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Employees' Compensation and Employers' Negligence

To protect employees, Hong Kong has established workers' compensation laws so that employees can receive compensation from the employer for work related injuries. Although the amount that can be is limited, a worker can be compensated regardless of whether the business was negligent. These law (the Employee's Compensation Ordinance) provides that the employee need only prove that the injury arose in the course of employment. This concept is construed very broadly.

Awards to Employees

Worker's compensation rules generally provide that the employee can recover only the cost of medical treatment and lost wages. In serious cases in which the Board of Assessment has assessed that the injured worker has suffered from a certain percentage of loss of earning capacity, the injured workers can collect an amount to compensate for his or her impaired future earning capacity.

Insurance

The Ordinance establishes what an employer must do to provide adequate workers' compensation benefits. The employer is required by law to purchase workers' compensation insurance. The insurance premiums are usually based on factors such as the industry, the types of jobs involved, and the size of the payroll. More "accident prone" employers pay higher rates.

Businesses do not need to purchase workers' compensation coverage for true independent contractors . If you are a sole proprietor, you probably are not covered by your workers' compensation insurance. Workers' compensation does not cover self-employed, name sole proprietors and partners. Sole proprietors and partners therefore have to take out insurance policy normally through a life insurance agent to cover their loss of income due to disability. While it is not necessary for the small business owner to know every workers' compensation rule, care should be taken to work with an insurance agent who is familiar with the laws. An insurance agent can also help determine the appropriate amount of coverage and provide guidance additional employee related coverage that may be necessary in situations not covered by workers' compensation laws.

Negligence Claims on Workplace Injuries

While employees' compensation laws prevent the collection of damages for pain and suffering, loss of amenities, common law allows workers these claims based on the employer's negligence.

An injured worker can sue his or her employer on common law for work related injuries if the business owner was negligent. Common law sets out that the employer owes a duty of care to his fellow employees. This include: safe workplace, safe and proper tools and apparatus, proper co-workers. Compensation paid to the workers out of employees' compensation paid under the Employees Compensation Ordinance will be set-off from the negligence claim. An employee's compensation insurance policy normally covers this area of employer's risk.

Elements to Determine 'Employee' and 'Independent Contractor'

Proper classification of an individual as an "employee" or "independent contractor" is critical. While the ultimate classification is a matter of common law principles as to whether the worker is subject to the control and direction of another only as to the result of his work (an independent contractor) and not as to the means (an employee), the following factors can help to determine the proper classification. Please note that these are for references only and are by no means conclusive:-

1. Instructions to worker - A worker that is subject to instructions about when, where, and how to work is usually an employee.

2. Training - An employee is more likely to be subject to training than an independent contractor.

3. Integration into business operations - The greater the integration of a worker's services into the business, and thus the greater the business' control, tends to reflect an employment relationship.

4. Requirement that services be personally performed - The greater the flexibility given the worker to designate who may perform services favors an independent contractor classification.

5. Hiring, supervising, and paying for a worker's assistants - If the business provides assistants to the worker, as opposed to the worker providing his or her own assistants, this may indicate that the worker is an employee.

6. Continuity of the relationship - Continuing, "on call" or similar long-term relationships, even if part-time, support classification as an employee.

7. Setting the hours of work - An independent contractor usually sets his own work hours.

8. Requirement of full-time work - Independent contractors, unlike employees, do not normally work full-time for one business and are free to work when and for whom they choose.

9. Working on employer premises - If the business requires work to be performed at its offices, this indicates control over the worker (if the work could be done elsewhere).

10. Setting the order or sequence of work - Independent contractors generally enjoy greater freedom to follow their own pattern of work routines and schedules.

11. Requiring oral or written reports - Regularly required oral or written reports usually reflect an employee relationship.

12. Paying worker by hour, week, or month - Employees are normally paid hourly, weekly, or monthly, while independent contractors are usually paid by the job or on a straight commission basis.

13. Payment of worker's business and/or traveling expenses - This factor reflects a business' effort to control its expenses through an employee.

14. Furnishing worker's tools and materials - Employees are normally provided necessary work tools and materials, independent contractors tend to furnish their own.

15. Significant investment by worker - Employees are normally provided the requisite facilities by their employer, while independent contractors usually invest in and maintain their own work facilities.

16. Realization of profit or loss by worker - A worker who can realize a profit or suffer a loss as a result of his services is generally an independent contractor. Of course, some employees may also realize a profit or suffer a loss, as a result of profit sharing plans or investments in the company. In that case, the IRS will examine whether the worker's profit or loss opportunities are different from an employee's.

17. Working for more than one business at a time - Employees usually work for only one company, while independent contractors frequently work for more than one business.

18. Firm's right to discharge worker - An employer exercises control over its employee through the threat of dismissal, while independent contractors normally cannot be dismissed so long as they meet their contractual obligations.

19. Worker's right to terminate relationship- Employees are usually entitled to quit at their leisure, while independent contractors generally must fulfill contractual obligations.

20. Availability of worker's services to the general public - If the worker usually makes himself or herself available to the public to perform services, he or she is more likely an independent contractor.

The penalties for mis-classification under tax and other laws are severe and may, in some cases, create personal liability for the individual that has established the employment relationship or was a responsible party for deducting and withholding contribution to the MPF Scheme. Use caution in making the employee/independent contractor classification, and consult a solicitor for advice.

Other factors should be considered to determine whether an individual should be retrained as an employee or independent contractor. For example, it is much easier to dictate to and control the work of an employee. The employee is usually at the employer's offices throughout the work period and work can be more easily monitored. Also, the employee is more likely to develop some loyalty to the employer and is less likely to leave for another position. However, independent contractors may be freely terminated if the work is not satisfactory. With true independent contractors, there is no cost for employment taxes and fringe benefits.

Caution

If you are considering the hiring of one or more individuals to perform services for your business or organization, you should consider the benefits and features involved in making that individual an employee or, alternatively, an independent contractor. Make sure that if you choose to make someone an independent contractor, that he or she is truly not an employee under the law.

Employees Compensation, Mandatory Provident Schemes Ordinance, Taxation, Employment Ordinance and Discrimination

Under the Employees Compensation Ordinance, an employer is required to purchase an insurance policy for injuries happened in the course of employment. The failure to purchase such a policy is a criminal offence and can lead to criminal prosecution by the Labour Department.

Under the Mandatory Provident Schemes Ordinance, "employers" (which may include for profit and not for profit companies, individuals, schools, government agencies and other entities) are required to deduct and withhold from their "employees" a percentage of wages to be paid to the trustee of the MPF Scheme. The employer is also required to make contribution a certain percentage of the wages out of his own fund for the employee's benefits.

As to taxation, if an employee owes to the Inland Revenue Department any unpaid salary tax, the employer shall upon receipt of a notice of the Commissioner of Inland Revenue deduct and withhold the relevant amount of tax due and unpaid and have the same paid out to the Hong Kong Government. Employers who fail to properly deduct and withhold the appropriate amounts and pay them over to the Commissioner as demanded can be subject to a variety of penalties and interest charges for unpaid amounts.

Classification of an individual as an employee will also affect whether the hiring party is subject to Employment Ordinance which has provisions governing the employer's obligations or responsibilities regarding public holidays, maternity leaves, sick leaves, severance payment, dismissal etc. Other relevant laws include the anti-discrimination statutes under the Equal Opportunity Ordinance, the Disability Discrimination Ordinance, Sex Discrimination Ordinance and Family Status Discrimination Ordinance.

Starting and Running a Business

A start-up has to engage and pay services of others. The service providers can be an individual or a corporation. There are different consequences in respect of the status as an "employee" or an "independent contractor". Basically, the laws impose more onerous burden on an employer on his or her employees.

The obligations of an employer can be found in a number of statutes. A business owner must make himself familiar with provisions under the Employment Ordinance, the Employees Compensation Ordinance, the various anti-discrimination legislations (in particular, provisions regarding sexual harassment in the Sexual Discrimination Ordinance), the Mandatory Provident Fund Schemes Ordinance and an employer's duty of care towards his fellow employees under common law. In addition, there is the Personal Data (Privacy) Ordinance which governs the collection, use, process and access of personal data identifiable with a living individual. The list is by no means exhaustive.

FAQ: Binding Nature of Electronic Contracts

Q: What is the legal position of a product advertisement posted by a merchant on an electronic storefront ?
A: It is usually regarded as an "invitation to treat", i.e. not as an offer. Thus, an on-line merchant is not bound to sell a buyer the merchandise unless he has accepted the buyer's order without reservation.

Q: How contract between a seller and buyer is made?

A: A contract for sale of a merchandise, for example a CD on the Internet is formed electronically. Either an on-line merchant makes an offer to sell or an on-line buyer makes an offer to buy the merchandise posted on the Internet storefront. A contract is formed upon acceptance of the offer. Depending on the terms of the on-line sales contract, acceptance can arise when an on-line merchant confirms the buyer's order without reservation. A prudent merchant may therefore confirm a buyer's order subject to the availability of the merchandise or until stocks last. That condition can be built in the sales contract and included in the merchant's automatic email confirmation.

Q: What governs the legal validity of an on-line contract?

A: The legal validity first depends on which territory of laws applies when considering the subject contract dispute. If the parties to an on-line sales contract are both in Hong Kong, their dispute will be decided according to Hong Kong laws. Two territories may have the jurisdiction on the same dispute if parties are located in different territories. A prudent on-line merchant may include a term defining what are the "applicable laws" and which courts ("jurisdiction") have the authority over the dispute.

Q: Is an on-line contract binding between the seller and a buyer?

A: Yes. An on-line sales contract is binding subject to very limited number of exceptions, for example real property. Therefore, the sale of chattels (for example, books) or services (for example subscription of information or data on-line) is binding on the parties if the elements of a contract exist: offer, acceptance, consideration and intention of legal relationship.

Q: Is there a legal liability if a party is in breach of a term in an on-line contract?

A: Yes. In B to C sales contract, the price on the merchandise can be of a few hundred dollars. An on-line merchant can sue a buyer at the Small Claims Tribunal (which handles claims not more than HK$50,000.00) for the unpaid price. An on-line merchant who has accepted an order from a buyer may also face a buyer's claim but the loss will be the price the buyer has to additionally pay for buying the same merchandise with another merchant.

Q: Is there any legal authority in Hong Kong having decided on the validity of an on-line contract?

A: No. The legal point of view taken by lawyers is based on case laws analogous to on-line sales contracts. Besides, the courts will throw the world into chaos if a sales contract cannot be binding simply because it is not paper-based. Therefore, it is logical to deduce that the court will not deny the validity of an electronic contract from a very practical point of view.
Lastly, the Electronic Transactions Ordinance has now provided that a contract cannot be denied its validity on the ground that it was made electronically. Thus, an on-line sales contract is a valid as a paper sales contract.

Q: Can electronic records and communications be used as evidence in Court?

A: Yes. According to the Electronic Transactions Ordinance, emails, their attachments and contents of electronic nature, whether they are images, sound files etc can all be admitted as evidence in Court actions.

Q: Will the absence of a written signature make an on-line contract not binding?

A: No. A sales contract of chattels as the merchandise does not necessarily require terms in writing. Nor a signature is required to make it binding. The Electronic Transaction Ordinance gives "digital signature" recognised by the Ordinance the benefit of attribution i.e. that the "digital signature" is presumed to have been used by the owner of the private key. But that does not mean that every electronic contract has to use "digital signature" in order to be valid.

Q: By what procedures I should follow if I want to sue a party in breach of an on-line contract?

A: If the claim is not more than HK$50,000.00, the legal action should be started in the Small Claim Tribunal. The claim form is provided by the Tribunal's Registry.

Characteristics and Usage of a Smart Card

A smart card has the following characteristics:

1. a memory card or a microprocessor card;

2. disposable or reusable;

3. contact or contactless;

4. single purpose or multi-purpose.

Usage:

1. access control and identification e.g. propose smart ID card by the HKSAR Government;

2. automatic fare collection for fares e.g. Octopus;

3. industrial automation applications in asset tracking, warehouse and inventory control, facilities and equipment management and manufacturing automation;

4. financial transactions in banking;

5. electronic purse applications in retail stores e.g. Mondex, VisaCash;

6. loyalty program such as frequent flier and frequent buyer bonus plan e.g. Compass Visa;

7. parking;

8. petroleum retail;

9. health care;

10. telecommunications application such as payphones and mobile phones network access.

Factors accounting for increasing use of smart card technology

Quite a number of factors contribute to the increasing use of the smart card technology in e-commerce:

1. The declining cost of smart cards. The cost can be as little as HKD10.

2. People have become more concerned about fraudulent transactions surrounding the use of magnetic strip card systems. Smart cards has given a higher level of data security. It is coupled with stronger protection against forgery. Identity theft is critical for secure transactions. The smart card and the system can communicate for authentication. The identity of the cardholder can also be verified by use of a personal identification number (PIN). Using strong cryptography, data contained in the smart card is secure against espionage and tampering during the data transmission process over a network. with the use of a microprocessor. One smart card can manage several applications.

3. Magnetic strip card has low memory capacity. Memory of smart card is 100 times more than that. A great deal of transactional information or data can be gathered for analysis. Data can include demographic pattern and consumption behaviour. Such information can assist sales and marketing activities, especially the concept of target marketing or one-to-one marketing.

4. With the coming of the Internet and the ubiquitous presence of telecommunications facilities, distance or cross-border selling has become more widespread than anytime in the past history. Security in terms of identity authentication has become a major issue of concern.

5. With the strong capabilities of smart card, the use of it in commerce results in higher speed and more convenience in transactions.

6. Smart cards are compatible with portables devices such as PCS mobile phones. It is an ideal instrument for the convergence of telecommunications and personal computers.

Use of Smart Card Technology

A smart card is a device with size and appearance like a credit card. It is made in plastic and is fixed with an embedded Integrated Circuit (IC) chip. The IC chip enables the storage and processing of information and transactions. Smart cards are chips capable of having the following functions:

Memory cards, which merely store data and have no data processing capabilities.

Hardwired Logic, Intelligent Memory cards, which contain simple Application Specific Integrated Circuit (ASIC), usually used to control the access to the memory of the card.

Microprocessor cards, which contain a microprocessor to execute a program stored inside the same silicon chip and can make decisions based on external input. Microprocessor cards are true smart cards which are used in banking, finance and other applications where high security is essential. Very often the data processing power is used to encrypt/decrypt data, which makes this type of card most appropriate for application requiring security features.

UNCITRAL Model Law on Electronic Commerce Law

The Model Law, adopted in 1996, is intended to facilitate the use of modern means of communications and storage of information, such as electronic data interchange (EDI), electronic mail and telecopy, with or without the use of such support as the Internet. It is based on the establishment of a functional equivalent for paper-based concepts such as "writing", "signature" and "original".

By providing standards by which the legal value of electronic messages can be assessed, the Model Law should play a significant role in enhancing the use of paperless communication. In addition to general norms, the Model Law also contains rules for electronic commerce in specific areas, such as carriage of goods. With a view to assisting executive branches of Governments, legislative bodies and courts in enacting and interpreting the Model Law, the Commission has produced a Guide to Enactment of the UNCITRAL Model Law on Electronic Commerce.

Exemptions in Schedule 2 of ETO

SCHEDULE 2 [ss. 13(1) & (3) & 50]

Proceedings in Relation to which Sections 5, 6, 7 and 8 of this Ordinance do not Apply under Section 13(1) of this Ordinance

Proceedings before any of the following:

(a) the Court of Final Appeal;

(b) the Court of Appeal;

(c) the Court of First Instance;

(d) the District Court;

(e) the Mental Health Review Tribunal established under the Mental Health Ordinance (Cap. 136);

(f) the Lands Tribunal;

(g) a coroner appointed under section 3 of the Coroners Ordinance (Cap. 504);

(h) the Labour Tribunal;

(i) the Obscene Articles Tribunal established under the Control of Obscene and Indecent Articles Ordinance (Cap. 390);

(j) the Small Claims Tribunal;

(k) a magistrate.