By Alex Liu

Hong Kong, 29 November 2022: The impact of Covid-19 on Hong Kong’s economy has been underscored by media stories about firms failing to pay wages on time and falling behind with pension fund contributions. But even in these difficult times, the government has made it clear employers are expected to meet their obligations towards workers and will be hit with penalties if they fail to do so.

In a high-profile case which surfaced last month, bakery chain Hoixe Cake Shop was revealed to be two months behind in remunerating hundreds of employees. In pledging to make up the arrears within days, the firm said it had faced “unprecedentedly harsh” tests due to the pandemic. An investigation by the Mandatory Provident Fund (MPF) Schemes Authority also found the company – which has more than 50 outlets – owed pension contributions of HK$760,000 involving 580 staff members.

That development came weeks after another bakery chain, Crostini, which had 15 outlets in Hong Kong, closed suddenly, leaving some 100 staff facing pay arrears. The firm blamed its closure on the end of the government’s rent deferral scheme, which ran for three months and was aimed at keeping businesses afloat.

Meanwhile, the MPF Schemes Authority recently revealed pension fund contribution arrears among employers were at a three-year high. It said an average of 28,500 default notices a month had been issued to non-compliant businesses since April. Chairwoman Ayesha Macpherson Lau highlighted “a growing trend of default contribution cases since the pandemic began” and warned her organisation would take action to protect affected workers.

A number of firms have been prosecuted by the Labour Department in recent weeks for failure to pay wages on time:

• Two directors of an engineering company appeared at Shatin Magistrates’ Court after the firm failed to pay 11 staff within seven days of termination. One director was sentenced to 160 hours’ community service and ordered to pay an outstanding sum of HK$483,000 while his colleague was fined HK$22,500.
• An apparel firm and its director were fined a total of HK$58,800 at Eastern Magistrates’ Courts for late settlement of wages and end-of-year payments totalling HK$154,000 to three employees.
• A director and company secretary of an investment firm appeared at Shatin Magistrates’ Court over late payment of wages to four employees who had been terminated. The firm and defendants were fined a total of HK$60,000 and ordered to pay an outstanding sum of HK$91,000.
• An apparel firm was fined HK$60,000 and ordered to pay an outstanding sum of HK$15,000 by Kwun Tong Magistrates’ Courts. The company was late in making payments amounting to HK$175,000 to four employees.

According to the Employment Ordinance (Cap. 57), an employer should pay wages as soon as practicable but, in any case, not later than seven days after the end of the wage period. If they fail to comply, they are also required to pay interest on the outstanding amount.

An employer who “wilfully and without reasonable excuse” fails to pay wages when they are due is liable to prosecution and, upon conviction, a maximum fine of HK$350,000 and imprisonment for up to three years. An employer who is no longer able to pay wages should terminate the employment contract in accordance with its terms. If wages are then not paid within one month, an employee may deem his contract to have been terminated without notice and is entitled to payment in lieu of notice in addition to other statutory and contractual termination payments.

The court cases outlined above serve as a timely reminder to all employers that it is essential to pay wages on time. Even if the business is struggling due to the pandemic, employers are obliged to adhere to the terms of the contract of employment and Employment Ordinance, otherwise they risk prosecution. Here at Boase Cohen & Collins, we have an experienced legal team well versed in all aspects of Employment Law and are happy to assist with any queries.

A Partner in BC&C since 2000, Alex Liu’s key areas of practice include commercial and corporate litigation, investigations by governmental bodies such as the SFC, ICAC and Commercial Crime Bureau, insolvency and debt restructuring, employment matters, property and commercial contract drafting. He can be contacted at alex@boasecohencollins.com.