Fair Work Commission's Annual Report 2018-2019
By Kristy Peacock-Smith and Tanem Taskin
On 22 October 2019, the Fair Work Commission published its annual report for the 2018-2019 financial year. The report highlights emerging trends providing valuable insight to employers about potential areas of risk.
The key takeaway from the report is certainly that there has been a significant increase (11%) in general protections claims, specifically for claims of adverse action not involving a dismissal. This in itself is an interesting development as typically, employers are faced with claims relating to an employee's dismissal rather than conduct during employment.
Below is an outline of some other key findings.
• Unfair dismissals: 13,928 applications for unfair dismissal were lodged, of which 13,422 were finalised, representing a 2% increase in lodgements in the reporting period. The report indicates that 78% of those applications were resolved following conciliation, which is a remarkable number in itself. It certainly demonstrates the effectiveness of alternative dispute resolution, but in many cases may be an encouraging factor for an employee to simply bring a claim and "see what happens".
• General protections (involving dismissal): The nature of the general protections provisions are aimed at protecting workplace rights, freedom of association and to protect people from discrimination in the workplace. There were 4,508 applications involving dismissal that were lodged, of which 4,330 applications were finalised. This represents a 9% increase in claims.
• Anti-bullying: The Commission recorded a total of 734 finalised applications to stop bullying, of which only 10% resulted in a stop bullying order being granted. The other 90% of applications were settled, withdrawn or dealt with internally prior to an order being made.
The report highlights the fact that employment-related claims are on the rise and these are not limited to dismissal cases. Employers should be aware of their obligations at every stage of the employment lifecycle.
Less days equals more productivity - experimenting with a four-day working week
By Kristy Peacock-Smith and Tanem Taskin
Earlier this year, Microsoft Japan trialled a four-day working week as part of a "work life choice" project that aimed to boost creativity and productivity by providing employees with more flexible working hours. The trial involved closing the office every Friday during the month of August whilst still providing employees their normal five-day salary.
In addition to the reduction in days, Microsoft also suggested that meetings should be limited to 30 minutes, and encouraged employees to reduce the number of face-to-face meetings and to adopt a more informal chat/online meeting system through the company’s collaboration tools.
Microsoft stated that the shortened week had led to happier employees, more efficient meetings and a 40% increase in productivity, when this year's numbers were compared to those from the same month the previous year.
Microsoft is just one of a number of companies who have recently decided to experiment with the concept of a four-day working week. Uniqlo's parent company, Fast Retailing offered one-fifth of its full-time store workers the option to compress their 40-hour work weeks into 4 days, with the goal of deterring employees from switching to part-time work in order to achieve a better work life balance.
In 2018, New Zealand estate planning company, Perpetual Guardian, was one of the first to experiment with a four-day week, providing their 240 employees with an additional day off a week for 2 months, whilst still paying them for 5 days. The results of Perpetual Guardian's trial found that employees were more productive, more engaged and more committed to their roles. Further, employees were less compelled to check social media and were less distracted by out-of-work projects. The Company is now considering permanently implementing the four-day work week.
Australian company Versa has also adopted the practice, giving employees the option to take every Wednesday off work, provided they keep on top of their work over the remaining four days. The "no work Wednesday" policy came about after the company's desire to provide flexibility to employees resulted in an ad-hoc system that simply did not work for the organisation from an administrative or client service perspective. Versa’s CEO has stated that since the introduction of the trial over 12 months ago, revenue has grown by 46%, profits have tripled and staff are happier and less likely to take sick days or resign. While growth in Versa’s client base as well as a pivot in direction for the company has undoubtedly boosted that growth, the CEO considers the four-day week has also had some impact -“People have become more efficient, we’ve got better staff retention, there’s less work that needs to be redone and less people needed to be replaced and briefed as a result".
With employees' desire for flexibility on the increase, companies considering trialling a similar practice as a means of responding to employee requests and hopefully also improving productivity do need to also consider the following issues, before embarking on a four-day work week trial:
• Will you need to make changes to your payroll and time recording systems?
• What is the impact on leave accruals? If continuing to pay employees on the basis of a 5-day week, will employees' leave entitlements also continue to accrue on the same basis?
• Will longer hours during the 4 days of work indirectly discriminate against parents or carers, keeping in mind that organisations such as day care facilities generally open between 7.30am and 6pm?
• Will longer work days trigger overtime payments or other allowances under an applicable Modern Award or enterprise agreement?
By Kristy Peacock-Smith and Matthew Bennett
Australia's 'fair work' system (and in particular Modern Awards) has been subject to increased scrutiny in 2019 as ongoing investigations conducted by the Fair Work Ombudsman have revealed that in some instances, employees are being paid less than their legal entitlements – colloquially referred to in the media as "wage theft".
Although outdated payroll systems could be partly to blame, it is clear that even Australia's largest and most sophisticated businesses struggle to get it exactly right when it comes to interpreting and applying employee entitlements under Modern Awards. This actually comes as no surprise given the complex nature of Modern Awards and the difficulty businesses often face in correctly navigating, interpreting and implementing classifications for their employees, as well as their entitlements including to allowances, penalty rates and overtime.
Once touted as a system intended to streamline employee engagement and enable businesses to more easily manage the hours of work and other entitlements of employees, the recent focus of the Fair Work Ombudsman into the area of underpayment claims has highlighted the compliance risks associated with Modern Awards and just how easy it is for businesses to get it wrong.
As Woolworths, MAdE Establishment Group (former Masterchef judge, George Calombaris' hospitality business), Wesfarmers and the Super Retail Group (amongst others) have discovered in recent times, award-based arrangements can unravel if there is no continuous auditing of each employee's arrangements against underlying award entitlements.
In the case of MAdE Establishment, it was ordered to pay over $7.8 million in wages and superannuation to 524 employees affected by underpayment claims going back to 2011. MAdE Establishment noted that there was an initial misclassification of staff under applicable Modern Awards which had a cascading effect on underpayments over time.
Similarly, some of the country's biggest retail companies have admitted to underpaying their workers in recent months. By and large, each company has said that the underpayments were unintentional. In the case of Woolworths, underpayments were identified as the company implemented its newest enterprise agreement which contained inconsistencies relating to overtime levels under relevant awards. Woolworths estimate that the remediation of these underpayments could cost between $200 million and $300 million, as approximately 5,700 staff have been affected over the last nine years.
With the Fair Work Ombudsman confirming that the protection of workers will continue to be a priority for the agency in the future and that it will place a significant focus on underpayment claims, it is clear that the regulator is trying to send a message to employers that it is not acceptable to underpay workers or to deprive them of their entitlements.
Accordingly, it is more important than ever that businesses conduct audits to understand whether they are complying with their obligations under Modern Awards, including, in particular, whether contractual arrangements and enterprise bargaining agreements are consistent with an employee's legal entitlements. Given the costly implications of failing to properly understand Modern Award entitlements, including the risk of exposure to underpayment claims by employees and penalties imposed by the Fair Work Ombudsman, it is important that businesses get Modern Award entitlements right from the start.
By Ying Wang and Ruowei Li
Wenzhou's Intermediate People's Court Approved China's First Personal Bankruptcy Case
Presently, China does not have robust personal bankruptcy legislation. The 2006 Enterprise Bankruptcy Law only applies to business, and as such it is difficult for natural persons to obtain legal relief from unaffordable debts. Fortunately, the discussion on the need of establishing personal bankruptcy system is ongoing.
In June 2019, following the issuance of the Guidelines for People’s Courts on Enforcement Work (2019-2023) by the Supreme People's Court, the National Development and Reform Committee under the State Council, together with other government departments jointly issued the Reform Plan for Accelerating the Improvement of Market Entity Exit System. Both documents have expressly confirmed China's attempt to establish a personal bankruptcy system. Afterward, Wenzhou (温州) in Zhejiang province became one of the pilot locations to deal with such cases.
On 9 October 2019, Wenzhou's Intermediate People's Court delivered the first judgment regarding personal bankruptcy in China. In the case, Mr. Cai, the debtor, with over 2 million RMB (approximately 300,000 USD) in debt, reached a settlement with his creditors. According to the settlement, Mr. Cai can make a first-time repayment of around 32,000 RMB (approximately 4,545 USD) within 18 months instead of 2 million. Also, within six years upon the completion of the first repayment plan, if Mr. Cai's household income exceeds 120,000 RMB per year, he will have to pay 50% of his household income exceeding that level.
Wenzhou's Intermediate People's Court is not the only court that has experience in addressing such cases. Taizhou (台州), also a municipality in Zhejiang province, has introduced a local court rule regarding procedure of personal bankruptcy as well, and has accepted and addressed several personal bankruptcy cases since this year.
Chinese media treats the Wenzhou trial as a landmark case and the first success in the Chinese personal bankruptcy regime. Some also believe that if designed and implemented well, the personal bankruptcy system can render China's business and innovation environment more inclusive. However, challenges lie ahead as there is no specialised law for personal bankruptcy at the national level. The present case was only heard in accordance with a local court’s internal rule (namely, the Implementing Opinions on the Centralised Clean-up of Personal Debt issued by the Intermediate Court of Wenzhou, which only takes effect within the municipality of Wenzhou), meaning that the court may have problems extending the jurisdiction to assets outside Wenzhou. More importantly, personal bankruptcy remains controversial as many are concerned that it could be abused to avoid repaying debts.
Jiangsu Province: Labour Arbitration Awards Go Online
The Ministry of Human Resource and Social Security, the Supreme People's court, together with other 6 departments jointly issued a paper in 2017, requesting an improvement in the labour dispute resolution mechanism and highlighting the importance of mediation in the process of dealing with labour disputes. In response to this paper, on 19 August 2019, the Human Resource and Social Security Department of Jiangsu Province and the Labour and Personnel Dispute Tribunal of Jiangsu Province jointly released the Opinion of Online Publishing of Labour Dispute Arbitration Awards ("Opinion"). The Opinion has come into effect since its promulgation.
The Opinion is not the first case in China - Nanshan, an administrative district of Guangzhou has already promulgated and executed a similar rule since August of 2019. However, the Opinion attracted much more attention since its release. The Opinion introduced a number of significant details that are of public concern, including when an award will be published online after it took effect, exceptions to online release, and protection measures of personal data contained in the arbitration award.
According to the Opinion, except for the awards that (a) are involved with state secrets, military secret, individual privacy, (b) are related to minors under the age of 18, (c) contain sensitive information, (d) have significant social influence, or (e) contain other elements not suitable to be made to the public, all awards should be published online within 45 calendar days after they take effect. If the parties are natural persons, their personal information should be anonymised before the award's online release. Albeit that a party can file an application of not releasing the award, the labour tribunal will review and make the final decision.
China’s 2020 Public Holiday Schedule Released
China provides seven public holidays per year: New Year, Chinese New Year, Tomb Sweeping Day, Labour Day, Dragon Boat Festival, Mid-Autumn Festival and National Holiday. For Chinese New Year and National Holiday, three days off are given. For the other five holidays, there is only one day off.
On 21 November 2019, the General office of the State Council released the official public holiday schedule for 2020. Below is a form of the 2020 public holidays for Mainland China.
By Pattie Walsh, Jeannette Tam and Jenny Kwan
Pregnancy discrimination, Summary dismissals and Testifying via video conference
Sarniti v Lee Suk Ling  HKDC 1158
In September, the District Court handed down a decision which involved a pregnant domestic helper being summarily dismissed by her employer.
Summary of Facts
From 2016 to 2017, the Claimant, Sarniti, was employed by the Respondent, Ms Lee Suk Ling, as a domestic helper.
Sarniti alleged that Ms Lee terminated her employment upon discovering her pregnancy, and claimed that this amounted to unlawful termination and sex discrimination under the Sex Discrimination Ordinance (Cap. 480). To substantiate her claim, Sarniti averred that Ms Lee went through her personal belongings and read her medical records, which revealed her pregnancy.
Ms Lee denied the above allegations and emphasised that she had no knowledge of Sarniti's pregnancy at the time of termination. Ms Lee asserted that she terminated Sarniti for her dissatisfactory performance and lack of improvement despite multiple warnings.
The key issues
The Court was asked to consider whether the termination amounted to unlawful termination and sex discrimination on the ground of Sarniti's pregnancy.
The Court was of the view that Sarniti was unable to adduce evidence in support of her assertions that Ms Lee had knowledge of her pregnancy, and that Ms Lee went through her personal belongings. On the other hand, the Court found that Ms Lee was able to substantiate her defence by way of Whatsapp conversations and warning letters which demonstrated that she had been dissatisfied with Sarniti's performance since the first year of employment.
Based on the above, the Court held that Ms Lee terminated Sarniti due to her poor performance and not her pregnancy. Accordingly, the termination did not amount to sex discrimination.
Under Section 15 of the Employment Ordinance (Cap. 57) ("EO"), an employer is prohibited from terminating a pregnant employee unless by way of summary dismissal.
Under Section 9 of the EO, an employer may summarily dismiss an employee for habitual neglect of duties among other grounds.
As there was no issue of sex discrimination, the crux was whether Ms Lee had sufficient grounds to terminate Sarniti by way of summary dismissal.
Referring to case precedents, the Court stated that although an isolated incident of failure to perform job duties may not justify summary dismissal, the Court has to look at the totality of the evidence. Repeated and persistent failure assumes misconduct of a different character, particularly where the employee has been warned. Such conduct struck at the heart of the employer-employee relationship and justifies summary dismissal.
Upon evaluation of the evidence provided by both parties, the Court found that Sarniti had repeatedly failed to perform her duties and this amounted to habitual neglect. Therefore, Ms Lee was entitled to summarily dismiss Sarniti under Section 9 of the EO.
Testifying via video conference
Sarniti applied for leave to give evidence by video conference at a university hall in Indonesia, as she had already returned to her home country and could not afford the costs of attending trials in Hong Kong.
The key issue for the Court was which method of testifying could achieve a fair result for both parties. The burden lies with the applicant to raise concrete arguments to explain why video conference was needed, and to point to all relevant factors to justify a departure from the best and normal way of testifying (i.e. in person at court).
The Court reminded itself that each application should be decided on its own facts and to balance the prejudices caused by allowing or dismissing the application.
Based on Sarniti's bank statements, the Court found her credible in establishing her financial difficulties. The Court also found the university hall to be an appropriate venue to give evidence, as the university confirmed that Sarniti could use its hall and undertook not to allow anyone into the hall apart from a technician and a proposed independent observer (a lecturer at the university).
Ms Lee argued that a university hall was less solemn than a court room and the Court accepted that testifying by video conference would prejudice Ms Lee to a certain extent. However, given that dismissing the application would mean that Sarniti would have to forgo her claim, the Court allowed the application.
• Although employers may terminate a pregnant employee by way of summary dismissal, the employer should proceed with caution and ensure that it has sufficient grounds to do so as Section 9 of the EO presents a very high threshold.
• To prove habitual neglect of duties, the Court will consider the totality of the evidence. Although a single incident may not be significant enough to justify summary dismissal, if the evidence shows a repeated and persistent failure to perform job duties, this may justify summary dismissal.
Prior warnings – a relevant factor in determining whether summary dismissal is justified?
Qvist Henrik v Clatronic Far East Limited & Anor (Unrep., HCA 1144/2015)
In October, the Court of First Instance handed down a decision which may shed light on the factors relevant to determining whether summary dismissal is justified.
Summary of Facts
The Plaintiff was employed as the Managing Director of the 1st Defendant, a limited company incorporated in Hong Kong. The 1st Defendant was a wholly owned subsidiary of the 2nd Defendant.
The Plaintiff was summarily dismissed by the 1st Defendant, and he claimed that he was unlawfully dismissed.
In defence, the 1st Defendant alleged that the termination was due to the Plaintiff's habitual neglect of his duties in numerous transactions, and thus the summary dismissal was justified under the Employment Ordinance (Cap. 57) ("EO").
The key issue
The Court was asked to consider whether the dismissal of the Plaintiff was an unlawful dismissal.
Under Section 9 of the EO, an employer may summarily dismiss an employee if the employee is habitually neglectful in his/her duties, among other grounds.
Referring to case precedents, the Court stated that:
• for the Defendants to rely on the ground of habitual neglect, the neglect must be substantial and habitual;
• it is a question of fact and degree whether a series of similar neglects amounts to "habitual" neglect, and the greater number of such neglects, the more likely that the employee is habitually neglectful; and
• in relation to all grounds of summary dismissal under Section 9 of the EO, the onus is on the employer to show that the employee has disregarded the essential conditions of the contract of service – the test is whether the conduct amounts to a sufficiently serious breach of the contract of employment such as to indicate that the employee no longer intends to be bound by the contract.
In obiter, the Court stated that while this is not a legal requirement, prior warnings are a relevant factor in considering whether the employee has so acted to indicate an intention not to be bound by the contract of employment. If the employee has been warned but still persists in the neglect, that may be a very material pointer to such an intention.
On the other hand, in cases of incompetence or negligence where the question of whether the employee has fallen below the required standard is a matter of judgment, rather than a case of compliance or otherwise with specific rules where the observance or breach thereof can be determined objectively (e.g. punctuality for work) – if the employee has not been warned and continues to act as before, the Court was of the view that it may be more difficult to conclude that there is a lack of intention to be bound by the contract.
The 1st Defendant alleged that the Plaintiff was neglectful of his duties on 50 transactions, but the Court found that the Plaintiff only breached his duties in four of those transactions.
Applying the legal principles above, the Court held that the four breaches did not amount to 'habitual neglect' and that neglectful or careless the Plaintiff might have been, he did not show an intention not to be bound by his contract of employment.
• There is a very high threshold to justify summary dismissal. To rely on the ground of habitual neglect pursuant to Section 9 of the EO, employers should ensure that the neglect is substantial and of a regular nature.
• It appears that prior warnings may be a significant factor in determining whether summary dismissal is justified, particularly in cases where there is no objective standard to determine whether there is a neglect of duties.
Tax treatment of terminal payments
Poon Cho-Ming, John v Commissioner of Inland Revenue FACV 1/2019  HKCFA 38
In November, the Court of Final Appeal dismissed the Commissioner's appeal and reaffirmed the long-standing position that payments made in return for services of employment are taxable.
Summary of Facts
Mr Poon was employed as an executive director and the Group Chief Financial Officer with a multinational company. He was terminated by the company, and threatened to escalate the matter to the shareholders. To avoid an acrimonious and costly dispute, the company entered into a separation agreement with Mr Poon, under which he would receive a payment in lieu of any discretionary bonus ("Sum") and acceleration of the vesting schedule of certain option shares granted to him by the company ("Share Option Gain").
The key issue
The Court was asked to consider whether the Sum and Share Option Gain were chargeable to salaries tax.
The Court relied on the landmark decision in Fuchs v Commissioner of Inland Revenue (2011) 14 HKCFAR 74, and distinguished between (i) payments made as a reward for past, present, or future services in employment, and (ii) payments made to discharge obligations other than pursuant to the terms of a contract of employment. Payments, including terminal payments, made under ground (i) fall within the operation of the Inland Revenue Ordinance ("Ordinance") and are chargeable to salaries tax. In contrast, payments made under ground (ii) fall outside the operation of the Ordinance and are non-taxable.
When determining whether the Sum and Share Option Gain are chargeable to salaries tax, the Court found that Mr Poon had no existing contractual entitlement to either of these payments. Applying Fuchs, the Sum and Share Option Gain were not paid as a reward for the services of Mr Poon, but for him to go quietly. Therefore, both the Sum and the Share Option Gain were not taxable.
• This landmark decision clarifies the tax treatment of terminal payments. The key is the purpose for which the money is paid – if the payment is made in accordance with the contract of employment, or to reward services of employment, then the payment is taxable.
• The definitive judgment is relevant in negotiations of terminal payments between the employer and the employee, and in the construction of separation agreements.
Employment (Amendment) Bill 2019 gazetted
On 27 December 2019, the Government published the Employment (Amendment) Bill 2019 ("Bill") in the Gazette.
The Bill seeks to increase the statutory maternity leave entitlement of 10 weeks to 14 weeks, and to require employers to make maternity leave pay in relation to the extension of maternity leave to eligible employees at the existing statutory rate of four-fifths of the employees' average daily wages, subject to a cap of $36,822 per employee. Currently, it is proposed that such additional maternity leave pay would be funded by the Government by way of an administrative scheme.
Some technical amendments such as an update to the definition of "miscarriage" and changes to the requirement of medical certificate are also proposed.
The Bill has been introduced into the Legislative Council for first and second reading on 8 and 9 January 2020.
By Seow Hui Goh, Jacqueline Tang and Vithyashree
Additional Protection for Outsourced Workers
The Tripartite Advisory on Provisions of Rest Areas for Outsourced Workers ("Advisory"), released on 9 December 2019, is aimed at improving the welfare of outsourced workers by setting minimum standards in relation to their physical work environment.
Outsourced workers are not specifically defined but generally refer to lower wage workers who perform manual jobs at their service buyers' premises. This Advisory plugs the gap in law – under which service buyers do not generally owe a legal duty to look after the welfare of outsourced workers.
Under the Advisory, service buyers should provide either dedicated rest areas for outsourced workers or give them shared access to rest areas used by their own employees. Rest areas should be reasonably private, easily accessible, sheltered from rain and sun, adequately ventilated and lit, have sufficient seating, clean, quiet and safe (not to mention comply with building and fire safety requirements). Outsourced workers should also be provided with facilities to keep their belongings safe, access to drinking water and electrical outlets.
Companies which rely heavily on outsourced manual workers should start making the necessary preparations for rest areas and additional facilities for outsourced workers. This may involve working together with the landlord to erect/create new spaces for rest and investment into new facilities. Although the Advisory is not the equivalent of legislation, there is a strong expectation on companies operating in Singapore to follow it.
New Work Injury Compensation Bill
The Work Injury Compensation Bill 2019 was passed in Parliament on 3 September 2019. The Bill seeks to benefit both employers and workers by providing more certainty for employers as to their insurance coverage, rewarding safer companies to encourage companies to take measures to prevent their employees from getting injured in the first place, providing enhanced protection for employees and implementing a faster and simpler claims process.
Key changes include:
(a) a core set of standard terms for Work Injury Compensation Act compliant policies will be prescribed by MOM to ensure adequate coverage for employers. While insurers can offer additional coverage, they cannot reduce the benefits prescribed in this standard policy;
(b) lower premium pricing for companies with good safety records;
(c) from 1 January 2020, the compensation limit for death and total permanent incapacity will be raised to $225,000 and $289,00 respectively, and the compensation limit for medical expenses will be raised to $45,000;
(d) the salary threshold for non-manual employees to be insured by their employers will be raised from $1,600 to $2,100 in April 2020 and to $2,600 in April 2021; and
(e) for cases of fatal or serious injuries, there is no longer to file a claim to be compensated. Claims processing for these cases will now start once MOM or the insurer is notified of the accident.
The new Work Injury Compensation Act 2019 will take effect on 1 September 2020, with related subsidiary legislation amendments taking effect starting from January 2020. With the changes, workers and employers can expect faster and fairer compensation for work injuries.