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Can a compulsory reinstatement or re-engagement order assist an employee being unreasonably and unlawfully dismissed?

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The amendments under the Employment (Amendment) (No.2) Ordinance 2018 (the “Amendment”) to the Employment Ordinance (Cap.57) (“EO”) came into effect on 19 October 2018 which imposes more stringent actions on the employer who unreasonably and unlawfully dismisses its employee.

Some examples of unlawful dismissal are if an employee is dismissed:-

  1. during pregnancy and maternity leave;
  2. during statutory paid sick leave;
  3. after work-related injury and before determination or settlement and/or payment of compensation under the Employees’ Compensation Ordinance (Cap.282);
  4. by reason of the employee exercising trade union rights; or
  5. by reason of the employee giving evidence for the enforcement of relevant labour legislation.

Before the Amendment, if an employee had been unreasonably and unlawfully dismissed, subject to the mutual consent of the employee and the employer, the court or the Labour Tribunal had the power to make an order for reinstatement or re-engagement of the employment of such employee by the relevant employer.

If no reinstatement or re-engagement order was made, the court or Labor Tribunal, might make an award of terminal payments and an additional award of compensation not exceeding $150,000 to the employee. 

The significant part of the Amendment is that the court or Labour Tribunal now no longer needs to seek consent from the employer before making an order of reinstatement or re-engagement if it is of the view that the implementation of such order is reasonably practicable.

If the employer fails to comply with the reinstatement or re-engagement order, the employer shall pay to the employee a further sum on top of the abovementioned monetary awards and such sum can amount up to three times of the employee’s average monthly wages, subject to a cap of HK$72,500.

Irrespective, can a compulsory reinstatement or re-engagement order really assist an employee being unreasonably and unlawfully dismissed?

  1. The likelihood of a compulsory reinstatement or re-engagement order  

Under the Amendment, the court or the Labour Tribunal must make a compulsory order if it finds that reinstatement or re-engagement of the employee by the employer is reasonably practicable provided that the employee has been dismissed both unreasonably and unlawfully (as detailed above). The factors, without limitation, to be taken into account by the court or the Labour Tribunal, when making such a finding include:-

(i)     the circumstances of the employer and the employee;

(ii)    the circumstances surrounding the dismissal;

(iii)   any difficulty that the employer might face in the reinstatement or re-engagement of the employee; and

(iv)  the relationship between the employer and the employee, and between the employee and other persons with whom the employee has connection in relation to the employment.

The Amendment grants the court and the Labour Tribunal the power to request and obtain a report prepared by the Commissioner for Labour containing details of the conciliation between the parties and information relating to the circumstances of the claim with the agreement of the employer and the employee in relation to both the preparation and the content of such report.

It is very likely that the relationship between the employer and the employee has already broken down severely by the time the matter is put forward to the court or the Labour Tribunal.

It is also not uncommon that cases being heard at the Labour Tribunal might not have gone through any or a complete conciliation process between the relevant employer and employee at the Labour Department.

The prospect of obtaining an optimistic report to the effect that the court or Labour Tribunal can rely on and therefore make a finding that the compulsory order is reasonably practicable is plainly low.   

  1. Possible issues that might arise after the reinstatement or re-engagement

Even if a compulsory order is ordered and the employer acts on that, there can be chances that the employer would not be on good terms with the employee and thus issues relating to promotion, job allocation and performance appraisal which is usually in connection with pay rise and are all subject to the discretion of the employer are bound to arise after the reinstatement or re-engagement.

  1. Alternative to reinstatement or re-engagement order

Having said that, the employee (not the employer) can take an application to the court or the Labour Tribunal to vary the first re-engagement order (the “principal order”) under which the employee will be engaged by the successor of the original employer or its associated company (the “alternative employer”) rather than the original employer.  

The application must be accompanied with a written agreement among the original employer, the employee and the alternative employer. Furthermore, the written agreement must expressly state that the varied re-engagement is to be treated as compliance with the principal order and must contain specified terms stipulated in the Amendment. An order of variation may only be made if the court or Labour Tribunal is satisfied with the terms of the written agreement as comparable to the terms of agreement under the principal order. 

To this end, how the employee can liaise with the original employer and through it, with an alternative employer, for a written agreement for the varied re-engagement before the same can be presented to the court or the Labour Tribunal for an application to vary the principal order remains questionable. We believe that directions from the court or the Labour Tribunal to facilitate such liaison may be necessary and the employee is encouraged to seek independent legal advice when negotiating such terms.  

OLN provides a full range of employment related services. If you have any questions regarding the above or any other employment issues, please contact one of the members of our employment team.

Art Jamming with the Kids

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We kicked off OLN’s year of partnership with Changing Young Lives Foundation （ 成長希望基金會）by hosting the 1st event of the year – art jamming with the kids! We love art but we love the smiles on the children’s faces even more.

OLN is a law firm dedicated to fulfilling its corporate social responsibilities.

Stay tuned for more events to come!

OLN has again been highly ranked in Legal 500 Asia Pacific 2019

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We are pleased to announce that OLN has again been highly ranked in Legal 500 Asia Pacific 2019 directory.
 

OLN has been recommended in the following 2 practice areas:
 

Hong Kong

  • Intellectual Property
  • Labour and Employment

The following lawyers are recommended in The Legal 500 Asia Pacific 2019 editorial (listed below)


Intellectual Property

  • Stephan Chan
  • Vera Sung

Labour and Employment

  • Jade Tang

We are also happy to receive below excellent comment from the researchers, please see below:
 

Intellectual Property:

Led by Vera Sung, the IP team at independent Hong Kong firm Oldham, Li & Nie has strong ties with small and medium-sized enterprises as well as larger international businesses, and is active across a range of IP issues including trademarks, patents and copyrights. General litigator Stephen Chan regularly handles IP disputes, including his representation of Korean cosmetics brand Jayjun Cosmetic in a “squatting” case brought against a Hong Kong brand, alleging that it is trading under the name of “Jayjun” without due authority.

Labour and Employment:

Senior associate Jade Tang excels at handling M&A and transaction-based employment work, and recently provided Hong Kong law input advice to an international law firm that was instructed by the seller of a Hong Kong company to a Korean purchaser. Since the seller was still maintaining a minority interest in the company, the documentation had to ensure that its minority rights were protected and that the key employees’ interests were taken care of under the employment contract and the share option agreement.

Updates on China Individual Income Tax Law (IIT) Tax Exemption Rule for Foreigners

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– Is the Six-Year Rule more favourable than the Five-Year Rule?

Individuals who have stayed in China for 183 days or longer (as compared to the old rules of one full year) in any tax year would now be considered as “Tax Resident” in China under the new widening definition of tax residency[1] and could be subject to IIT on their worldwide income.

Based on the newly updated regulations for the implementation of the IIT law published on 18 December 2018, the long-standing “5-year tax exemption rule” has now been extended to 6-years for foreigners who have no domicile in China but have stayed in China for 183 days or longer in any tax year with other modifications.

Is it now more favourable?

Under the old exemption, even if an individual had spent more than one full year in China (i.e., the old rule of the definition of tax residency), provided he or she did not have a domicile in China, his or her foreign income would not be subject to IIT by temporary absences from China in every 5 years by either:-

(1) being absent from China for at least one continuous period of more than 30 days every 5 years; or

(2) being absent from China for more than 90 days in aggregate within one tax year during the 5 year period.

Under the new exemption, the 5-year tax exemption rule has now been extended to 6 years. But the exemption would no longer apply to individuals who have been absent from China for more than 90 days in aggregate within one tax year during the 6 year period. For foreigners who have substantial establishments in China, it could be practically difficult for them to be absent from China for a continuous period of more than 30 days.

– How to determine whether an income will be subject to IIT?

The following handy flowchart illustrates under what circumstances an individual’s non-China sourced income would also be subject to IIT:-

As the changes in the tax exemption rules could have a huge impact to the individual tax liabilities of the expatriates working in China, employers and employees should seek professional advice to prepare for the reform.

OLN provides a full range of tax advisory services. If you have any questions regarding the above or on any tax issues, please contact one of the members of the tax advisory team.

[1] For a summary of the key changes in IIT please refer to [“China is reforming its individual income tax rules – are you ready?”] and for more details on the impact of the new IIT law on high net-worth individuals please visit [中华人民共和国个人所得税法修改 – 对您的潜在影响及所需的即时行动]

Are you ready for the implementation of the new tax laws in 2019?

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There is no doubt that year 2018 was a busy year for Hong Kong tax advisors with the various new developments in Hong Kong tax laws. Now we are in 2019 – how will these new developments have an impact on you?


(1) The introduction of the 3-tiered standard transfer pricing documentation for Hong Kong entities engaging in cross-border related-party transactions

Who need to prepare for the reports?

You are likely to subject to reporting if you are an entity with presence in two or more jurisdictions and:-
• Having a total revenue exceeding HK$400 million;
• Having a total assets exceeding HK$300 million;
• Having more than 100 employees;
• Having intra-group related party transaction in one of the following scenarios:-
    o transfer of properties (other than financial assets and intangibles): exceeding HK$220 million;
    o transaction of financial assets: exceeding HK$110 million;
    o transfer of intangibles: exceeding HK$110 million;
    o others: (e.g. service income and royalty income): exceeding HK$44 million.

Even if you are subject to Local File and Master File reporting, you may still be exempted from Country-by-Country reporting if your annual consolidated group revenue does not exceed EUR750 million (i.e., approximately HK$6.8 billion).

 Details to be includedFiling due dates
Local FileDetailed transactional transfer pricing information such as details of the transactions, amount involved in the transactions and a transfer pricing analysis.These filings are required for accounting periods beginning on or after 1 April 2018 and must be prepared within 9 months after the end of each accounting period.
Master FileA high-level overview of the group, including documenting the global business operations, transfer pricing policies and global allocation of income.
Country-by-Country Reporting• To be filed by the ultimate parent entity of a multinational enterprise (“MNE”) in its tax jurisdiction.• Sets out the amounts of revenue, profits and tax paid as well as certain indicators of economic activity such as number of employees, state capital, retained earnings and tangible assets for each jurisdiction in which a MNE operates.The filing is required for accounting periods beginning on or after 1 January 2018 and must be prepared within 12 months after the end of each accounting period.

OLN’s observations

Transfer pricing policy requires holistic review of intra-group transaction and group overhead allocation. Aftermath ratification is usually problematic. It is therefore advisable for multinational corporations to carry out preemptive measures as soon as possible. As this is the first piece of legislation in Hong Kong specifically addressing transfer pricing matters with many uncertainties in the application of the law, it is expected that the Hong Kong Inland Revenue Department (“HKIRD”) would provide further guidance in this area through new or revised Departmental Interpretation and Practice Notes. Taxpayers should continue to monitor the developments in order to assess their transfer pricing documentation obligations.

(2) Other key new developments

Lorem initius…

 Key FeaturesOLN’s observations/ comments 
The implementation of the two-tiered profits tax rates regimeFrom the year of assessment 2018/2019 onwards (i.e., commencing on or after 1 April 2018), the profits tax rate for the first HK$2 million of profits of corporation will be at 50% of the corporate tax rate of 16.5% (i.e. 8.25%).Before the implementation of the two-tiered profits tax rates regime, Hong Kong has already provided a 8.25% concessionary profits tax rate to corporates conducting the following activities in order to strengthen Hong Kong’s position as an international asset and wealth management center and drive demand for the related professional services in Hong Kong:-
•  Qualifying corporate treasury centre;
•  Qualifying professional reinsurance business;
•  Authorized captive insurance business;
•  Qualifying aircraft lessor;
•  Qualifying aircraft leasing manager.
The two-tiered profits tax rates regime aims to reduce the tax burden on enterprises especially small and medium enterprises and startup enterprises. Taxpayer should be aware that in case of connected entities, only one enterprise would be eligible for the two-tiered rates.		 
 
Automatic exchange of financial information in tax matters (“AEOI”)HKIRD has already started conducting AEOI with 50 jurisdictions including Mainland China, United Kingdom, France, Singapore and Japan from September 2018. It means that HKIRD would have the obligation to provide information where requested by tax authorities of these jurisdictions.Currently Hong Kong has activated AEOI with 50 jurisdictions which would soon extend 25 more jurisdictions including Switzerland, Cayman Islands and Cyprus [1].
Hong Kong plans to expand the list of AEOI jurisdictions to 126 jurisdictions by being one of the participants of the Convention on Mutual Administrative in Tax Matters. United States, British Virgin Islands are 2 of the jurisdictions that have already joined the Convention but not currently one of the AEOI jurisdictions.		 
  
Stamp duty on residential propertiesTo address the overheated property market, the Government has employed rounds of demand-side management tax measures including the followings:

•  Special Stamp Duty (applying to sellers who sell residential properties within 3 years of purchase);

•  Buyer’s Stamp Duty (applying to non Hong Kong Permanent Residents);

•  Doubled ad valorem Stamp Duty (of which Hong Kong Permanent Residents (“HKPR”) who do not own any other residential property in Hong Kong at the time of purchasing a residential property are not affected);

the recent tax measure is the New Residential Stamp Duty of which the flat rate of 15% would apply to a HKPR who acquires more than one property under a single instrument, even though that HKPR does not own other residential property at the time of purchase.		Notwithstanding the recent cooling down of the market for residential properties, there is currently no indication from the Government of the possible relaxation of the tax measures.

However there is no doubt that the Government would continue to monitor the market for residential properties and would introduce tax measures in response to the market.		 
 
Tax measures in response to the population ageingThe Government has continuously introduced tax measures in response to the population ageing including the following:-

•  Starting from 1 April 2019, taxpayers can claim deductions for purchasing eligible health insurance products for themselves or their specified relatives[2]  under the Voluntary Health Scheme up to HK$8,000 per insured person;

•  The Inland Revenue and MPF Schemes Legislation (Tax Deductions for Annuity Premiums and MPF Voluntary Contributions) (Amendment) Bill 2018 has been introduced to seek to introduce tax deductions for deferred annuity premiums and Mandatory Provident Fund Tax Deductible with the maximum tax deductible limit for a taxpayer to be HK$60,000 per year.		It is expected that the Government would continue to introduce tax measures to alleviate the long-term pressure on the public healthcare system and to encourage savings for the retirement. 
 
Continuous expansion of the treaty networkHong Kong has recently signed a Comprehensive Double Taxation Agreement (“CDTA”) with Finland which is the 40th CDTA signed by Hong Kong and the first one signed with a Nordic country.Hong Kong has continuously expanding the treaty network to bring a greater degree of certainty on taxation liabilities for those who engage in cross-border business activities and help promote bilateral trade and investment activities.

There are currently 13 CDTA negotiation in progress, including Germany and Macao SAR.		 

Taxpayers should continue to monitor the development in the various areas of tax laws and take appropriate steps to manage the tax risks.

OLN provides a full range of tax advisory services. If you have any questions regarding the above or on any tax issues, please contact one of the members of the tax advisory team.

[1] On the basis of bilateral competent authority agreements or a multilateral competent authority agreement under the Convention on Mutual Administrative Assistance in Tax Matters.

[2] The taxpayer’s spouse and children, and the taxpayer’s or his/her spouse’s grandparents, parents and siblings.

Excellent Client Feedback from Asialaw Profiles

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We are very pleased to receive excellent client feedback from Aisalaw Profiles for our Partners Vera Sung and Stephen Chan. Below are the comments:

Stephen Chan “He is very good and responsive.”

Vera Sung “Vera understands how to deliver legal solutions to European clients. She is very commercial, has a keen eye on finding solutions. Clients are very impressed with her work.”

Vera Sung and Stephen Chan “They are very commercial, responsive and provide excellent legal support with competitive pricing, and are a pleasure to work alongside. I would have no hesitation recommending them and the firm.”

Congratulations to both of them and we believe that they will keep up the great work in the future!