23 July 2021
With the swift onset of the pandemic, many employers were forced to make changes to the way their workforces operate and to their employees’ terms and conditions of employment. Given the unprecedented circumstances, such changes may have been rushed and implemented without the usual planning, preparation and documentation that would typically accompany them. As employers look ahead, many are asking what their obligations are in respect of “pandemic promises” they may have made and what other changes they can make.
In this e-alert we set out various scenarios that may arise and how employers should respond, in each of the following jurisdictions:
Hong Kong
Given the financial impact of the Covid-19 pandemic on its business, 12 months ago an employer implemented a 20% pay cut. Now the employer wants to make this change permanent. Can the employer do this and, if yes, how should it be done?
The amount of monthly salary to be received by an employee is a contractual right. An employer cannot unilaterally vary any employment term to implement a reduction in pay. Assuming that the employer did previously obtain the prior consent of the employee before it implemented the reduction, in the event that it now wants to make this amendment permanent, the employer will need to record the change in writing and preferably have the employee countersign the document agreeing to the permanent 20% salary reduction.
If an employer unilaterally imposes a pay cut in the absence of the employee's consent, the employer will have contravened the provisions of the Employment Ordinance in respect of making a timely payment as well as making a deduction which is also not permitted by the Ordinance. While there are certain situations where an employer can lawfully deduct sums from an employee's wages, the employer's financial difficulty or operational needs are not one of them and the employer would incur both civil and criminal liability for their actions.
A unilateral variation of an employment term is a repudiatory breach of the employment contract which would allow the employee to claim constructive dismissal.
As an alternative to permanent pay cuts, the employer is also considering informing employees in an ALL STAFF memo/email that the company will defer paying 20% of their salaries each month for the next 12 months and, if certain company targets are hit, will pay employees the withheld sums at the end of that period. Is this lawful?
An employer has both contractual and statutory obligations to make timely payment of an employee's salary. The Employment Ordinance stipulates that an employer must pay wages to an employee no later than 7 days after the end of the wage period.
As stated in the answer to Question 1 above, there are specific circumstances in which an employer can make deductions from an employee's salary. Even with the employee's consent, the employer cannot make the deduction of 20% of the employee's salary and defer payment until later in the year as this is not permitted by the Employment Ordinance. The consequences of making such a variation is that the employer will breach the law and the deduction and deferral of the 20% will be unlawful.
What options does the employer have if employees refuse to agree to the permanent pay cut, or object to the pay deferral scheme?
If the parties are unable to reach a consensus on the permanent pay cut (the deferral scheme is not an option as it is not permitted under Hong Kong law), the employer may decide to dismiss the employee with notice or a payment in lieu of notice and thereafter hire a new employee with reduced pay. The employer would need to pay all contractual and statutory benefits to the employee within the 7 days of the termination date.
In response to the local Covid-19 lockdown measures, the employer implemented a "Flexiworking" policy which allowed employees to work their set daily hours at any time of the day and from any location. Now those lockdown measures have been eased, the employer wants employees to return to working within core business hours and 3 days a week at the office. Can the employer unilaterally withdraw the Flexiworking policy and implement the new one?
In Hong Kong there is no legal framework on flexible working arrangements and the employees do not have a right to work from home, so the answer will be entirely dependent on the employment terms.
If the Flexiworking policy has not been incorporated as a part of the employment contract and the employer has expressly reserved its power to update it from time to time, the employer will be free to unilaterally withdraw the current Flexiworking policy and implement new arrangements according to its business needs. It is nevertheless prudent for the employer to review its employment contracts to make sure there is no contradiction between the contractual terms and the new arrangements.
The employer should provide reasonable notice to the employee before implementing the new arrangements. Although the effects of the epidemic are subsiding, some employees may still have difficulties returning to work (e.g. those who have young children whose schools close on short notice for disinfection due to an outbreak, or those who have vulnerable elderly parents at home and want to avoid crowds). Where employees' duties can be carried out remotely at home or on a flexible schedule, the employer should be accommodating and should not unreasonably refuse an employee's request to continue working remotely otherwise the employer may be liable for indirect discrimination on the grounds of family status.
As the employer wants employees in the office 3 days a week, the employer should set out clearly the procedures for deciding which 2 days employees will work from home (e.g. whether the employees can choose freely every week or if their line manager will make agree the same days for the employee to wfh each week in accordance with operational needs. Any decision taken should be communicated clearly to all employees and preferably in writing with sufficient notice so that the employees have time to make adjustments.
In light of the local Covid-19 travel restrictions, the employer allowed employees to carry over 10 days of their annual holiday entitlement into the next holiday year but did not specify when the employees had to take this holiday. It is now halfway through the holiday year and some employees have considerable amounts of unused holiday to take, including their carried forward leave. What options does the employer have?
The first option is forfeiture. Employees will normally be incentivised to take their annual leave rather than risk losing it. Therefore, the employer should notify the employees when they will require any carryover leave to be used up, failing which it will be forfeited. Before any forfeiture action is taken, the employer must ensure whether any carry-over leave proposed to be forfeited is statutory annual leave or contractual annual leave (which is the portion of annual leave in excess of the statutory annual leave).
Statutory annual leave is strictly governed by the Employment Ordinance and cannot be forfeited. In contrast the forfeiture of contractual annual leave is regulated by contractual terms. The employer should therefore review the employment contract to determine if any of the unused leave is contractual in nature and can be forfeited.
Another option is for the employer to direct the employees to take leave. In respect of statutory annual leave, under section 41AA(4) of the Employment Ordinance the employer may direct an employee to take annual leave by providing written notice of at least 14 days (or less upon the mutual agreement of the employer and employee) that the employee needs to take annual leave on the specified dates.
Whether an employer has the power to require an employee to use up his contractual leave on specified dates is determined by the contractual provisions. If there is no clear distinction between the two types of leave and where the employment contract is silent on the employer's power to require an employee to take leave, potentially the employer can make use of section 41AA(4) of the Employment Ordinance to direct the employees to take unused contractual leave.
A further option would be for the employer to buy out the unused leave. However, for obvious reasons, most employers prefer not to and many cannot afford to deploy this option and where statutory leave is concerned, it is only permissible to make a payment in lieu under limited circumstances stipulated in the Employment Ordinance and will require consent from the employees.
When employers are considering the options open to them to clear the annual leave backlog, they should be mindful of the purpose of annual leave – to maintain the employees' wellbeing by giving them a break to relax and unwind. This is particularly important in times of a global pandemic but is often overlooked given the travel restrictions. Employers should be slow in exercising their right to forfeit annual leave and should consider giving the employees an "ultimatum" – a final (but reasonable) period for them to take their unused leave – before the leave days will be forfeited.
Singapore
Given the financial impact of the Covid-19 pandemic on its business, 12 months ago an employer implemented a 20% pay cut. Now the employer wants to make this change permanent. Can the employer do this and, if yes, how should it be done?
VL: Singapore law does not prohibit employers from making long-term wage cuts if companies are suffering from extremely poor or uncertain business conditions that are likely going to be long term. This is essentially treated as a contractual matter and consent from the affected employees will be required.
Please note that guidance issued by the National Wages Council recommends that the wage cut measures should be exercised only to minimise retrenchments, amidst the slowing down of businesses.
As these measures will result in wage cuts over an extended period, severely impacting the livelihood of employees, the consultation and consent of the relevant stakeholders are crucial prior to the implementation of wage cuts.
As an alternative to permanent pay cuts, the employer is also considering informing employees in an ALL STAFF memo/email that the company will defer paying 20% of their salaries each month for the next 12 months and, if certain company targets are hit, will pay employees the withheld sums at the end of that period. Is this lawful?
The Tripartite Guidelines on Managing Excess Manpower expressly allows companies to consider introducing a wage freeze should the need arises and to the extent required by the company's financial position. This is likely to be lawful subject to severity of the company's financial situation of the company.
For companies with flexible wage systems already in place (e.g. variable bonus payment, annual wage supplements or monthly variable component and/or other allowances), such deferment and/or adjustments of payments would be more easily implemented.
However, the employer will have to consult and receive consent from the affected unions and employees, as such wage structure is considered as a cost-saving measure that will severely impact the livelihoods of employees. Please note that such measures may have implications for Central Provident Fund / pension contributions, benefits / allowances and tax.
What options does the employer have if employees refuse to agree to the permanent pay cut, or object to the pay deferral scheme?
Wage cuts and pay deferral schemes are subject to the relevant terms of the employment contracts. Further, both the employer and its employees have the right to negotiate and give consent to vary the terms of the employment contracts. As such, if the negotiations fail, the employer may undertake retrenchment in accordance with the terms of the employment contracts and MOM's Tripartite Guidelines on Managing Excess Manpower. The employer would then have the option to re-hire on new contracts based on the new salary amount or structure.
The MOM’s Tripartite Guidelines on Managing Excess Manpower stipulate that laying-off should employees should be a last resort and alternative measures should be considered first instance. Such measures include requesting its employees to take up to 50% of their earned annual leave, temporary layoffs which do not exceed one month or pay the affected employees not less than half of their gross daily salary during the layoff period.
In response to the local Covid-19 lockdown measures, the employer implemented a "Flexiworking" policy which allowed employees to work their set daily hours at any time of the day and from any location. Now those lockdown measures have been eased, the employer wants employees to return to working within core business hours and 3 days a week at the office. Can the employer unilaterally withdraw the Flexiworking policy and implement the new one?
Currently, the government regulations mandate that working from home should be the default mode of work, unless such work cannot be done from outside the company's premises. In line with this mandate, the employer should, as far as possible, advise for its employees to work from home and not merely anywhere else. As such, it is not possible for the employee to implement a 3-days-a-week policy currently, until the Singapore government provides further updates.
When the regulations have eased and assuming that the new policy is in line with the government regulations in force at the relevant time and subject to any conditions in the employment contract or handbook, it is generally fine to withdraw the Flexiworking policy and implement the new policy.
Notwithstanding the above, the Tripartite Advisory on Mental Well-Being at Workplaces recommends that employers should implement and encourage flexible work arrangements to help employees meet both their work and personal demands to allow caregivers to meet their personal need. Going forward, the employer should adopt a flexible approach to ensure that employees who are caregivers to meet their own needs and ensure that they are not being discriminated against.
In light of the local Covid-19 travel restrictions, the employer allowed employees to carry over 10 days of their annual holiday entitlement into the next holiday year but did not specify when the employees had to take this holiday. It is now halfway through the holiday year and some employees have considerable amounts of unused holiday to take, including their carried forward leave. What options does the employer have?
If an employee is covered under Part IV of the Employment Act, the company must allow such employee to carry forward any unused annual leave that falls within the statutory entitlements to the next 12 months.
For all other employees, the treatment of unused annual leave will depend mainly on the employment contract / handbook. The usual options would be to encash the unused annual leave, carry it forward or forfeit the days of unused annual leave.
In terms of market practice, most companies have made a one off exemption to allow their employees to carry over more days of annual leave as a result of the Covid-19 pandemic but have stipulated that such carried over days of annual leave must be utilised by a certain date which otherwise would be subject to forfeiture. Additionally, some companies in Singapore have also provided a one-time encashment of a proportion of unused annual leave.
The Singapore section of the article was written by partner Jason Yang at Virtus Law LLP (a member of the Stephenson Harwood (Singapore) Alliance).
For further information, please contact:
Jason Yang, Partner, Stephenson Harwood
jason.yang@shlegalworld.com
