Hong Kong: Employment Law: Breaking The Continuity Of Employment

Section 31B of the Hong Kong Employment Ordinance provides that an employee employed for a minimum of 24 months under a continuous contract will be entitled to severance payment if he is dismissed by reason of redundancy or where the employee is laid off. The recent Court of Appeal case of Wong Man Sum v Wonderland Sea Food Restaurant [2007] demonstrates how this continuity of employment may be broken by entering into a series of fixed term contracts of employment of less than 24 months. The judgment has serious implications for employers (e.g. restaurants and fast food chains) with large number of employees.

In this case, the employee (Mr Wong) entered into an 18 month fixed term employment contract with the employer, a restaurant operator. At the end of the 18 months, Mr Wong was required by the restaurant to take a break of 2 weeks before he was to start work again. The parties then signed another employment contract for a period of 18 months. Mr Wong was dismissed subsequently during his second employment contract.

The Labour Tribunal ordered the restaurant to pay severance payment to Mr Wong calculated on the basis that his employment with the restaurant had commenced under the first employment contract. Although there was a short break of about 2 weeks between the first and second employment contract, the Labour Tribunal found that this did not break the continuity of Mr Wong’s employment.

The restaurant appealed to the Court of First Instance and the Court of First Instance shared the same view as the Labour Tribunal. The restaurant then appealed to the Court of Appeal where its appeal was allowed.

In order to grant the severance payment under section 31B, there has to be a continuous employment of 24 months. The courts discussed the concept of "global" or "umbrella" contracts, i.e. a series of contracts are treated as a single contract so that even though an employee may be required to take a break between each employment, he is nonetheless treated as if he is still being employed during the break. Cases have showed that this concept really depends on something said or done by the employer such as to show that the parties regarded the employment relationship as continuing despite the termination of the contract of employment. In order to treat a series of contracts as a single contract, a settled expectation that the employee would return to his old job after a short break was insufficient. There must be evidence of mutual arrangement of the parties which recognize the continuous employment of the employee despite his absence from work.

The phrase "by arrangement" required that something was said or done by the employers such as to justify the conclusion that the parties regarded the employment relationship as continuing over the entire duration of the relevant period despite the termination of the contract of employment. The question was whether, when the absence from work took place, the parties regarded the employment as still continuing. It appears from the evidence in this case that there was no mutual arrangement, under which Mr Wong was regarded as continuing in employment during the break period for any purpose at all. To the contrary, it was clear from the evidence that the appellant deliberately so arranged its affairs that the period of employment of the respondent should be broken during that period.

The Court of Appeal felt that although the social implication of the judgment is not satisfactory i.e. employers could avoid severance pay by way of employment contract of less than 24 months, it is equally unsatisfactory to stretch the limits of adjudication in order to overcome the problem.

The Court of Appeal therefore per curiam suggested that changes should be introduced to the Employment Ordinance along the lines of the UK Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 which implemented the EU Directive on Fixed Term Work. The UK Regulations provide among other things, a maximum limit of 4 years for fixed term contracts so as to prevent the abuse of the use of successive fixed term contracts.

If you have any question about the above judgment or employment law issues in Hong Kong or mainland China, experienced lawyers in our Employment Department will be happy to assist you.

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.