Unpaid Leave under COVID-19 – Is it Legal in Hong Kong?

Employment law issues in relation to COVID-19 are currently at the forefront with the unemployment rate constantly reaching its peak in view of the financial and operational difficulties posed by the pandemic on businesses. Small businesses are peculiarly vulnerable under the pandemic given the cashflow shortage and decreasing revenue with dampening consumer sentiment and the government’s social distancing measures in place.

It is against this backdrop that many employers, especially the ones in the food and beverages as well as the retail industries which are hit the hardest, resort to asking employees to take unpaid leave during this period to reduce cost without adding fuel to the already soaring unemployment rate. Ideal as it may seem from the employer’s perspective, the question pops up: Is this cost-cutting measure legal?

The answer is: It depends.

In Hong Kong, there is no statutory right that entitles employers to unilaterally require their employees to take unpaid leave. In other words, employers are not allowed to force their employees to take unpaid leave if they are unwilling to do so. However, the exception is where there is an express provision or clause in the employment contract specifying that the employer is entitled to direct the employee to take unpaid leave. Without such an express contractual term, an employer who forces an employee to take unpaid leave against his/her wish would be in breach of contract.

Provided that such an express contractual term is present in the employment contract, and that the employee refuses to take unpaid leave, the employee’s refusal can be treated as a refusal to comply with a lawful order, and the employer may warn the employee or even take disciplinary action if the employee insists on his/her stance.

The absence of such an express provision in the employment contract is, however, not the end of the world. In fact, desperate employers may still consider providing incentives so that employees are willing to go on unpaid leave on a voluntary basis, for example by promising to provide compensation to employees, including bonuses and additional holiday leave, when the economic situation improves. Where an employee voluntarily consents to take unpaid leave, employers are suggested to document the agreement in writing which provides a legal foundation for such unpaid leave taken.

Employers have to bear in mind that any harsh measures against employees with regard to their refusal to take unpaid leave in the absence of any express contractual term may lead to negative consequences. Employer-employee conflict can have a long-term detrimental impact on the business as it may lead to reputational loss and loss of profits when the employer branding is damaged. Therefore, employers are encouraged to communicate clearly and openly with employees before making any decision on unpaid leave so that employees may evaluate such arrangement.

There is no doubt everyone, whether the employer or employee, is having a hard time under the worst public health crisis of the century. In this age of turmoil, it is imperative for all parties to foster mutual understanding and act in unity to fight the outbreak in a manner that upholds legality and morality. While employers should try to be flexible and empathetic on work arrangements and decision making, employees are advised to put themselves in the employer’s shoes as well so that all can tide over the crisis.

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