a. Laws and Guiding Principles
Re-characterization may happen when a worker who was stated as an independent contractor on the service contract, alleges that he is entitled to employee’s compensation under ECO and argues that he is an employee in substance instead of an independent contractor.
The leading authority in Hong Kong on the issue of whether a person is an employee of another is Poon Chau Nam v Yim Siu Cheung23. As discussed above, it laid down the rule that the modern approach to the question of whether a person was an employee was to examine all the features of the parties’ relationship against the background of the indicia of employment, with a view to deciding whether, as a matter of overall impression, the relationship was one of employment.
The modern approach involves a “nuanced and not a mechanical approach”, and is not an exercise of running through items on a check list to see whether they are present in, or absent from the situation. Its object is to paint a picture from the accumulation of details, whereby not all details are of equal weight or importance in any given situation and the details may also vary in importance from one situation to another. In undertaking the modern approach, the indicia includes the degree of control exercised by the employer; whether the person performing the services provided his own equipment; whether he hired his own helpers; what degree of financial risk he took; what degree of responsibility for investment and management he had; and whether and how far he had an opportunity of profiting from sound management in the performance of his task. As such, the Court will not necessarily endorse whatever labels the parties choose to put on their relationship.
In Wong Kin v Him Kee Food Distribution Co Ltd24, a recent case where the Court had to determine the status of the applicant, thereby entitling him to claim employees’ compensation under ECO for injuries sustained during the course of his employment, citing Chan Kwok Kin v Mok Kwan Hing25 and Ferguson v John Dawson & Partners (Contracts) Ltd26, the Court stated that the parties’ classification of their relationship is not conclusive and it is for the Court to evaluate the facts and determine the legal relationship.
It is important to note that the abovementioned indicia are again not exhaustive. As applied in Lee Ting Sang v Chung Chi Keung & Another27, no exhaustive list has been compiled and perhaps no exhaustive list can be compiled of the considerations which are relevant, nor can strict rules be laid down as to the relevant weight which the various considerations should carry in particular cases28.
b. The Legal Consequences of a Re-Characterisation
Even if the person is called or has been labeled as an independent contractor in the contract, if in essence an employer-employee relationship exists, the employer will be required to fulfill its responsibilities under the relevant legislation by paying back statutory benefits retroactively to the worker who has been falsely labeled as an independent contractor.
As mentioned above, such rights and benefits include basic protection under EO such as paid annual leave, paid maternity and paternity leave, statutory holiday pay, sickness allowance, severance payment or long service payment, minimum notice of termination and right to make a payment in lieu of notice, etc.; the statutory Minimum Wage under MWO; statutory sick leave and compensation arising from work injuries under ECO; and employer’s MPF contributions under MPFSO.
c. Judicial Remedies Available to Persons Seeking ‘Employee’ Status
Whether a person is or is not an employee is a question of fact, which is essentially a matter for the Labour Tribunal or the Courts of Hong Kong to determine. Apart from judicial remedies, a complaint hotline is in place to facilitate the reporting of non-compliant employers by employees who suspect that they have been deprived of statutory rights and benefits. As with the modern approach, the Labour Department will conduct investigation by examining the substance rather than the form of the relationship, and will prosecute the employer if it is found that the employer has breached the relevant statutory rules. The Labour Department has the general power to prosecute non-compliant employers.