Wishing you a Happy New Year!
In this Review, we provide a snapshot of the most significant Hong Kong employment laws introduced in 2019, as well as those that are likely to come up in 2020.
Male employees to enjoy five days paternity leave
|The Employment (Amendment) (No.3) Ordinance 2018 came into operation on 18 January 2019 (EA No.3 Ordinance).
Pursuant to the EA No.3 Ordinance, male employees with children born on or after 18 January 2019 are entitled to five days paid paternity leave, to be taken consecutively or separately for each confinement of their spouse or partner, if they fulfil other requirements stipulated in the law. They may take paternity leave at any time during the period beginning from four weeks before the expected date of delivery of the child and ending ten weeks after the actual date of delivery of the child. The daily rate of paternity leave pay will be paid at the rate of four-fifths of the daily average daily wages earned by the male employee in the 12-month period preceding the day of paternity leave. (For more details, please see our Newsletters dated 21 Nov 2018 and 16 Jan 2019)
Employers should review their paternity leave policies and procedures, and make necessary adjustments to ensure compliance with the changes made under the EA No.3 Ordinance.
Inland Revenue and MPF Schemes Legislation (Tax Deductions for Annuity Premiums and MPF Voluntary Contributions) (Amendment) Ordinance 2019
|The Inland Revenue and MPF Schemes Legislation (Tax Deductions for Annuity Premiums and MPF Voluntary Contributions) (Amendment) Ordinance 2019 (IRMPF Amendment Ordinance) was enacted on 29 March 2019 pursuant to which tax deductions are allowed for qualifying deferred annuity premiums and tax deductible MPF voluntary contributions (MPF TVCs) under salaries tax and personal assessment. The deductions are applicable to a year of assessment commencing on or after 1 April 2019.
The IRMPF Amendment Ordinance introduces tax incentives and addresses the issue of ageing population in Hong Kong by encouraging voluntary savings and offering more options to people in making financial arrangements for their retirement. According to the Mandatory Provident Fund Schemes Authority, a working group with MPF trustees has been set up to co-ordinate the implementation of the MPF TVCs and to handle MPF TVCs applications. Employees and holders of deferred annuity policies should understand how the new arrangement works, and allocate their tax-incentivised savings that best suit their needs and preferences accordingly.
Automatic Exchange of Financial Account Information relating to MPF and ORSO Schemes started on 1 January 2020
|The Inland Revenue (Amendment) (No. 2) Ordinance 2019 (IRA No.2 Ordinance) was gazetted on 1 March 2019, under which the amendment of the taxation arrangement for the Automatic Exchange of Financial Account Information in Tax Matters (AEOI) relating to MPF schemes and ORSO registered schemes took effect on 1 January 2020.
Under the IRA No.2 Ordinance, MPF schemes and registered schemes under Occupational Retirement Schemes Ordinance (Reporting Institutions) are required to comply with the due diligence and reporting obligations relating to the automatic exchange of financial account information in tax matters. Reporting Institutions should collect the account information of scheme members who are tax residents outside Hong Kong, and report in 2021 to the Inland Revenue Department the financial account information of the relevant members, covering the year 2020, for transmission to the relevant tax authorities in the AEOI partner jurisdictions.
Employers and employees should take note of the new arrangements and ensure compliance with the new requirements.
Proposed changes to ORSO: what employers and employees need to know
|The Occupational Retirement Schemes (Amendment) Bill 2019 (ORSO Amendment Bill) was gazetted on 4 April 2019. The primary aim of the proposed amendments is to plug the loophole in the misuse of schemes for purposes unrelated to employment and retirement, such as creating investment products for non-employees.
The following are the key proposed amendments under the ORSO Amendment Bill:
If the Registrar intends to cancel the registration of a scheme, the Registrar may apply to the court for an order to freeze the scheme assets to avoid the risk of scheme assets being transferred out of the scheme.
Similar requirements will also apply in cases where the Transferring Scheme is not a registered scheme or exemption scheme but a retirement scheme established outside Hong Kong.
Once the ORSO Amendment Bill comes into force (the date of which is not yet published), any term of a scheme (whether registered or exempted) that does not meet the New Criteria shall be void and unenforceable. In addition, if a person other than an eligible person is allowed to be a member of the scheme without reasonable excuse, the employer commits an offence and is liable to a fine and, in the case of conviction on indictment, imprisonment.
Employers should take note and prepare to make necessary amendments to cater for registration as well as to comply with the ongoing requirements under the proposed changes to ORSO, especially compliance with the New Criteria and conditions for bona fide transfer-in payments.
Employers who wish to set up exempted schemes should note that new exemption certificates can only be applied for when it is an acceptable registered/approved offshore scheme. Therefore, when relocating staff from overseas offices to Hong Kong, employers should consider whether there is a need to provide alternative retirement arrangements while the staff is in Hong Kong.
Record increase in Hong Kong minimum wage
|The Minimum Wage Ordinance (Amendment of Schedule 3) Notice 2019 amended Schedule 3 of the Minimum Wage Ordinance to increase the minimum hourly wage rate from $34.5 to $37.5 with effect from 1 May 2019.
The Employment Ordinance (Amendment of Ninth Schedule) Notice 2019 amended the monetary cap on keeping records of hours worked from HK$14,100 to HK$15,300 also took effect on 1 May 2019.
|June and Sept 2019
CFA recognises spousal benefits and joint-tax right for same-sex married couples
|In the case of Leung Chun Kwong v Secretary for the Civil Service and Commissioner of Inland Revenue  HKCFA 19, the issue of whether same spousal benefits and tax reporting rights shall equally apply to same-sex married couples was finally concluded by the Court of Final Appeal (CFA) on 6 June 2019. The CFA also handed down its judgement on relief on 6 September 2019.
The appellant Leung Chun Kwong (Leung) is a civil servant employed by the Hong Kong Government which is subject to the Civil Service Regulations (CSRs). Leung married his same-sex partner in 2014 in New Zealand where same-sex marriage is recognised. CSRs provide certain benefits to a civil servant’s spouse. The Civil Service Bureau did not recognise Leung’s marriage for the purpose of providing spousal benefits on the basis that his same-sex marriage would not constitute a change in marital status under the CSRs (Benefits Decision). Subsequently, Leung was unable to include his partner as his spouse when he applied for joint tax assessment because the marriage did not fall within the definition of “marriage” under the Inland Revenue Ordinance (Tax Decision).
Leung applied for judicial review and argued that both the Benefits Decision and the Tax Decision unlawfully discriminated against him on the ground of his sexual orientation. The Court of First Instance allowed the application for judicial review of the Benefits Decision but dismissed that of the Tax Decision. The Secretary for the Civil Service (Secretary) appealed against the Benefits Decision and Leung cross appealed against the Tax Decision. The Court of Appeal allowed the Secretary’s appeal and dismissed Leung’s cross appeal. Leung appealed to the Court of Final Appeal (CFA).
The CFA was satisfied that a same-sex married couple is comparable to an opposite-sex married couple. Further, the CFA found that traditionally, spousal benefits in the context of employment and taxation were not conferred in order to protect the institution of marriage, but were to acknowledge the economic reality of the male (usually) as the breadwinner of the family, and in the case of employment within the civil service, to encourage the recruitment and retention of staff. On the other hand, joint tax assessment helped to lessen the overall tax burden on the family. Hence, there was no rational justification for the differential treatments in respect of both the Benefits Decision and the Tax Decision. The CFA ordered, among other things:
For the purpose of the IRO, references to
Whilst the CFA judgement concerns civil servants of the Government, its effect on the private sector has yet to be seen. It is advisable for employers to review their policies and check whether their current benefits apply equally to both heterosexual married couples and same-sex married couples to avoid unfair discrimination from taking place. Further, the remedial interpretation of the IRO would become effective in six months’ time and the IRD is expected to issue new guidelines and practice notes.
Employment contract: court stressed on the significance of proper drafting
|Employment contracts almost invariably contain a clause specifying the notice period required for the parties to unilaterally terminate the employment relationship. However, what is unclear is after the employee has signed the employment contract, if he/she decides to back out before he/she starts work, would the employer be able to rely on the notice provision to demand payment in lieu? The recent case of Law Ting Pong Secondary School v Chen Wai Wah  HKCFI 2236 shows how the court, through contractual interpretation, rejected an employer’s contention that it was entitled to such payment.
The appellant (Chen) is a teacher who had entered into an employment contract (Employment Contract) with the respondent School (School). The Employment Contract was based on three documents which the School provided to Chen on 17 July 2017:
According to the Conditions of Service, Chen’s period of employment would commence from 1 September 2017 to 31 August 2018 and he could terminate his employment by giving three months’ notice; making a payment in lieu of such notice; or providing a combination of both. The Letter of Acceptance provides for acceptance of the appointment in accordance with the Conditions of Service and, once accepted, the new contract will come to immediate effect and Chen would need to give three months’ notice to terminate his employment with the school (Immediate Effect Statement).
Chen signed both the Conditions of Service and the Letter of Acceptance on the same day.
Subsequently before commencement of the employment, Chen decided to back out but failed to make any payment in lieu of notice to the School. The Labour Tribunal took the view that the Employment Contract was constituted by all provisions in the three documents (including the Immediate Effect Statement), and ruled in favour of the School. Chen appealed to the Court of First Instance of the High Court (CFI).
On appeal, the CFI cited a recent English Court of Appeal case of JLT Specialty Limited v James Craven  EWCA Civ 2487. The CFI opined that a valid offer has two essential features: first, there must be “an expression of willingness to contract by the offeror”, second, “such a willingness to contract must be subject to specified terms”, and held that the School’s willingness to contract with Chen was clearly stated in the Offer of Appointment, and the terms of the offer were specified in the Offer of Appointment subject to the Conditions of Service, but not the Letter of Acceptance. Since the Conditions of Service did not make any reference to the Letter of Acceptance, the Immediate Effect Statement could not have formed part of the Employment Contract.
Accordingly, the CFI allowed the appeal and ruled that Chen was not liable to make any payment in lieu of notice by backing out before the date of commencement of the employment.
This case provides a clear illustration of how cases are inherently fact sensitive. To ensure the effectiveness of all essential terms and to avoid disputes, employers are advised to review their contractual documents and carry out re-drafting work, where necessary.
An important lesson on settlement negotiations
|In employment disputes, employers may choose to enter into settlement agreements with employees in exchange for the employees’ undertaking in refraining from and/or doing certain acts to the employers’ potential detriment without considering the consequential implications. The recent District Court decision of HKSAR v Bowers Kevin Richard DCCC 898/2018  HKDC 1225, provides an important reminder that despite a wide freedom to enter into agreements, not only must settlement terms not involve acts that contravene the law, but even the mere proposal of the possibility of including such acts in the settlement may result in prosecution.
The Defendant was a partner to a law firm which represented the liquidators of a company (Company). In addition to bringing various civil actions against the Company’s parent company and all directors, including Ms Kelly Cheng (Cheng), the liquidators alleged that Cheng and two other former directors had applied for letters of credit by using sham transactions. Ms Cheng was eventually charged.
The Defendant was alleged to have proposed in two without prejudice discussions with the respective solicitors for the Company’s parent company and Ms Cheng that if a settlement of the civil claims could be agreed with the liquidators, the witnesses would “stay out of jurisdiction” and not give evidence in the parallel criminal proceedings, thereby making the prosecution lose impetus. Although the Defendant’s proposal did not materialise, the prosecution argued that such proposal intended to pervert the course of public justice.
The Defendant was acquitted by the District Court as there was doubt about what exactly the Defendant had said in the discussion, and the Defendant has not been found to have the intention to pervert the course of justice.
Employers and employees are reminded that in negotiating a separation/settlement agreement, if there are implications of criminal prosecutions/investigations arising from a separation/settlement agreement (e.g., breach of the relevant legislations), both parties would have to be very careful not to request any other party not to report/complain to the relevant authorities or to become a witness in any case in return for certain settlement payments.
Hong Kong Court of Appeal affirms terminal payments not taxable
|The Court of Final Appeal in Poon Cho-Ming, John v Commissioner of Inland Revenue FACV 1/2019  HKCFA 38 affirms the longstanding distinction at Hong Kong law between payments made by an employer, or former employer, to an employee, or former employee, in accordance with the terms of a contract of employment, and payments that are made otherwise than as a reward for past, present or future services in employment. Only in the former case will the payment be chargeable to salaries tax.
Poon’s case is now an authoritative and definitive statement of the law on terminal payments in Hong Kong. Employers and employees should bear in mind that the critical question is what the given payment was for: if it was contemplated in the contract of employment, or otherwise a reward for past, present or future services in employment, it is to be regarded as derived from employment and is, on that footing, taxable. If, however, it was paid for some other reason, then it should not be chargeable to salaries tax.
Employment (Amendment) Bill 2019: Maternity leave to be extended to 14 weeks
|The Employment (Amendment) Bill 2019 (Amendment Bill) was gazetted on 27 December 2019. The Amendment Bill proposes to amend the Employment Ordinance (EO) in the following areas:
Employers should take note that the other maternity protection provisions under the EO shall continue to operate.
New developments on employment law may take place during 2020 or the ensuing years. Here are some of the most noteworthy:
The Discrimination Legislation (Miscellaneous Amendments) Bill 2018
TheDiscrimination Legislation (Miscellaneous Amendments) Bill 2018 (Miscellaneous Amendments Bill), which was gazetted on 30 November 2018, seeks to enhance protection against discrimination and harassment by amending the Sex Discrimination Ordinance (SDO), the Disability Discrimination Ordinance (DDO), the Family Status Discrimination Ordinance (FSDO), and the Race Discrimination Ordinance (RDO). The First and Second Reading of the Bill took place in December 2018.
On 29 November 2019, in response to the follow-up actions of the Bills Committee of the Legislative Council, the government proposed to make further amendments to the Miscellaneous AmendmentsBill in the following areas:
The Bills Committee on the Miscellaneous Amendments Bill met on 9 December 2019 to scrutinise the proposed amendments. Should the Bill pass, the new amendments will have implications for gender, family, productivity and economics.
The Employment (Amendment) Bill 2019: Maternity leave
Commencement of the Second Reading debate of the Amendment Bill took place in the Legislative Council on 8 January 2020 and further debate will take place on 15 January 2020. The Amendment Bill may be implemented in 2021 or sooner. Employers should keep abreast of the development and prepare for the necessary measures to ensure compliance with the amended EO once it comes into effect.
Proposed abolition of the MPF offsetting mechanism
In the 2018 Policy Address, the government proposed that the MPF offsetting mechanism should be abolished and the government would devote further resources to incentivise the abolition of the MPF offsetting mechanism:
On 29 December 2019, the Secretary for Labour and Welfare, Law Chi Kwong, said that the legislative drafting in relation to the abolition of the MPF offsetting mechanism is already underway with the aim of introducing it to the Legislative Council by the end of 2020. Businesses, in particular micro, small and medium-sized enterprises, should keep watch on further developments and make appropriate plans to mitigate the potential impacts of the forthcoming legislative changes.