COVID-19 HK: Employment Update

As the COVID-19 pandemic continues, it is anticipated that more and more businesses will need to make plans for cost-cutting measures.

 In this update, we will briefly consider some of the options which companies in Hong Kong may have in reducing staff costs.  

1. Redundancies

There are no statutory requirements for employers to consult their employees in redundancy situations in Hong Kong.  If difficult economic conditions make redundancy inevitable, employers should be mindful when deciding which employees to be made redundant and put in place a fair selection process to avoid any future claim by the employees that their employers have acted in a discriminatory manner.  Under the Employment Ordinance of Hong Kong (Cap.57) (EO), it is unlawful to terminate certain employees such as those on paid sick leave or maternity leave. 

Employers should also note that in addition to outstanding wages, payment for accrued but untaken annual leave, payment in lieu of notice, and any other contractual entitlements, an employee who has been employed under a continuous contract for not less than 24 months and who has been made redundant will be entitled to statutory severance payment.

2. Encouraging Voluntary Unpaid Leave

Having employees take unpaid leave is a less drastic cost-cutting measure than making employees redundant as redundancies will inevitably damage morale and affect the employer's ability to regain its competitive edge when the economy recovers. 

Under the laws of Hong Kong employers cannot compel their employees to take unpaid leave.  If employees are forced to take unpaid leave, they may make a claim against the employer for breach of the employment contract and/or constructive dismissal. 

Employers can however consult with their employees and encourage them to take voluntary unpaid leave to alleviate temporarily financial stress placed on the business.  Employers should note that during the unpaid leave period, certain statutory rights and obligations will continue, for example, the employer's duty to make payment for statutory holidays to eligible employees. 

3. Reduction in Salary

Employers may consider this type of arrangement to avoid compulsory redundancy but clearly this would require the express consent of those employees concerned.  Otherwise, this will be a variation of the contractual terms of employment.  This type of arrangement is more effective when it is led by management and when management accepts cuts themselves, and/or when the employers make an assurance that when business environment improves the salary will be restored to pre-crisis levels.    

4. Reduction in Working Hours and Salary

Employers may consider introducing a reduction in working hours for certain group of employees.  Again this would require the express consent of those employees concerned, otherwise, this will be a variation of the contractual terms of employment.   Employers and employees should make sure they understand clearly the implications of such an arrangement and whether such an arrangement may break the continuity of employment which would affect the rights, obligations and entitlements of both parties under the EO.

5. Utilising Paid Annual Leave

Under the EO, an employer is allowed to designate the dates on which employees take statutory annual leave, subject to consultation with the employees and confirmation of the arrangement by written notice of at least 14 days (or any agreed shorter period). 

With respect to the right of employers unilaterally to designate the dates on which employees take contractual annual leave (i.e. annual leave granted in addition to statutory annual leave), this will depend on the terms of the employment and the employer's policies. 

6. Removing discretionary benefits

Employers can consider removing discretionary benefits.  However, employers will need to make sure the discretionary benefits being removed have not become contractual obligations. 

7. Important note to employers

The COVID-19 pandemic has brought many challenges to employers and we note the Financial Secretary of Hong Kong's comments on 29 March 2020 that: "The Government has pledged that continual support will be provided to industries hard hit by the epidemic or affected by anti-epidemic measures, with particular support to employees. The Government encourages employers to ride out the difficult times with employees together."

Under the present circumstances, when employers introduce any cost-cutting measures, it is important for them to communicate clearly to their employees the financial problems that the business is facing and the reasons for adopting such measures.  Employers should offer the employees a range of options and be prepared to consult with the employees and reach mutually agreeable arrangements to maintain employer/employment relations.