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Legal Update

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

28 July 2003
Mayer Brown JSM Legal Update


In Lui Lin Kam & Others v Nice Creation Development Limited (9 July 2003, an appeal from the Labour Tribunal), the Court of First Instance ruled upon an employee's right to statutory severance payment when the employee is employed under an arrangement of successive contracts.

Full Update


The two Claimants in question are former employees of the Defendant company. Throughout their employment periods, each of the Claimants had signed 3 written contracts with the Defendant and each of these contracts lasted for 18 months. The Claimants claimed against the Defendant for statutory severance pay. The Defendant disputed such claim on the basis that the Claimants had not served the requisite period of service of 2 years (as stipulated under the Employment Ordinance, the (EO). The Defendant's argument was that there was an intervening period between the last 2 successive contracts (the "disputed period") which broke the continuity of employment in each case.

Relevant provisions

The continuity of an employment relationship is determined in accordance with the following provisions set out in the First Schedule of the EO:

Subject to the following provisions, where at any time an employee has been employed under a contract of employment during the period of 4 or more weeks next preceding such time he shall be deemed to have been in continuous employment during that period.

(1)   For the purposes of paragraph 2, no week shall count unless the employee has worked for 18 hours or more in that week, and in determining whether he has worked in any hour the provisions of sub-paragraph (2) shall apply.

(2)   If in any hour the employee is, for the whole or part of the hour:

 (a) incapable of work in consequence of sickness or injury; provided that any such incapability in excess of 48 hours is supported by a certificate issued by a registered medical practitioner or registered dentist; or
 (b) absent from work in circumstances such that, by law, mutual arrangement or the custom of the trade, business or undertaking, he is regarded as continuing in the employment of his employer for any purpose,

then, that hour shall count as an hour in which he has worked.

Court's decision

The Court affirmed that the continuity of employment will be broken if an employee, not falling within any of the prescribed exceptions under paragraph 3(2) above, does not work for at least 18 hours within a week. 

However, notwithstanding the above interpretation of the First Schedule of the EO, the Court held that the continuity of each of the Claimants' employment was not broken by reason of the disputed period based on the following findings:

  • Based on the evidence before it, the Court considered that there was an agreement or tacit understanding between the Claimants and the Defendant that they would be re-engaged after the disputed period. Therefore, this case would fall within paragraph 3(2)(b) above.
  • In addition, the Court held that the circumstances where by law an employee is regarded as continuing in the employment as referred to in paragraph 3(2)(b) should include the circumstances where an employee is employed under a "global contract" (i.e. a general engagement in a series of contracts of employment between the same parties covering a substantial period of time - constituting a continuing overriding arrangement which governs the entirety of the employment relationship). 
  • The Court viewed the present arrangement of signing successive contracts as simply a scheme to avoid liabilities for severance or long service pay and the disputed period was merely an artificial break. Therefore, the termination of the Claimant's employment by the Defendant would be caught by section 32A(1)(a) of the EO, thus enabling the Claimants to claim employment protection under Part VIA of the EO dealing with protection against dismissal unreasonable (although no such claim was in fact brought).
  • Taking into account the concept of "global contract" and the employment protection under Part VIA of the EO, the Court held that the absence from work during the disputed period was in circumstances such that the Claimants were regarded as continuing in the employment of the Defendant by law.


The Court also discussed the remedies to which the Claimants would have been entitled:

  • Under Part VIA of the EO (if the Claimants brought a claim under this part), the Labour Tribunal could have made an order for reinstatement stipulating that the continuity of the period of employment shall not be treated as broken.
  •  Further, any agreement to break the continuity of employment to extinguish the right of the Claimants to severance or long service pay will be void under section 70 of the EO.

Tips to Employers

Whilst we consider that the Court's comment regarding an order of reinstatement is somewhat far-fetched in that such order can only be made if both parties, including the employer, consent, this case operates to demonstrate to employers the willingness of the courts to disregard any artificial "break" between contracts if such arrangement is simply designed to avoid the liability to make statutory severance or long service pay.

For further information, please contact:

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

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