The pre-existing trend towards wider adoption of remote working practices has been – forcibly – exacerbated by covid-19. Employers across the globe are, whether they like it or not, being confronted with new employee expectations and arrangements. Those inclined towards the life of a digital nomad have been encouraged in this outlook; and it appears that we will never return to the world of work as it existed on New Year’s Day 2020. Remote working is here to stay.
At the same time, competition for talent is constant; and, despite the associated difficulties, there are definite benefits apparent from remote working, including some cost savings. Businesses are increasingly being asked to consider requests for people to work remotely, not just from a nearby home, but from a different jurisdiction. This has legal implications which need to be understood by employers, and which we briefly discuss in this note.
The most obvious exposure relates to the acquisition of different or enhanced employee protection and benefits. It is well established that an employer will not be permitted to opt-out of the application of an employment law which should apply by virtue of the place of work, simply by specifying a different governing law.
In the 2007 Hong Kong first instance decision in HSBC v Wallace, the court took the view that the choice of English law prescribed in employment terms could stand, notwithstanding that Mr Wallace had never worked for the bank in England, and had been in Hong Kong for the duration of his employment and at the time of his resignation.
This, however, was an interpretation which was not followed in Cantor Fitzgerald v Boyer, when in 2012 the same court confirmed that an employer must regard itself as bound by the employment ordinance in relation to employees working in Hong Kong, and cannot vary this position by including a foreign law in the employment terms. The effect of this is that any employee working in Hong Kong is entitled, for example, to exercise the right of a buy-out of notice, which is not usually available to employees based elsewhere, unless expressly provided for in contract terms.
In Crofts and Others v Cathay Pacific, the 2005 decision allowed pilots, who were managed from Hong Kong, but based in London, to bring claims for unfair dismissal in England under English law, notwithstanding that their contracts were stated to be governed by Hong Kong law.
Another key difference that might become available to employees working in another place is the enhanced protection against dismissal which, of course, exists in very many jurisdictions, such as mainland China, Japan, Korea, the UK, and Australia, to name a few. Those employees may also accrue different entitlements to benefits, such as retirement schemes, sick pay, parental leave and pay, and (less likely to be relevant in this context but we mention it for completeness) minimum pay. It is, therefore, advisable to audit the respective entitlements provided for in each of the two jurisdictions, and identify any conflicts or shortfalls.
Of course, it is not necessarily always going to be the case that the employee will acquire enhanced rights in the “other” jurisdiction; there will be many factors at play. One of these could be the duration of the permitted absence from the normal location; another could be whether or not the relevant group has a local presence, which may unwittingly find itself the defendant in any subsequent dispute with the relevant employee. Sometimes, where there is a local presence, it will be appropriate to second the employee or effect a transfer for a finite time, rather than, for example, simply allowing the person to work casually from the local jurisdiction. If the local presence is a branch as opposed to a related entity, then that may have implications.
This leads to the next point, which is the risk of a “permanent establishment“ being created through the employer having allowed its representative to work and carry on business in the foreign jurisdiction. Commenting on tax consequences falls outside the scope of this note, but employers should ensure that appropriate tax advice is taken, both in relation to any potential corporate tax consequences, as well as possible implications for the administration of payroll.
For example, if a person is working in China, the employer must make payments net of individual income tax, and account to the tax authorities for such payments on behalf of the employee. That system is of course entirely different from that in place in Hong Kong, and indeed section 32 of the employment ordinance should be taken into account in setting up any such arrangements for payroll; that section prohibits deductions from any payments to employees, and the permitted exceptions do not include withholding by consent or making deductions required pursuant to any non-Hong Kong ordinance.
Another area of which to be wary relates to anti-discrimination laws; these have existed in Hong Kong since the late ’90s, but the list of protected characteristics is limited, while the scope of added discrimination and harassment protection in Singapore and China is narrow. In contrast, significant protection against discrimination arises under the laws in place in Australia, the US, the UK, and much of Europe.
Immigration and regulatory requirements must also be taken into account. In Hong Kong, for example, any absence of a responsible officer may have implications and provoke questions, such as whether or not there is adequate supervision of the business.
We hope this note gives a flavour of some of the potential obstacles and pitfalls which arise when an employee seeks to work outside the jurisdiction envisaged by the original employment arrangements. Employers considering remote working arrangements are recommended to analyse the impacted locations, and consider the implications and what is the best way to structure an arrangement.
Steps can be taken to minimise the related risk and exposure. In some sectors and teams, the ability to work remotely will definitely have an enhanced and positive effect on productivity; in others, the physical absence of employees, and particularly key workers, may carry too heavy a price. The employer’s objective should be to carry out an informed assessment.
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