Council Meetings (Question): Enforcement of Employees’ Compensation Ordinance(2012.02.01)

Question on the Enforcement of the Employees’ Compensation Ordinance by Hon KP Chan:

Under the Employees’ Compensation Ordinance (Cap. 282) (the Ordinance), all employers must at present take out employees’ compensation insurance policies (EC policies) for their employees and in 2010, the Labour Department instituted 1 294 prosecutions against employers who had not taken out EC policies for their employees, which is a record high in the recent six years. In addition, it has been reported that in recent years the court imposes increasingly heavy penalties on persons who contravene the Ordinance, and in the past few years, two employers were sentenced to seven days’ and 14 days’ imprisonment respectively for contravening the Ordinance, and a few employers were given suspended sentences of imprisonment. In this connection, will the Government inform this Council:

(a) given that it has been reported that as the risk of claims for compensation under EC policies for a number of high-risk types of jobs is already higher than that for the other industries plus the fact that some employers, who hold the view that their employees will not all have accidents at the same time, only take out EC policies for a small number of their employees, resulting in insurers receiving far lower premiums than what should be payable by the employers in accordance with the associated risk, and paying massive amounts of compensation whenever there are accidents; and that since the level of premium is adjusted according to the overall situation in the industry, there has been a substantial increase in the level of premium in general for such types of jobs recently, which is unfair to those law-abiding employers as well as members of the public who ultimately bear the costs of services or products, whether the authorities will persuade and advise employers to provide true salary information when taking out EC policies and study requiring auditors to state in their reports whether the company’s expenditure on salaries matches the salaries of employees which were declared when EC policies were taken out;

(b) given that it has been reported that the acts of making fraudulent insurance claims through recovery agents and champerty have become increasingly rampant in recent years, resulting in the insurance industry suffering tremendous losses in operating employees’ compensation insurance business, and relevant industries having difficulties in taking out EC policies; and statistics show that among the occupational injury claims received by the insurance industry, in 2006, only 1 400-odd cases involved sick leave certificates covering periods of more than half a year, but the number of such cases increased by 60% within five years to over 2 200 cases in 2010, whether the authorities have examined the reasons for the increasing trend in the number of sick leave certificates covering prolonged periods issued by public hospitals in recent years and the solution; and

(c) given that it has been reported that some employers forced their employees to become self-employed persons (“false self-employment”) or to be upgraded as the companies’ directors (“false directorate”) so as to evade the responsibility of taking out EC policies, and while the salaries and benefits are the same as before when they were employees, yet as the relationship between the two parties is no longer that between employers and employees, the employees will not be given any protection or compensation to which they are entitled in the event that they sustain injuries at work, not to mention mandatory provident fund contributions by the employers, of the total number of complaints involving “false self-employment” and “false directorate” received by the authorities last year, and the number of cases in which the persons involved were prosecuted?

Written reply by Secretary for Labour & Welfare Mr Matthew Cheung Kin-chung:

My reply to the Hon Chan Kin-por’s question is as follows:

(a) According to the Employees’ Compensation Ordinance (ECO), all employers are required to take out employees’ compensation insurance policies to cover their liabilities both under the ECO and at common law. An employer failing to comply with this requirement is liable on conviction to a maximum fine of HK$100,000 and imprisonment for two years. Labour Inspectors of the Labour Department (LD) conduct workplace inspections to establishments of various trades and mount targeted enforcement campaigns to inspect whether the employers have complied with the requirement of the ECO.

In addition to active inspection and stringent enforcement, through mass media and promotional activities, LD all along reminds employers to take out employees’ compensation insurance policies in accordance with the law. LD also requires employers, when taking out employees’ compensation insurance policies, to ensure that all employees are covered by the insurance policies and provide to the insurer detailed declarations on the earnings and job duties of their employees.

LD has also set up a complaint hotline for employees to report suspected cases where employers fail to comply with the requirement of taking out employees’ compensation insurance policies. Upon receipt of a complaint, LD would make investigation promptly.

(b) The Hospital Authority (HA) is a statutory body providing public hospital service. As a public organisation, HA has been providing necessary medical service and treatment to patients. HA’s doctors conduct medical assessment and issue leave certificates based on their professional judgment and clinical conditions of individual patients.

(c) An employer cannot evade his liabilities under the ECO by labelling his employees as self-employed persons. Even if an employer makes a “sub-contractor contract” with his employee with a view to changing the latter’s identity to be a “self-employed person”, if in essence there exists an employer-employee relationship, the employer is still required to pay compensation to an employee who sustains an injury or dies arising out of employment, and to take out an employees’ compensation insurance policy according to the law. If an employer fails to take out an employees’ compensation insurance policy as required by the ECO, he is still liable to pay compensation by himself where his employees are injured or die arising out of employment.

In 2011, the Employees’ Compensation Division of LD received a total of 35 cases involving dispute about self-employed identities, but did not receive any complaint about “faked directors”. Among these cases, LD had initiated prosecution against five employers who were suspected of not taking out employees’ compensation insurance policies as required by the ECO. Of these cases, three were convicted, one acquitted and the hearing of one is in progress.

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