A large proportion of the world’s economies have entered a recession as covid continues to devastate from 2023. Businesses are laying off staff, cutting the work hours, asking employees to take unpaid leaves.
However, is it legal to force employees to take unpaid leaves? How do unpaid leaves work in Hong Kong?
Unpaid leaves in Hong Kong
For casual workers who may be paid hourly or daily, when the company is currently experiencing financial difficulties, the employer could just choose to stop employing them directly. However, on the other hand, it does not work on employees who are hired under the continuous contract.
To determine if the employer has the right to place staff on unpaid leave anytime, it depends on whether it is clearly stated on the employment contract. If the answer is a big “yes”, then the employer could do so, and the time of the notice period is dependent on the contract. If the answer is a “no”, without a mutual agreement and consent from the employee, any changes made by the employer to the clause of the contract, including getting staff to take unpaid leave, is considered against the law, while the employee also has the right to claim for compensation.
However, if the employee agrees to cooperate in taking unpaid leave, unlike the annual leave, the time of the notice period is determined by negotiation between the employer and the employee.
How to assign unpaid leaves legally?
During the economic hardship, if the employer has to place employees on unpaid leave to reduce cost, we strongly recommend the employer to communicate openly with staff about the current struggles you are facing to make them understand this is also a way to retain them. Transparency is key. For employees, continuing the employment contract also means they have the rights to their annual leave allowance, sickness allowance, as well as other benefits like medical insurance in the future.
Notice: Although it is understandable to place employees on unpaid leave due to the financial reasons, employers should be reminded that according to the guidelines of the Employment Ordinance, employees who have been employed under a continuous contract for not less than 24 months, if the unpaid leave is extended to a certain number of days (as the followings), they can be considered being laid off.
- the total number of days on which no work is provided or no wages is paid, exceeds half of the total number of normal working days in any four consecutive weeks; or
- the total number of days on which no work is provided or no wages is paid, exceeds one-third of the total number of normal working days in any 26 consecutive weeks.
The days of lock-out, sick leaves, annual leave and statutory holidays should not be counted as normal working days during the above periods.
In this case, the employees have the right to terminate their contract directly and the employer may be required to pay the relevant severance payment accordingly.
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