance, which include:

• arranging for all employees (except for exempted persons, see below) aged between 18 and 65 that are employed for 60 days or more to join a registered MPF scheme of the employer’s choice, and
• making mandatory contributions to such MPF scheme for the employees’ benefit.

An employer will be criminally liable if they fail to meet such obligations.

Employees—The MPF Ordinance stipulates that the employer shall deduct 5% from the employee’s relevant income (if relevant income is not less than HK$5,000 a month) as mandatory contributions and the employer will contribute a matching amount. In addition, an employee has a right to choose between the constituent funds offered under the MPF System and is allowed to switch funds at least once a year.

Self-employed persons—The MPF Ordinance requires a self-employed person to enrol in an MPF scheme and make mandatory contributions if such person’s relevant income is more than HK$5,000 a month. The mandatory contribution is 5% of such person’s relevant income.

Exceptions—Any employee or self-employed person earning a monthly relevant income of less than HK$5,000 is exempted from making mandatory contributions. Likewise, any employee or self-employed person earning a monthly relevant income of more than HK$20,000 is exempted from making mandatory contributions in respect of their income above this amount, thereby creating a current upper monthly contribution limit of HK$1,000. In addition, any person approved by the MPF Schemes Authority or any employers or employees who participate in an existing occupational retirement scheme set up under the Occupational Retirement Scheme Ordinance are exempted from the MPF Ordinance. Any overseas employees working in Hong Kong for less than 13 months and any overseas employees who are members of a provident, pension, retirement or superannuation scheme run in a jurisdiction outside Hong Kong are also exempted from the MPF Ordinance.

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Termination of employment

Legal requirements
Generally, under the common law, an employer may terminate an employment contract at any time by giving to the employee the required period of notice (see below in ‘Notice periods’).
An employer may also, in certain circumstances, terminate the employment contract with immediate effect and without notice (that is, ‘summary dismissal’). This will be justified where the employee engages in serious misconduct or commits some other serious breach of the employment contract.
Similarly, under the Employment Ordinance the employer may summarily dismiss an employee without notice or payment in lieu of notice if the employee:

• wilfully disobeys a lawful and reasonable order
• engages in misconduct, such conduct being inconsistent with the due and faithful discharge of their duties
• is guilty of fraud or dishonesty, or
• is habitually neglectful in their duties.

The Employment Ordinance also contemplates summary dismissal on other grounds, as may be justified at common law.

Notice periods
Following the probationary period (see above, ‘Probationary period’), each party can terminate a ‘continuous’ employment contract by giving notice as follows:

• in the case of a contract deemed to be for one month and renewable from month to month:
• if the contract does not specify any notice period, not less than one month, or
• if the contract does specify the notice period, the agreed period but not less than seven days, and
• in every other case: the agreed period but not less than seven days.

Payment in lieu of notice (or part thereof) by either party is expressly allowed under the Employment Ordinance.

Restrictions on the ability to terminate employment
There is a blanket prohibition on the termination of employment of any employee who:

• is pregnant
• is on paid sick leave, or
• is suffering from a work-related illness or injury (except where the employer has entered into an agreement with the employee for employees’ compensation or where a certificate of assessment has been issued).

In addition, an employer is prohibited from terminating employment on any of the following grounds:

• by reason of the employee giving evidence or information in any proceedings or inquiry in connection with the enforcement of labour legislation, industrial accidents, or breach of work safety regulations, or
• for trade union membership and activities.

Remedies
The Employment Ordinance enables any employee employed under a continuous employment contract with at least 24 months service to make a claim of ‘unreasonable dismissal’ to the Labour Tribunal. Once the claim is made, the employer is required to state a valid reason for the dismissal. The Employment Ordinance recognises that valid reasons for dismissal may relate to:

• the conduct of the employee
• the capability or qualifications of the employee for performing their work
• redundancy or other genuine operational requirements of the business, and
• statutory requirements (that is, it would be contrary to the law to allow an employee to continue to work in their original position or to continue with the original terms in their employment contract).

If the dismissal is found to be without a valid reason, the available remedies are:

• an order for reinstatement or re-engagement, if the parties (including the employer) agree, or
• if no reinstatement or re-engagement order is made, an award of ‘terminal payments’ provided by the Employment Ordinance, that is, in practice, the statutory and contractual entitlements which the employer should already have paid on termination of the contract.

If the dismissal is found to also be unlawful (for example, of a pregnant or sick employee or related to participation in trade union activities), then compensation of up to HK$150,000 may be awarded instead of or in addition to the terminal payments.

Severance payments and long service payments
In case of dismissal by reason of redundancy, under the Employment Ordinance, severance payments are due to employees who have been employed under a continuous employment contract with two or more years continuous service (see below in ‘Specific requirements applicable to redundancy’).
Furthermore, in case of termination of the contract, long service payments (calculated in the same way as severance payments, see below in ‘Specific requirements applicable to redundancy’) are provided for employees who are employed under a continuous employment contract with at least five years continuous service if:

• the employee is dismissed and is not entitled to a severance payment under the Employment Ordinance
• the employee’s fixed-term contract of employment expires without being renewed, provided that not less than seven days before the date of dismissal, the employee did not unreasonably refuse to renew their employment contract or enter into a new employment contract offered by the employer (also see below in ‘Specific requirements applicable to redundancy’)
• the employee resigns for reasons of ill health or having reached the age of 65, or
• the employee dies.

A long service payment will not be payable in circumstances where the employee has been summarily dismissed due to serious misconduct. Also, an employee will not be simultaneously entitled to both severance payment and long service payment.

Specific requirements applicable to redundancy
There are no specific consultation or notification requirements in respect of redundancy in Hong Kong.

Redundancy occurs when a dismissal is for one of the following reasons:

• the employer closes or intends to close its business
• the employer has ceased or intends to cease the business in the place where the employee was employed, or
• the requirement of the business for employees to carry out work of a particular kind, or for the employee to carry out work of a particular kind in the place where the employee was employed, ceases or diminishes or is expected to cease or diminish.

An employee with 24 months service who is dismissed by reason of redundancy, is entitled to receive a severance payment. The employee forfeits the right to severance pay if they unreasonably refuse an offer of new employment (for example, in a different position or location) which is suitable or in any case no less favourable to the employee (in terms of position, duties and location).

Severance payments in case of redundancy, or long service payments (as the case may be), are calculated as follows:

• for employees paid monthly: two-thirds of the last full month’s wages, or two-thirds of HK$22,500 (ie HK$15,000), whichever is less, for every year of employment, and
• in any other case: 18 days wages on any 18 days chosen by the employee and occurring during the last 30 normal working days or two-thirds of HK$22,500, whichever is less, for every year
  of employment.

This entitlement is subject to a maximum payment of HK$390,000 and to the maximum number of 43 fully reckonable years of service to be taken into account (for additional years above 43, only half of the relevant amount is to be taken into account).

Depending on the terms of the contract, it may be possible for the employer to offset statutory severance payments or long service payments (as the case may be) against contractual benefits due to the employee based upon length of service. It may also be possible for the employer to offset statutory severance payments or long service payments against a benefit due to the employee being held in an MPF scheme.

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Discrimination and harassment
Hong Kong has specific legislation addressing discrimination and equal opportunity, namely the Sex Discrimination Ordinance (SDO), the Disability Discrimination Ordinance (DDO) (both enacted in 1995), the Family Status Discrimination Ordinance (enacted in 1997) and the Race Discrimination Ordinance (RDO) (enacted in 2008/2009). These anti-discrimination Ordinances provide that it is unlawful for an employer to discriminate against employees (either directly or indirectly) on the grounds of sex, disability, marital status, pregnancy, family status, trade union membership or race. Notably, in Hong Kong, there is as yet no legislative prohibition of discrimination based on age.

These Ordinances also cover the pre-hiring phase and, therefore, it is unlawful to discriminate against job applicants upon prohibited grounds.

Sexual, disability and racial harassment are unlawful under the SDO, DDO and RDO respectively. The offender (that is, the person harassing another employee) may be personally liable, but also the offender’s employer may be considered vicariously liable if they cannot prove that they have adopted reasonable practices in order to prevent or avoid unlawful conduct.

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Occupational health and safety
Occupational health and safety legislation is particularly in-depth in Hong Kong. The Occupational Safety and Health Ordinance and the Factories and Industrial Undertaking Ordinance set out specific obligations on employers to provide a safe workplace. In addition, the Employees’ Compensation Ordinance obliges every employer to obtain a policy of insurance for a specified minimum amount by reference to the total number of employees in respect of its liability to compensate employees for ‘injury by accident’ or death arising ‘out of and in the course of employment’.

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Regulation of outsourcing and contracting

Outsourcing—There are no specific legislative provisions on outsourcing in Hong Kong.

Contracting—In general, Hong Kong employment legislation does not apply to independent contractors (or self-employed persons). Note that tests apply at common law to determine whether or not a person is a contractor or an employee, and the way that the parties characterise the relationship is not determinative.

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Industrial relations

Legislation in brief
Industrial relations are highly peaceful in Hong Kong and disputes are generally settled quite quickly. The Labour Department carries out several programs to promote harmonious labour-management relations, for example the Code of Labour Relations Practice embodies the basic points required to provide a framework of good relations between employers and employees.
The main relevant statutes are the Employment Ordinance (which establishes the right of every employee to become a member or official of a trade union), the Trade Unions Ordinance (which provides that trade unions must be registered with the Registrar of Trade Unions and provide annually to the Registrar certain information about members and financial issues) and the Labour Relations Ordinance (which sets out specific procedures for the conciliation and arbitration of trade disputes).

Role of trade unions and collective agreements
There has never been a high level of employee participation in trade unions and related activities in Hong Kong. Collective agreements are quite rare and collective bargaining has no statutory recognition. As such, some unions play a role in negotiating terms and conditions for their members, but this role is relatively limited.

Industrial action and disputes
Trade unions do not have any specific power to take industrial action. The Labour Department operates a voluntary conciliation service for employees and employers and in practice many disputes are resolved via tripartite negotiation. While conciliation is voluntary, the Commissioner for Labour may refer a dispute to compulsory mediation. If a dispute cannot be resolved via conciliation or mediation, a dispute may be referred to arbitration, with the consent of the parties, or to a board of inquiry.

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