CITY UNIVERSITY OF HONG KONG

Employment Law
Independent Contractor
Agent

Reference: Richards, Law of Contract Chapter 20

Evolution of labour right and privilege in Hong Kong

Hong Kong saw the social harm caused by the 1962 and 1967 riots triggered by tense
labour relationship. It was in 1968 that the labour legislation was enacted to prevent
the past miseries occurring.

Endacott (1973) writes that in 1971 there was only one Labour Officer attached to the
Secretary for Chinese Affairs headed an independent Labour Department which was
responsible for much labour legislation to protect the worker. Hours of labour for
women and young persons were restricted to eight daily, and night work for women
was abolished in 1970 but allowed to continue under stringent conditions in a few of
the larger cotton spinning factories. An Ordinance in 1961 gave compulsory holidays
with pay for industrial workers and paid sickness leave, and Workmens (now called
Employees) Compensation Ordinance has arranged for compensation in case of
industrial accidents. In 1970 all manual workers and non-manual workers earning up
to $1,500 monthly became entitled to four rest days per month in addition to the
statutory holidays. In addition, attention has been paid to industrial health, safety and
conciliation in industrial disputes. By browsing through the Legislation website, it is
possible to discover the following labour legislation as follows:

Chapter 57 Employment Ordinance

The Employment Ordinance is the main piece of legislation governing conditions of
employment in Hong Kong. Since its enactment in 1968, the benefits provided for
under the Ordinance have been substantially improved. It now covers a
comprehensive range of employment protection and benefits for employees
including :

Wage Protection
Rest Days
Holidays with Pay

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Paid Annual Leave
Sickness Allowance
Maternity Protection
Severance Payment
Long Service Payment
Employment Protection
Termination of Employment Contract
Protection Against Anti-Union Discrimination

Employment Agency Regulations

The Employment Agency Regulations made under the Employment Ordinance
regulate the operation of employment agencies in Hong Kong. The major provisions
of the Regulations include licensing and commission limit.

Employment of Children Regulations

The Employment of Children Regulations made under the Employment Ordinance
govern the employment of children in all economic sectors.

Employment of Young Persons (Industry) Regulations

Employment of Young Persons (Industry) Regulations made under the Employment
Ordinance regulate the hours of work and the general conditions of employment of
young persons in industrial undertakings. A young person means a person of or over
the age of 15 years but under the age of 18 years. The major provisions of the
Regulations include: overtime employment, night work and working on rest days and
statutory holidays are prohibited; underground work in mines and quarries or in
industrial undertakings involving tunneling operations, and carrying loads
unreasonably heavy for the young person's age and physical development are
prohibited; and working in any dangerous trade is prohibited.

Chapter 282 Employees Compensation Ordinance

The Employees' Compensation Ordinance establishes a no-fault, non-contributory
employee compensation system for work injuries. Major provisions of the Ordinance
include: an employer is liable to pay compensation in respect of injuries sustained by
his employees as a result of an accident arising out of and in the course of
employment; or in respect of occupational diseases specified in the Ordinance
suffered by the employees. The Ordinance in general applies to employees who are
employed under a contract of service or apprenticeship. Employees who are injured
while working outside Hong Kong are also covered if they are employed in Hong

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Kong by local employers; a two-tier system - Employees' Compensation (Ordinary
Assessment) Board and Employees' Compensation (Special Assessment) Board - is
provided for to assess the necessary period of absence from duty and the percentage
of loss of earning capacity permanently caused to the employee as a result of the work
injury.

Chapter 485 Mandatory Provident Fund Schemes Ordinance

Mandatory Provident Fund (MPF) is an employment-based retirement protection
system. Except for exempt persons, employees and the self-employed aged between
18 and 65 are required to join MPF schemes.

Employee
A full-time and part-time employee is one who is employed for a continuous period of
not less than 60 days under an employment contract.

Self-employed person is a person who earns an income from his production of goods
or services, or a trade in goods or services in a capacity not as an employee.

A casual employee refers to a person employed in the catering or the construction

industry by an employer on a day-to-day basis, or for a fixed period of less than 60
days. Employers are required to enroll casual employees in MPF schemes regardless
of the length of the employment period.

Exempt persons
A person who belongs to any one of the following categories is exempt from joining
MPF schemes:
- Domestic employees;
- Self-employed hawkers;
- People covered by statutory pension or provident fund schemes, such as civil
servants and subsidized or grant school teachers;
- Members of occupational retirement schemes which are granted exemption
certificates;
- People from overseas who enter Hong Kong for employment for less than 13 months,
or who are covered by overseas retirement schemes; and
- Employees of the European Union Office of the European Commission in Hong
Kong.

Compulsory contributions

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Mandatory contributions are calculated on a fixed percentage basis of an employee's
relevant income, with the employer matching on an equal percentage to the
employee's contribution.

Relevant income
Relevant income includes wages, salaries, leave pay, fee, commission, bonus, gratuity,
perquisite or allowance, but excludes housing allowance or housing benefits. It does
not include severance payments and long service payments.

***

Employee versus independent contractor (self -employed person)

Employee
When a wrong is committed by an employee, except for some exceptions, all liabilities
will go to his employer. This is the concept of vicarious (felt the same by one person
on behalf of another person) liability and it is strict - in the sense that there need be no
fault on the part of the employer before he can be made liable. If the employer is the
defendant, then it will be a clear cut case. The liability has to be met by an insurance
policy for damages claim.

Independent contractor (IC)

Persons who work for others, but who are not employees, are known as independent
contractors, they are themselves employers; or as are defined in Cap 485, they are not in
the capacity of employees.

The traditional test to differentiate between them was based on the employers control
over employee or IC. Relevant questions include:

1. Does the employer determine what work the employee or IC will do?
2. Does he have the authority to direct the employee or IC?
3. Does he have powers to discipline the employee or IC?
4. Is the employee or IC paid on a regular (daily, weekly or monthly) basis rather
than by piecework?
Answers to these questions are affirmative for the employee, but not sure for the IC.

Perhaps the best test to pose is, is the employee employed under a contract of service or

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under a contract for service?

WHPT Housing Association v Secretary of State for Social Services [1981] ICR 717

An architect accepted work from an association on a freelance basis. He worked for

the association from March 1976 to December 1977 at an hourly rate of 3 and he
received a car allowance. Although he did not keep office hours, he worked on
average 28 hours a week in the associations' office with other employed architects
under the supervision of the chief architect. He did the work allocated to him and
attended office meetings. He received neither holiday pay nor sick pay and, on his
claims for payment, he included value added tax. The association did not deduct
income tax or national insurance contributions from his earnings. He sought to be
included as a member of the permanent staff and made a reference, under section 8
of the Contracts of Employment Act 1972, for an industrial tribunal to determine the
terms of his contract of employment. The tribunal dismissed his claim on the ground
that he was self-employed. The architect sought the opinion of the Secretary of State
and the Department decided him an employed earner under the statute. The
Association appealed.

Held, allowing the appeal, that the difference between a contract of service and that
for services was that, in the former, the principal obligation was that an employee
provided himself to serve whereas in the latter a person provided his services; and
that the architect had never undertaken an obligation to present himself at the
associations' premises for service and his principal obligation was to work as an
architect during the hours which he chose to offer to the association and, accordingly,
he worked under a contract for services and the decision of the Secretary of State
was wrong in Law.

Webster J offered a differentiation method:

In the contract of service the servant is under obligation to provide himself to serve.
In a contract for services, on the other hand, the party does not contract to provide
himself but rather his services for the use of the employer.

Criminal acts by the employee

The fact that the employees tortious act is also criminal and does not benefit the
employer, does not necessarily (though it often will) take that act outside the course of
the employees employment.
Lister v Hesley Hall Ltd [2002] 1 AC 215

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Agent

Important Statute: Cap 201 Prevention of Bribery Ordinance PBO

An agent is not an employee and is not protected by Cap 57 Employment Ordinance.

The agent is someone who is appointed to act on behalf of another person called the
principal. Agents are independent contractors and are not engaged on employment
contracts. Agents represent their principals in many ways. For example, a
sub-contractor represents a main contractor in tendering, a solicitor undertakes legal
proceedings on the clients behalf, and an estate agent undertakes to find prospective
purchasers for someone selling his house. The architects or surveyors act on the
employers behalf in relation to building contract work undertaken by a main
contractor. Site agents act as their employers representative on site.

The agent is given the power to enter into a contract with a third party on behalf of his
principal.

Five ways to appoint an agent

1 Express appointment

Express appointment can be made orally or in writing. If the agent has to sign a
contract under seal, he must be appointed by deed as well.

2 Implied appointment

Becoming an agent by implied appointment is part of some employment contracts.

For example, the domestic helpers buy things on behalf of their Moms.

3 Ratification

(a) Where someone who is not an agent acts as if he is, his principal can if he so
chooses, ratify or confirm the contract.

(b) Ratification can occur where the agent acts outside the scope of his known

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authority. For example, a buyer may have authority to buy goods on his principals
behalf up to a certain fixed value, however, additional permission must be sought
should he wishes to make a purchase over this value. The third party must know of
this restriction. The agent will have to be personally responsible for this full value if
the third party does not know.

(c) The contract must be capable of ratification.

4 By Necessity

Suppose an agent has not obtained an authority yet, it may be necessary to sign a
contract which binds the principal. The agents acts must be based on the
following circumstances:

(a) There must be a genuine emergency.

(b) It is impracticable to obtain the principals permission before the acts are done.

(c) The acts must be done in good faith.

(d) The act must be done for the benefit of the principal and not only for
convenience sake.

(e) The agent must already be acting on behalf of the principal as an agent.

5 Agency by Estoppel

This is a derivative from the Equity Law. A previous indication made by a principal
has led to a third party to believe that someone is acting as an authorized agent. In
such a case this principal will be estopped from going back on his indication, if such a
third party has relied on such a representation to their detriment.
The rule still applies even if the principal has no intention of creating an agency.
The example given is the employers wife, being indicated to act as an agent, the
employer cannot later deny responsibility for the agents acts. Spriro v Lintern [1973]
refers.

Watteau v Fenwick [1893]

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The defendant was owner of a public house. By the terms of the contract between the
defendant and the manager of the public house, the manager had no authority to buy
any goods for the business except beer and mineral water. By the agreement, all other
goods were to be supplied by the defendants. In breach of this agreement, the manager
bought certain goods, including cigars (expensive stuffs), from the plaintiff. Credit
was given to the manager in his own name. The action was brought to recover the
price of the goods.

Held: the claim should succeed because authority to purchase such goods is usually
conferred on a public house manager.

***

(Actual authority- with factual privity; can be express or implied authority;

Apparent authority- as if an authority has been given to an agent; he may
subsequently be estopped from denying the existence of an agency;
Usual authority- same as apparent authority, the authority usually conferred upon an
agent of that character or trade, irrespective of any restriction of that authority,
demonstrated by Watteau v Fenwick;
Ostensible authority- same as apparent authority)

Duties of an agent

The engagement of an agent will require an agent to perform the agents duty as if an
employee is performing the duties owed to an employer.
1 A duty to use the appropriate care and skill as he possesses in performing his
functions as an agent.
2 A duty of obedience to complete any proper acts which are legal ones.
3 No further delegation of duties unless specifically so required. The agency itself
cannot be delegated.
4 A duty exists as not to deny that his principal has title to the principals property.
5 A duty to take good care of any money received by him as an agent and later
must hand this over to the principal.
6 The agent must act in good faith, must not compete with his principal, nor make
secret profits such as commissions returned by a third party.
7 Statutory duty under the ICAC Law Chapter 201 Prevention of Bribery
Ordinance PBO. Section 9 provides for maintaining fair play in the market. S9 is
summarized as to make it an offence in law for an agent to solicit or accept an

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advantage without the permission of his principal when conducting his principals
affairs or business. S9 also makes it an offence for an employee to use any false
document, receipt or account to deceive his employer. A person who violates the PBO
can be subject to a maximum penalty of ten years imprisonment and a fine of
$1,000,000. The Section further provides that the person who offers the advantage
also commits an offence.

Duties of a principal

An agent can enforce the following rights arising by implication against the principal:
1 Remuneration
The agents remuneration or commission is payable according to the agency
agreement. The trade or business practice will guide the amount of such remuneration.
2 Indemnity
An agent is entitled to an indemnity from his principal against all liabilities properly
incurred or discharged by him under the agency.
3 Lien
There are two kinds of lien available to an agent on all of the principals property
properly in the possession of the agent.
(a) A lien is available until all claims arising under the agency have been satisfied.
(b) A general lien is available until all his claims against the principal have been
satisfied, whether arising out of the agency or not.

Termination of an agency

An agency ceases to exist on occasions of:

1 Performance of the contract.

2 Frustration of the agency agreement.
3 A death, insanity and bankruptcy of the principal or agent.
4 Lapse of time.

Dr Eric Cheng
City University of Hong Kong
February 24, 2015