Potential criminal and personal liability of employee director for employer company’s failure to pay wages/labour tribunal award
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  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.
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.
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.
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.
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.
Published by ONC Lawyers © 2022