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LCQ22: Protection of Wages on Insolvency Fund
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     Following is a question by the Hon Kwok Wai-keung and a written reply by the Secretary for Labour and Welfare, Mr Matthew Cheung Kin-chung, in the Legislative Council today (June 15):

Question:

     Section 31G of the Employment Ordinance (Cap. 57) stipulates the formula for calculating severance payments but, pursuant to section 31I, the amount calculated according to the formula has to be reduced by the accrued benefits derived from the employer's contributions made to Mandatory Provident Fund schemes in respect of the employee concerned (offsetting) in order to arrive at the net amount of severance payment due to the employee.  On the other hand, the employee may apply for ex gratia payments from the Protection of Wages on Insolvency Fund (PWIF) to cover the outstanding wages, severance payment, etc. that the employer fails to pay.  Limit on the amount of an ex gratia payment payable to an employee in relation to severance payment in arrears is calculable by applying the formula set out in section 16(2)(f)(i) of the Protection of Wages on Insolvency Ordinance (Cap. 380).  Over the years, the authorities have taken the amount calculated under section 31G as an applicant's "entitlement to severance payment" in section 16(2)(f)(i) and, by applying the formula set out therein, computed the limit of such entitlement, and then made the offsetting to arrive at the amount of ex gratia payment payable to an employee in relation to severance payment in arrears.  Last month, the Court of Final Appeal held that the calculation approach adopted by the authorities was wrong and the amount of "entitlement to severance payment" in section 16(2)(f)(i) should be the actual amount of severance payment, and therefore the offsetting should first be made before arriving at a net amount, which will then be put into the formula to calculate the ex gratia payment payable to an employee.  In this connection, will the Government inform this Council:

(1) of the number of applications for ex gratia payments received by PWIF and the amounts involved, in each of the past five years;

(2) of the number of people who made applications to PWIF in the past five years in relation to severance payment in arrears but were not granted ex gratia payments after the offsetting was made;

(3) whether it has assessed, among the applications made to PWIF in relation to severance payment in arrears in the past five years, the number of those in which the amounts of ex gratia payments calculated according to the approach set out by the Court of Final Appeal in the aforesaid judgment are higher than those calculated under the original approach, and the total amount of the relevant shortfalls; whether the authorities have plans to repay the shortfalls to the applicants concerned; if they do, of the details; and

(4) whether the authorities will, in the light of the aforesaid judgment, conduct a comprehensive review of the relevant regulations in the existing Protection of Wages on Insolvency Ordinance; if they will, of the details; if not, the reasons for that?

Reply:

President,

     My reply to the question raised by the Hon Kwok Wai-keung is as follows:

(1) A breakdown of the applications for ex gratia payment received by the Protection of Wages on Insolvency Fund (PWIF) in the past five years and the amounts applied for are provided below:

     No. of         Amount of ex gratia payment
     applications   applied for ($ million)
     ------------   ---------------------------
2015   3 486          206.5
2014   2 236          187.3
2013   2 081          132.4
2012   2 976          176.0
2011   3 729          196.0

(2) Verification of the information and documents in respect of each application for ex gratia payment from PWIF is conducted by the Labour Department (LD) when processing the applications.  Depending on individual circumstances of each case, applications for ex gratia payment in respect of severance payment (SP) may be refused for reasons which include ineligibility of an applicant for SP as revealed by LD's verification (for example where the applicant has not been employed under a continuous contract for at least two years), or the fact that the applicant's accrued benefits attributable to an employer's contributions being held in a mandatory provident fund scheme or occupational retirement scheme have exceeded the employee's SP calculated under the Employment Ordinance, or that the employer has paid SP and/or completion-of-contract gratuity or gratuity based on the length of service to the employee etc.  LD does not keep statistics on applications for ex gratia payment in respect of SP that have been refused because the accrued benefits attributable to an employer's contributions being held in a mandatory provident fund scheme had exceeded the amount of ex gratia payment in respect of SP computed (based on the approach adopted by LD before the handing down of judgment by the Court of Final Appeal (CFA)).

(3) LD does not keep relevant statistics for assessing the number of applications and additional amounts which would be involved if the approach held by CFA for calculating ex gratia payment in respect of SP were to be adopted.

     The CFA judgment of May 17, 2016 was a ruling on the relief sought by the applicant in his application for judicial review.  As regards the implication of CFA's judgment on applications for ex gratia payment in respect of SP that have already been processed, LD is currently studying with the Department of Justice how these applications are to be handled.  The views of the Protection of Wages on Insolvency Fund Board will also be sought.

(4) The Government respects the judgment of CFA and will follow the court's approach in determining the amount of ex gratia payment of PWIF in respect of SP.

     CFA has provided the interpretation on the approach in calculating ex gratia payment in respect of SP under the Protection of Wages on Insolvency Ordinance (PWIO).  The Government does not consider it necessary to review the relevant provisions under the PWIO regarding the calculation of ex gratia payment in respect of SP.

Ends/Wednesday, June 15, 2016
Issued at HKT 12:04

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