Managing Employment Arrangements within Group Companies

It is not uncommon for employees of a group company to provide services to other entities within the same corporate group. However, as demonstrated in the recent Hong Kong case of Li Mijiang v Hoilung Group International Limited [2025] HKCFI 3206, such arrangements, if not managed properly, can give rise to complex legal and practical challenges and risks for the employers.

Background of the case

The dispute arose from Mr Li’s assertion that he was employed by Hoilung Group International Limited (the Defendant Company) under two employment agreements: the 2021 Agreement, allegedly signed on 1 August 2021 (though Mr Li did not retain a copy of this agreement), and the 2022 Agreement signed on 1 January 2022 with a monthly salary of HK$28,000 and shares in the Defendant Company.

Mr Li terminated his employment on 10 December 2022 pursuant to section 10A of the Employment Ordinance, which permits an employee to terminate the contract without notice if wages are outstanding. He sought claims for wages in lieu of notice, arrears of wages, underpayment of wages, annual leave pay, statutory holiday pay, expenses, and share options value.

The Defendant Company denied the claims. It was the Defendant Company’s position that Mr Li was employed by a related Shenzhen entity, not the Defendant Company. It also denied the existence of the 2021 Agreement and claimed that the 2022 Agreement was never performed and Mr Li voluntarily resigned on 24 September 2022 due to excessive stress.

The Labour Tribunal ruled in Mr Li’s favour, awarding compensation and costs. The Defendant Company then appealed to the High Court on the ground that the Labour Tribunal had failed to investigate the nuances under the cross-border employment arrangement.

Findings of the High Court

The High Court allowed the Defendant Company’s appeal, set aside the Labour Tribunal’s finding and remitted the case back to the Labour Tribunal for retrial. The Court identified three key issues that the Labour Tribunal had failed to investigate adequately:

• Employing entity: In addition to the disputed 2021 Agreement and 2022 Agreement, Mr Li had an employment agreement with the Shenzhen Company dated 1 August 2021 and was appointed as its general manager pursuant to a letter of appointment issued on 2 January 2022. Records also showed that the Shenzhen Company covered Mr Li’s insurance expenses from August 2021 to November 2022. Based on this evidence, the Court concluded that Mr Li was likely employed by the Shenzhen Company in Shenzhen, not the Defendant Company in Hong Kong.\

• Legality of the agreements: The Court noted that the 2021 and 2022 Agreements might be void or unenforceable due to illegality. Mr Li, a non-Hong Kong resident, did not obtain the requisite permission to work in Hong Kong.

• Termination of employment: Evidence, including a resignation form and email correspondence, showed that Mr Li voluntarily resigned on 24 September 2022 due to excessive stress. This contradicted his claim of termination under section 10A of the Employment Ordinance.

Takeaways for Employers

This case highlights several important considerations for employers managing employment arrangements within group companies:

• Clarity in Employment Relationships: Clearly define the employing entity in employment contracts, especially when employees work for multiple entities within a corporate group. Ambiguities in employment relationships, such as whether an employee is employed by a parent company, a subsidiary, or another group entity, can lead to disputes.

• Dual Employment: Dual employment, where an employee is employed by more than one entity under separate contracts, is legally possible but inherently complex. Such arrangements, in particular where the contracts are governed by different laws in different jurisdictions, can create enforcement challenges. Further, employers must ensure compliance with the statutory obligations in the relevant jurisdictions, which may overlap or conflict.

• Secondment Arrangements: An alternative to dual employment is to employ the individual under one group entity and second them to work for other entities within the group. This approach can simplify the legal relationship but requires clear terms to avoid disputes.

• Careful Drafting: Whether opting for dual employment, secondment, or another arrangement, careful drafting of employment agreements is essential. Contracts should clearly outline the scope of work, reporting lines, governing law, and dispute resolution mechanisms to minimise ambiguities and potential conflicts.

• Document Retention: Employers should ensure that all employment agreements and related documents are properly retained and accessible. If a signed contract is never performed, steps should be taken to formally terminate it, with reasons documented to avoid future disputes.

The judgment can be found here.