Issues for employers (Hong Kong law)
This guide is based on the law of Hong Kong. It was last
updated March 2005. A UK version is also
available.
Overview
This guide sets out some of the contractual issues which have to
be considered by a Hong Kong business in relation to its use of
personnel whether employees or contractors.
Employees and contractors
Business personnel fall into one of two categories: employees or
contractors.
The distinction between an employee and an independent
contractor is an important one.
- Statutory employment protection rights are directed mainly
towards the protection of employees. For example, only employees
can claim compensation for unfair dismissal or a redundancy
payment.
- An employer owes more extensive duties to employees and bears a
greater degree of responsibility for their actions.
- The terms that a court will be prepared to imply into contracts
of employment are different from those which would apply to another
status of worker.
- It might be thought beneficial for a business to declare that
its personnel are all contractors but the intention of the parties
is only one element in deciding whether a particular person is an
employee or a contractor. Most of the tests are objective:
- Does the worker have a duty to provide a personal service (i.e.
can the worker appoint someone else to perform his or her
duties)?
- Is the basis of payment regular or is it dependent on results?
Where is the work done and with whose equipment?
- Is there a regular working pattern?
- How much control does the employer exercise?
- Is the worker bound to accept work when it is offered to
him?
- Is the worker carrying on business on his own acount, or
carrying on the employer's business
Depending on how these questions are answered a worker may be
treated as an employee by the courts even though both he and his
"employer" have agreed that he should be a contractor.
Do you need to provide an employment contract?
There is no obligation to give an employee a written contract of
employment. However, employers are well advised to issue written
contracts for the following reasons:
- Upon request from the (prospective employee) the employer must
deliver a written statement of certain key terms and conditions of
employment (e.g. wages and the wage period, end of year payment if
appicable the length of the notice period).
- If an employee does not have a written contract of employment
that does not mean that there is no contract a court would
recognise that a contract exists by virtue of the fact that there
is a bargain to provide services in exchange for payment: it is
merely that it has not been written down. To the extent that there
is no agreement as to certain terms and conditions of employment
(for example, as to an appropriate notice period), certain
provisions of the Employment Ordinance may govern the issue(s). If
not then, a court will imply a term based on what it assumes that
the employer and the employee would have agreed had they turned
their minds to the issue. Typically, a court will take into account
what is normal within that company and what is normal within that
industry.
- There is a myth that greater flexibility can be achieved by not
committing oneself to a written contract. In fact, there is much
more flexibility to be achieved by a written contract that contains
clauses providing for flexibility.
- The certainty to be achieved from a clear, written
understanding of the basis of the employment relationship saves a
lot of unnecessary dispute and confusion.
Ownership of intellectual property
Where a worker may be inventing new products or processes,
developing or improving software or creating know-how, it is
important for express provision to be made for the ownership of any
intellectual property that may be created, such as copyright or
patents. See our guide on Branding and
Intellectual Property. In order for the employer to retain
control of any intellectual property created by a worker he or she
should be obliged to:
- disclose all inventions created during his or her employment or
engagement with the employer;
- keep those inventions confidential;
- hold any intellectual property on trust for the employer;
- do whatever may be necessary to vest intellectual property
rights in the employer, including co-operating in any registration
procedures such as patent applications; and
- licence the use by the employer of any intellectual property
which it does not own and allow its use by a number of other
users.
Employee confidentiality
In certain circumstances, the law is prepared to imply
restrictions on the use of confidential information into
relationships between employers and workers. However, employers
would be well advised to include in any contract with a worker an
express restriction on the use of confidential information. Such a
clause should deal with the following:
- The employer should state exactly what information he or she
deems to be confidential. In particular, items that are highly
confidential, such as trade secrets, should be categorised as
such.
- The employer should state for how long the restriction is to
apply. It is possible to restrict the use of confidential
information both during and after the termination of the employment
or engagement. However, a restriction post termination may be more
difficult for an employer to enforce.
- A worker should be restricted from using and disclosing
confidential information.
- The restriction should not apply to confidential information
which has been made public other than through its disclosure by the
worker.
Where there is no direct contractual relationship between the
employer and the worker, for example, where the worker is employed
through an agency, the employer should ensure that the agency
agrees to ensure that each member of its staff will sign up to a
confidentiality agreement in favour of the employer.
Restrictive covenants
A worker may gain valuable information regarding his or her
employer's business and knowledge of its operations, and could
cause serious damage to the employer's business by using that
information to set up a competitive business or to work for an
existing competitor. To protect itself against such a threat, an
employer will often seek to impose restrictive covenants.
Restrictive covenants may seek to restrict a worker from:
- soliciting clients or dealing with clients of the
employer;
- poaching other employees;
- engaging in any competitive activity.
Restrictive covenants will only be enforceable if:
- the employer can show that he or she has a legitimate business
interest to protect; and
- the restriction is reasonable in all the circumstances.
It will not be appropriate to impose restrictive covenants on
every worker. An employer must carefully consider what information
a particular worker may have access to and what impact that worker
leaving to join a competitor or setting up in competition would
have on the employer's business. The threat of a junior worker
leaving to work for a competitor will clearly not be the same as a
senior executive doing so.
The scope of restrictive covenants must be limited so that they
do not seek to restrict the employee more widely than is necessary
for the employer to protect his or her business. Particular care
should be taken to limit the geographical extent of the covenant
and its duration.
Gardening leave
An employer may also be able to restrict the competitive
activities of a worker through the use of a gardening leave clause.
To do so, the employer provides in the contract that it has no
obligation to provide work to the worker or alternatively reserves
the right to vary the worker's duties.
If the worker serves notice that he or she intends to terminate
the relationship, the employer can insist that the worker must give
proper notice of termination in accordance with the terms of the
contract. During such notice period, the employer then exercises
its right not to provide any work to the employee and to reassign
his or her duties. By doing so, the employer is able to limit the
worker's exposure to confidential information or to client contacts
for the duration of his or her notice period.
As with restrictive covenants, a gardening leave clause must
protect a legitimate business interest of the employer and must be
reasonable in all the circumstances. Care must be taken as to the
duration of any period of gardening leave an employer's
right to place a worker on gardening leave for an excessively long
period of notice is unlikely to be enforced.
A worker who is on gardening leave must continue to receive his
or her salary and benefits throughout the period.
Other Issues
Numerous other issues have to be considered in connection with
personnel. For example, discrimination and health and safety. See
also our guide on Internet and E-mail
Policies.
Any questions? Please contact peter.bullock@out-law.com /
+852 2521 5621 or one of our other contacts.
