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Legal Update

What Gap In Employment Is Necessary To Break The 'Continuity' Of An Employee's Contract?

5 July 2005
Mayer Brown JSM Legal Update


This update considers Wong Man Sum v Wonderland Sea Food Restaurant O/B Long Yield Co. Ltd HCLA133/2002, which was an appeal to the Court of First Instance from a decision of the Labour Tribunal. The case involved the question of when two contracts should be treated as being continuous for the purpose of the Employment Ordinance.

Full Update

The Background

The employee was employed in the respondent's restaurant. The employee started to work for the respondent in April 1999 and was dismissed in September 2001. During this period, two contracts were signed. Each contract was for a fixed period of 18 months.

When the first 18-month contract expired, the employee signed a declaration of resignation and there was a break of about 16 days before the second contract commenced. During the break, the employee did not work with the employer at all.

The employee was subsequently dismissed by the respondent. 

The Labour Tribunal held that the employee had been wrongly dismissed and that the respondent was obliged to pay the employee certain amounts. In particular, the Labour Tribunal held that the gap in employment of 16 days did not break the continuity of the employee's employment for the purpose of the Employment Ordinance. Therefore the employee was entitled to severance pay for the period from April 1999 to the date of dismissal.

The employer appealed.

The Law

Statutory severance pay is only payable to an employee who has been employed under a "continuous contract" for a period of not less than 24 months. A continuous contract of employment means a contract under which an employee works continuously for the same employer for 4 weeks or more, with at least 18 hours in each week.

Where an employee is absent from work for any period "in circumstances such that by law, mutual agreement or the custom of the trade, business or undertaking" he is regarded as continuing in employment then such absence shall nevertheless be treated as time worked. This is the "mutual agreement" exception.

The Decision

In the appeal, the main issue the Court considered was whether the Labour Tribunal was right in deciding that the employee's contract was not discontinued by the 16-day break between contracts. It was not in doubt that there was a gap in employment in between the two contracts. Therefore unless the situation was covered by the "mutual arrangement" exception, there would be no continuity.

The Court considered that since the first employment contract was due to end by October 2000 in any event the "declaration of resignation" by the employee was a superfluous move and was evidence that the 2 separate contracts and 16-day break were designed to attempt to avoid the employer's liability (or potential liability) for severance or long service payment. As a result, the Court upheld the Labour Tribunal's decision that the employee's absence from work for 16 days was due to a "mutual agreement" designed to avoid the statutory consequences of continuous employment and dismissed the employer's appeal.


This decision highlights the court's willingness to stretch the "mutual agreement" exception to include any circumstances where it considers there has been an abuse by the employer of the spirit of continuity of employment.

For further information, please contact:

Name: Duncan A. W. Abate
Position: Partner
Phone: +852 2843 2203
Fax: +852 2103 5066

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