Joint employment relationship may arise when there is a use of services provided by an employee between parent and subsidiary companies, affiliated companies, or other forms of connected companies. Companies using such services may be jointly liable for the salary and benefits of the employee. While the concept of “joint employment” is not prohibited in mainland China, this has been recognized in Hong Kong. Corporate employers should take note of the potential liability arising therefrom. In general, apart from the employment contract, the courts in both mainland China and Hong Kong take into consideration the surrounding circumstances of the employment such as the nature of the services provided by the employee, salary and benefits arrangement, and recruitment process in its determination of the establishment of a joint employment relationship. These are further discussed below.
In determining whether there is joint employment relationship, the Chinese courts will consider the facts and circumstances of each case and if there is a “confusion of legal entity” (主体混同), which can be reflected by a mixed use of financial resources, operation sites and mixed operation of business. It should be noted that local regulations may exist which vary in different provinces or municipalities.
The employees of a subsidiary company (as secretary and vice-CEO of the subsidiary) who also perform work for the parent company were held to be the employees of the parent company under the High Court cases Yung Wai Tak Abraham William v Natural Daily (NZ) Holdings Ltd  HKCFI 2067 and Shiu Ming v Natural Daily (NZ) Holdings Ltd  HKCFI 361. Both companies were thus held jointly liable for the wages in arrears, payment in lieu of notice, and other unpaid benefits to the employees.
In considering the employment relationships of the parties concerned, the court in both cases adopted the “overall impression” test, that is, considering all the features of the relationship, including the surrounding circumstances and the special facts of the case, to see if an employment relationship indeed exists. The court in both cases considered the following factors:
• The proper interpretation of the contract: the court concluded that the employees in both cases only had obligations to provide services to the subsidiary, but not its parent. As such, the fact that the employees provided services to the parent company implied the existence of another employment relationship;
• The process of recruitment; and
• Contemporaneous evidence (e.g., notice regarding salary adjustment signed by the board of directors of the parent company).
The court concluded that the parent company deemed the employees in both cases as its own employees on an overall impression. Therefore, the employees in both cases obtained judgments against the parent company for unpaid wages and other employee benefits.
The cases shed some light on the recognition of joint employment in Hong Kong – even when there is no written employment contract, a joint employment relationship may be inferred from the background and context of the employment, in which case joint employers can be held liable for wages and other benefits of an employee who serves two or more employers during the course of employment.
In light of this, companies may note the following points:
● For any secondment arrangement between connected companies, it should be duly documented to prevent such works to be deemed as creating a joint employment relationship.
● Group companies sharing labour resources for convenience should be careful of the use of services of employees of an associated entity within the same group. Further, employment relationships ought to be regulated carefully.
● Update and track employees’ duties regularly. Since the job duties of employees may change from time to time, it is advisable to document any such changes in writing.
Since COVID-19 continues to affect every
aspect of employment, companies strive to
adapt to the rapid-changing working
environment. The law on employment in Hong Kong and mainland China has also been
updated or interpreted in light of the ongoing
pandemic. The following are some tips
regarding the proper arrangement for
Note: Eligible employees are employees employed under a continuous contract, sick leave taken is not less than 4 consecutive days, accumulated sufficient paid sickness days and the sick leave is supported by the required proof.
The employment law of mainland China and Hong Kong has been updated and/or clarified to adapt to the rapid-changing employment arrangement due to COVID-19. As such, employers should keep abreast of such changes or new rules and understand their obligations and potential liabilities in employment.
© Vivien Chan & Co., Newsletter issue 08, August 2022
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Vivien Chan & Co. is a full-service law practice with offices in Hong Kong (1985) and Beijing (1993). We are consistently recognized as a premier law firm for and in Greater China. With over 35 years of doing business in Greater China, our Hong Kong and China teams have an in-depth understanding and knowledge of the legal culture and market dynamics.