Recently, the Hong Kong Court of Appeal has looked again at the question of whether illegal workers are entitled to employees’ compensation from the Employees Compensation Assistance Fund Board (the Board). Under the Employees’ Compensation Ordinance (ECO), the court has a discretion to treat a person employed under an illegal contract as if they were employed under a valid contract (see section 2(2) ECO). Such cases are not as rare now as they used to be and the Board has thus far had to borrow HK$14 million to pay for such cases.

In the Yu Nongxian v Ng Ka Wing [2007] case, the employee was an illegal worker from China, who was employed to install scaffolding. During his employment with his uninsured employer, the employee fell from the eighth floor and died. The employee’s relatives sued for damages and the court came to the following conclusions:

  • The ECO enables an employee to recover compensation on a no-fault basis, so long as the injury or death is the result of an incident that happened in the course of their employment. It would be very harsh if public policy denied compensation to an employee who was harmed or killed while carrying out lawful work just because he or she did not have official permission to work in Hong Kong.
  • The court reaffirmed the decision of Chung Man Yau v Sihon Co Ltd [1997] where it was said that “the court must examine all the circumstances – the nature of illegality complained of, the moral and criminal culpability and the plaintiff’s conduct”. 
  • There is an important public policy issue behind the legislation making it illegal to employ workers such as the deceased. However, this is not a good enough reason on its own for the court to exercise its discretion under the ECO against an employee. Apart from anything else, if compensation is not payable in such circumstances, an illegal employee may not come forward at all, thus allowing the employer to get off scot-free. However, it is not to say that all illegal employees are thus enabled to obtain compensation because much depends on, for instance, the legality of the work performed and the seriousness of the illegality. 
  • Where an employer is unaware that one of his employees is illegally employed, if he has been included as a worker when calculating insurance premiums, this is also another basis for the courts to exercise its discretion in granting relief.

The court looked in detail at the Board’s liability to pay for the uninsured employer. It decided that the Board was indeed liable to pay compensation under section 7 of the Employees Compensation Assistance Ordinance (ECAO), provided the applicant satisfied the ECAO requirement of exhausting all other “legal and financially viable means of recovery” (see section 16(3) ECAO).

If the Board wants to avoid having to pay compensation out of its own funds in cases such as Yu Nongxian, it should (the court said) focus on using its subrogation rights rather than fighting illegal employment. Their argument was that even though such proceedings would be costly and possibly fruitless because of the employer’s inability to pay, pursuing the employer for his/her last cent may be a deterrent to help fight illegal employment. In any event, the government could always amend the ECAO to, for instance, ensure that recovery against the Board by an illegal employee would not be permitted. The government had done so in the past – in 2002 – although that particular amendment had been mainly concerned with protecting the fund from other liabilities.

Having taken all the above factors into account, the court ruled in favour of the employee’s family and exercised its discretion to order that compensation should be awarded out of the Board’s funds.