Directors and Officers Beware Liability for Wage Payment Offences by Company

24 February 2015

Directors and officers of companies with staff in Hong Kong should be aware that they may be held criminally liable and ordered to personally pay arrears in wages if their company commits wage payment offences with their consent or connivance or due to their neglect. Over the last three years, the Labour Department has successfully prosecuted a number of directors for wage payment offences and failure to pay awards, with sanctions ranging from fines, orders to pay the outstanding wages, community service and imprisonment.

Liability for Wage Payment Offences

The Employment Ordinance requires that wages, end-of year payments and other termination payments be paid within seven days of the date they fall due. An employer who “willfully and without reasonable excuse” fails to pay within time commits an offence. Similar offences arise for failing to pay an award of the Labour Tribunal or Minor Employment Claims Adjudication Board within 14 days and for certain breaches of the Minimum Wage Ordinance. Offenders may be prosecuted and fined a maximum penalty of up to $350,000 and imprisoned for up to three years. An employer convicted of an offence under the Employment Ordinance may also be ordered to pay wages or sums outstanding at the time of conviction related to the offence.

The fact that an employer is a company does not protect its directors or officers if they are responsible for deciding whether or not employees get paid on time and how much is paid. Under the Employment Ordinance, “employer” means not only the company that has entered into the contract of employment but also the duly authorized agent, manager or factor of that company. If a wage payment offence committed by a company is proven to have been committed with the consent, connivance of or attributable to the neglect on the part of any director, manager, secretary or other similar officer, they will also be guilty of the offence.

In HKSAR v Lor Wai Por, the Court observed that the rationale behind the broad definition of employer “is to cater for situations, such as this, where a Corporate employer is wound up and employees have no remedy against the Corporation. They nevertheless have a continuing remedy against the duly authorized manager/agent/factor who is convicted of an offence. The inclusion of a broad range of persons who fall into the category is deliberate: it is what might be called a “blunderbuss” approach and is designed to better protect the employees and thereby to achieve the objective of the legislation. The employees acquire a far reaching protection, which is the purpose of the Ordinance.”

The fact that a company may be in financial difficulty is not a reasonable excuse for failing to pay wages on time particularly if the company has the funds but elects to use them to keep the company running rather than pay its employees.

Recent examples

In HKSAR v Li Fung Ching Catherine, a director appealed unsuccessfully against her conviction for non-payment of wages in breach of the Employment Ordinance. She was one of the company directors and her main duties included the daily operation, personnel and finance of the Company. The Magistrate had found that the company had deliberately failed to pay wages, deciding to meet other operating expenses instead in the hope of keeping afloat. He found that this had been done with the director’s consent or connivance or was attributable to her neglect and fined her a total of $110,000.

The Court of First Instance held that the question of “reasonable excuse” should be considered from the perspective of a reasonable person, namely whether there was a cause which a reasonable person would regard as an excuse, consistent with a reasonable standard of conduct. It upheld the Magistrate’s findings that the company’s financial difficulties were not a reasonable excuse, agreeing with his statement that:

“it is unacceptable for the company to choose to use the capital of the company at the material time of the offence to keep the company running instead of paying the wages of the five employees. It may well be the case that if part of the capital was used in paying the wages of these five employees, the financial problem of the company might get worse, this Court cannot accept that it amounts to a reasonable excuse. Otherwise, all companies can delay payment of wages of employees using the same excuse.”

The Court determined that the director’s objection to the decision not to pay wages for two months was only an oral one and no practical or more active act had been taken by her to stop the unlawful behavior. Not only was she not active enough, she also failed to draw a clear line to separate herself from the decision. In any event, she was held to have “connived” in the company’s act of not paying the wages due, the Court having considered dictionary meanings of “connivance”, which included “assistance in wrongdoing by conscious failure to prevent or condemn; or tacit permission”.

The Court of Final Appeal also rejected the director’s appeal, observing that even assuming she had voted against withholding the wages, it was perfectly open to the Magistrate to find she had connived in the failure to pay wages due. She had remained a director and was responsible for the company’s daily operation, personnel and finances. She retained her position throughout November knowing that the October wages had not been paid and that other expenses would be given priority so that the November wages would not be paid either. The Magistrate found “she took no step at all in stopping the company” from pursuing its decided course and in the circumstances was entitled to find that it “was obvious that she agreed to the decision at the end of the day”.

The Labour Department has stated that it “will not tolerate wage offences and will spare no effort in bringing to justice directors and employers who defy the law”. Further recent prosecutions include:-

• a director being sentenced to 21 days’ jail (suspended for 2 months), fined $15,000 and ordered to clear the outstanding wages of $100,000 for his participation in the wage offence.
• a director being fined the maximum penalty of HK$350,000 after his company failed to pay wages and wages in lieu of notice to four employees totalling $51,500 and defaulted on payment of a Labour Tribunal award for $61,800. The company itself received a separate fine of $345,000.

Protecting Yourself

The above cases serve as a stark warning to any director or officer in charge of a company and its finances and personnel that if they participate in any decision to withhold or delay payment of wages to an employee or a related wage payment award they are at risk of being found to have connived in that decision even if they have raised an objection to the decision but have taken no further steps to distance themselves from it.

To protect themselves from such claims, directors, officers and managers should:

1. Take all reasonable steps to ensure that the company pays, in full, all employees their wages and other payments required under the Employment Ordinance as they fall due;
2. Object in writing to any decision the company may make to delay payment and draw the company’s attention to the possible legal consequences; and
3. If the company insists on pursuing such a decision, the director, officer or manager concerned should consider taking legal advice as to what further steps they should consider taking to limit any personal liability for the company’s acts.

For further information, please contact:

Russell Bennett
Partner | Email

Kim Boreham
Consultant | Email

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.