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Global HR Lawyers

Managing your business and employees in Hong Kong during COVID-19

25 June 2020

A conversation with Catherine Leung, a partner at Lewis Silkin Hong Kong, on the current employment landscape and how COVID-19 has affected employers in the city.

Almost every industry is suffering during this pandemic, what can employers in Hong Kong do to ride through this storm without having to make employees redundant?

I feel that we have been pretty fortunate in Hong Kong compared to many other cities around the world facing economic hardships during this pandemic, as the number of COVID-19 cases have somewhat stabilised. However, there have been large burdens put upon the travel, tourism and hospitality industries in particular during this crisis and many of them are suffering. I think that for businesses like these and many other businesses who are financially struggling, cash flow is key at the moment.

Although the first instinct may be to make employees redundant in the hopes of cutting costs, there are in fact many other alternatives to redundancy that can be considered which are also cost-saving measures. Considering these could avoid the expense of redundancies in the short-term and any future recruitment and training costs in the long term. Such alternative measures include:-

  • reduction in pay
  • reduction in hours with corresponding reduction in pay
  • reduction or removal of fringe benefits
  • “withholding” of renumeration
  • directing the employees to take unpaid or annual leave.

Reductions in pay, hours and benefits are the most direct way to cut costs. However, when implementing these measures, obtaining consent from the employees would always be advised. Particularly in the case of reducing salary or working hours, as these are contractual obligations and are considered to be material terms of an employment contract.

Another option may be to “withhold” renumeration, where a portion of the employees wages would be reduced initially and a sum equivalent to the reduced amount would be repaid by a certain date in the future. Although we use the term “withhold” generally, from a legal perspective, it would be considered a temporary reduction (which will then be repaid in the future). This would also require the employee’s consent.

One of the options we have seen large companies consider, is directing employees to take unpaid or annual leave. In Hong Kong, annual leave falls into two categories: statutory annual leave, which is the minimum number of annual leave days required to be granted under the Hong Kong Employment Ordinance; and any additional annual leave, which is annual leave granted by a company on top of the statutory annual leave amount. An employer has the right to direct its employees to take statutory annual leave after consultation with the employees. Many employers have encouraged their employees to take their annual leave now to avoid employees accumulating a vast amount of annual towards the end of the year.

For small and medium enterprises especially, the recently announced Employment Support Scheme may be a great cost-saving assistance. The scheme provides employers with 50% of their employee’s wages for 6 months (with a cap of HKD9,000 per employee per month). The first round of applications closes on June 14 for the first tranche which covers wages from June to August. The second tranche, which covers September to November, will be open for applications sometime in August.

What advice do you have for C-suite officers or people in managerial roles to ensure that they can keep their employees motivated during this tough time? Are there any steps / measures for best practice?

There have been great examples around the world of managers of large companies releasing statements or videos to employees to provide comfort during this difficult time. C-suite officers may want to ensure that they increase communication and transparency with their employees, so that employees don’t feel like they are being left in the dark. Heightened communication between managers and employees also minimises the risk of rumours or fear spreading within the company. This tends to happen if managers are internally discussing significant changes to the company and information starts to leak to employees. This can be avoided by implementing changes swiftly (after due consideration on the strategic planning of the company) and ensuring that discussions are kept strictly confidential.

It is also best practice to have managers subject themselves to similar reductions or policies that employees will be undergoing. Applying changes from the top down will not only lead by example, but will make employees more comfortable knowing that changes are being implemented across the board.

There is no specific manual on how to deal with circumstances like this, but we have seen some companies that have decided to provide training or resources to employees while they have a reduced workload. This might include internal trainings to keep employees productive or building on their skill sets while they have capacity.

The past few months have forced many employees to adopt a ‘Work from Home’ policy and now that employees have become accustomed to this, many companies are considering long-term implementations of more flexible policies. What are the advantages or disadvantages of this, and will ‘Working from Home’ become a big trend in the future?

Although Hong Kong never had a government-imposed work from home policy during COVID-19, there were many companies that felt it was best for employees to work from home. This was probably one of the first times in Hong Kong that a large number of companies had their employees working from home and it was a good way for many of them to test how this would work for them in practice. Although many companies found that employees were still efficiently working at home, this may or may not be an arrangement that will be adopted in the long-term.

Hong Kong in particular is well known for having some of the most compact homes in the world. These small spaces may not be practical for employees to work from home for long periods of time. Working from home also brings about new types of issues, such as whether Workplace safety protocols are met and whether there are any data privacy issues. Employees who are using their own internet networks, rather than office networks which are generally well protected, have increased data privacy risks.

However, this period of working from home has also showcased some advantages. Companies will now be aware that they may not need to pay for larger offices if they can have some of their staff working from home efficiently, which would save costs in the long term. They’ve also been able to test out how internal systems as well as collaboration between employees has held up while working from home. If people will be required to work from home again, maybe due to a further wave of Covid-19 or returning of protests in Hong Kong, employers and employees will be better equipped.

Any tips for employers to ensure that they are being legally and morally responsible during this time?

It is always important for employers to fulfil their legal and contractual obligations owed to their employees. Employers must ensure that they provide employees with everything that they’re entitled to, regardless of whether they are working in the office or from home. If an employer wishes to make any changes to the terms to adapt to the current situation, they must always make this clear to their employees and obtain their written consent when it is appropriate. Communication in this respect is key. If employers do not obtain consent from their employees when making unilateral changes to any material terms of their employment, an employee may claim for constructive dismissal or unreasonable variation of terms.

This article was first published in the Hong Kong Economic Times.

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