Hong Kong: What Do Employers Need To Know About The Hong Kong Contracts (Rights Of Third Parties) Bill?

Last Updated: 26 August 2014
Article by Duncan A.W. Abate, Anita Lam and Hong Tran
Most Read Contributor in Hong Kong, July 2017

Keywords: Hong Kong contracts, Rights of Third Parties Bill, privity of contract

The Contracts (Rights of Third Parties) Bill (the "Bill") has been introduced to the Legislative Council. If passed, Hong Kong will join a number of common law jurisdictions in reforming the age-old common law doctrine of "privity of contract".

Is this good news or bad news for employers? In our view, it is a mixed bag. There are some aspects of the Bill that employers can certainly take advantage of, but there are also pitfalls to look out for.

In this legal update, we consider the key changes and the risks from an employment perspective under the proposed new law anticipated by the Bill.

The Legislative Council is debating the Bill and we do not expect much movement until after October 2014.

What Is the Current Position?

Under the current law, only the parties to a contract have the right to enforce the contract terms. This means the contract cannot be enforced either by or against a third party (i.e., a party who did enter into the contract), even if it intends to confer certain rights or benefits on the third party.

For example:

  • If an employee signs a settlement agreement with his employer to waive all his claims against his co-workers and against associated companies of his employer, his co-worker and the associated companies would have no right to enforce the settlement agreement if the employee breaches the settlement terms and brings legal proceedings against them.
  • A business transfer agreement signed between two companies may sometimes confer benefits on the employees. Under the current law, an employee would have no right to enforce these terms against the companies if they fail to confer the benefits on him.

The current law has been criticised as artificial. In some situations, it can cause commercial hindrance.

What Are the Key Changes?

The Bill will impact upon current employment practices, benefits and incentive schemes.

Perhaps the first point to note is that the Bill will not give a third party the right to enforce a term of an employment contract against an employee.

For example:

  • If an employee is required by his employment contract to courier parcels for the Company's customers, a customer cannot rely on the proposed new law and sue the employee for failing to deliver a parcel.
  • If an employee is required by his employment contract to serve not only the employer, but also the holding company of his employer, the holding company cannot rely on the proposed new law and sue the employee for refusing to provide the services. The employment contract can only be enforced by his employer, being the party to the employment contract.

However, the Bill will give a third party the right to enforce (a) a term of the contract of employment against an employer and (b) a term of an employment-related contract (which we explain below) against a party to that contract.

In order to confer this right on a third party, (a) the contract must expressly provide for the right, or (b) the contract term must seek to confer a benefit on the third party.

This means in some cases, the third party will have the right to enforce an employment-related contract by bringing legal proceedings against the employer and the employee.

For the third party to have the right to sue, the contract must expressly indentify the third party by name, as a member of a class, or as answering a particular description. So long as the description of the third party in the contract is sufficiently specific, the new law will apply to a third party, even if the third party is not in existence when the contract is entered into.

In terms of remedy, the third party will be entitled to any remedy (e.g., money, benefits or both) that would have been available to him if he had been a party to the contract. Once the right of the third party has been crystallised, the contracting parties may not change or cancel the contract to extinguish or alter the third party's entitlement under that right without the third party's consent.

What Are the Opportunities and Risks?

As discussed above, the proposed legislation will not confer any right on a third party to enforce a term of an employment contract against an employee.

However, if the Bill is passed, it will facilitate a third party to enforce a wide range of employment-related contracts, such as:

  • Compromise/settlement agreement
  • Standalone confidentially agreement
  • Standalone restrictive covenant
  • Secondment agreement
  • Share option/incentive agreement
  • Collective agreement
  • Retirement scheme
  • Insurance cover
  • Schemes conferring benefits on spouse and family members, such as medical & dental benefits, travel benefits, education, club membership and housing etc.
  • Business transfer agreements

Where there is a contract between a customer and a company which anticipates the company engaging an independent contractor to perform work for the customer, the Bill will also facilitate the independent contractor (being the third party) to bring legal proceedings against the customer.

Under the Bill, it is possible to "contract out" of the new law. This means the parties to the contract can expressly agree that the new law is not applicable to that contract, with the result that a third party cannot rely on the new law and enforce the terms.

(i) The good news for employers

The good news for employers is that the Bill will facilitate enforcement of some types of contracts. For example:

However, to take advantage of the new law, the contract must be separate from the employment contract. In other words, the contract must be a standalone contract independent of the employment contract.

The parties to the contract must also expressly identify the third parties who are intended to benefit from the agreed terms. A third party who is not expressly identified in a contract will not enjoy any implied right of enforcement. The courts will not interpret the contract in a way that would imply any right for a third party to enforce the contract.

(ii) The bad news for employers

The bad news for employers is that the Bill will facilitate a third party in enforcing the following types of contracts and schemes against the employer. For example:

The following types of contract will also be affected by the new law:

If you do not wish to have these unintended effects on the new contracts, you should start reviewing the Company's standard contracts, staff handbook, schemes and policies and opt out of the application of the new law.

(iii) Contracts not affected by the Bill

Some contracts will not be affected by the Bill:

  • The Bill will not affect contracts made before the legislation comes into effect.
  • A third party cannot enforce any term in an employment contract against the employee. This means a confidentiality undertaking, a restrictive covenant or an intellectual property clause in an employment contract, worded to benefit a third party (say, a holding company of the employer), would remain enforceable only by the employer and not by the third party.

Take-away Points

Employers should keep an eye on the passage of the Bill and we will keep you updated.

If the Bill looks like coming into effect as law, then an employer should consider reviewing the range of employment and employment-related contracts and structuring them to maximise enforceability by third parties where this is desired and expressly excluding the law where it is not.

Originally published 14 August 2014


Learn more about our Hong Kong office, Employment & Benefits, Insurance, Litigation & Dispute Resolution practices.

Visit us at www.mayerbrownjsm.com

Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2014. The Mayer Brown Practices. All rights reserved.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.