Legal update

21 January 2016

Author: Johanna Johnson


Legal update

Johanna Johnson, senior associate at Taylor Vinters in Singapore, gives an overview of legislation and case law HR professionals should be aware of

Discretion must be used in good faith
 
An employer that terminates an employee’s employment in Hong Kong to avoid paying a bonus may have now breached an implied anti-avoidance term.
 
Employment contracts in Hong Kong often provide for an employee to receive a bonus at the discretion of the employer, subject to the employee still being in employment at the time of payment. The employer’s discretion has generally been thought to be unfettered. However, Tadjudin Sunny v Bank of America highlights the need for discretion to be exercised in good faith.
 
In the case, the employee argued that there was an implied anti-avoidance term in her contract, under which the employer should not exercise its right to terminate her employment to prevent her from being eligible for a bonus. The company counter-argued that such a term was inconsistent with its right to terminate her employment under the contract and Employment Ordinance.
 
The court held that the implied term was not inconsistent with the employer’s right to terminate the contract, but rather it supplemented that right. The implied term was necessary; otherwise, the employee’s eligibility to be considered for a bonus was illusory as it could easily be taken away by the employer exercising its right to terminate her employment. The discretion to pay a bonus was, therefore, not unfettered and needed to be exercised in a bona-fide manner.
 
No extension of fixed-term contracts in Thailand
 
Employers may have to rethink the contracts they use after the Thai Supreme Court ruled that a fixed-term contract cannot contain a clause allowing either party to extend the period of employment. Inclusion of a clause allowing an extension will render it a permanent contract.
 
Under the Labor Protection Act, a fixed-term employment contract must contain in writing when the employment period starts and explicitly stipulate a pre-determined period of employment, which cannot be longer than two years.
 
There must also be a clear indication that the employment relationship will terminate at the end of the fixed-term period. Any ability to extend the period of employment will now result in the contract being deemed indefinite, with likely increased liabilities for an employer seeking to terminate that contract. The consequence of these rules is that fixed-term contracts can really only be used for certain types of work, such as a temporary special project or seasonal work.
 
Shanghai supports collective negotiations
 
Following a recent amendment to the Regulation of Shanghai Municipality on Collective Contracts, neither employers nor employees can refuse to actively participate in a collective negotiation when it comes to: (1) redundancies of more than 20 employees or 10 per cent of the workforce; (2) labour disputes leading to mass strike action and/or complaint reporting; or (3) a serious potential accident or occupational hazard.
 
Employers also now face a broader scope for collective negotiation on salary and allowances. In order to make the range of salary and supplemental allowances more transparent to employees, employers are required to negotiate with employees when adjusting annual average salaries and salary levels during probation periods, sick leave and holidays.
 
Further, if an employer fails to participate in a collective negotiation in good faith and without a good reason, the Competent Labour Authority or Federation of Labour Unions may force the employer to carry out the collective negotiation.
 
Korean labour laws to get a shake-up – or are they?
 
The Korean Economic and Social Development Commission recently reached an agreement proposing major changes to Korean labour law.
 
The proposals include using money saved through the ‘wage peak’ salary system to hire more entry-level and recent college graduate workers, relaxing regulations so that it will be easier to terminate employees for poor performance and counting holiday work (which is normally weekend work) as overtime hours.
 
However, as only one of the two major umbrella labour unions signed the agreement, and that group is now questioning what it actually agreed to, there is some doubt that the process will move ahead smoothly.
 
Additional material provided by partner firms: Deacons in Hong Kong (Cynthia Chung and Gladys Ching); Tilleke & Gibbins in Thailand (Chusert Supasitthumrong); Martin Hu & Partners in the PRC (Ada Zhang); Kim & Chang in South Korea (Deok-Il Seo and Rob Flemer).