VII. Things to be aware of before signing employment contracts

In Hong Kong, both written and verbal employment contracts are enforceable. But it is preferable that any employment contract is made in writing and signed, as signed written contracts have many more benefits over verbal employment contracts.

A. Benefits of signed written contracts

Written employment contracts that are signed have a multitude of benefits as they specify the employment terms and conditions. This has an effect of clearly delineating the obligations of both employers and employees and thus, would better protect the interests of the employees. If there is a dispute regarding work conditions, a clear, signed, written contract will have the effect of clarifying the issues. A signed written contract can act as a reference point for both the employers and employees to discuss or arbitrate any of their contractual duties.

B. Things employees should do before signing a contract

Employees should ensure that the contractual terms of employment are understood. Employers are obliged to ensure contractual clarity, as doing so is in the best interests of both employers and employees. If the employee does not understand the contractual terms or if the contract terms are too ambiguous, the employee should ask the employer to clarify the terms. Clarification is important, especially for those terms involving financial and time issues such as holiday pay, time of wage payment, and even whether or not breaks are allowed at work.

Employees can consider getting legal advice before signing a contract. Usually the contract need not be signed immediately. If a dispute on the terms arises after the contract is signed, it will create a lot of complications and the dispute may need to be resolved through legal action eventually.

Employees are entitled to examine the employment contract before signing the contract. Potential employees are also allowed to take a copy of the offered contract away to seek advice before they sign it. They are also entitled to keep a copy of the contract after signing it.

C. Items that should be in a contract

The Labour Department has provided a sample contract that is clear and contains all the important provisions that should be found in an employment contract:

Please see the Labour Department website for details.

There are certain provisions that a good employment contract shall include, for example:

    1. Working hours: are they fixed per week/ per day? Is shift work required? Another example is meal breaks- how many hours are permitted for breaks per day?
    2. Wages: are the wages fixed? Is it a Commission or a tips system? Is there any meal allowance and travelling allowance?
    3. Holidays: are statutory holidays included as provided in the Employment Ordinance ? Does the job provide time off on public holidays?
    4. Paid annual leave: Is there paid annual leave for 7-14 days as specified in the Employment Ordinance ?

D. Definition of wages

According to section 2 of the Employment Ordinance ( Cap. 57 ), the term “wages” include all remuneration, earnings, and allowances given by the employer.

Remuneration includes wages that are paid regularly, or any bonuses and commission. Allowances might be things such as payment given in compensation for transportation costs and purchasing utensils and office tools.

E. Legal provisions regarding work time

The Employment Ordinance ( Cap. 57 ) includes provisions regarding employee’s rest periods and holidays. This gives the rest periods and holidays of employees a statutory force, and that means these rest periods and holidays are legally enforceable. Before signing the employment contract, employees should ensure that similar provisions for rest periods/times and holidays are found in the contract.

Under section 17 of the Employment Ordinance ( Cap. 57 ), the employee is entitled to not less than one rest day in every period of seven days, provided that the employee is employed for more than four weeks, and working more than 18 hours a week.

All employees are also entitled to statutory holidays, which are listed under section 39 of the Employment Ordinance ( Cap. 57 ).

Moreover, an employer cannot pay an employee in replacement of a statutory holiday. If an employee has worked on a statutory holiday, an alternative rest day must be arranged within 60 days. This is provided in sections 40 and 40A of the Employment Ordinance ( Cap. 57 ).

F. Other things to be examined before signing a contract

There are other major contractual terms that should be examined before signing an employment contract. They are detailed below.

1. Non -competition clauses

One example is a non-competition clause. Non-competition clauses prohibit the employee from being employed in a similar position or industry for a certain time, and/or within a certain distance or radius. Sometimes non-competition clauses prohibit the employees from bringing certain trade secrets to another company. Under the common law (case law precedents), whether or not the employer can enforce the non-competition clause is based on how reasonable the non-competition clause is.

2. Frequency of wages

As previously stated, there are a multitude of methods for calculating wages. As regards payment of wages, employees should ask if there is a fixed payment day. Employees also need to consider what would happen if payment is delayed or wages go unpaid. A good contract should have these provisions covered. Whether or not there were bonuses or commissions for performance is an issue that should be covered, together with the time of payment of any such bonuses or commissions.

3. MPF contributions

Mandatory Provident Fund contributions are, by law, a compulsory part of employer-employee relationships. The question is whether or not the MPF contributions fit the legal requirements. For example, an employee with an $15,000 monthly income would have to pay 5% of his wage to an MPF, while his/her employer will have to contribute an additional sum amounting to 5% of the employee’s income. All these contributions are legally protected and there are set rules for the amounts contributed.

Another question is whether the employer can set off its obligation for severance payment or long service payment against its MPF contributions in the event of contract termination. A thorough employment contract should include provisions that clarify MPF contributions.

4. Remuneration for overtime work

Questions relating to remuneration for overtime work usually include how the overtime payment is to be calculated. Another question would be whether or not there is any provision for overtime payment included in the contract. If overtime payment is included in the contract, there should be a definition of what is meant by “overtime” in the contract.

5. Resignation

Regarding resignation, customary procedure is that the employee should submit a notice of resignation to his employer one month beforehand. However, situations might differ on a case by case basis. Questions to be asked when examining an employment contract include whether or not notification is needed in advance of resigning. If advanced notification is needed, how long beforehand is the notification needed? If the employee breached the early notification clause, would the employee need to compensate the employer for any losses? If so, is the amount of the losses specified?

6. What happens if the company is sold?

A thorough contract might have provisions relating to the selling of the company. An employee should pay attention to whether the employment contract would be terminated, or whether he/she would continue to work for the new owners.

7. Termination clauses

Termination clauses are clauses that pertain to the dismissal of the employee. They specify conditions under which the employer could terminate the employment contract. They specify both employers’ and employee’s rights and duties. Attention should be paid to issues such as severance payment or long-term service payments.