Hong Kong: The labour policy promises of the new Chief Executive

On 26 March 2017, Carrie Lam Cheng Yuet-ngor was elected as the city's next (and first female) chief executive, after winning 777 votes from a 1,194-member election committee. In a 520-page manifesto, Carrie Lam set out her policy campaign including, briefly, her views on how the government under her leadership would address certain topical labour issues. This article summarises what we can expect from a new government under Carrie Lam's leadership.

Campaign promises

During her campaign, Carrie Lam made five key labour-related promises.

1. She would listen to both employers and employees (especially those from small and medium enterprises) and strive to reach a consensus regarding whether and how the proposed abolition of the "offsetting" arrangement in the current Mandatory Provident Fund system should be implemented.
2. Her government would proactively follow up various measures to optimise the Mandatory Provident Fund system and examine how best to provide better protection for retirees.
3. The government will consider the work of the Standard Working Hours Committee and the views expressed by various stakeholders to develop a policy for the regulation of working hours which is appropriate to Hong Kong's social and economic conditions.
4. She will seek to implement and adopt more effective measures to unleash the working potential of women and the elderly, in order to relieve the serious labour shortage that presently exists in various sectors.
5. The government will seek to address a declining labour force by proactively engaging with employers and employees from different industries to promote understanding and a discussion around importing a limited number of foreign workers to address serious labour shortages within targeted industries while ensuring safeguards for local workers.

Offsetting MPF payments against severance and long service payments

Under the provisions of the Employment Ordinance, an employee whose position is made redundant after two or more years of service is generally entitled to a severance payment of two-thirds of the employee's monthly wages (capped at HK$15,000) per year of service. Similarly, an employee who has five or more years of service and who is dismissed for reasons other than redundancy may be entitled to a long-service payment calculated in the same way.

However, under current law, an employer is entitled to reduce the amount of severance or long service payment payable to such employee by an amount equal to the current value of contributions made by the employer to an MPF or retirement scheme during the employment period. Alternatively, the employer may apply to the trustee of such scheme to recover an amount up to the amount paid out in severance or long service pay from the employee's accrued benefits. The consequence of such action is that, in real terms, the employee's entitlements on termination may be substantially diminished.

Five years ago, the current Chief Executive, Leung Chun-ying, promised to abolish this offsetting mechanism. However, until the 2017 Policy Address delivered on 18 January 2017, no concrete proposal was put forward. Now, the government has proposed progressively to abolish the offsetting arrangement, while at the same time making certain concessions to ease the impact on business.

In particular, the government has proposed to: 　

1. reduce the amount of severance and long service payments from two-thirds of a month's wages per year of service to half of a month's wages per year of service; and
2. bear part of the employer's cost (around HK$6 billion) over the first 10 years following the abolition of the offsetting mechanism.

Standard working hours

In 2013, the Standard Working Hours Committee was set up to advise the government on a working hours policy for Hong Kong. After two rounds of public consultation, the Committee finally submitted its report on January 27, this year. The Committee made two key recommendations.

1. Implement legislation requiring employers to enter into written employment contracts with certain employees, including terms on working hours and overtime compensation arrangements (subject to statutory minimums).
2. Set up industry-based tripartite committees for sectors with relatively long working hours, to provide a platform for the relevant stakeholders to engage in dialogue and formulate sector-specific guidelines for employers on working hours, overtime compensation and good working hours management measures.

It is yet to be seen how the new government will deal with these issues and whether it will be able to effect change to address concerns raised in the community about labour issues, while balancing the need to ensure that Hong Kong remains competitive. In any event, it appears that the new government will continue to strive for the consensus which has proven elusive to date.