Potential criminal and personal liability of employee director for employer company’s failure to pay wages/labour tribunal award
Introduction
In general, directors or senior officers of
a corporate employer are not personally liable for the wages of the employees. However,
if the employer company fails to pay its employees outstanding wages pursuant
to an award of the Labour Tribunal, the director or the senior officer may also
become criminally liable if the company’s default is committed with the consent
or connivance of, or to be attributable to any neglect on the part of that director or senior officer. In such case,
the director or the senior officer may further be ordered to pay the
outstanding wages personally.
In 香港特別行政區 訴 永富 (香港) 有限公司及另一人 [2022]
HKCFI 2634, the Court of First Instance (“CFI”)
reiterates that a director or a senior officer of an employer company may fall
within the definition of “employer” under the Employment Ordinance (Cap. 57) (“Ordinance”). If they commit an offence
under the Ordinance, the court has a discretion under section 65(1) of the
Ordinance to order the director or the senior officer to be personally liable
for any outstanding wages.
Background
The 1st defendant (“Company”) was a company established in
2009 operating a sauna parlour. The 2nd defendant (“Director”) was the sole director of the
Company in charge of making management decisions and paying salaries to
employees. Since 2017, the Company had been suffering huge loss, and had to rely
on funds injected by the Director by way of personal loans to operate. In
September 2018, the Company failed to pay wages to 6 of its employees (“Employees”) within 7 days upon the
expiry of the last day of the wage period in breach of the Ordinance because of
financial difficulties. In 2019, the Company closed the sauna parlour, after
which it no longer had any income or liquid assets.
Procedural
history
The Employees commenced action in the
Labour Tribunal against the Company for, among others, the outstanding wages. The
Tribunal found in favour of the Employees and ordered the Company (represented
by the Director) to make an immediate payment of HK$299,253.88 to the Employees.
It should be noted that at this stage, only the Company, as the employer, was
liable to pay the outstanding wages. The Director was not personally liable to
pay any outstanding wages.
Employee
Director’s criminal and personal
liability
Subsequently, the Company failed to make
the payment awarded by the Labour Tribunal. The Company was charged in the
Magistrates’ Court for failure to pay the sum under the Labour Tribunal award within
14 days after the award was made, contrary to section 43P(1) of the Ordinance. The
Director, as the Company’s director, was charged with violating section 43Q(1) of
the Ordinance because of his alleged consent or connivance regarding the wage offence
committed by the Company. Both the Company and the Director were convicted and
were held liable for a fine of HK$48,000 respectively.
The Magistrate further held the Director be
jointly and severally liable with the Company to pay the outstanding wages to
the Employees within 6 months. Under section 65(1), if an employer is convicted
of an offence under the Ordinance, the court has a discretion to order the
employer to pay any wages or sums outstanding at the time of conviction.
The Director appealed to the CFI against the Magistrate’s decision.
Rationale behind
Director’s liability
The scope of section 65(1) is wide because
the meaning of “employer” under section 2 of the Ordinance is very broad, which
includes “any person who has entered into a contract of employment to employ
any other person as an employee and the duly authorized agent, manager or
factor of such first mentioned person”. Therefore, a director may fall within
the definition of “employer”. In such case, the court would have a discretion
to order the relevant director to be personally liable for the outstanding
wages.
The above principle is well established. The
rationale behind the definition of “employer” under the Ordinance is to cater
for situations where a corporate employer is wound up and employees have no
remedy against the corporation. They nevertheless have a continuing remedy
against the duly authorised manager/agent/factor who has been convicted of an offence
under the Ordinance. The inclusion of a broad range of persons who fell within
the meaning of “employer” is deliberate: it is a “blunderbuss” approach and is
designed to better protect the employees and thereby to achieve the objective
of the Ordinance. The employees acquire a far reaching protection, which is the
purpose of the Ordinance.
Exercise of discretion
The court will not
in every case automatically hold a director personally liable for outstanding
wages because a director falls within the definition of “employer”
under section 2. The court retains a discretion whether to make such an order
under section 65.
In the present appeal, the Director argued that the Magistrate failed to particularize the
basis upon which he exercised the discretion under section 65, except that the Company
failed to pay wages while the Director was the Company’s director. The Director
contended that the Magistrate failed to consider all circumstances of the case,
including the following mitigating factors:
1.
In 2019,
the Company’s business was greatly affected by social unrest and the COVID-19
pandemic. The Company was not in operation and had no assets, rendering itself
unable to meet any outstanding liabilities. The discretion to make an order under
section 65 should only be used where the director of a company chooses to
splurge and expand business notwithstanding the outstanding wages. That is not
the case here.
2.
The
ultimate decision maker of the Company was its sole shareholder one “Mr. Yau”
and the Director was only “employed” to be its director. The Director was not
financially sound and shall not bear any liabilities.
Decisions
The CFI agreed
with the Magistrate’s decision that the Director falls within the ambit of “employer”
under section 2, which covers “the duly authorized agent, manager or factor” of
person entering into a contract of employment to employ any
other person as an employee. The purpose of section 65 is to protect employees
from oppression of their employers.
However, by leaving
such discretion to the court, the legislature must have contended that not all
employers failing to pay wages should be subject to an order to pay under
section 65. The Magistrate should have considered all the special
circumstances of this case when exercising his discretion. As the Magistrate
failed to consider the business environment and social factors raised at trial,
the CFI reviewed the evidence of the present case.
The CFI allowed the
Director’s appeal. Although he was the Company’s sole director, the Director was
no different from an employee. Given that the Director did not receive a
high salary for being an employee director, his salaries were still owed by the
Company and the alarming health conditions of him and his wife, the CFI considered
that the Director should not be personally liable for the outstanding wages
payable to the Employees.
Key takeaways
A director or a senior
officer may be ordered by the court to pay the outstanding wages owed by the
corporate employer if the director or the senior officer falls within the
definition of “employer” under the Ordinance and commits an offence under the
Ordinance. An employee director or senior officer commits an offence if the
employer company fails to pay any sum payable under a Labour Tribunal award
with the consent or connivance of, or to be attributable to any neglect on the
part of, that director or senior officer.
Although the court still retains a discretion
whether to order the director or senior officer to pay the outstanding wages in
such case, there is a risk that an employee director may be criminally liable of
wage offences and be personally liable to pay outstanding wages. As a director
or senior officer, if you wish to ensure compliance with the Ordinance and/or
to avoid potential criminal and/or personal liability, it is always prudent to
consult an employment lawyer whenever you are in doubt.
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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 © 2022 |
