Prosecution and Directors’ Liabilities for Failing to Pay Wages

Prosecution and Directors’ Liabilities for Failing to Pay Wages

Prosecution and Directors’ Liabilities for Failing to Pay Wages 1200 793 Adam Hugill
Reading Time: 3 minutes

Adam Hugill discusses prosecution and liabilities of employers that fail to pay wages and termination payments to their employees, which often lead to fines and even imprisonment. He also highlights real-life examples and the role of the Labour Tribunal.

SHOW NOTES
00:37 The role of the Labour Department
01:05 Imprisonment
01:44 Personal liability for non-payment of wages to employees
01:56 Mitigating factors
02:44 Leniency


TRANSCRIPT
Prosecution and Directors’ Liabilities for Failing to Pay Wages

An employer who fails to pay its employees within 7 days after the date when payments fall due may be liable to fines of up to HK$350,000 and imprisonment of up to 3 years. This applies to both wages, that must be paid within 7 days of the last day of the wage period and termination payments that must be paid within 7 days of the last date of employment.

If an employee obtains a Labour Tribunal judgment for non-payment of wages, this must usually be paid within 14 days or similar criminal penalties will apply.

Does the Labour Department really prosecute Employers?

The Labour Department issues regular press releases of its successful prosecutions. In the month of October 2020 alone, the Labour Department has reported:

  • a company being fined HK$64,000 for non-payment of a tribunal award and an order to pay the employee HK$14,000
  • another was fined HK$50,000 for the same offence
  • another company was fined HK$73,000 for non-payment of wages and holiday pay

Are Directors / Officers actually imprisoned?

In September 2020, a director and his company were prosecuted for failure to pay employees’ wages and annual leave. The company was fined HK$101,000. The director was fined HK$62,000 and sentenced to two months imprisonment suspended for 12 months. The director and the company were ordered to pay HK$726,000 to the employees.

Other sanctions can be imposed. For example – also in September 2020 – a company director was ordered to 200 hours of community service for failure to pay wages. In that case, the director was also ordered to pay almost HK$1million in outstanding sums due to the employees.

Can directors have personal liability for non-payment of wages to employees?

The Employment Ordinance (Cap. 57) effectively allows the corporate veil to be pierced, so that directors or officers of the company do have personal responsibility.

Any mitigating factors?

Directors can seek to defend themselves by arguing that they had a reasonable excuse for non-payment or late payment. However, the Court is rarely prepared to accept this as being a complete defence.

In HKSAR v Li Fung Ching the employer deliberately failed to pay wages, preferring to pay other operating expenses in the hope of keeping the company afloat.

The director was convicted for non-payment of wages and was fined a sum of HK$110,000. The director appealed against the conviction.

The Court of Final Appeal commented that the non-payment of wages in order to try to save its business “was a hopeless argument…” and that “A company which chooses to use its resources to meet other expenses instead of paying wages is making a calculated decision to break the law designed to protect those employees – the opposite of a reasonable excuse for non-payment.”

Any leniency of the Courts?

While the Courts are reluctant to accept most excuses as a defence for non-payment, they might be prepared to accept such excuses in mitigation for a lower fine or sentence.

Courts are prepared to be lenient when the delay is short, the unpaid sum is small or it is a one-off or first incident. The Court may also be prepared to consider operational issues such as management chaos arising from a change of ownership or the sudden departure of senior management as mitigating factors.

 

This video is for informational purposes only. Its contents do not constitute legal or professional advice.

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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