An employer who fails to pay wages to its employees within 7 days after the expiry of the wage period wilfully and without reasonable excuse may be liable to pay a maximum fine of HK$350,000 and imprisonment of up to 3 years.

Directors shall be aware of the potential criminal liability
Directors of companies shall be alerted by the recent cases of late payment of wages by Asia Television Limited (“ATV”) in relation to the potential criminal liability of directors in similar situation.

Time for payment of wages
The Employment Ordinance (“EO”) of Hong Kong stipulates that “wages shall become due on the expiry of the last day of the “wage period” (one month unless the employer and the employee agreed otherwise) and wages shall be paid as soon as is practicable but in any case not later than 7 days thereafter.”

Liability for late payment of wages
The EO is meant to provide for the protection of the wages of employees and to regulate general conditions of employment. In this connection, the employer, its directors, managers, secretary and similar officers may have to face criminal liability for late payment and/or non-payment of wages if the offence is committed wilfully and without reasonable excuse.

Employees may terminate the contract of employment without notice or payment in lieu of notice if any wages are not paid within 1 month from the day on which wages are due. Employees may also claim against the employer for the outstanding wages, the payment in lieu of notice as well as the interest on the outstanding wages from the due date up to the date of actual payment.

Meaning of “wilful” and “without reasonable excuse”
“Wilful” and “reasonable excuse” are not defined by the EO. However, if the Court is asked to determine this issue, it will look at the factual circumstances and decide whether a reasonable man would accept the employer’s explanation for late payment of wages. The fact that the employer has good record or is a person of good character is of little relevance for the Court to determine the possible liability.

Serious financial difficulty of the employer is not a “reasonable excuse”
In HKSAR v Li Fung Ching Catherine FAMC 4/2012 (the “Li Fung Ching Case”), the employer had deliberately failed to pay wages and decided to meet other operating expenses in the hope of keeping the company afloat. The wages remained unpaid and the company was subsequently wound up.

The director of the employer was convicted for non-payment of wages and was fined a sum of HK$110,000. The director appealed against the conviction.

In the appeal, the Court of Final Appeal commented that the parlous financial condition of the employer and the genuine attempt to salvage its business “was a hopeless argument… A company which chooses to use its resources to meet other expenses instead of paying the wages owed to its employees is making a calculated decision to break the law designed to protect those employees – the very antithesis of a reasonable excuse for non-payment.” Therefore, the Court of Final Appeal dismissed the director’s appeal.

Criminal liability of directors, managers, secretary and officers of the company
Directors, managers, secretary and similar officers of a company will be criminally liable if the wilful late payment has been committed with their consent, connivance or is attributable to their neglect.

In the Li Fung Ching Case as mentioned above, the director in question was responsible for the company’s daily operation, personnel and finances. The Court found that she had “connived” at the company’s non-payment of wages because she knew that the wages had not been paid and that other expenses would be given priority.  Moreover, the director took no step at all in stopping the company from pursing its decided course for non-payment of wages. It was obvious that the director agreed to such a decision. Therefore, the conviction against the director and the order to pay fine were upheld by the Court of Final Appeal.

Any mitigating factors?
In determining the penalty for late payment of wages wilfully and without reasonable excuse, the Court may not take “short delay” or “insignificant amount of late payment” as relevant mitigating factors. Nevertheless, the court will consider the specific facts of the case for determining the penalty.

In Secretary for Justice v Sing Pao Newspaper Management Limited CAAR 2/2007 (the “Sing Pao Case”), the Court of Appeal ordered a fine of HK$3,000 for each of the offences of late payment of wages on the basis that “the late payment was the result of management chaos arising out of change of management, and the management has been taking bona fide reasonable effort to improve its position.” However, the Court of Appeal added that “chaos in management is not a special reason for a low fine and depending on the circumstances, more substantial penalties than those imposed by the Court of Appeal (in this case) would be required.”

The Court of Appeal also commented that the “lowness of the amount of wages outstanding should not be regarded as a mitigating factor as it often reflected the lowness of the wages paid to the wage earner”. Moreover, “non-payment would normally make the offence more serious so that the fines would be much more substantial and in suitable cases imprisonment would be appropriate.”

The Court may be more lenient to a first offender but if an employer is charged with a number of offences, it will not be treated as a first offender. In the Sing Pao Case, the Court of Appeal even commented that “for repeated offenders, substantial fines and imprisonment must be regarded as real options.”

Conclusion
We have to wait and see the development of the ATV cases in relation to the Summonses issued against ATV and its executive director for late payment of wages. The judgment to be given in due course will give us more insight concerning the factors which will be considered by the court. In any event, directors, (in particular those who are involved in the management of a company) shall ensure that wages are paid to employees on time in order to avoid any criminal liability as well as the negative impact on the morale of the employees. If a company is facing serious financial difficulty, it may have to reduce its operating costs by terminating the employment of some of its employees and to restructure and utilize its human resources in a more effective way.