The Mandatory Reference Checking Scheme – Part 1: Employees' rights and entitlements

Introduction

Following up on our previous article on the obligations of authorized institutions ("AI") as Recruiting AIs and Reference Providing AIs under the Mandatory Reference Checking Scheme (the "MRC Scheme"), this article shifts the focus onto the rights of a prospective employee under the MRC Scheme.

To recap, under the MRC the MRC Scheme seeks to prevent individuals involved in misconduct from moving from one AI to another by enhancing the disclosure of the prior seven years' of employment history (regardless of duration of each employment) of prospective employees taking up regulated roles among AIs.

Phase 1 of the MRC Scheme covers job applicants falling within the following category:

• a director, chief executive, alternative chief executive approved under section 71 of the Banking Ordinance ("BO");
• a manager notified to the HKMA under section 72B of the BO;
• an executive officer approved under section 71C of the BO; or
• a responsible officer approved under section 64ZE of the Insurance Ordinance or approved under section 34W of the Mandatory Provident Fund Schemes Ordinance.

Phrase 2 will expand the scope of the MRC Scheme to cover job applicants who are permitted to carry out regulated activities under the Securities and Futures Ordinance ("SFO"), the Insurance Ordinance ("IO") or the Mandatory Provident Fund Schemes Ordinance ("MPFSO").  This scope may be further expanded depending on the feedback after the Phase 1 implementation.

The MRC Scheme also applies to individuals moving within the same AI group.  However, the MRC Scheme only applies to AI employees in Hong Kong and not those employed at a head office, subsidiary or branch outside of Hong Kong.  This means that an individual that is being hired outside of Hong Kong will not be subject to the reference checking process.

Rights and obligations under the MRC Scheme

An AI seeking to recruit a prospective employee for specified positions ("Recruiting AI") is required to obtain the written consent from the individual to obtain employment references pursuant to the MRC Scheme.  This requirement of express written consent stems from Data Protection Principle 3, which provides that personal data shall not be used (including disclosed or transferred) by a data user (which would a Reference Providing AI in the circumstances) for a new purpose without the express and voluntary consent of a data subject (being the prospective employee).

A Recruiting AI must obtain the following consents from the prospective employee:

• (i)authorise the Recruiting AI to conduct employment reference checking with the prospective employee's former and current AI employers of the seven years prior to the job application, regardless of the duration of his/her employment at the prior AIs ("Reference Providing AIs");
• (ii)authorise the Reference Providing AIs to disclose relevant employment records and conduct-related information to the Recruiting AI; and
• (iii)exempt Reference Providing AIs from any contractual obligations that may limit their ability to disclose information regarding the prospective employee.

Prospective employees should be aware that a Reference Providing AI has to disclose all misconduct information relating to him/her to the Recruiting AI, which include: (i) breach of legal or regulatory requirements; (ii) incidents which cast doubt on his/her honesty and integrity; (iii) misconduct reports filed with the HKMA; (iv) internal or external disciplinary actions arising from conduct matters; and (v) ongoing internal investigations.  Examples of serious misconduct include serious breach of a code of conduct and whether such breach of dishonest, deliberate or reckless, the frequency of breach and the extent of loss; and whether the employee's conduct caused its employer to breach a regulatory requirement.

A prospective employee has the right to refuse to provide the requisite consent and where possible, should provide the reasons for the refusal such that a Recruiting AI may determine whether such refusal would cast doubt of his/her fitness and propriety.  The mere refusal to provide consent should not in itself be a ground for refusal to hire a prospective employee.

Even where a prospective employee has initially given consent to the Recruiting AI to obtain employment references, he/she may withdraw their consent later on for any reason.  Once consent is withdrawn, the Recruiting AI bears the obligation to inform the Reference Providing AI as soon as possible so that the latter will cease providing the information requested under the MRC Scheme.

A prospective employee should also be aware that where negative references are provided in the reference checking process, he/she should be provided an opportunity to be heard by the Recruiting AI on the allegations or the negative references as a matter of fairness and where applicable, to exercise his/her right of correction of personal data pursuant to Data Protection Principle 6 and section 22 of the Privacy (Data Protection) Ordinance.

Additionally, employees should be aware of other rights under the PDPO pertaining to their personal data, including the right to request deletion of their personal data in specified circumstances, for example, in the event of his/her retirement, or permanent departure from Hong Kong.  Under these circumstances, it would no longer be necessary for an AI to retain the personal data of such employees and pursuant to Data Protection Principle 2, their personal data should be deleted.  Section 26 of the PDPO also requires that personal data that is no longer required should be erased, unless erasure is prohibited by law, or it is in the public interest not to do so.

Regarding unsuccessful job applicants, their personal data should generally be retained for a period no longer than two years from the date of the prospective employer rejecting the candidate, unless there is a subsisting reason that obliges the employer to retain the data for a longer period or the applicant has given prescribed consent.  Unsuccessful applicants may wish to seek written confirmation from the relevant AI to confirm that their personal data would not be held for longer than necessary duration.

Conclusion

As a general reminder, employees are encouraged to understand their legal rights in relation to the retention, disclosure and correction of their personal data held with their employers, as well as be aware of the personal data policy put in place by their employers as well as prospective employers.  It is certainly worth asking for a copy of the personal data policy to ensure that their personal data is properly retained and protected.  Moreover, to avoid future disputes as to the accuracy of their employment references, employees may consider agreeing on the contents of the job reference upon departure from an AI.  Of course, the information contained in such agreed job references would have to be factually correct, but having an agreed statement in place may ensure a smoother and more efficient reference checking process. Nevertheless, when in doubt of their legal rights regarding the use of their personal data and their rights and obligations as a prospective employee of a Recruiting AI, job applicants are encouraged to seek legal advice at the earliest opportunity.

Our team at RPC are widely recognized as leading employment lawyers in Hong Kong. We are one of the few specialist employment law practices in Hong Kong and we act for both employers and employees on contentious and non-contentious matters.

Please do not hesitate to contact our Partner and Head of the Employment Practice in Hong Kong, Andrea Randall (andrea.randall@rpc.com.hk / +852 2216 7208) for any queries regarding the issues raised in this article or any employment law related queries you may have.

All material contained in this article is provided for general information purposes only and should not be construed as legal, accounting, financial or tax advice, or as opinion to any person or specific case. RPC accepts no responsibility for any loss or damage arising directly or indirectly from action taken, or not taken, which may arise from reliance on information contained in this article. You are urged to seek legal advice concerning your own situation and any specific legal question that you may have.