The Protection of Wages on Insolvency Fund (the
"Fund") was established in 1985 to provide timely relief
in the form of an ex gratia payment to eligible employees affected
by the insolvency of their employers, for example where
employees' severance payments are withheld pending winding-up
proceedings. Section 16(2) of the Protection of Wages on Insolvency
Ordinance (the "Ordinance") provides that the
Commissioner for Labour shall not make payment out of the Fund of
amounts exceeding certain caps. In addition, section 31I of the
Employment Ordinance provides that an employee's severance
payment will be reduced by his or her Mandatory Provident Fund
In the case of Yung Chi Keung v Protection of Wages on
Insolvency Fund Board CACV 37/2014, the applicant's
severance payment was partly reduced by his MPF benefit. The
Commissioner refused to make such ex gratia payment in respect of
the outstanding severance payment to the applicant, on the basis
that the MPF benefit received by the applicant exceeded the cap
imposed by the Ordinance.
The applicant accepted that the Commissioner has a discretion as
to whether to make payment or not. However, the applicant contended
that, if the Commissioner should decide to make a payment, he has
no discretion on the amount of payment, which must be the amount
outstanding after the MPF benefit deduction, subject to the
The Court of Appeal found that the object of the provisions is
to provide quick relief to employees who have lost their jobs
suddenly while preventing double payment. The proper interpretation
of the Ordinance requires the Commissioner to use either the gross
severance payment or its respective capped amount, whichever is
less, as his starting point, and then reduce it by the benefit
received by the employees. In the applicant's case, his
severance payment was more than the cap from which his MPF benefit
was deducted. Since the deduction gave rise to a negative figure,
the Court of Appeal ruled that the Commissioner was correct in
refusing to make any ex gratia payment.
This decision by the Court of Appeal clarifies the intention of
the Fund and how payment of the Fund shall be determined.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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