Hong Kong: Legislative Council to consider reinstatement remedy for unfair dismissal claims

On 25 April 2017, the Employment (Amendment) Bill 2017 was introduced for first reading in the Legislative Council. This Bill follows a similar Bill proposed in 2016 and if passed, will strengthen the Labour Tribunal's power to make an order of reinstatement or re-engagement in cases where an employee has been unlawfully dismissed. While this remedy is already available to the Labour Tribunal, its exercise is currently permitted only where both parties consent.

An order of reinstatement or re-engagement?

An order for reinstatement requires an employer to treat the employee in all respects as if the dismissal had not occurred - that is, to restore him to his former position on the same terms and conditions.

An order for re-engagement involves re-employment on terms comparable to the original terms or in other suitable employment. Re-engagement may be by the original employer, a successor employer (in the case of a sale of the business) or another member of the corporate group.

In addition, the Labour Tribunal may order the employer to pay the employee an amount in respect of arrears of pay and statutory entitlements for the period between the date of dismissal and the date of reinstatement or re-engagement, if the Labour Tribunal considers it just and appropriate in the circumstances.

When can such orders be made?

The new powers to make a compulsory order for reinstatement or re-engagement will only be available in the limited circumstances specified under section 32A(1)(c) of the Employment Ordinance (EO). Section 32(A)(1)(c) applies when an employee has been dismissed without a valid reason and in breach of one or more statutory prohibitions. In summary, it is unlawful to dismiss an employee:

• if she is pregnant or on statutory maternity leave;
• if he/she is on statutory sick leave or is suffering from a work-related illness or injury where an assessment of compensation due under the Employees' Compensation Ordinance is pending;
• by reason that he/she is a member or officer of a trade union or has engaged in lawful trade union activities; or
• by reason that he/she has given or agreed to give evidence in relation to:
  • an alleged breach of the Employment Ordinance, the Factories and Industrial Undertakings Ordinance or any work safety obligations; or
  • a workplace accident.

In all other cases, an order for reinstatement or re-engagement will still require the consent of both parties.

What is the current position?

Under current law, the Labour Tribunal can only make an order for reinstatement or re-engagement (together with back- pay, where appropriate) if both parties agree. More commonly, the Labour Tribunal will make a monetary award. In that respect the Labour Tribunal's powers are limited to orders of financial compensation, namely:

• an award of terminal payments (i.e. the statutory and contractual payment to which an employee is entitled upon termination of employment by notice or payment in lieu); and
• (in the circumstances set out above) such additional award of compensation as the Labour Tribunal considers appropriate, not exceeding HK$150,000.

What will change?

Under the new law, if passed, the Labour Tribunal will have greater flexibility to make an order for reinstatement or re-engagement in cases where an individual has been unlawfully dismissed, after giving the parties an opportunity to present their position. If the Labour Tribunal considers that an order for reinstatement or re-engagement is appropriate and is reasonably practicable, it may make such order without first obtaining the agreement of the employer. In making such order, the Labour Tribunal will need to consider all of the circumstances of the claim, including:

• the circumstances of the employer and the employee;
• the circumstances surrounding the dismissal;
• any difficulty that the employer might face in the reinstatement or re-engagement of the employee; and
• 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.

If an employer fails to comply with the order for reinstatement or re-engagement by the specified date, the employer must pay to the employee:

• financial compensation (as described above) in the amount determined by the Labour Tribunal; plus
• an additional amount equal to the lesser of:
  • three times the employee's average monthly wages for the 12 months immediately preceding the dismissal; and
  • HK$72,500 (this is an increase on the HK$50,000 proposed in the previous Bill).

Non-compliance with an order for reinstatement or re-engagement is not itself an offence. It is only an offence if the employer (having not complied with the order) fails to pay compensation (including the additional compensation) as set out above. The new Bill proposes that an employer who wilfully and without reasonable excuse fails to pay such additional compensation (described above) will be guilty of a criminal offence and may, upon conviction, be subject to fine of up to HK$350,000 and 3 years imprisonment.

That said, if for reasons attributable to the employee or because of a change in circumstances outside the employer's control, it is no longer reasonably practicable for an employer to comply with a reinstatement or re- engagement order, the employer may apply to the Labour Tribunal for relief against payment of the additional sum. Furthermore, although the obligation to re-engage an employee rests with an employer, with the agreement of the employee, the employer and any successor or associated company, the Labour Tribunal may vary an order for re-engagement so that it will be taken to be fulfilled upon re-engagement by the successor or associated company.

Accordingly, although the employer's consent will no longer be required as a pre-requisite to an order for reinstatement or re-engagement, an employer will still have options available to it to mitigate the impact of such order, if made.

Next steps

Before being introduced to the Legislative Council, this proposal has been considered and discussed at length by both the Labour Advisory Board and the Legislative Council's Panel on Manpower. Given the general support the proposal has reportedly received in both forums, it appears likely that this amendment will be passed. We will continue to monitor the progress of this Bill and will keep you updated on any material developments.

Written by Gareth Thomas (Partner) and Gillian McKenzie (Senior Associate)