Podcast S1E2 | Employment: Practical Guidance to Hong Kong Employment Law Issues

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Podcast S1E2 | Employment: Practical Guidance to Hong Kong Employment Law Issues

Podcast S1E2 | Employment: Practical Guidance to Hong Kong Employment Law Issues 1200 800 Adam Hugill
Reading Time: 27 minutes

Adam Hugill discusses Hong Kong’s employment laws and provides practical guidance for both employers and employees to assist them in navigating the complexities of the Employment Ordinance, key considerations when hiring and managing employees, termination and protection of business assets.

SHOW NOTES
00.22 – Employment overview
06.30 – Types of leave
14.11 – Termination
24.56 – Labour Tribunal
31.02 – Employment litigation
33.25 – Notice and garden leave
34.56 – Post-termination restrictions


TRANSCRIPT

 

0.01 Welcome to The HIP Talks podcasts, a series of discussions about current legal issues hosted by Hugill & Ip Solicitors. We are a young independent law firm with decades of experience providing bespoke legal advice and exceptional client service to individuals, families, entrepreneurs and businesses live in Hong Kong and internationally.

0.22 [Matthew Love] For today’s episode, I’m here with Adam Hugill, and we’re going to be discussing Hong Kong employment law issues.

So first question, Mr. Hugill, Hong Kong prides itself on being a very pro-business jurisdiction. But how does this apply to employment laws?

0.39 [Adam Hugill] That’s correct. Hong Kong is very pro employer in the way that it sets of laws and the they’re not overly protective for employees. We have in place the employment ordinance which has been around since the 1960s. The employment ordinance was written at a time when Hong Kong was a manufacturing hub and a lot of the rules in the ordinance, were drafted in such a way to protect employees in that environment. It has been updated many times, but it’s not been fully overhauled in such a way that it makes it a very coherent piece of legislation for modern Hong Kong, especially with the financial services and the public sector. The other Hong Kong also has in place, other laws to protect employees at the most notable being the minimum wage ordinance, the employees compensation ordinance, and a series of anti-discrimination ordinances to protect against discrimination in the workplace. The data privacy ordinance as well is also incredibly important in employment context. Alongside the employment ordinance and the statute protections, obviously, there’s then the employment contract as well, which tends to be the core document that most people go to when looking for that their rights and obligations as an employee.

1.53 [Matthew Love] Okay, interesting. So you touched on the employment ordinance? Does that provide protection for all employees working in Hong Kong?

2.00 [Adam Hugill] Yes or No, the employment ordinance differentiates between employees on the basis of continuous employees and non-continuous employees. And it’s a slightly strange terminology that is used. But in a nutshell, a non-continuous employee is akin to being a part time employee. And so the threshold is that you work for more than 18 hours per week, over a four week period. If you meet that threshold, and you’re a continuous employee, and all of the employment ordinance protections and rights will apply to you. If you don’t meet that threshold, then you’re a non-continuous employee and the vast majority of the employment ordinance won’t apply to you. So you won’t receive protections in terms of minimum notice periods, paid annual leave, paid maternity leave, and things like that.

2.45 [Matthew Love] Very interesting. So you mentioned just a moment ago that the contract is king, it’s probably something phrase that many people have heard of. But does everyone need to have an employment contract?

2.56 [Adam Hugill] An employment contract isn’t a legal requirement, and so you can hire employees without having employment contracts in place. But certainly, it would be advisable to have a contract. An employee is entitled to receive and writing very core employment terms. And so if an employee requests you have to provide them with a written notice of their wages when their wages will be paid, which is usually monthly. And what I noticed period is, but other than that, there isn’t a strict requirement to put an employment contract in place, but it’s certainly advisable in pretty much every case.

3.30 [Matthew Love] Interesting, it’s good advice. So in addition to what you just mentioned, what other key terms or provisions would you advise be included in the employment contract?

3.41 [Adam Hugill] The first term that most employers look for would be a probation period. Without a probation period clause in the contract, the employee isn’t subject to probation. So you would include probation and there are a few rules that govern probation in Hong Kong. The first one that most employees and employers overlook is that the mere mention of employment period in the contract means that during the first month of employment, either side can terminate the contract without giving any notice at all. And so doesn’t matter if the contract includes a different notice period. The law actually overrides that. After about the first month of probation, it’s usually seven days notice to terminate the contract. And then once probation has been passed the full notice provision, which is in most cases, one month for senior executives, maybe three months. For very senior executives, it’s not unheard of people to have six or even 12 months’ notice in the contract. The other key terms in the contract, which were intended to protect the employer would be terms relating to confidentiality, and most importantly, post termination restrictions to prevent the employee from being able to substantially damage your business after they’ve left employment. Another term that is often overlooked, but it’s very important for employment contracts was a garden leave provision, which entitles you to ask your employees to remain away from work during the notice period. If you don’t have a garden live clause in the contract, then arguably, you can’t require employees not to work for you.

5.08 [Matthew Love] Very interesting. So to follow up with something you’ve mentioned previously, you know, we’ve discussed the employment ordinance, we discussed some of the key provisions in terms that should be included in an employment contract. But what about for international clients? You know, Hong Kong is a very international city, there are lots of expats working in the territory. So how do international clients adapt to Hong Kong employment law?

5.35 [Adam Hugill] Ultimately, Hong Kong law and employment law is based on UK law. And so if you’re coming from a common law jurisdiction, which has UK law as its core, so UK, obviously, but maybe Singapore, Australia and the like, then Hong Kong law is pretty understandable for most employers. And most employers will find that the terms and policies that they have in place in their home jurisdiction would equally apply in Hong Kong. So it’s very easy to adapt and to transition. For employers coming from other jurisdictions or the European jurisdictions, for example, America, sometimes the laws in Hong Kong are seen as pretty confusing. Most people accept that hiring and firing is very easy to do. But all of the things that relate to governing an employee in the middle such as managing sick leave, maternity leave, annual leaves and the like, is actually very confusing. And it’s a lot for clients to get their head around.

6.30 [Matthew Love] So we discussed that, you know, a large part of the Hong Kong employment ordinance deals with various types of leave, but what specifically is covered under the ordinance?

6.41 [Adam Hugill] Okay, the ordinance covers annual leave, holiday leave. The differences annual leave is what most people would consider to be vacation. And holiday leave is what we call statutory holidays or maybe public holidays, bank holidays. There’s also sickness absence for employees who are ill, there’s a separate system entirely for employees who’ve hurt themselves whilst in the workplace. And then there’s maternity leave, paternity leave, which has been relatively recently introduced to Hong Kong law. And there’s also a requirement in Hong Kong that at least one day in every seven must be a statutory rest day. The difficulty for employers is that the law is very prescriptive in how each of these leaves are dealt with and how the rights are provided to the employee. And it’s very difficult for most organizations to be able to, to grant this protection whilst following the strict letter of the employment ordinance.

7.36 [Matthew Love] So you’re saying that the ordinance is very restrictive, but can you give some examples that employers should be aware of?

7.44 [Adam Hugill] Okay, holiday leave, it should be very straightforward in that it’s essentially a day off public holiday. But in Hong Kong, there’s two systems there’s a statutory holiday leave system and a general holiday leave system. Statutory holidays cover 12 key holidays in Hong Kong, so New Year, Chinese New Year, Christmas Day, and the like. But in addition, there’s also general holidays, which includes all of the statutory holidays, plus five other days. And so the three days of Easter are a general holiday, not a statutory holiday. And looking at looking at the strict wording of the law, different rates are provided for different types of holidays. And so, for example, statutory holiday is usually paid. A general holiday doesn’t have to be paid. If somebody is required to work on a statutory holiday, then they must be given a day off in lieu. If somebody is required to work on a general holiday, which isn’t a statutory holiday, then they don’t have to be given a day off in lieu and so the series of sort of complications and contradictions just in the system itself.

8.45 [Matthew Love] Yeah, that sounds quite confusing, even to lawyers. So going back to something you mentioned earlier, you know, you refer to maternity and paternity leave. So what are employees specifically entitled to?

9.00 [Adam Hugill] Okay, maternity leave has been provided for in Hong Kong for decades. And essentially, women allowed to take up to 10 weeks maternity leave, which on an international standard is a relatively short amount of time. It’s actually even shorter when you take into consideration that maternity leave usually starts two to four weeks before the date of birth. If you can’t agree with your employer on your maternity leave start date, then it starts four weeks before your due to give birth. And so post birth, you’re only entitled to a further six weeks of maternity absence, which for most people often isn’t enough and employers would grant ex-gratia or additional leave to really extend that time. Paternity leave, as I said before is reasonably new to Hong Kong. It’s recently been increased from three days leave to five days leave. And that doesn’t need to be taken in in one block that could be taken in individual days, both before and after.

10.04 [Matthew Love] Okay, well, it’s good to hear that it just seems at least, you know paternity leave is on the rise and becoming more common as it is in many other Western jurisdictions as well. But for the actual leave days, is maternity and paternity leave paid leave?

10.21 [Adam Hugill] For the most part, yes. There are qualifying criteria, so you have to be a continuous employee, which essentially means a full-time employee or an employee that worked more than 18 hours per week. You also need to have had at least 40 weeks of service before the date you’re due to give birth. In very broad terms, that generally means that when you started your employment, you weren’t pregnant, and then you fell pregnant during your employment in order to get that qualifying criteria. And employee that starts a new job and goes on maternity leave one or two months into the job isn’t entitled to receive paid maternity leave. And both for maternity leave and paternity leave, pays at four fifths of your wages, at 80% of your wages, which is the same as for statutory sick pay.

11.10 [Matthew Love] Okay, so it sounds like if you’re on maternity or paternity leave, you’ll get most of your wages just not quite all. But you mentioned sick leave just a moment ago. Let’s turn our focus to that for a second. I assume there are complicated rules that govern sick leave and sick pay. Is that correct?

11.25 [Adam Hugill] Yes, unfortunately, law again is pretty convoluted when it comes to sick leave and sick pay. The way that it works is that during your first year of employment, you accrue two days every month, which essentially add up to being paid sick leave bank, during your second year of employment or going forward, you accrue four days every month, which accrue towards a sick leave bank and that caps out at 120 days. And so if you have sickness absence, and you’ve agreed accrued sufficient paid sickness days, then you’re entitled to paid sickness absence. We’ve just mentioned that that’s at four fifths or 80% of wages. But there again, there are there are further complications, one of which is technically speaking, you have to be absent physically for four days before you’re entitled to any pay. And you have to provide sick leave certificates to cover your absence as well.

12.20 [Matthew Love] All right. You know, honestly, all these rules and laws seem very complicated. You know, how do employers practically manage all of these?

12.28 [Adam Hugill] Most employers will implement their own policies. One of the things that we need to check with the employers is that their policies meet at least the minimum requirements under law. As we’ve just discussed, the minimum requirements are usually reasonably low and on an international basis, employers would have in place more beneficial rules and entitlements and so as we briefly mentioned, 10 weeks maternity leave many employers, especially international employers multinational companies will offer more than that, they will offer additional paternity. Other practices that employers will also offer completely new benefits to employees which aren’t covered by the employment audience. And so quite often we see bereavement leave. If a family member dies, they will be given ex-gratia period of time off, marriage leave. And one of my more fun clients based in the UK offers what they call either duvet day or tequila day. A tequila day! So for employees who just don’t want to come to work one day, maybe it’s because of a hangover or not, they allow them a couple of days off each year where they don’t need to make up an excuse or fake sick leave. They’re allowed to just call it a duvet day or tequila day, which isn’t very prevalent across the board, but I think it’s nice benefit.

13.55 [Matthew Love] Interesting, yes, you should try to get tequila day worked into your contract, it sounds like!

14.00 [Adam Hugill] The most extreme that I’ve seen I think it exists in Holland. If you want to conceive a baby, you can ask your employer to give you conception leave.

14.10 [Matthew Love] Conceptionally well, they have a leave for everything it seems like.

14.11 Okay. Well, let’s turn to the topic of termination. You know, Hong Kong employment laws are widely regarded as being you know, quite pro employer. Does this mean that terminating employees is easy?

14.25 [Adam Hugill] In a nutshell? Yes. Certainly compared to UK, European countries, Australia and the like, termination in Hong Kong’s very straightforward. That being said, there are many pitfalls. And so as with as with most things, the starting point is the employment contract and you would look to see what the notice period is in the employment contract. When looking at the notice period, the other thing to double check is that the contracts been signed. It’s often overlooked, but if a contract hasn’t been signed by both parties, then the notice period is one month, no matter what the contract actually says in it. And so for certain people that might shorten the notice period for others, it might lengthen it. When referring to notice periods, it has to be at least seven days by law, but it could also be much longer than that. And also fixed term contracts are relatively common. So somebody locked in essentially for 12 months or two or three years or has a termination date this fixed at some point in the future.

15.22 [Matthew Love] Hmm. Interesting. You know, so you talked about how the termination process can work if there is an employment contract. But what if there isn’t an employment contract within?

15.32 [Adam Hugill] If there isn’t an employment contract, then the law steps in and says that one month’s notice is required.

15.38 [Matthew Love] Interesting. And how does that reflect the wrongful termination issue?

15.43 [Adam Hugill] Wrongful termination is essentially being terminated in such a way that you’ve not been given either your statutory notice period or your contractual notice period. And so if somebody is terminated on short notice, or somebody resigned and doesn’t want to work out there notice period that’s a wrongful termination. And that person would be entitled to sue their employer for the balance of the notice period that they did or didn’t receive.

16.09 [Matthew Love] So what happens during the notice period?

16.11 [Adam Hugill] The employer can do one of three things. And it’s usually for the employer to make this decision, they can either require the employee to work their notice period, so the person just comes to work and carries on performing their day to day job. Sometimes they get put on special duties or they get assigned different roles during their notice period. They can be put on what we call garden leave, which is they’re still employed by the company, they’re just not required to work. And so they still receive their wages, they still receive all of their full pay and benefits. That is not required to perform work. And the reason for garden leave is if you have an employee who’s in a key role, which could cause disruption to the company, and that employee is due to go and work for a competitor immediately after that termination, you probably want to keep that employee away from either your confidential documentation or away from your client, so from having sort of key strategic information relating to the business that they would then be able to take to their to their new employer. If you want to get rid of the employee immediately, and the employee hasn’t done anything wrong, but you’re clearing them off your books, then you always have the right to make a payment in lieu of notice. Similarly, in Hong Kong, and I think it’s the only jurisdiction in the world which allows this, an employee can also buy out their notice period. So they can bring their contract to an immediate end by giving their employer a cash sum, which is equal to whatever their notice period is.

17.32 [Matthew Love] It sounds like a nice unique feature to Hong Kong for the employees. So to go back just a second, we touched on wrongful termination. But let’s delve that a little bit deeper. So here in Hong Kong, are there any statutory protections for employees against being terminated?

17.50 [Adam Hugill] Limited, and it’s often very confusing for both employers and employees when they look at the ordinance and they see a section which is labelled unreasonable termination, and unreasonable termination, it sets out five grounds on which you can reasonably terminate somebody: redundancy, legality, misconduct, capability, or what we call some other substantial reason. In order to be protected, and I use this in a very loose way, from unreasonable termination, you need to have two years service. The problem is if your employer has paid out your notice period or requires you to work a notice period and paid out your notice and a few other benefits, then even if you’ve been unreasonably terminated, you don’t have recourse against the employer. The situation where you do have recourse against the employer is if what you’re called unlawfully terminated, I appreciate were saying wrongfully terminated and reasonably under lawfully, but they all have slightly different meanings. And unlawful termination is if you’ve been dismissed whilst you’re on paid sick leave, whilst you’re on maternity leave or after you’ve given notice that you are pregnant. Or if you’ve suffered from a workplace injury, which is still being investigated, in the case of sick leave and maternity leave, if you’re on paid sick leave, or you’ve given notice that you’re pregnant, then the only time in which you can be terminated is if you’re being dismissed for gross misconduct.

19.20 [Matthew Love] So it sounds like being terminated for gross misconduct is quite serious as you can be terminated, even on even found sick leave on maternity leave under those grounds. But what is gross misconduct actually mean? And in what circumstances can you justify termination?

19.36 [Adam Hugill] Okay, it’s defined in the statute, but the reality is, it’s a very serious act of wrongdoing. I tend to advise clients that you can’t really commit an act of gross misconduct by mistake. It usually involves something like deceit, fiddling expenses, stealing money, stealing from the employer or some very high level of negligence if you perform your duties incredibly badly, and if the employer suffers from that, whether its financial loss or the like, or if you basically misbehave in the office, if you’re an offensive person, if you commit acts of discrimination or harassment, then this would amount to gross misconduct, which would entitle you to be dismissed without any notice period. Essentially, you’re told one day, you’re terminated. And that’s it, you’re entitled to your paid annual leave. So you’re crude and taking annual leave, but nothing more.

20.36 [Matthew Love] So are employees entitled to compensation if their employment is terminated?

20.41 [Adam Hugill] In very limited circumstances, yes. And so you have your notice period, which we’ve talked about size of work which can be paid. If you’re terminated after two years of employment and the reason is redundancy, then you’re entitled to a severance payment. The severance payment is two thirds of your monthly wages, but that’s subject to a cap of $22,500. And so what that means for people earning $22,500 or more is that you get $15,000 for each year of employment. If you’ve been employed for five or more years, and you’re terminated for some other reason, so not redundancy, and not for gross misconduct, then you’re entitled to what we call a long service payment. And that’s calculated in exactly the same way. So $15,000 for each year that you’ve worked. The rub with statutory severance payments and long service payment is that the employer is entitled to set that off against the contributions that the employers were making to MPF account. And so just to keep the numbers nice and easy, if you went 30,000 Hong Kong dollars per month, your employer will be paying 15,000 Hong Kong dollars, so 1,500 Hong Kong dollars each month into your MPF account, and then when they terminate your employment, they can essentially take that back to cover the money that they’ve got to pay for statutory severance and statutory sick. In addition, and this is often overlooked, even employees and titles receive an annual bonus, which is contractual. And so in Hong Kong, the most common type would be the Chinese New Year bonus or a 13th month bonus, then if they’ve worked for more than three months of the bonus period, they’re entitled to receive a pro rata payment of that bonus. What becomes very interesting is most large organizations and senior executives don’t receive a contractual bonus. They receive discretionary bonuses. And there is a lot of dispute over whether a discretionary bonus is really a discretionary bonus, or whether it’s actually a contractual performance bonus. This becomes a real issue if the employee is being terminated and the employer decides that they don’t want to offer bonus payments for pro rata bonus payment and maintains the argument that it’s a discretionary sum so we don’t have to give it. The courts are prepared to look behind the word discretion and see what the reality is. And in most cases, in my experience, once you look behind the wording in the contract, there is a matrix of formula or a scoring mechanism that goes into determining what the bonus is. And that then makes that bonus a contractual entitlement.

23.16 [Matthew Love] So while we’re on the topic of termination compensation, what about the scenario if an employee is unlawfully terminated? You know, are they then entitled to any further compensation than what you’ve already talked about?

23.31 [Adam Hugill] Yes, in the case of unlawful termination, which is the limited grounds of being dismissed last on sick leave on maternity, or possibly even when you’ve suffered a workplace accident. You’re entitled to claim a penalty sum of money, it’s up to 150,000 Hong Kong dollars, but I’ve never seen the labour tribunal award that much, quite often, it’s substantially less. Also and again, this is a recent development, reinstatement or reengagement is becoming an issue. Essentially, that means asking the tribunal to give you your job back. You can only ask for reinstatements or reengagement in very limited circumstances, and you have to have been unlawfully dismissed and unreasonably dismissed. And whilst this remedy has been on the statute books for some time, previously, the employer had to consent to being reengaged or reinstated. And I’ve never come across any employer that would want to voluntarily rehire one of the employees that they’ve sacked, especially one that’s taken them through the labour tribunal. And so it was always a bit of a toothless remedy. But now that the law has changed, that the tribunal makes a determination as to whether anybody is reinstated or reengaged. It is something which employees can meaningfully ask for.

24.46 [Matthew Love] Yeah, let’s you mentioned the labour tribunal a few times. Let’s talk more about that. You know, if an employee does have a grievance with their employer, what recourse do they have?

24.56 [Adam Hugill] Okay, well, everybody tries to resolve grievances informally, but say if that doesn’t work, employees are entitled to bring claims in the labour tribunal. The labour tribunal is quite restrictive in the sort of claims that they will accept. The first criteria is you have to be an employee. And that isn’t always the most straightforward question to answer. A lot of people are engaged as contractors in the gig economy, whether people are employees or contractors can sometimes be very blurry. And so sometimes the first issue the tribunal has to deal with is are you an employee? Or are you some other sort of worker. If you do satisfy the tribunal that you’re an employee, then they will only look at claims which are for money or for reinstatement as we’ve mentioned, and if there are any claims that arise either under the employment ordinance or under your employment contract.

25.52 [Matthew Love] But what happens if you if an employee files a claim that doesn’t fall within the jurisdiction of the labour tribunal?

26.00 [Adam Hugill] The labour tribunal process to start you’ve got to the individual has to make an appointment to meet with a tribunal officer. And the officer acts as something of a sort of vetting procedure to try and ensure that only valid claims do progress to the tribunal. But say, for example, somebody misleads the officer or persuade the officer that they do have a case, then the matter will go to the Presiding Officer, and the defendant may have to run a defense of saying, well, before we take the case forward, we need to determine whether this person has a valid claim or not. And so that would be if you like a pre decision before the end, the real claim is dealt with.

226.39 [Matthew Love] So in addition to what you just mentioned, you know, how does the labour tribunal differ from the other courts here in Hong Kong?

26.46 [Adam Hugill] The key feature of the employment tribunal is that lawyers are not permitted to represent the individuals. The employee must represent themselves and must appear tribunals and the hearings. And on the employer side, an employee or a director of the company must also attend. And from my experience, it’s the employers which are very nervous of attending the labour tribunal in most cases employers can put the matter in the hands of their lawyers, but HR representatives or directors of the company appearing the tribunals usually something that they’re very keen to avoid.

27.24 [Matthew Love] I think that’s very interesting to most people. So you said that the parties can be represented by lawyers. Can the lawyers you know, at least show up and watch the proceedings?

27.37 [Adam Hugill] Lawyers can act in the background, and quite often we were instructed to prepare the documents, prepare advice. Even though the matter is in the labour tribunal without lawyers, it can get quite complicated. But as we’ve discussed, the law is pretty complex, and it’s a difficult thing for individuals without legal assistance to the way through and understand lawyers can attend at the tribunal. It’s a public forum, anybody can sit in the gallery, but the presiding officer who’s the judge of the tribunal tends to be pretty robust in ensuring that the lawyers don’t participate in the proceedings, that literally just they’re a spectator.

28.14 [Matthew Love] So they can watch but they can’t really interact.

28.18 [Adam Hugill] And things can be paused. You have meetings outside the tribunals are often discussions and the like, but actually within the court, then then lawyers have to remain silent, which is very frustrating for lawyers.

28.28 [Matthew Love] Yeah, I can imagine that must be difficult. Okay, so what can an employee expect when starting the tribunal process?

28.39 [Adam Hugill] The first step is to meet with a tribunal officer and file your claim. I would tend to advise clients to prepare their statement of claim ahead of time and all of the documents cross referenced ahead of time, and then that process can be shortened because you’ve got everything ready and your thoughts together with the documentation. Within one month of you filing the case, there will be what we call the first hearing, which is a hearing in the tribunal in front of a presiding officer. Prior to that hearing, usually about a week before the defendant will have filed its defense. And from the defender perspective, they usually would also have to attend at the tribunal meet with an officer and file the defense. At the first hearing, the presiding officer will identify the strengths and weaknesses in their respective claims and defenses. And often try and encourage the parties to negotiate or engage in some form of conciliation to settle. And if they don’t do that, then directions will be issued for the case to move forward, which is usually exchanging documents, preparing witness statements and the like. And then there will be a series of follow up hearings, where the presiding officer is checking that the parties are doing what they needed to do in terms of progressing the case forward.

29.52 [Matthew Love] Okay. So it sounds like that there’s at least a bit potential for the process to become, you know, quite complicated. Is that right?

30.00 [Adam Hugill] The labour tribunal process can become complicated. From start to finish, I would say that it could take 9 to 18 months depending on how expediently the parties are sort of moving the case along and complying with the directions. If the case is very complicated, if it contains a complex issue of law, or it contains a mix of claims which maybe don’t necessarily fall within the labour tribunal, or it’s a very high sum of money or have a mixture of the above, then the tribunal of its own motion could send the case to the high court or the district court. And so it’s dealt with through the formal court proceeding system. But similarly, an employee or an employer could ask the tribunal to transfer the case to either the high court or the district court. In which case then lawyers can become involved and the process will proceed in a very formal way.

30.54 [Matthew Love] So how often in yourself is a case transferred from the tribunal to either the district or the High Court?

31.02 [Adam Hugill] The cases that we tend to handle for our clients tend to be more complex. And so it’s not unusual for the claims to be moved to the High Court. And so I would say 50% of the cases that we deal with would be transferred. But that’s because the claim is complex. If the claim is more straightforward and easy to settle, then obviously we would do that rather than pursuing the case.

31.26 [Matthew Love] Sure, sure. Okay. All right. So let’s say that you’ve filed your claim with the tribunal, and you’ve won. What happens if the employer doesn’t pay up?

31.39 [Adam Hugill] Okay. The claim can be by the employer or the employee and so the judgment could be against an employer or an employee and if employees are not paid their wages or hasn’t worked their notice period, you can sue employees and the labour tribunal as well. But yes, if you have a judgment in your favour the rules are that that must be paid within 14 days unless the tribunal has put some other provision in there for to be paid in instalments and the like. If you are an employer and you don’t pay a judgment within 14 days, quite often it will be picked up by the Labour Department’s Criminal Investigation Bureau, who will then investigate why it’s not being paid. And quite often, they will bring criminal proceedings against the employer, possibly even against the directors of the employer to secure payment, and punish the company for not making payment. Conceivably, directors could go to prison for non-payment of tribunals awards, non-payment of wages.

32.38 [Matthew Love] So it sounds like it can be quite serious, you know, if the person losing at the tribunal, you know, doesn’t comply with, you know, the payment order.

32.49 [Adam Hugill] That yes, and something else that we can take advantage of in an employment law context is if a company doesn’t have the money to pay or the company doesn’t pay, in very limited circumstances, we can also go against the directors personally to secure payment from them.

33.07 [Matthew Love] Okay, well, let’s switch gears a little bit. So we often hear that, you know, employees are the best asset of the business, but we know that they can also be a potential liability. So how does an employer protect themselves after an employee has left their employment?

33.25 [Adam Hugill] Yes, most organizations would view an employee who gives notice, especially in employees and a senior role or strategic role, who you know, or suspect is going to a competitor as being if you like a danger to the company. And so, they’re usually very keen to try and manage that person during the notice period and protect their business after that person leaves. The way that you do this is via the employment contract, and in the employment contract, you would have a notice period, which means that you can attach a garden leave period to it. And so you can ask the employee to sit out of the business for the duration of their notice. You do have to pay them during that time and provide them with their usual benefits. But you keep control over that employee so you can manage what they’re doing, you can manage what information they have access to. Additionally, you would have in your contracts, confidentiality provisions, which most people view is being used like boilerplate clauses, but they’re actually very valuable. But the most valuable way of protecting your business post termination is was what we call post termination restrictions. And that will be a series of clauses which say, for X amount of time after your employee, you shall not work for a competitor or you shall not poach our clients. We won’t poach our staff and things like that.

34.43 [Matthew Love] Yeah, we see these post termination restrictions, these PTR is in a lot of contracts. But, you know, one question we get a lot is are they really enforceable?

34.56 [Adam Hugill] Most people look at them and say they’re not worth the paper that written on but that would be a misguided view to take. Post termination restrictions are enforceable, but they have to meet certain criteria. The way that the courts have looked at this is it’s against public policy to prevent someone from being able to work for a competitor. But they will allow it in very limited circumstances. And the way that they phrase this is if it’s reasonable to protect legitimate business interests. And so the way that they the clause is generally drafted, is you look at the duration of the clause. And so somebody is restricted for three months post termination, there’s a fair chance that that will be enforceable. If somebody is restricted for two years post termination, in an employment context, that’s usually too long. And so the whole clause would be struck down for being unreasonable. You would also look at the geography of it. And so the clauses worldwide, then the employers could have to justify why they need a worldwide restriction against you, which is a very high burden. If it was just limited to Hong Kong, then it’s more likely to be reasonable. And then overall, restrictive covenants are often poorly drafted. Either they’ve not been thought through or somebody has sort of tinkered with the template and the precedent, which has sort of been sort of updated over time. And so the restrictions don’t make a lot of sense. And if it’s a poorly drafted restriction, then it’s very unlikely that the court would enforce that.

36.21 [Matthew Love] So what you’re saying is if the restriction is, you know, badly written or just simply unreasonable, you know, what’s the remedy for that?

36.31 [Adam Hugill] Okay, if you realize that you’ve put in place restrictions, which aren’t well put together well-crafted or they’re too wide and the employee is still with you, then you can seek to impose new contract terms on them. The way that this is usually done is in connection with a promotion. But potentially in connection with pay rises and the like. That you can ask them to resign their contracts with better terms or you asked them to sign a standalone document. If the person is no longer in your employment, and you think that there are a risk, you could try and impose restrictions on them in any termination documents. So it may be a waiver and release agreement. But in most cases, and employers want to be paid if you’re going to impose restrictions on them. If you realize it’s all too late, and the employees left and working for a competitor, and you look at the contract, and you realize that, you know, it’s not great, then the courts in a very, very limited way, will do what they’ve creatively called a blue pencil test. And that means they will look at the restriction and they’re prepared to usually delete only certain words that would then make the clause enforceable. And so if, for example, you have a restriction, which says you shall not work in Hong Kong, Macau, Taiwan, and the court say, well, why would you need to protect Taiwan if you don’t have a business there? The court may be prepared to delete the word Taiwan which would then make the clause reasonable.

37.54 [Matthew Love ] Okay, so it sounds like that, in this limited scenario, the court might be able to step in and actually rewrite the contract. Is that right?

38.05 [Adam Hugill] The court wouldn’t go that far: they’re prepared to delete, but they’re not prepared to add. And so if you have a restriction, which is for 12 months, say, and the court says that that’s unreasonable, the court won’t delete 12 and right in three or six months, build across the whole contract out. This is slightly different to the way it’s done in other jurisdictions. You often see in Australia, for example, a clause drafted to say, you shall be restricted for 12 months, you should be restricted for six months, you should be restricted for three months. And then what they do in Australia is essentially go to a court and say, which one of these do you think is reasonable? And they will apply that. If you did that in Hong Kong, the whole clause would be too ambiguous. Nobody would know the meaning of it. And so it would be struck down. Okay. And so the judges are very, very reluctant to rewrite or change the meaning of a restriction.

38.50 [Matthew Love] I see. Okay. Well, let’s assume that the post termination restriction is found to be valid, does an employer have an obligation to pay the employee during that time that the employee is restricted?

39.04 [Adam Hugill] If the restriction is reasonable, then there’s no obligation to make a payment. That being said, many employers will compensate employees during the post termination restriction period, usually based on base salary or percentage of their base salary for the duration. What I tend to advise employers in such a circumstance is don’t pay the employee there for their wage each month of the restriction, what I would do is I would pay half their wage during months, one, two and three, for example, and then pay the rest of it the remaining 50% as a lump sum at the end of the restricted period. And by doing that you’re encouraging the employee financially to really stand by the restriction. Otherwise, you find that people stay out of the market for three months and then in month four, they go well, what’s the risk and may breach it because they know that the employer is not really going to try and enforce it against them, it was just got one or two months left to run.

39.57 [Matthew Love] Right, right. Okay. Well, let’s talk about this scenario where an employee breaches a restriction. What happens then?

40.04 [Adam Hugill] The classic scenario is, you get a phone call from a client who says, I’ve just lost my, my top guy, and he’s going to work for a competitor, and what can we do about this? And so we would look at the contract. If there are restrictions in their preventing competition, we would write very quickly to both the former employee and the competitor to say you’re subject to post termination restrictions. You’re working for a competitor is unlawful, you must cease this immediately. And as I say, we copy that letter to the company as well. If that doesn’t generate any results, then ultimately you need to go to court and seek an injunction which is an order from the court that says that the employee must cease working for the competitor. And also you would join the company their company into the proceedings. And so you get an order against them saying that they mustn’t hire that person for a stricter period of time. If you’re applying for an injunction, the advice is you must act quickly. The court won’t assist you if you delay in asking for a remedy. So if you spend more than six weeks deciding what to do whilst the persons working for a competitor, then almost certainly the court won’t come to your aid with an injunction. The other way in which restrictions are enforced is by way of financial penalties. And so especially in the financial services sector, you’ll see that people receive deferred consideration, so part of their bonus is essentially deferred and paid out over three years and when their employment terminates, they may will still be entitled to that deferred tail of that bonus awards. And quite often, that entitlement is connected with them complying with certain post termination restrictions. Whether it’s non competes or whether it’s non solicit or non poaching of individuals, and so rather than going to court to seek an injunction against those employees, you end up either forfeiting or avoiding that past consideration which has been held back.

42.10 [Matthew Love] What about this scenario where there are no post termination restrictions in the employment agreement? You know, what protections does the employer have in those scenarios?

42.20 [Adam Hugill] Okay. It’s an unfortunate scenario for the employer. You do have limited protection on what we call the common law principle of confidentiality, which means that the employer shouldn’t take confidential data from your organization and use it for the benefit of another organization. If they do do that, then there’s the opportunity to go to court as what we call the springboard injunction. What a springboard injunction seeks to do is if somebody is gained an unlawful advantage against you, as a results of taking confidential data or breaching, say, fiduciary duties or obligations. Was there an employee? The classic scenario is somebody gearing up to compete with you before they give notice, either on their own account or to work elsewhere, you can go and ask for what’s called springboard and junction which is for a period of time to essentially null and void. That’s unlawful advantage that the employees got and you can do that without there being restrictions in the contract. Actually, the law in Hong Kong only this year really clarified the principles of springboard injunctions and extended them to make them consistent with the United Kingdom law.

43.36 [Matthew Love] Okay, so with a springboard injunction, is there a time limit that an employer would have to apply for this springboard injunction?

43.46 [Adam Hugill] Yes, not a hard and fast time limited setting the rules but if you don’t take action very quickly, then the court won’t assist you. All injunctions whether it’s based on a post termination restriction or a springboard, or what they call called equitable remedies. And so it’s not something that you have the rights to, but something that a judge may extend to you to remedy a breach. And they always the principle is that if you don’t act quickly, then it’s it will be wrong to ask for an equitable remedy. And so if you delay for more than six weeks, from finding out that somebody has either misused your data or committed an unlawful act, and they’re taking advantage of that for a competitor, then you would be if you like, informally, time barred from bringing a case.

44.35 [Matthew Love] Be sure to catch our other episodes of The HIP Talks podcasts by checking the insights section of our website at www.hugillandip.com and please send us your comments by writing to our email address hello@hugillandip.com. Also, please feel free to share this episode of The HIP Talks podcasts with your friends, family and associates.

For the hearing impaired, you can find the notes and the transcript of this episode on our website. This podcast is for informational purposes only. Its contents do not constitute legal or professional advice.

Adam Hugill

Adam Hugill

Adam advises on a wide range of contentious and non-contentious legal and commercial issues, with a special emphasis on employment law in Hong Kong and the Asia Pacific region.

All articles by : Adam Hugill
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