LegCo Panel on Manpower
(For Meeting on 26.11.1998)

Information Paper

Guidelines on what to do if wage reductions
and retrenchments are unavoidable


Hong Kong is undergoing a difficult period of economic adjustment. More enterprises are facing severe business environment. In the present economic climate, it is important that employers and employees should work hand-in-hand with each other to overcome adversities. On 29 October 1998, the Labour Department issued a set of "Guidelines on what to do if Wage Reductions and Retrenchments are Unavoidable" for employers and employees. The Guidelines suggest a series of practical alternatives for employers to consider before resorting to wage reductions or retrenchments. If wage reductions and retrenchments are unavoidable, the Guidelines advise employers to deal with such situations in a reasonable manner. The purpose of the Guidelines is to encourage both employers and employees to discuss their problems frankly and rationally with a view to working out mutually acceptable solutions.

Content of the Guidelines

2. The Guidelines offer advice on a wide range of issues, and cover suggestions in the four major principles as follows :
  • The employer should consider other alternatives to cutting operating costs before resorting to wage reductions or retrenchments;

  • The employer should enter into frank and sincere discussions with their employees to explain their business problems and to find ways to resolve their problems amicably if wage reductions are unavoidable;

  • The employer should allow a reasonable notice period in writing to enable employees to decide whether or not to accept the proposal. The duration of notice will depend on the circumstances of each organization, but in any case, employees should have between 7 and 14 days to consider the proposal; and

  • The employer should assure employees that when business performance of the company improves, appropriate adjustments will be made to their wages, and that if the company's situation worsens still further, and retrenchment has to be considered, severance pay will be calculated at an employee's wage level before the wage-reduction scheme was introduced.

Effectiveness of the Guidelines

3. The Guidelines had been thoroughly discussed by the Labour Advisory Board (LAB) and were drawn up on the basis of the consensus amongst employers, employees and the Government on the Board. The employer members of the LAB have also undertaken to actively promote the Guidelines.

4. The Guidelines have been working effectively. The Labour Relations Service of the Labour Department has received 329 enquiries during the three weeks after the Guidelines were issued, of these, 89 were directly related to retrenchments and wage reductions. This indicates that employers have generally been following the Guidelines by consulting the Labour Department before implementing wage-reduction exercises. In line with the Guidelines, some employers have also taken the initiative to hold frank and sincere discussions with their employees when considering whether wage reductions are to be introduced. In the cases known to the Labour Department, all employers have given employees 7 to 14 days to decide whether or not to accept their proposed wage reductions. Some have also arranged their senior staff to bear a heavier cost by accepting a greater wage reductions in percentage terms than the general workforce.

Publicity on the Guidelines

5. Since the Guidelines were issued in late October 1998, the Government has widely publicised them through the following channels:
  • Distribution of the Guidelines through the branch offices of the Labour Department and the district offices of the Home Affairs Department;

  • Distribution of the Guidelines to employers' associations and registered trade unions;

  • Distribution of the Guidelines by mail to some 100,000 establishments with an employment size of 5 and above through the latest issue of the Labour Department's publication "Labour Focus";

  • Production of radio and TV announcement of public interest for broadcast from November 1998;

  • Putting the Guidelines on Internet; and

  • Publicity on the Guidelines through various promotional activities organised by the Labour Department, such as seminars, training courses, experience-sharing sessions and exhibitions.


6. In times of economic downturn, employers should hold frank and sincere discussions with their employees to resolve their problems. The Labour Department stands ready to provide conciliation service to help settle labour disputes. We will closely monitor the effects of the Guidelines. In this connection, we also welcome comments from employers, employees and the Legislative Councillors.

Labour Department
November 1998