Protection of Wages on Insolvency (Amendment) Ordinance 2012

Employees in Hong Kong famously enjoy a relatively liberal 12 days of statutory holidays every year (statutory holidays are referred to as “public holidays” in certain other jurisdictions where, rather confusingly, the term “statutory holidays” is used to refer to annual leave). When you factor in the possibility of several extra days off per year as a consequence of the iconic Typhoon Warning Signal No. 8 being hoisted, Hong Kong appears to be one of the world’s leading jurisdictions for lazing around at home without actually having to take any annual leave.

On 29 June 2012 the deal was further sweetened for employees when the Protection of Wages on Insolvency (Amendment) Ordinance 2012 (the “Amendment Ordinance“) came into effect. Workers will now be entitled to ex gratia payments from the Protection of Wages on Insolvency Fund (the “Fund“) for (i) untaken statutory holidays and (ii) untaken annual leave. For those readers outside Hong Kong, the Fund was established to make ex gratia payments to workers in respect of arrears of wages, wages in lieu of notice and severance payments where an employer has become insolvent. In the absence of a payment from the Fund, a worker would rank as a preferential creditor of his employer company in respect of these categories of debts under s.265 of the Hong Kong Companies Ordinance (the “CO“). This preferential status is less advantageous for workers than payments from the Fund as even preferential creditors may not get paid if there are not enough assets in the insolvent company. Furthermore, the preferential status is capped at HK$8,000 each in respect of unpaid wages and severance payments and HK$2,000 in respect of wages in lieu of notice. Payments under the Fund are also capped, but the caps are higher than the caps on preferential claims.

The new entitlement to payments from the fund in respect of untaken statutory holidays and untaken annual leave will only apply to employment contracts terminated after the Amendment Ordinance effective date of 29 June 2012, and there is a 6 months time limit for applying for such payments (6 months after the termination of the contract for untaken annual leave and 6 months after the last day of service for untaken statutory holidays). The maximum total additional payment that can be made to workers out of the Fund in respect of untaken statutory holidays and untaken annual leave is capped at HK$10,500.

To receive payments for untaken statutory holidays, the requirements include that the statutory holidays concerned fell not more than 4 months before the applicants last day of service and the relevant employee had been employed under a continuous contract for more than 3 months immediately prior to the statutory holiday and is eligible for statutory holiday pay under the Hong Kong Employment Ordinance (the “EO“).

To receive payments for untaken annual leave, the requirements include that the pay for untaken annual leave is payable under s. 41D of the EO, being payable on account of the applicant’s employment in the applicant’s last leave year and, if the applicant’s contract of employment terminates, or is terminated, otherwise than on the expiration of that last leave year, the leave year immediately preceding that last leave year.

The Amendment Ordinance also makes various consequential changes to the Hong Kong Bankruptcy Ordinance and the CO, including that the definition of inability to pay debts in s. 178 of the CO now catches “pay for untaken statutory holidays or pay for untaken annual leave”.

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.