Determining the nature of an employment relationship

by Hong Tran, partner; Gabriel Cheung, legal assistant, employment and employee benefits group, JSM

Article exclusively contributed by JSM

The existence of an employment relationship depends on a number of factors and not necessarily only on an agreement between two parties.

A recent District Court case examined an employees' compensation claim, which, among other points, considered whether the individual in question was an employee or an independent contractor.

According to the facts in the case, brought by Wong Wai Ming against FTE Logistics International Limited (FTE), the two parties had entered into two agreements, which, among other things, specifically required Mr Wong to have a motorcycle for the purpose of performing delivery tasks. The agreements described Mr Wong as an independent contractor of FTE or a self-employed person undertaking express delivery work for FTE.

On 18 May 18 2005, while delivering documents on behalf of FTE using his own motorcycle, Mr Wong sustained injuries when he was hit by a car. After he convalesced for about two months, FTE informed him on 6 July 2005 that he "need not return to work". FTE's internal records stated that this was a termination of the agreements due to "injury, cessation of employment".

Looking at the facts

The court cited the 2007 case of Poon Chau Nam v Yim Siu Cheung t/a Yat Cheung Airconditioning & Electric Co, which held that "the modern approach to the question of whether one person was another's employee was to examine all the features of their relationship against the background of the indicia developed in the case law with a view to deciding whether, as a matter of overall impression, the relationship was one of employment...".

The court said in assessing the relationship between the parties it was concerned with substance and not form, so the parties' own description of their relationship was not determinative. The court would look into all the facts and circumstances involved.

Both FTE and Mr Wong agreed that the agreements between them were drafted as rental agreements rather than employment contracts, but the court noted that various references in the agreements suggested an employment relationship.

Although the agreement specified that Mr Wong was paid with rental payments, FTE's records described the payments as "employee's wages", "wages" and "total wages". Also, one of the agreements expressly mentioned that FTE was an "employer".

The court also considered the following factors suggesting an employment relationship between Mr Wong and FTE:

  • FTE exercised a strong degree of control over Mr Wong's workday by requiring strict working hours;
  • Mr Wong was required to clock his time card when he started and went off work;
  • Mr Wong was required to wear FTE's uniform and his motorcycle had to bear FTE's logo;
  • Mr Wong could not choose his workdays and had to apply to FTE when he wanted time off;
  • FTE assigned delivery jobs to Mr Wong and his colleagues, and if Mr Wong could not do a delivery, FTE would arrange for someone else to do the job;
  • There was no evidence that Mr Wong could delegate the tasks assigned to him or engage his own workers to complete tasks;
  • FTE had the power to select or dismiss Mr Wong unilaterally;
  • FTE was responsible for Mr Wong's tunnel fees, parking fees and part of any parking fines;
  • There was no evidence that Mr Wong could carry on business on his own account and he did not have a trade name or logo;
  • There was no evidence that Mr Wong would have any time to, or actually did take on, any other work; and
  • Mr Wong's remuneration was not linked to delivery business and he did not share any profits or losses by FTE, but received a flat rate of HK$10,000 per month.
After considering these factors, the court found there to be a contract of employment which required the services of Mr Wong, and not merely the rental of a motorcycle. The court found that the tone of the agreements created the suspicion that FTE crafted them to avoid liability as an employer. However, it said, if this was the intention, the agreements failed. As a result of this, FTE was found liable to pay employees' compensation to Mr Wong in relation to his injuries arising from the accident.

Additional statutory requirements of an employer would include MPF contributions, the provision of statutory holidays, rest days, annual and sick leave and maternity leave.

Q & A on establishing whether an employment relationship exists
Q1 In assessing whether an independent contractor arrangement exists, how much weight does the parties' intention carry?
A1 Not very much. A court will look at all the facts and circumstances. None will be determinative to the exclusion of the others.

Q2 In addition to the factors listed in the judgment above, which other factors may be considered?
A2 Other factors may include an obligation by the company to provide work, that the individual can only work for the company concerned, that the individual is integral to the functioning of the company, that the individual is required to perform work at the company's premises only and that the individual is not required to account for profits tax arising from the performance of services.

Taken from Career Times 21 November 2008, p. B14

(Last review date: 23 August 2013)

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Disclaimer: The opinions expressed in this article are those of the contributor

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