For discussion
on 20 June 1997
FCR(97-98)20

ITEM FOR FINANCE COMMITTEE

VARIOUS HEADS OF EXPENDITURE
Subhead 001 Salaries
HEAD 120 - PENSIONS
Subhead 016 Gratuities for officers on contract

Members are invited to approve -

1. the retrospective payment of personal salaries and salary increments and payment of gratuities to demotees under the demotion scheme as if we had not demoted them until we can accommodate them in a proper post in their original rank or until they leave the service, whichever is the earlier; and

2. the creation of supernumerary posts at the original rank of demotees to be held against permanent posts in their demoted rank to accommodate the demotees in their original ranks until the demotees' promotion to the next higher rank above the original rank, or until they leave the service, whichever is the earlier.

---

PROBLEM
PROPOSAL
JUSTIFICATION
FINANCIAL IMPLICATIONS
BACKGROUND INFORMATION

---

PROBLEM

We need to provide remedies to former overseas agreement officers who transferred to local agreement terms and whom we demoted to a lower rank under the demotion scheme as the Court of Appeal has ruled the demotion scheme unlawful.

PROPOSAL

2. To address the demotees' claims of tangible loss in salaries and increments, the Secretary for the Civil Service (SCS) proposes the retrospective payment of personal salaries and salary increments at the original rank as if we had not demoted them. The payment of personal salaries and increments at the original rank will cover the period during which the officers served at the demoted rank and received the salary of the demoted rank. We will also make back-pay to demotees who have already left the service.

3. Among those demotees who are still serving in their demoted rank, SCS proposes to accommodate them back in their original rank by creating supernumerary posts which we will hold against permanent posts in their demoted rank. We will retain such supernumerary posts until the demotees' promotion to the next higher rank above the original rank, or until they leave the service, whichever is the earlier.

JUSTIFICATION

4. Under the modified arrangements for overseas agreement officers who are permanent residents to transfer to local agreements terms ("transferees") applicable to agreements expiring on or before 1 September 1995, transferees are subject to a demotion scheme whereby we require the demotion of a transferee who occupied a promotion rank to one rank below his original rank if there was a suitable local officer to replace him. A transferee so demoted (known as a "demotee") received a personal salary at his original salary point while serving at the lower rank during his first agreement on local terms. Thereafter, he receives salary at the lower rank.

5. The Court of Appeal ruled in November 1996 that the demotion scheme was unlawful. The Administration needs to comply with and give effect to the judgment. In so doing, we need to balance the interests of different groups of officers, taking into account the management and resource implications.

6. Under the demotion scheme, we demoted a total of 47 former overseas agreement officers upon their transfer to local agreement terms. Of these, 23 are currently still serving in their demoted rank while the rest have either returned to their original rank on promotion or left the service. Of the 23 demotees, we will have to deal with the case of essentially 18 officers, as the other five will leave the service in the near future. To give effect to the judgment of the Court of Appeal, we propose to address the claims of the demotees through the measures set out in paragraphs 2 and 3 above.

7. The retrospective payment to cover the demotees' loss of salaries and increments at their original rank is what we should do to address the demotees' financial loss under the demotion scheme. For those demotees who are still serving in their demoted rank, we propose the creation of supernumerary posts to accommodate them back in their original rank. These demotees will compete with all other eligible officers at the original rank for promotion to vacancies at the next higher rank. The demotees will remain in the supernumerary posts until we promote them to the next higher rank or until they leave the service; we will not re-absorb them in the permanent establishment in their original rank even if vacancies existed. Otherwise, local officers might perceive the reinstatement and re-absorption of demotees into the permanent establishment as "automatic promotion" at the expense of the claims of meritorious lower rank officers for promotion. This is a contentious issue with both overseas and local officers and, unless a proper balance is struck, would have an adverse impact on the stability of the civil service. We believe that the proposal as outlined will balance the claims both of demotees for posts in their original rank and of meritorious lower rank officers for promotion.

8. As the present proposals are to give effect to the Court's judgment in a situation which is unique and exceptional, we consider that the creation of supernumerary posts will not set a precedent. We have consulted the departments with demotees and, given the small number of officers involved, come to the conclusion that the creation of the supernumerary posts should not cause serious management problems in those departments.

9. The present proposals have the support of all the constituent staff associations of the Staff Side of the Senior Civil Service Council.

FINANCIAL IMPLICATIONS

10. On the proposal to make back payments for personal salaries and increments, SCS estimates that the additional non-recurrent expenditure on salaries and gratuities will be $1.6 million at 1996-97 price level, as follows -

11. On the proposal to create 23 supernumerary posts which we will hold against permanent posts at the demoted rank from 1 July 1997, SCS estimates that the additional annual recurrent expenditure on salaries and gratuities at 1996-97 price level will be as follows -

12. Actual annual recurrent expenditure should reduce progressively as the demotees leave these supernumerary posts on promotion to the next higher rank or leave the service on their own accord or on non-renewal of their agreements. We will then allow the supernumerary posts to lapse.

13. Subject to Members' approval, we shall approve under delegated authority any requirement for supplementary provision under Subhead 001 Salaries of the relevant Head of Expenditure and Head 120 Pensions Subhead 016 Gratuities for officers on contract in 1997-98 and include sufficient provision for the purpose in future Estimates as necessary.

14. These proposals will also result in additional expenditure on passage and housing benefits, since some demotees will be eligible for benefits or higher rates of allowances commensurate with their original rank. The additional cost is difficult to assess accurately but this is likely to be insignificant under the respective heads of expenditure.

BACKGROUND INFORMATION

15. The demotion scheme was one of the decisions of the Government which the Association of Expatriate Civil Servants of Hong Kong challenged in the Court. The Court of Appeal handed down its judgment on 22 November 1996 which ruled, inter alia, that the demotion scheme was unlawful. The Administration has decided not to appeal further against the Court of Appeal judgment. To give effect to the Court of Appeal judgment, we need to provide remedies for the demotees affected by the demotion scheme to address their justifiable claims for tangible losses.

16. On 14 October 1994 and 19 January 1996, Members approved the award of personal salaries to demotees during their first agreements on local terms and extension of their first agreements beyond 30 June 1997 up to the normal length of agreement of 2½ years. As SCS now proposes creation of supernumerary posts and back-pay of personal salaries with increments as remedies for demotees, we require further approval by Members of the proposal.

Civil Service Branch
June 1997

---