The Contracts (Rights of Third Parties) Ordinance (Cap. 623) ("Ordinance") came into effect on January 1, 2016 and applies to all contracts entered after this date, subject to certain specified exceptions, such as bills of exchange, covenants relating to land, and letters of credit. The Ordinance confers on a person who is not a party to a contract (a third party) the right to enforce a term of the contract if the contract expressly provides that the third party may do so or the term purports to confer a benefit on the third party. Unless the contract contains an express provision to the contrary: (i) rescission or variation of a contract that affects a third party's right will require consent of the third party; and (ii) the third party may assign such third party's rights, except for a personal right, to another person.

Consistent with similar legislation in other common law jurisdictions, contracting parties are allowed to opt out of the Ordinance in whole or in part by including an express term to that effect in the contract. A third party's right to enforce a term of a contract of employment against an employee is expressly excluded under the Ordinance, meaning that a third party may only have a right to enforce a term of an employment contract against an employer and not the employee. For example, a family member may seek to enforce insurance or other benefits granted by an employer for the benefit of such family member.

This exclusion from the Ordinance does not apply to other employment-related contracts where a third party may have rights, such as noncompetition agreements (if executed on a stand-alone basis), settlement agreements, and secondment agreements. It also does not apply to independent contractor agreements. Accordingly, employers should consider whether they need to amend their standard contracts to expressly exclude the Ordinance or structure such contracts to take advantage of the Ordinance.

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.