How soon can businesses recover funds after paying another employer's workers?
A Hong Kong court recently dealt with a wage dispute examining subcontractor obligations under the Employment Ordinance.
The case centered on a principal contractor's right to recover wage payments after a subcontractor failed to pay its workers at a major construction project.
When a subcontractor defaulted on worker wages, the Employment Ordinance's provisions allowed workers to claim payment from contractors higher in the chain.
The court needed to determine whether contractors who contributed funds before the actual wage payments could recover these amounts from the defaulting employer.
The heart of the dispute involved interpreting sections 43C and 43F of Hong Kong's Employment Ordinance, specifically regarding the timing of wage-related payments and how this affected a contractor's recovery rights.
At a Hong Kong International Airport logistics centre project, a subcontractor failed to pay worker wages between December 2021 and January 2022.
The principal contractor, operating through a joint venture arrangement, oversaw several layers of subcontractors responsible for different aspects of the development.
Under Hong Kong's Employment Ordinance section 43C, when a subcontractor fails to pay wages, the principal contractor and superior subcontractors become jointly liable.
The legislation states that unpaid wages "shall be payable to the employee—(a) where the sub-contractor has contracted with the principal contractor, by the principal contractor; and (b) where the sub-contractor has contracted with a superior sub-contractor, by the principal contractor and every superior sub-contractor to the sub-contractor, jointly and severally."
On 4 January 2022, the principal contractor paid HK$25 million to its immediate subcontractor. This subcontractor then paid most of the outstanding wages to workers in January and February 2022.
The Employment Ordinance established specific mechanisms for handling wage recovery through section 43F, which states that "if a principal contractor or superior sub-contractor pays to an employee any wages under section 43C, the wages so paid shall be a debt due by the employer of that employee to the principal contractor or superior sub-contractor."
From 18 January 2022, a new subcontractor took over as the employer of the affected workers. Under this arrangement, two remaining workers received their payments through a different process, with the immediate subcontractor reimbursing these amounts through a set-off arrangement.
The court examined whether the principal contractor's advance payment qualified as a "contribution" under section 43F, which would determine their right to recover the payments made.
The defaulting employer argued that the law only permitted recovery of contributions made after wage payments. The court disagreed, finding that the legislative language was "broad enough to cover a prior contribution."
The court determined that "a contractor who funds the payment of wages in advance but does not actually directly pay the wages should be in any worse position than a contractor who provides funds to the direct payer after the payment."
In its analysis, the judgment emphasised three fundamental purposes of the statutory provisions: "that workers are protected and are entitled to claim payment from any contractor up the chain from their non-paying employer; that all superior contractors to the employer bear equal responsibility to ensure that payment is made; and that, at the end of the day, the primary burden of payment rests on the employer."
The court concluded that whether "a prior payment is made for the purposes of contributing to a wages payment, or whether the relevant contractors agree that a prior payment should be treated as such a contribution, is a matter of fact."
This interpretation supported the practical implementation of wage protection measures, with the court noting that "a prior contribution is required in order to enable the paying superior contractor to make payment of the wages."
The court ultimately dismissed the appeal, establishing that advance payments could qualify for recovery when made to facilitate worker wage payments. This decision clarified how the Employment Ordinance's wage protection provisions operate within Hong Kong's construction industry.
