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10/16/2012

Deacons' HR & Pensions Newsletter: October 2012

By: Cynthia Chung

Submitted by Firm:: Deacons
Firm Contacts:: Cynthia Chung
Article Type:: Legal Update
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Employee Choice Arrangement -- Rights and Obligations on Employers and Employees

The Mandatory Provident Fund Schemes (Amendment) Ordinance 2012 which aims to regulate the MPF intermediaries was gazetted on 29 June 2012 and the long-awaited Employee Choice Arrangement ("ECA") will come into operation with effect from 1 November 2012.

Position before the introduction of the ECA

Since the implementation of the MPF regime in 2000, the employers are responsible for choosing the MPF scheme for their employees. Under the old regime, employees can only choose which investment funds to invest into within the employer's choice of MPF scheme.

Before the ECA, the accrued benefits derived from both employer mandatory contributions and employee mandatory contributions made during current employment have to stay in the MPF scheme of the employer's choice before cessation of employment. In case an employee has transferred accrued benefits derived from mandatory contributions relating to his former employment(s) or self-employment(s) to the contribution account under his current employment, such mandatory contributions cannot be transferred out also.

For the voluntary contributions (including both employer and employee contributions derived from current or former employment(s)), their transferability is subject to the governing rules of the relevant MPF scheme.

Position after the introduction of the ECA

With the introduction of the ECA, the employees will be provided with greater autonomy and flexibility in choosing the MPF scheme of his own choice. The employees will be allowed (but not obliged) to transfer the accrued benefits derived from employee mandatory contributions in their contribution account made during current employment to another MPF scheme of the employees' own choice.

Unless the governing rules of the original MPF scheme provide for more frequent transfers, the transfer can be carried out on a lump sum basis at least once every calendar year (i.e. from 1 January to 31 December).

In addition to the above, if the employees have transferred accrued
benefits derived from mandatory contributions relating to their former employment(s) or self-employment(s) to the contribution account under current employment, such mandatory contributions can also be transferred to another MPF scheme of their own choice in a lump sum at any time.

The accrued benefits which have been transferred out will be kept in the employees' own "personal account" in the MPF scheme of their choice and can thereafter be transferred at any time as in the same case for balances in a member's "preserved account" before the ECA.

There will be no change in terms of the transferability of employer mandatory contributions made during current employment and also voluntary contributions from current or former employment(s)/self-employment(s).

What are the obligations on the employees?

With the implementation of the ECA, the employees will be given the additional rights and flexibility to transfer their accrued benefits to the MPF scheme of their own choice. Of course, they are not obliged to do so and in fact, before they make any decision in relation to transfer out their accrued benefits, they should consider carefully all the relevant factors and seek professional advice, if necessary.

The key factors that the employees will need to consider include the following:

Services of the existing MPF scheme
Fees and charges
Investment performance
Choices and risk profiles of investment funds < >Employee's own personal circumstances

What are the rights and obligations on the employers?

The ECA has not provided additional legal rights nor has it imposed additional legal obligations on the employers. The employers will not be required to be involved in the transfer process nor will they be required to contact the new trustee which the employees have chosen.

From the employer's perspective, the employee mandatory contributions from current employment will continued to be made to the employer's MPF scheme and there will be no change to that. In case a transfer of employee mandatory contributions from current employment has been made and the employee wishes to transfer accrued benefits from subsequent employee mandatory contributions to another MPF scheme, he has to make another election in the next calendar year (or later in the same calendar year if the governing rules of the original scheme allow frequent transfers).

There will also be no change in the offsetting arrangement for statutory severance payment or long service payment. Any offsetting will be made from the accrued benefits derived from employer mandatory contributions made under current employment and this explains why those accrued benefits will not be transferable under the ECA and they must be kept in the contribution account of the employer's MPF scheme before cessation of employment.

Even though the employer will not be involved in the transfer process, the employers should be prepared that in practice, the employees may approach them on any enquiries regarding the ECA. Given the employees may have enquiries on the transfer, the employer should be prepared to answer enquiries from the employees and give the employees relevant information where possible and feasible to do so (including information on different MPF schemes). The employer should also provide the employees with the information for completing the transfer election form in case the employee is in doubt, e.g. employer's identification number.

Employers should review and communicate with their existing MPF service provider to understand if the transfers have been running smoothly for their employees and if there is any way the employers can help the employees in achieving their purposes.

Cantor Fitzgerald Europe vs. Boyer [2012] HKCU 478

Cantor Fitzgerald took a number of its former employees to court alleging breach of employment contracts and fiduciary duties with respect to team move.

A summary of the important rulings of this case has already been set out in our Litigation & Dispute Resolution Newsletter: Issue 2 of 2012 (April) (http://www.deacons.com.hk/eng/knowledge/knowledge_470.htm).

In this article, we wish to highlight two employment related issues: the first one being the application of the Employment Ordinance to those employment contracts expressly governed by foreign law, and the second one being the enforceability of those provisions which restrict the time when the contracting party may serve termination notice.

A. Application of the Employment Ordinance on contracts governed by foreign law

In Hong Kong, it is common for multi-national companies to enter into employment contracts with their senior officers, which are governed by the laws of their head office rather than Hong Kong law. This is particularly the case if the senior officers are in fact transferred from the head office. This is to ensure that senior officers enjoy the same level of benefits, and are subject to the same level of restrictions.

It has long been the understanding that parties have freedom to choose the governing law of their contracts provided that it is not a sham to deprive the benefits of the employees. If the employment contract is not governed by Hong Kong law, the Employment Ordinance shall not apply and shall have no effect.

The above understanding is supported by the case HSBC Bank plc v Wallace [2008] 1 HKLRD 613. This case was heard in the Court of First Instance.

In the HSBC case, the defendant employee was employed by HSBC Bank plc, a company incorporated and based in the UK. Their employment contract was governed by English law. He was then seconded to work for HSBC Markets (Asia) Limited, a company incorporated and based in Hong Kong.

Under the UK contract, the defendant employee had the right to terminate the employment with HSBC Bank plc by serving six months' written notice. There was no provision giving him the right to make payment in lieu of notice in the contract, and under UK law, he did not have such right unless the contract provided otherwise.

The defendant employee purported to terminate his employment with HSBC Bank plc with immediate effect by making payment in lieu of notice relying on section 7 of the Employment Ordinance. The court was asked to determine whether the Employment Ordinance applied in such case.

It is expressly set out in the judgement that:-

"….parties to contracts including employment contracts are entitled to choose the governing law; in this case English law. Thus there is a presumption that English and not Hong Kong laws are to be applied in establishing the parties' rights. This presumption is capable of being overridden if the statutory law of the land says so; in other words that the statute is an overriding statute……The Employment Ordinance has no similar provision; thus the Employment Ordinance is not, an overriding statute; this statutory exception does not arise."

Therefore, it was decided in the HSBC case that in case the governing law of an employment contract was not governed by Hong Kong law, the Employment Ordinance should not apply.

However, the judge in the Cantor case did not agree with the judge's reasoning in the HSBC case, and since the HSBC case was not binding on him, the judge in the Cantor case decided not to follow the same.

In the Cantor case, the 1^st Defendant's employment contract with his employer CFE (a company incorporated overseas) was stated to be governed by English law. That contract had been varied by a secondment letter, which stated that his employment was governed by English law "save for any mandatory laws of Hong Kong."

As set out above, under English law, an employee does not have a right to terminate his employment by making payment in lieu of notice unless the employment contract provides otherwise. However, under section 6 of the Employment Ordinance, either party to an employment contract may at any time terminate the employment contract by giving to the other party notice of an intention to terminate. The requisite length of notice is the agreed period in the employment contract. The agreed period as stipulated in the contract with CFE was 4 months. Section 7 of the Employment Ordinance further provides that either party to an employment contract may at any time terminate the contract without notice by agreeing to make payment in lieu of notice.

The judge in the Cantor case considered that one could not attempt to get around the protection afforded by the Employment Ordinance to employees working here through the expedient of choosing a foreign law. Such attempt would be struck down by section 70 of the Employment Ordinance which prohibits parties from contracting out of the Employment Ordinance.

The judge made reference to section 4 of the Employment Ordinance:-

"4(1) Subject to subsection (2) and section 69, this Ordinance applies to every employee engaged under a contract of employment, to an employer of such employee and to a contract of employment between such employer and employee.

4(2) Subject to Part IVA, this Ordinance does not apply:-

Repealed;

To a person who is a member of the family of the proprietor of the business in which he is employed and who dwells in the same dwelling as he proprietor;

To an employee as defined in the Contracts for Employment Outside Hong Kong Ordinance;

to a person who is serving under a crew agreement within the meaning of the Merchant Shipping (Seafarers) Ordinance, or on board a ship which is not registered in Hong Kong.

Repealed."

The judge considered that section 4(1) provides for the application of the Employment Ordinance to every employee engaged here under a contract of employment, to an employer of such employee, and to a contract of employment between such employer and employee. Section 4(2) then carved out an exception to the wide ambit of section 4(1). Under that exception, the Employment Ordinance was not to apply to"a person who is serving….. on board a ship which is not registered in HK". Since crew on board a ship which was not registered in HK were unlikely to be employed under contracts governed by Hong Kong law. Therefore the deliberate carving out of their contracts as an exception to section 4(1) suggested that the Employment Ordinance was intended to apply to all employments in Hong Kong, including employments governed by laws other than Hong Kong law.

Since the HSBC case and theCantor case were both heard in the Court of First Instance, they do not have overriding effect on each other. This means that we now have two conflicting cases on the issue of the application of the Employment Ordinance in those employment contracts for performance of service in Hong Kong which are expressly governed by foreign law, and the legal position remains unclear.

B. Enforceability on those provisions which restrict the time when either party may serve termination notice

The 2nd Defendant's employment contract began on 18 January 2002. It expressly provided for a narrow window for giving notice of termination. After an initial period of 2 years, the contract was automatically renewable for successive periods of 1 year. It was stated in the contract that notice to terminate must be given "on any date within the last 2 weeks of the final month of …. a Renewal Period". Such notice would then terminate the employment "on the expiry of 3 months from the latest date notice could have been given".

Section 6 of the Employment Ordinance provides that either party to a contract of employment may at any time terminate the contract by giving to the other party notice of his intention to do so. Section 6 further provides that the length of notice required to terminate a contract of employment shall be (i) in the case of a contract which is deemed to be a contract for 1 month renewable from month to month and which makes provision for the length of notice required to terminate the contract, the agreed period, but not less than 7 days; or (ii) in every other case, the agreed period, but not less than 7 days in the case of a continuous contract.

The judge in the Cantor case considered that the 3-month period was the agreed period as stipulated in section 6. In addition, section 6 provides that either party to a contract of employment may at any time terminate the contract by giving to the other party notice. Therefore, the contractual provisions restricting the time when the employee might serve notice was unenforceable.

C. Appeal

Cantor Fitzgerald has served notice of appeal, challenging the judge's decision on a number of issues. However, the issue of the application of the Employment Ordinance on employment contracts governed by foreign law is not one of the grounds of appeal. The appeal has been set down for hearing in April 2013.

Minimum Wage Commission Reaches Consensus on Recommended Statutory Minimum Wage Rate

On 25 September 2012, the Minimum Wage Commission (whose function is to report to the Chief Executive in Council its recommendation on the statutory minimum wage rate), reached a consensus that the recommended statutory minimum wage rate should be raised to HK$30 per hour ("New Rate"). The statutory minimum wage rate currently in force is HK$28 per hour.

It is expected that the Minimum Wage Commission will complete the preparation of the recommendation report for submission to the Chief Executive in Council by 31 October 2012, upon which the recommendation will then be tabled before the Legislative Council.

If the New Rate is approved by the Legislative Council, it is expected that the New Rate will come into force in May 2013 at the earliest.

Implementation Timetable of the Personal Data (Privacy)(Amendment) Ordinance 2012

The Personal Data (Privacy)(Amendment) Ordinance 2012, which was passed by the Legislative Council earlier in June this year, came into effect progressively from 1 October 2012. The amendments will be introduced in three phases as follows:-

Amendments unrelated to direct marketing and the provision of legal assistance by the Privacy Commissioner to aggrieved persons ("Legal Assistance Scheme") came into force on 1 October 2012;

Amendments relating to direct marketing will come into force on a day to be appointed by the Secretary for Constitutional and Mainland Affairs by notice published in the Gazette, though tentatively it is scheduled to come into force on 1 April 2013;
Amendments relating to the Legal Assistance Scheme will come into force on a day to be appointed by the Secretary for Constitutional and Mainland Affairs by notice published in the Gazette.

Privacy Commissioner Releases New Information Leaflets on the Personal Data (Privacy)(Amendment) Ordinance 2012

Offence for disclosing personal data obtained without consent from the data user

Under the Personal Data (Privacy)(Amendment) Ordinance 2012 ("Amendment Ordinance"), with effect from 1 October 2012, a person commits an offence if he discloses personal data of a data subject obtained from a data user without the data user's consent (i) with the intent to obtain gain for himself or another person, or cause loss to the data subject or (ii) irrespective of his intent, the disclosure causes psychological harm to the data subject.

To explain the scope of these new offences, the penalties, and the types of defences recognized under the Amendment Ordinance, the Privacy Commissioner released an information leaflet on 27 September 2012. The information leaflet is written in a question and answer format and covers the following topics:-

What kind of acts will be caught under the offence?
Is monetary gain or loss required for the offence?
What if the act is not intended to lead to gain or loss but the data subject was humiliated as a result of the disclosure of his personal data?
Will normal journalistic activities be affected by the offence?
Will normal and innocuous browsing activities of web-users be affected?

In addition, the information leaflet also provides two hypothetical scenarios and suggests the courses of actions which can be taken in those situations.

The information leaflet can be found on the Office of the Privacy Commissioner for Personal Data's website at the following link: http://www.pcpd.org.hk/english/publications/files/offence_disclosing_e.pdf

Outsourcing the processing of personal data to data processors

The Privacy Commissioner recognizes that nowadays the trend of outsourcing and entrusting personal data processing work by data users to their agents is becoming increasingly common. The Amendment Ordinance contains amendments enhancing the protection of personal data in these circumstances by requiring data users who engage a data processor, whether within or outside Hong Kong, to process personal data on the data users' behalf, to adopt contractual or other means to (i) prevent personal data transferred to the data processor from being kept longer than is necessary for processing of the data; and (ii) prevent unauthorized or accidental access, processing, erasure, loss or use of the data transferred to the data processor for processing. These amendments have come into force on 1 October 2012.

To provide data users with information on their new obligations when entrusting personal data to third parties for processing and how to comply with the new requirements, the Privacy Commissioner released an information leaflet on 27 September 2012.

The information leaflet covers the following main topics:-

The meaning of "data processor"
Obligations of data users
How to comply with the requirements
Good practice recommendations
Redress of data subjects