Cross-border employment issue: Who is the real employer?
Introduction
It is common for Hong Kong employees to engage in cross-border employment arrangements. These employees often spend a considerable amount of time in the Mainland and may work under different entities of or associated with their employers in the Mainland. In addition to having a Hong Kong employment contract, they often enter into employment contracts with entities in the Mainland. When employment disputes arise, the parties often dispute over who is the real employer, whether the Hong Kong employment contract or the Mainland employment contract is relevant, what are the real terms of the employment, etc.
The case of Ma Ngai Cheung v Cobow Contracting & Engineering Company Limited [2025] HKDC 335 involves a claim by a Hong Kong employee (“Employee”) against a Hong Kong company employer (“Company”), which carried on business for manufacturing and installation of glass and furniture, for unpaid wages and other employment-related payments when he primarily worked in a factory operated by the Company in Conghua, Guangzhou (“Factory”).
Background
Cobow International Holdings was the holding company of the Company (“Holding Company”). The Holding Company had subsidiaries including the Company, Guangzhou Cobow Manufacturing Limited (“GZ Subsidiary”) and Shanghai Cobow Contracting Limited (“SH Subsidiary”) (collectively referred to as the “Group”).
The Employee began working for the Group in November 2009 and he primarily stationed at the Factory. Over time, the Company delayed and defaulted on wage payments, leading to the Employee’s termination of employment in March 2019.
The Employee sought recovery of unpaid wages, payment in lieu of notice, end-of-year payments, annual leave payments, compensation of leave pay for rest days, long service payments, and reimbursement of expenses. The Employee claimed that his true employer was the Company, with which he had an oral employment agreement in about mid-November 2009 on the following terms (“Oral Employment Agreement”):
1. The Company agreed to employ the Employee, and the Employee agreed to work for the Company, as a technical manager commencing on 17 November 2009;
2. The Employee shall work in the Factory or other cities, countries or locations as designated by the Company from time to time;
3. The wages shall be HK$22,000 per month;
4. The Employee shall be entitled to end of year payment in the sum equivalent to one-month wages; and
5. The Company shall reimburse the Employee all expenses paid by the Employee for travelling, food and beverage, accommodations, tools and materials in the course of employment.
The Company denied the existence of the Oral Employment Agreement. The Company contended that the Employee signed written employment contracts with both the GZ Subsidiary and the SH Subsidiary, and received wages partly from the Company in Hong Kong dollars and partly from the GZ Subsidiary in Renminbi only because “the salary tax rate in PRC is higher and it is more convenient to the Hong Kong employees as their major expenses were incurred in Hong Kong, not PRC”.
The trial was conducted at the District Court instead of the Labour Tribunal because the performance of the employment contract in issue occurred outside Hong Kong and conflict of laws may be involved. The Company, initially legally represented, ceased participation in the proceedings in March 2023 and was wound up in June 2023. The Court proceeded with the trial and the Employee, as the sole witness, had to prove his case to recover the outstanding amounts.
Analysis
The Court analysed the issue of whether the Employee was employed by the Company, the GZ Subsidiary or the SH Subsidiary and clarified that the issue was one of contractual construction, which meant that the Court had to determine the parties’ intentions objectively. Having considered the evidence, the Court found the Employee was solely employed by the Company. In reaching its decision, the Court considered all the evidence available, including:
1. Oral Employment Agreement: The Employee’s claim of an Oral Employment Agreement with the Company was consistent with his oral evidence. There was no evidence that contradicts his oral evidence.
2. MPF contributions: The Company once adjusted the wage payment ratio between Hong Kong dollars and Renminbi, and the Employee raised concerns whether his MPF contributions would be decreased. In response, the Company made voluntary contributions to the Employee’s MPF to offset the impact of the adjusted wage payment ratio between Hong Kong dollars and Renminbi.
3. Tax returns: Inland Revenue Department tax return forms listed the Company as the Employee’s employer.
4. Witness statement: The witness statement filed by the general administrative manager of the Group on behalf of the Company acknowledged the existence of an employment agreement between the Company and the Employee, even though the standard recruitment procedures were not followed.
5. Annual leave forms: The Employee’s leave application forms were under the Company’s name and required the Company’s approval.
6. Work permits: Although the Employee signed written employment contracts with the GZ Subsidiary and the SH Subsidiary, the Court accepted the Employee’s explanation that they were mere formalities to secure work permits in Mainland.
7. Representations made by the Company to third parties: The Employee’s name card indicated that the Employee was a manager of the GZ Subsidiary, and the new-joiner announcement sent by the director of the Company on behalf of the Group did not specify which company the Employee would be working under. The Court held that these evidence merely reflected the parties’ intentions regarding how the Employee would represent himself in discharging his duties, and did not mean that the contract between the Employee and the Company would change to a contract between the Employee and the GZ Subsidiary.
Takeaways
The scenario in Ma Ngai Cheung is not uncommon. The mirror scenario, that is, a Mainland employee employed by a Mainland company, who primarily works in Hong Kong, and has also entered into employment contract with a Hong Kong company, which is a subsidiary or associate of the Mainland company, is also not uncommon.
When there is an employment dispute, these issues often arise:
1. Whether the employee was employed by the Hong Kong employer, the Mainland employer or both?
2. What are the terms of the employment contract? Are they to be found in the Hong Kong employment contract, the Mainland employment contract, or partly in the Hong Kong employment contract and partly in the Mainland employment contract?
To determine the issues, the question involved is a question contractual construction, where the Court has to determine the parties’ intention objectively.
In Ma Ngai Cheung, the fact that there was no written employment contract between the Company and the Employee introduced another layer of intricacy to an already convoluted scenario. As the performance of the employment contract occurred outside Hong Kong and conflicts of law may be involved, what is essential an employment case, could not be heard by the Labour Tribunal.
On the facts and evidence available, the Court ruled in Ma Ngai Cheng that there was only one employer (the Company) and one employment contract (the Oral Employment Agreement). Each case turns on its own facts. In Alcohol Countermeasure Systems (HK) Limited & Anor v Li Chi Kong, Peter [2023] HKCFI 227, another cross-border employment case, the Court of First Instance found that the defendant employee was employed by both the 1st plaintiff Hong Kong employer and the 2nd plaintiff Mainland employer respectively under a Hong Kong employment contract and two Mainland employment contracts. For our discussion on Alcohol Countermeasure Systems (HK) Limited, please click here for our article “Cross-border employment issue: Can an employee refuse or ignore an employer’s requests for information regarding expenses incurred in Mainland that had already been approved and reimbursed years ago?”
The situation in Ma Ngai Cheng could have been avoided if there were properly drafted employment contracts in place that clearly spell out the parties’ intention and the terms of employment. The parties could have agreed to the employment being governed by Hong Kong law and, if disputes arise, they submit to the exclusive jurisdiction of the Labour Tribunal or other Hong Kong courts. Cross-border work is becoming more and more common. If the cross-border employment constitutes both a Mainland and a Hong Kong employment, then the parties would be subject to both PRC employment law and Hong Kong employment law. It is prudent for both employers and employees (be they Mainland or Hong Kong parties), and also in their interests, to put in place a properly drafted employment contracts. As always, if in doubt, it is advisable to seek legal advice.
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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors. |
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Published by ONC Lawyers © 2025 |
