[Archive] Layoff by compines which have made huge profits

Asked by : Hon CHAN Yuen-han

Replied by : SEM

Question :

Some private enterprises lay off a significant number of staff despite making substantial profits, while the Financial Secretary has called upon employers to refrain from laying off staff and to consider other cost-cutting options. In this connection, will the Government inform this Council:

1. of the countries which have legislation that imposes restrictions on the layoff by companies which make substantial profits, and the details of such restrictions; and
   
   
2. of the other measures the Administration will adopt, apart from making the above appeal, to make these companies refrain from laying off staff, and whether it will make reference to the experience of the above countries and impose restrictions on layoff by legislation; if it will, of the details; if not, the reasons for that?
   

Reply:

Madam President,

There are many reasons for the laying off of staff by private enterprises which make profits, thus we cannot make generalizations. Enterprises may be concerned about the gloomy business outlook, hence the need for taking precautionary measures to reduce cost. Many companies may have to adjust their business portfolios in the face of economic restructuring. Members of their staff who fail to adapt to such changes will naturally be displaced. There are also concrete examples showing that upon business merger there will be surplus staff, and layoff becomes necessary to simplify organizational structure and improve cost-effectiveness. For listed companies, they are accountable to shareholders for their performance, and it is inadvisable for the Government to adopt administrative measures to interfere with their operational decisions.

As to Hon CHAN Yuen-han's specific questions, my reply is as follows:

1. According to our findings, the United Kingdom, the United States of America, Australia, New Zealand and Singapore do not have legislation that imposes restrictions on the layoff of staff by companies making profits. Only Mainland China and Taiwan have similar legislation stipulating that enterprises are not allowed to lay off their staff except under specific conditions.

   Article 27 of the Labour Law of the People's Republic of China stipulates that "In case it becomes a must for the employer to cut down the number of workforce during the period of legal consolidation when it comes to the brink to bankruptcy or when it runs deep into difficulties in business, the employer shall explain the situation to its trade union or all of its employees 30 days in advance, solicit opinions from its trade union or the employees, and report to the labour administrative department before it makes such cuts?"

   With regard to Taiwan, Article 11 of its Labour Standards Law stipulates that a labour contract may only be terminated under certain conditions: 1) the business concerned is suspended or its ownership is transferred; 2) there is an operating loss or a business contraction; 3) there is a change of the nature of the business; 4) the business is suspended for more than one month; and 5) the employee concerned is confirmed to be incompetent for his job duties.
   
   It should be noted that these laws were enacted before 1995 with certain historical contexts and therefore may not apply to the present-day situation. Moreover, Hong Kong is different from both Mainland China and Taiwan in terms of its political system and economic structure, as well as its mode of production, business environment and per capita income. As such, it would be inappropriate for Hong Kong to follow indiscriminately the labour laws of other places.

   In 1997, the Organization for Economic Co-operation and Development published a report on the study of the job strategy of its member countries. The report points out that "?.the policy has often degenerated into attempting to discourage dismissals in general and to relieve employed workers from pressures to adjust.?" The report also points out that "?.strict EPL (employment protection legislation) is often accompanied by high incidence of long-term unemployment?" In addition, "?.hiring/firing practices are less regulated and/or have been significantly relaxed over the last decade in some of the countries where the structural employment rate has fallen." It reflects that excessive regulation may do harm rather than good.
   

   
   
2. Hong Kong is a highly open, free and flexible economy. Our labour market is capable of making prompt response, including adjustment in wages and manpower set-up, to re-align itself with the overall economic development and the operational needs of individual enterprises. The rights and interests of employees has largely been protected by the existing labour legislation. Introducing layoff restrictions will not only undermine the regulatory function of the labour market, but also dampen investment incentives and confidence. Employers may be rendered unduly cautious with staff intake, or they may simply hire temporary or part-time staff. This will in turn slow down the overall economic recovery and growth of Hong Kong and may aggravate the unemployment situation.

   To impose restrictions on layoff by enterprises which are making substantial profits will also be difficult in practice. First of all, it is not easy to define "substantial profits". Even with an apparently huge total profit, enterprises will have to look after the rate of return and business outlook, as well as to contemplate ways to ensure their long-term competitiveness.

   A free market economy is one of our key factors in attracting foreign investment. While doing our best to resolve short-term unemployment problems, we must not lose sight of our long-term competitiveness. It would be easy to scrap the existing systems and give up our competitive edge, but international confidence in Hong Kong is something extremely difficult to restore. I would like to call on the representatives of the labour sector to act with prudence because catastrophic results may be brought about by the best intentions.