Proposed Changes to Hong Kong's Employment Scene
Employment (Amendment) Bill 2017
On 17 May 2017, the Employment (Amendment) Bill 2017 ("Bill") was introduced in Hong Kong's Legislative Council ("LegCo"). The Bill is largely the same as the Employment (Amendment) Bill 2016 which lapsed at the end of 2016. Our alert on the 2016 Bill can be found here.
In summary, the Bill intends to empower the Labour Tribunal to make an order compelling employers to reinstate or re-engage employees who have been unreasonably and unlawfully dismissed, without the employer's prior consent. Under current Hong Kong law, an employer is required to agree to reinstatement or re-engagement before a Court can make such an order.
The main difference between the 2017 Bill and the 2016 Bill is that the proposed penalty for an employer who fails to comply with an order for reinstatement under the 2017 Bill is set at three times the employee's average monthly wages, subject to a maximum of HK$72,500 to be paid to the employee. This is an increase to the maximum penalty of HK$50,000 under the 2016 Bill. Failure to pay the penalty wilfully and without reasonable excuse is made a criminal offence.
Reinstatement / Re-engagement
An order for reinstatement/re-engagement is rarely asked for or made. This is because by the time the employer and employee have litigated the matter in the Labour Tribunal or High Court, the relationship between the parties has significantly deteriorated. Therefore, whether the proposed new law will in reality be an additional recourse of action available to the employee is yet to be seen.
Although the proposed amendment removes the need to obtain an employer's agreement, the Court is still required to hear both parties' views and consider all the circumstances of the case. If there is evidence that, for example, the relationship between the employer and the employee has completely broken down and it would be impracticable to re-employ the employee, then it is unlikely that the Court will order a reinstatement/re-engagement.
Proposed changes to the MPF offset mechanism
Meanwhile, a proposal in LegCo calls to scrap a controversial arrangement where employers dip into their workers' pension funds in order to pay their employees' severance and long-service payments. With strong opposition from the business sector, it remains to be seen if the proposal will come into effect.
Current MPF offset mechanism
Under current Hong Kong law, an employer who is liable to pay an employee severance payment or long service payment can offset these payments with the accrued benefits derived from the employer's contributions to an MPF scheme for the employee. In other words, employers can use the employees' pension funds to offset the severance or long service payments.
An employer, after paying an employee his/her severance or long service payment, can apply to the MPF trustee for re-payment from the employee's MPF fund. An employee, if not paid the entire amount, can also apply to withdraw such sum from his/her MPF account.
As a result of the MPF offset mechanism, billions of dollars are withdrawn yearly from employees' MPF accounts. HK$3.85 billion was withdrawn last year, which represents a 70% increase from 2012.
A recent proposal in LegCo calls for an abolishment of this offset mechanism, which means that employers will have to dig into their own pockets to pay severance or long service payments to eligible employees, thereby increasing business and overhead costs.
Although employers will no longer be repaid these payments from their employees' MPF accounts, the proposal calls for a reduction in the amount of severance and long service payments in order to reduce the burden upon employers. The amount payable, if the proposal comes into effect, will be adjusted downwards from the existing entitlements of two-thirds of the last month's wages to half, for each year of service.
The proposal comes after months of consultations with both employer and employee groups, but is still vigorously opposed by the business sector which could try to block the implementation of the proposal.
If the proposed change comes into effect, it would not apply retroactively. Further, employers would also have a 10-year period from the date of implementation during which the Government would bear part of the costs involved in such payments, thereby allowing business and other employers to prepare and making arrangements in light of the change.
Although it would be a welcome development for employees, the proposal is predicted to hit small and medium sized businesses hard.
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