A variety of clients are asking us this question daily, which is unusual as most employers would not think twice before accepting what is, in effect, a material handout from government.
The stated purpose of the ESS is to “support employers to retain their employees who may otherwise be made redundant“. The ESS is available to each applicant which undertakes:
- not to implement any redundancy programme during the subsidy period, and
- to apply all of the subsidy to pay the wages of its employees.
Neither of these undertakings are onerous. As such, it is anticipated that the vast majority of Hong Kong employers will be able to receive the ESS if they apply.
So why are employers nervous of applying for the ESS?
The employers that we have spoken to indicate that the primary concern is the public relations issue. Two questions in particular appear to be causing concern:-
- “my business is doing ok, so if I take the allowance then am I indicating that I am in trouble?” and
- “I have no intention of making any part of my workforce redundant, so is it morally right for me to take this money?”
As lawyers we are slow to comment on questions concerning pure public relations or on questions concerning morality. However, there is a different, perhaps more relevant, question on which we are qualified to comment:
“Am I under any legal obligation to apply for the ESS?”.
This question may be less obvious than the public relations concerns, but, especially for listed companies, it is one that all directors should be asking themselves.
The starting point to answer this question is to remember that every director of every company owes a fiduciary duty to act in good faith for the benefit of the company and the shareholders as a whole.
As such, any board of directors which decides not to apply for the ESS may be put in the position of having to explain to its shareholders the reason for such a decision. Simply saying that the company did not “need” the funds now is unlikely to satisfy a shareholder who is looking to maximise the value of its investment.
Of course, ultimately, the public relations negatives of being perceived as taking money from the public coffers when the employer does not need it may be sufficient to outweigh the financial benefit of the ESS, but there is no doubt that in the vast majority of cases, from a purely legal risk perspective, the path of least risk for a director will be to apply for the ESS (or to be very clear that any decision not to apply has the support of the shareholders).