The Hong Kong Market Entry Playbook: Employment

Hong Kong has a long history of being a business-friendly location to set up both as a regional business hub and to access the sophisticated local market. In the next of a series of articles exploring the attraction of Hong Kong as a regional and international business centre, Pádraig Walsh of Tanner De Witt explains key points for employers in Hong Kong.

Employment

Legislation: The Employment Ordinance (Cap. 57) is the primary piece of legislation affecting employment in Hong Kong. The Employment Ordinance prescribes certain basic rights and protection for all employees, including maternity leave, paternity leave, rest days, annual leave, sick leave, long service payment, severance payment, and rights upon termination of employment.

Scope: The Employment Ordinance applies to all employers and employees and to all contracts of employment in Hong Kong. There are exceptions in relation to people such as merchant seamen and those employed for work outside Hong Kong. Statutory provisions of the Employment Ordinance will overrule any contractual provision that purports to reduce or extinguish the rights and benefits given to employees by the Employment Ordinance.

Contract of employment: A contract of employment need not be in writing. However, if the employment contract is not in writing, the employer must upon receipt of a written request by the employee, before such employment is entered into, provide a written notice of the employee’s conditions of employment.. An employer is required to inform an employee before the commencement of employment of his wages and the corresponding wage period, whether the employee will be entitled to any end-of-year payment, and the period of notice required to terminate the employment. The employer must also inform the employee of any amendments to the employment contact. As a matter of practice, a written employment contract is highly recommended as it provides certainty in respect of the terms of employment.

Minimum wage: A statutory minimum wage applies to all employees, regardless of whether they are employed under a continuous employment contract, with exception of persons to whom the Employment Ordinance does not apply, live-in domestic workers, and specified student interns and work experience students. The statutory minimum wage for an employee for a wage period is the amount derived by multiplying the total number of hours (including any part of an hour) worked by the employee in the wage period by a rate prescribed by law (presently HK$40.00).

Wages: Wages become due on the expiry of the last day of the wage period, and must be paid as soon as is practicable but in any case not later than seven days thereafter. The failure for any employer to comply with this provision constitutes a criminal offence. An employer must immediately terminate a contract of employment in accordance with its terms, if the employer believes that it will be unable to pay wages due under the contract.

Mandatory provident fund: The Mandatory Provident Fund Schemes Ordinance (Cap. 485) requires that every employer in Hong Kong contributes an amount equal to at least 5% of an employee’s relevant income (up to a maximum contribution of HK$1,500 per month) to a retirement scheme that is registered as an MPF scheme. Every employee will also be required to contribute at least 5% of his relevant income (again up to a maximum of HK$1,500 per month) to the scheme.

Insurance coverage: Under the Employees’ Compensation Ordinance (Cap. 282), employers are required to maintain insurance coverage in respect of work-related injuries. There is no statutory requirement to provide medical benefits otherwise.

Intellectual property: Intellectual property which is created in the course of permanent employment duties is usually the property of the employer. An employment contract can provide additional rights in respect of work created outside employment, and can impose obligations for signing documents and making filings that can continue after the employment ends. If the intellectual property right is created in the course of performing employment duties, wages will be considered sufficient payment for the rights. Frequently, an employment contract will provide a right of first refusal in respect of intellectual property in these circumstances.

Confidential information: In the course of an employment, an employee may come across different kinds of information, including trade secrets, confidential information, skills and knowledge and other non-confidential information. The law provides different levels of protection for different types of information.

(a) Trade secrets are confidential business information which if disclosed would be able to cause real or significant damage to the owner of the trade secrets. It is usually information that is proprietary and unique to the employer. Trade secrets of an employer will be protected during employment and after termination of employment, even if there is no express provision in the employment contract.

(b) Confidential information is unknown to people outside the employer’s business, but not of the critical and vital importance to trade secrets. Confidential information will be protected during employment, but generally not after termination of employment. However, a provision in the employment contract can protect the secrecy and use of confidential information after termination, provided the confidential information is not know how.

(c) Know how is information that becomes part of an employee’s own skills and knowledge by performing the job. An employee’s skills and knowledge must not be used or disclosed during employment. However, an employee is free to use his full skills and knowledge for his own benefit after termination of employment.

(d) Non-confidential information is information that is in the public domain, or which does not have the character or value of confidential information. Employees are generally free to use and disclose non-confidential information.

Protective covenants: The basic rule developed by the common law Courts is that each person should be free to use his skills and experience in future employment and that any agreement restraining competition is on the face of it void and unenforceable.  However, contractual provisions restraining an employee from competing with his former employer or from working for a competitor are enforceable if the degree of restraint imposed on the employee is reasonably necessary for the protection of some legitimate interest of the employer, goes no further than necessary for the protection of such interests, and is not against the public interest. The Courts will consider the protection of a proprietary interest in goodwill, trade secrets or confidential information, or the stability of the employer’s workforce as a legitimate interest.  The kind of trade secrets or confidential information that the Courts are most ready to protect include customer contact lists, supplier lists, secret formulae and processes.  Reasonableness is considered with reference to each employee’s individual circumstances such as the employee’s role, seniority, access to confidential information, client connections, and in terms of time, geographical scope, and the kind of activities restrained.

Termination of employment

Termination by agreement: Termination by agreement occurs where a contract is for a fixed term or for a particular task and the term has expired, the task has been completed, or where the parties agree to terminate. Severance payment is generally not payable, but is in some cases, and in certain circumstances long service payment may be due.

Termination by notice or payment in lieu: The employer and employee can agree on a notice period for termination, subject to a minimum of seven days notice for any continuous contract. A contract may be terminated by notice or by either party agreeing to pay to the other a payment in lieu of notice. The amount of payment is determined by reference to the daily or monthly average wages of the employee for the 12 months preceding the termination date, or if the employee has been employed for shorter than 12 months, for the duration of the employee’s employment with the employer. Payment in lieu does not affect an employee’s right (if any) to severance payment or long service payment.

Summary dismissal without notice: An employer may terminate a contract of employment without notice or payment in lieu:

(a) if an employee, in relation to his employment:

(i) wilfully disobeys a lawful and reasonable order;

(ii) misconducts himself, such conduct being inconsistent with the due and faithful discharge of his duties;

(iii) is guilty of fraud or dishonesty; or

(iv) is habitually neglectful of his duties; or

(b) on any other ground on which the employer would be entitled to terminate the contract with notice at common law.

Wages owing up to the time of dismissal must be paid plus annual leave pay accrued and owing at the date of termination. Severance payment and long service payment are not payable to an employee who was dismissed by the employer’s valid summary dismissal..

Resignation without notice: An employee is entitled to resign without notice in circumstances where the employer is guilty of serious misconduct or a serious breach of the contract. A specific ground of resignation without notice is when wages are not paid to the employee within one month from the date on which they become due to him. Severance payment is not payable (unless redundancy is involved) but long service payment may be due. In addition, the employer will generally be liable to pay the employee his other accrued benefits.

Wrongful termination: Wrongful termination is a termination otherwise than in accordance with the terms of the contract or without giving notice required or making payment in lieu.  Under the Employment Ordinance, the party in default must pay to the other a sum equal to the amount which would have been payable by the employer had the employer terminated the employment lawfully by payment in lieu of notice.  An employer wrongfully terminating will generally have to pay the employee his other accrued benefits.

By operation of law: An employment contract may terminate because of an external event. This could occur, for instance, if the employment becomes illegal or as a result of the death or insolvency of the employer. Payments may be due depending on the circumstances.

Claim limitation period:  Generally, an employee or an employee may commence a claim under the Employment Ordinance or an employment contract within six years after the date the cause of action accrued. Shorter limitation periods apply to specific claims under the Employment Ordinance. For example, an employee wishing to claim statutory severance payment from a former employer must submit a claim in writing to the employer within three months from the termination date.

Contractors

Status: Individuals who perform services will typically fall into one of two categories under Hong Kong law. These are employees who enter into a contract of employment to serve an employee, and contractors who enter into a contract to provide services to another person. The distinction is important. The employment relationship has particular duties and obligations (including different statutory rights and tax treatment) that do not apply in a contractor relationship. Businesses need to properly consider which model of obtaining services they wish to use, and ensure it is properly implemented as a matter of fact and law.

Contractor characteristics: A contractor who is genuinely self-employed is not an employee and does not have employment rights or duties. The classic characteristics of a self-employed contractor are that the contractor provides his own skill and work in return for pay, with a high degree of control of his own activities and how he conducts the performance of his services. The nature of the arrangements must also be consistent with self-employment.

Risk: If key contractor characteristics are absent in the relevant contract, or in how the contract is performed, then there is a risk that the contractor may be able to claim that he is an employee. This, in turn, may mean the person can claim entitlements and rights that flow from employment status. Also, taxation issues can arise for businesses and contractors if contractors wish to be engaged via a services company.

Factors to consider: From the business owner’s perspective, the engagement of a contractor carries a lower administrative burden. The contractor is responsible for his own immigration status. The business is not required to enrol the contractor in the business’ MPF scheme. Fees, services and deliverables, and termination of services can be determined by contract. Contractor arrangements are sometimes preferred as a means of avoiding business establishment concerns if only one person will be providing services in Hong Kong. However, the business will have less control over the activities of the contractor, and must be prepared to accept that the contractor may perform services for others.

No hybrid status: Presently, Hong Kong law only recognises the status of employee and contractor. There is no statutory recognition for a separate category of workers who are neither employees nor contractors, and no specific laws that focus on issues arising from the gig economy.

Intellectual property: Intellectual property rights in respect of the work product of contractors will largely be determined by the agreement between the business and the contractor. In the case of patents, the patent will normally belong to the inventor, and it will be essential for those rights to be assigned and transferred to the business. For commissioned works subject to copyright, ownership of copyright is determined by the agreement between the business that commissioned the work and the author. This highlights the critical importance of ensuring that the contracting arrangement fully considers and deals with intellectual property rights.

Pádraig Walsh and Raymond Ko

* This article is an expanded version of our contribution to the iTech Law global publication “Startup Legal Playbook”, which can be accessed on this link.

If you want to know more about the content of this article, please contact:

Russell Bennett

Partner | Email

Mark Chiu

Consultant | Email

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication. This article was last updated on 04 March 2024.