3. How can a "contract of employment" and a "contract for service
by independent contractor (or self-employed person)" be distinguished?
   
The Employment Ordinance applies to employers and their employees who
are engaged under contracts of employment (with some exceptions), and only those employees are entitled to the rights and benefits that are
provided under the Employment Ordinance. To avoid unnecessary disputes, it
is important to delineate between the status of an employee and a contractor
(or self-employed person) when both parties enter into a service contract.
There is no one single conclusive test to distinguish a contract of employment
from a contract for service. Some factors to be considered in identifying a
contract of employment are as follows:
(a) Control
- Who decides on the matters of recruitment and dismissal of workers?
- Who pays for the workers' wages and in what ways?
- Who determines the production process, timing and method of production?
(b) Ownership and provision of factors of production
- Who provides the tools and equipment?
- Who provides the work place and materials?
(c) Economic considerations
- Do the workers carry on business on their own account or carry on the business
for their employers?
- Are the workers involved in any prospect of profit, or are they liable
for any risk of loss?
- How are the worker's earnings calculated and profits derived?
The relevant factors to be considered are determined by the circumstances of
each case. For example, workers who bring their own tools and materials for
their work are more likely to work under contracts for service by independent
contractors. In contrast, those who are fully provided with tools and materials
by their bosses are more likely to work under contracts of employment.
In delineating an individual case, all relevant factors should be carefully weighted
and an evaluation and analysis of the factual circumstances in which the work
is performed should be carried out. You can also refer to the Labour Department's
webpage at http://www.labour.gov.hk/eng/public/wcp/SelfEmployedPerson.pdf for
more information.
For further reference, the Inland Revenue Department has a set of criteria for
determining whether a service contract is a contract of employment. The major
criteria are highlighted as follows:
- there is no employment-type benefit (e.g. money, annual leave,
sick leave or pension) provided for the service carried out;
- the service is not required to be carried out personally (e.g.
can hire assistants/sub-contactors);
- the performance of the service is not subject to the control
or supervision that may be commonly exercised by an employer in relation
to the performance
of an employee's duties;
- the remuneration is not paid or credited periodically (e.g. weekly
or monthly) as is common with employment contracts;
- neither the service provider nor the receiver has the right to
terminate the service contract before the expiry of the contract or before
the job finished, by giving prior termination notice/money in lieu
of notice
to
the other party;
and
- neither party in the service contract has intended to lead members
of the public to believe that an employment relationship exists.
If all of these criteria have been satisfied, then a contract of employment is
unlikely to exist. For more details on the criteria, please see the Inland
Revenue Department's webpage at http://www.ird.gov.hk/eng/pdf/e_dipn25.pdf.
In cases of dispute about whether or not the subject contract is a contract of
employment, the jurisdiction or judgment rests with the Court. A local case
was finally heard before the UK's Judicial Committee of Privy Council in 1997
(the final appellant court for Hong Kong before 1 July 1997). The Appellant,
a golf club caddie, did not have a written employment contract, and there was
also no guarantee by the club that he would get any work from the players at
the club. However, there was an agreed payment rate per round and he was also
required to wear a uniform provided by the club. The Privy Council ruled that
he was an independent contractor/self-employed person rather than an employee because there was
no mutual employment obligation between the club and the Appellant.
However, the Privy Council reiterated that whether or not a contract of employment
existed has to be determined by investigation and evaluation of all the factual
circumstances in which the work is performed. In other words, no exhaustive
list of factors or strict rules governs the relative weight of each factor
when making the decision.
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