In the recent case of Leung Suk Fong Peggy v The Prudential Assurance Company Limited – [2011] HKCU 1881, the Hong Kong Court of First Instance confirmed that the correct approach is to look at the entire relationship between the parties to determine whether a person is an agent or an employee with particular regard to eight indicative factors.
Case summary
Despite an express "no-employment" clause in the contract, Ms Leung initiated a claim for employee benefits, including arrears of wages, statutory holiday pay and annual leave pay before the Employment Claims Adjudication Board (Board). The claim came to the High Court by way of an appeal. In dismissing Ms Leung’s appeal the court endorsed the eight limb test originally adopted by the Board. The court’s approach was further endorsed by the Court of Appeal when it rejected Ms Leung’s application for leave to appeal.
The eight limbs to the test
- Extent of control
If a staff member has the liberty to decide how, when and where they work, then the relationship is likely to be that of agent rather than employee. Ms Leung argued that Prudential exercised control over her by means of meetings, training sessions and sales targets. However, the court viewed such measures as necessary only for the control of the quality of her work; it was not control over her as employee.
- Prospect of profit and risk of loss
If the staff member takes on a financial risk in performing their role, then the relationship is likely to be that of agent rather than employee. Ms Leung’s fortunes were closely tied to her performance as her income fluctuated with the number of policies she sold and the expenses she incurred in doing so (such as marketing to clients). The court found this risk inconsistent with being an employee.
- Integral part of the organisation
A staff member who is an integral part of the organisation is more likely to be an employee. While Ms Leung was found to be an integral part of Prudential’s organisation, the court did not find that this factor carried much weight in the overall context of the parties’ relationship.
- Mutual obligation to work and to provide work
If the staff member is not provided with work but must source their own work, then it is highly likely they are an agent rather than an employee. Like other insurance agents, Ms Leung looked for her own business opportunities rather than being assigned work by Prudential.
- Provision of equipment
The court will consider what is provided to the staff member and whether this is more consistent with an employment or agency relationship. Ms Leung argued that the provision of office space, furniture, a computer and a fax machine for her use was analogous to an employer providing equipment to its employees. The court disagreed and found that Prudential’s office was not Ms Leung’s principal place of work and by providing that assistance Prudential was merely making it more convenient for Ms Leung to conduct her business.
- Tax and insurance
How the staff member has been treated for tax and insurance purposes will be a relevant consideration. On Ms Leung’s tax return, it was clearly stipulated that she was not an employee. The court placed no weight on the fact that Prudential contributed to Ms Leung’s occupational retirement scheme because Prudential could make such a contribution whether Ms Leung was their employee or their agent as stipulated in s3(5) of the Occupational Retirement Schemes Ordinance (Cap 426).
- The parties’ view of their own relationship
The manner in which the parties have treated their own relationship is also highly relevant. Ms Leung claimed that she had always considered herself to be an employee. However, Ms Leung had never previously raised the issue of employee benefits such as statutory holiday or annual leave. The court agreed with the Board that Ms Leung knew that the contract was not an employment contract.
- Traditional structures of the trade
Whether the industry traditionally used agents or employees was also a relevant factor. The Board found that the insurance industry typically used agents rather than employees and the court did not interfere with that finding.
Conclusions
The court did not provide any guidance on the relative weighting of the various limbs of the test. However, it would be wrong to treat each limb as equal and to mechanically tally how many points have been scored in favour of each position. The relative weight given to each limb will depend on the circumstances. For example, if a person has dealt with MPF contributions as if they were a self-employed person, then the sixth limb of the test may take on greater relative weight. That said, it appears that the question of whether the staff member was provided with and obliged to take on work will always be a significant factor.
For most insurance companies, there will be a degree of grey in regard to some of the limbs of the test. In fact, some of the limbs may even point to an employment relationship. It is, therefore, wise to consider the steps that could be taken to "sure up" the agency relationship through appropriate contractual or operational changes.