Employees at certain Hong Kong financial institutions and professional firms are facing financial difficulties recently as their employers ask them to voluntarily take unpaid leave for a certain period or reduce their workweek by one day until the end of this year.

 

Business leaders view unpaid leave as a cost-cutting measure to counter shrinking business due to Hong Kong's underperforming stock market and fewer new listings compared to global competitors this year. However, employees may question whether such requests for unpaid leave violate the requirements of the Employment Ordinance?
 

Getting employees to take unpaid leave without prior consent should be avoided

Under section 45 of the Employment Ordinance, whenever there is any change to the existing employment conditions, an employer must inform the employee of such change in advance and provide a written copy of the amendment immediately after it becomes valid. Furthermore, an employee employed under a continuous contract may seek remedies under sections 32L to 32Q of the Employment Ordinance if an employer unreasonably alters the terms of the employment contract without consent. This applies if the contract does not contain an express provision allowing such a variation, or if the changes are made without a valid reason as specified in the Employment Ordinance.

 

In light of the above, it is imperative for employers to obtain the consent of the employees in advance before making any changes to the terms of the employment contract. Without mutual agreement and consent from the employees to the changes of conditions of employment, such as unilaterally reducing wages or forcing employees to take unpaid leave, employers may be in violation of the Employment Ordinance concerning the timely payment of wages. If wages are unpaid for more than one month after becoming due, employees may consider their contracts terminated by the employer without notice, entitling them to payment in lieu of notice along with other statutory and contractual entitlements upon termination.

 

Furthermore, employees who have been employed under a continuous contract for not less than 24 months, may be considered as laid off if the unpaid leave extends beyond a certain number of days (details outlined below):
 

  • The total number of days during which no work is provided, or no wages are paid, exceeds half of the normal working days in any four consecutive weeks; or
  • The total number of days during which no work is provided, or no wages are paid, exceeds one-third of the normal working days in any twenty-six consecutive weeks.

 

Lock-out days, rest days, annual leave, and statutory holidays should not be counted as normal working days during the above periods.

 

Under these circumstances, the employees have the right to terminate their employment contracts, and the employer may be required to pay the relevant severance payment accordingly.

 

The following formula applies to the calculation of severance payment:

Monthly-paid employees(last full month’s wages* x 2/3) # x reckonable years of service
Daily rated/piece-rated employee(any 18 days’ wages* chosen by the employee out of his/her last thirty normal working days) # x reckonable years of service

* An employee may also elect to use his/her average wages from the 12 months immediately preceding the termination of employment contract for the calculation. (Where the employee’s employment contract is terminated by payment in lieu of notice, the employee may elect to use his/her average wages in the 12 months immediately preceding the date up to which the payment in lieu of notice is calculated).

# The sum should not exceed two-thirds of HK$22,500 (i.e., HK$15,000).
 

Key considerations before arranging employees taking unpaid leave

When companies implement cost-cutting measures, such as asking employees to take unpaid leave, it is important to consider factors that may adversely impact the company’s branding. Employers must communicate openly with employees regarding the company’s current financial difficulties to help them understand that unpaid leave is a way to retain them during times of financial adversity.

 

The decision to put employees on unpaid leave is difficult, and management should seek employee consent for this decision. Transparency is key to avoiding conflict between employer and employee as it is detrimental to the company’s business reputation not just in the short term, but also in the long run.
 

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Joseph Hong
Partner, Payroll & HR Advisory Services
[email protected]