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Legal Update

Another Case Where The Continuity Of Employment Was Broken

8 January 2007
Mayer Brown JSM Legal Update


In the second of such cases this year, the Court of Appeal in Wong Man Sum v Wonderland Seafood Restaurant has held that a break of more than 2 weeks between two employment contracts is sufficient to break the continuity of employment for the purposes of the Employment Ordinance.

Full Update

The Background

The Employment Ordinance provides that an employee who has been employed under a continuous contract for a period of not less than 24 months (before he is made redundant) is entitled to statutory severance pay. 

In order to avoid paying the severance payment many industries in Hong Kong have adopted a method which precludes the operation of the section.  This is done by way of a series of fixed term contracts of employment of less than 24 months. The employee is required to take a short break before taking up a new fixed term contract.

The case of Wong Man Sum v Wonderland Seafood Restaurant illustrates how it works. Mr Wong entered into an 18 month fixed term employment contract with Wonderland Seafood Restaurant (the "First Contract").  At the end of the First Contract, Mr Wong was required by the Restaurant to take a break of 2 weeks before he commenced work under a second 18-month contract with the Restaurant (the "Second Contract").

Mr Wong was dismissed during the Second Contract. 

Mr Wong succeeded in a claim for wrongful dismissal in the Labour Tribunal who held that he was entitled to be treated as if he had been made redundant. The Tribunal awarded severance payment to Mr Wong calculated on the basis of his entire period of service with the Restaurant (i.e. the period under both the First Contract and the Second Contract). 

The Court of First Instance agreed with the Tribunal's decision. 

The Restaurant appealed to the Court of Appeal.   

The Law

The courts have sought to overcome this artificial device of breaking continuity of employment by means of the concept of 'global', or 'umbrella' contracts where a series of contracts are treated as a single contract so that even though an employee may be required to take a break between each employment, he is nonetheless treated as if he is still being employed during the break. But as recent cases have shown this concept really depends on something said or done by the employer such as to show that the parties regarded the employment relationship as continuing despite the termination of the contract of employment. A settled expectation that the employee would return to his old job after a short break is insufficient. In other words there must be evidence of mutual arrangement of the parties which recognise the continuous employment of the employee despite his absence from work. This is often hard to prove. 

The Decision  

The Court of Appeal allowed the Restaurant's appeal. 
As with the recent case of Lui Lin Kam v Nice Creation Development (see our Legal Update "Breaking Continuity Of Employment (7 Aug 2006)") the Court of Appeal found that it was clear from the evidence that there was no mutual arrangement between the Restaurant and Mr Wong under which he was regarded as continuing in the employment during the 2 week break between the First Contract and the Second Contract. To the contrary, it was clear from the evidence that the Restaurant deliberately so arranged its affairs that the period of employment of Mr Wong would be broken during that period.

Related Links 

Breaking Continuity Of Employment (7 Aug 2006)

What Happens To Employees On The Transfer Of A Business? (21 Jun 2006) 
What Gap In Employment Is Necessary To Break The 'Continuity' Of An Employee's Contract? (5 Jul 2005)

Will Intervening Periods Between Successive Contracts Prevent An Employee's Right To Statutory Severance Or Long Service Pay? (28 Jul 2003)

For further information, please contact:

Name: Duncan A. W. Abate
Position: Partner, Head of Employment and Employee Benefits Group
Phone: +852 2843 2203
Fax: +852 2103 5066

Name: Hong Tran
Position: Senior Associate
Phone: +852 2843 4233
Fax: +852 2103 5070

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