In the recent case of Wong Kin v Him Kee Food Distribution Co Ltd  2 HKLRD 665, the Court was asked to consider whether the applicant was an employee or an independent contractor of the company, thereby entitling him to claim employees' compensation for the injuries he sustained during the course of his employment.
This case serves as an important reminder to companies who intend to create an independent contractor relationship, that the contract should be tightly drafted, and that the terms of engagement reflect the realities of an independent contractor relationship.
The applicant argued that he was entitled to employees' compensation from the company on the ground that he was either in its employ or else in the employ of its sub-contractor. The company denied that it was liable to pay him employees' compensation, contending that the applicant was engaged as an independent contractor.
The Court was asked to consider whether the applicant was an "employee" of the company within the meaning of the Employees' Compensation Ordinance (Cap. 365)("ECO"), or in the alternative, whether the company was the "principal contractor" within the meaning of the ECO (i.e. making it ultimately liable for employees' compensation). In determining whether the company was liable to compensate the applicant, the Court analysed the relationship between the parties. The Court applied the case of Poon Chau Nam v Yim Siu Cheung  which identifies a number of factors that would indicate an employment relationship. Having considered these factors in this case, the Court found that the sub-contractor and the applicant had an employment relationship. As a result, the company (being the principal contractor) was held liable to compensate the applicant.
Employment / Independent Contractor Relationship
In Hong Kong, there is no single conclusive test to distinguish an employee from an independent contractor. Describing a person as an independent contractor in the contract will be a starting point, but it is always a question of substance rather than form.
The modern approach to the question of whether an individual is an employee is to examine all of the features of their relationship against the background of the indicia of employment with a view to deciding whether, as a matter of overall impression, the relationship is one of employment.
In the Poon Chau Nam decision, the Court of Final Appeal held that the indicia included (a) the degree of control exercised by the "employer" (b) whether the individual performing the services provided his own equipment (c) whether he hired his own helpers (d) what degree of financial risk he took (e) what degree of responsibility for investment and management he had and (f) whether and how far he had the opportunity of profiting in the performance of his task.
To determine the true nature of the relationship between the parties, it is necessary to examine the practical effect of the contractual arrangements.
- The Court will be prepared to look past what the parties choose to call themselves in a contractual relationship and consider the overall impression of the relationship in order to determine whether an employment relationship has been created between the parties.
- Individuals are often willing to challenge their engagement status and assert that they are in fact employees rather than independent contractors in order to claim certain statutory benefits which are only afforded to employees. This may be the case even after appearing (during the engagement) to accept that they are not employees. This is especially the case since it is a relatively straight-forward claim with minimal costs involved.
- Independent contractor agreements should clearly avoid any "employee" language (e.g. annual leave, wages etc.). It is also vital that employers actually implement the arrangements in the agreement in practice and that the agreement is not circumvented by practices which involve treating the contractors like employees.