Raising the Bar on Safety – Consultation Paper on Raising Penalties of Hong Kong’s Occupational Safety and Health Legislation

Introduction

The Factories and Industrial Undertakings Ordinance (Cap. 59) and the Occupational Safety and Health Ordinance (Cap. 509) are the two main pieces of occupational safety legislation in Hong Kong. Together, both Ordinances prescribe over 600 occupational safety and health (OSH) offences. The legislation has not been amended for the past 20 years and an update, particularly in respect of penalties, is long overdue.

Though industrial accidents in Hong Kong have declined steadily over the years, the number of fatal industrial accidents has been hovering at around 20 cases annually for the past two decades, with no sign of decreasing. What has been a particular concern is that in cases of serious injury about one-third of the defendants are repeat offenders. Part of the reason put forth for this is that the sentences for OSH offences are on the low side, failing to reflect the seriousness of contraventions.

The Labour Department issued a consultation paper in December 2020 on increasing the penalties for OSH offences. In this update, we will summarise the proposed amendments and their potential effects.

The Proposal

Maximum Fine

In its latest consultation paper, the Labour Department proposed amending employer general duty provisions so that it can prosecute offenders on indictable offences and try them in a higher court. In earlier consultations, it proposed setting the maximum fine at 10% of turnover without a cap. However, industry held strong views that this would be too high and would stifle smaller businesses.

In the revised proposal, the Labour Department proposed capping the maximum fine at HK$50 million and that the Court should take a business’s turnover into account (derived from principal business in Hong Kong) when imposing a penalty. The concept of tying the penalty to revenue in OSH legislation is a new concept.

Re-alignment of Seriousness Categorisation of Various OSH Offences

Currently, OSH offences are generally grouped into three different categories according to the seriousness of the breach. The Labour Department also proposed reassessing the seriousness of all offences and increasing the penalty for each category.

In summary, it proposed that 215 offence provisions be reassessed, with the seriousness of 145 offences raised and 70 lowered. “Very serious offences” are those that are very likely to cause serious consequences such as death or limb amputation and are related to a major deficiency in safety management systems or use of prohibited carcinogens. As to the levels of the fines, the Labour Department proposed threefold increases (see table below). The Department also considered the affordability of fines from employees’ perspective and noted a fine of HK$600,000 is likely to be too substantive for them, thus it proposed raising the maximum fine for provisions concerning employees to HK$150,000 instead.

Takeaway

The Labour Department said it is aiming to submit an amendment bill to the Legislative Council as soon as possible so that the amendment exercise can be completed within the term of the current Government for immediate commencement.

It is clear that an update of the Ordinances is long overdue. Hong Kong is lagging behind other developed countries in relation to the fines and penalties for OSH breaches. As mentioned in our earlier update, there is a trend for the Labour Department to take a tougher stance in order to improve OSH and lower the number of industrial accidents. It is certainly taking the view that the “stick” is better than the “carrot”. Though it is encouraging to see the Department taking the initiative, the correlation between higher penalties and fewer industrial accidents is unproven, so it is open as to whether this will have its intended effect.

Higher penalties are likely to lead to higher business costs and insurance premiums, thus possibly raising market entry barriers and reducing competition. The imposition of higher penalties is also likely to have an adverse effect on smaller businesses. To counter this, the Labour Department is proposing that the Court takes its turnover into account when imposing a penalty on a business. We will have to wait and see if this adversely impacts small businesses.

This article was originally published on Mayer Brown’s website and is reproduced with permission.

 

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Partner, Mayer Brown

Senior Associate, Mayer Brown