22 December, 2016
As budgets tighten and approved headcounts lowered, employers are increasingly looking for creative ways to engage staff to meet demands. In this context, hiring workers as contractors rather than employees has often been popular, but is not without risk. Earlier this year, in the case of Wong Kin v Him Kee Food Distribution Company Limited, the Court of First Instance of Hong Kong reiterated that the question of whether an individual is properly categorised as an employee or an independent contractor is one of substance over form.
Background In the above case, the plaintiff was engaged as a driver, delivering cooking ingredients for Him Kee. After suffering an injury at work, he then discovered that those he worked for considered him to be a contractor (not an employee) and that, as a result, he was not covered by an employees' compensation insurance policy.
Difference between a contractor and an employee
The law distinguishes between contractors and employees in terms of eligibility for certain statutory rights. A contractor has no right to employees' compensation insurance, employer funded contributions to a Mandatory Provident Fund (MPF) scheme, or to various rights and entitlements under the Employment Ordinance including, for example, to annual leave, sick leave and maternity leave.
If it turns out that (i) a worker has been incorrectly categorised as a contractor when he is actually an employee; and (ii) as a result, he has not been provided the rights and benefits to which employees are entitled under Hong Kong law, then the employer may find themselves liable for damages and/or back pay.
The leading Hong Kong case on the distinction between contractors and employees is the 2007 Court of Appeal decision in the case of Poon Chau Nam v Yim Siu Cheung. In that case, the court held that it was necessary to consider all of the features of the relationship against the background of the indicia of employment, in order to form a view whether, as a matter of overall impression, the relationship was one of employment.
Those indicia include:
- the degree of control exercised by the employer;
- whether equipment is owned by the worker or provided by the employer;
- whether the worker hires his own assistants or helpers;
- what degree of financial risk is taken on by the worker; and
- whether and to what extent the worker has the opportunity to profit from sound management in the performance of his tasks.
In the Wong Kin case, the Court concluded that the plaintiff was an employee within the meaning of the Employees' Compensation Ordinance at the time of the accident and was therefore entitled to employees' compensation.
In reaching this conclusion, the court was satisfied that (i) he was subject to a high level of control in the performance of his tasks; (ii) the truck that he used was owned and maintained by his employer; and (iii) his financial stake was not linked to how profitably the business was run or the efficiency with which he performed his duties.
Implications for employers This decision is a reminder that, regardless of the label parties might chose to describe a working relationship, the courts will look behind that label to the reality of the relationship in determining whether a worker is to be properly classified as an employee and therefore be entitled to the rights and benefits that Hong Kong law affords to employees.
For further information, please contact:
Gareth Thomas, Partner, Herbert Smith Freehills
gareth.thomas@hsf.com
