The liquidation of Hong Kong’s long-established construction company Fung Cheung Kee this March marked the start of a string of wage arrears incidents in the construction industry. Even another prominent construction company, Paul Y. Engineering, which took up several government projects, was caught up in wage arrears disputes between May and July. Over the last six months, at least nine collective actions have been called in response to wage arrears in the construction industry. Industry insiders describe the current atmosphere in the construction sector as highly tense, with some companies delaying wages for as long as eight months. According to official statistics, the unemployment rate in the construction industry has consistently increased over the past six months. In the first quarter of this year, private construction sites reported only 85 job openings, indicating that the construction industry has undoubtedly entered a period of decline, with grassroots workers bearing the brunt of the impact.
Wage Disputes Caused Nine Collective Actions in the last six months
In May, a worker conflict occurred on the construction site of a Housing Society Home Ownership scheme project in the Anderson Road Development Area. The principal contractor was accused of withholding payments to a second-tier contractor, resulting in around 100 workers owed approximately HKD 10 million in salaries. Among them, 30 workers gathered outside the building site, holding wooden boards and canvases with the words “unscrupulous employer.” The contractor questioned Paul Y. Engineering also works on several government construction projects.
Furthermore, another wage arrears issue happened in June at the construction site at 2 Murray Road in Central, prompting workers to protest. In July, Paul Y. Engineering was again caught in a wage arrears dispute, this time involving workers at a Housing Society project site. Subcontracted working on Highways Department projects accused Paul Y. Engineering of withholding their June wages, as well as severance pay and reimbursement for materials, amounting to around HKD 20 million. About 70 workers sought assistance from the Labor Department, with some holding cardboard signs reading “Sweat but no pay” in protest.
In mid-August, approximately 30 formwork workers gathered at the exit of a Housing Society construction site on Anderson Road in Sau Mau Ping to protest and demand a month and a half’s worth of unpaid wages. This site was the scene of a fatal crane accident in September 2022. Aggressive Construction, the site’s main contractor, announced following the accident that it would terminate its subcontractor’s contract to avoid further project delays. Notably, in early August, Aggressive’s parent company, Hsin Chong Group, issued a letter to its staff stating that the company was suffering its most difficult times in years. Some directors and senior management requested pay cuts, and after consideration, the company decided to reduce their salaries by 2%.
Industry Insider: the Industry’s Situation Is Dire
Ng Sun-wah, President of the Hong Kong Construction Sub-contractors Association, recently stated that the current state of the construction industry is dire, with some companies heavily in debt and delaying wage payments for up to eight months, describing the industry as being in a state of high stress. Dennis Lau, Chairman of the Association of Architectural Practice, also highlighted the industry’s difficulties to the Secretary for Development. He stated that due to the global and local economic slump, only a few private projects are moving forward, and many architectural firms are laying off staff. According to media reports, Lau’s company, Dennis Lau & Ng Chun Man Architects & Engineers compelled their employees to take three unpaid leave days each month starting next month.
In fact, the unemployment rate in the construction industry has been rising since it dropped to a low of 3.7% between September and November of last year. By May to July of this year, it had increased to 4.3%, with 16,100 people unemployed—2,500 more than between September and November of last year and 1,400 more than in the same period the previous year.
16,100 Workers Unemployed 85 Job Openings in Private Sector
Comparing the changes in the ratio of public to private construction sites over the past decade, data from the Census and Statistics Department’s “Quarterly Report on Employment and Vacancies at Construction Sites” reveals that in all four quarters of 2014, both the number of construction sites and the number of workers were higher in the private sector than in the public sector. Even during the fourth quarter, amid the “Occupy Movement,” 747 private construction sites employed 46,111 workers, while the public sector had 514 sites with 40,232 workers. Regarding job vacancies, there were 501 in the public sector and 345 in the private sector, with public sector vacancies being 1.4 times those in the private sector.
By the first quarter of 2024, there were 853 public construction sites compared to 815 private ones, with workers at 64,210 and 59,439, respectively. However, in terms of job vacancies, the public sector had 1,983, while the private sector had only 85—a difference of 23 times. Although there might still be many private construction sites with work available, the declining number of vacancies indicates a significant reduction in new projects, aligning with Dennis Lau’s observation that only a few private projects are progressing.
The construction industry has long been a pillar of Hong Kong’s economy, with the number of private projects directly reflecting investor confidence. The figures above show that even during the most turbulent times in Hong Kong over the past decade, private projects still outnumbered public ones. However, the situation has now reversed, with private investment becoming more cautious. Given Hong Kong’s current fiscal deficit, the government’s heavy spending on infrastructure to stimulate the economy is unlikely to be sustainable in the long term, making the industry’s situation even more challenging.
Hong Kong’s construction industry has long been involved in the controversial practice of “subcontracting upon subcontracting.” This happens when a contractor outsources a job to other contractors to maximise earnings. Workers’ earnings are gradually lowered as the number of subcontractors increases. This multi-layered subcontracting makes it difficult to hold anyone accountable when issues arise, resulting in frequent salary delays.
In May of this year, the government proposed the Construction Industry Security of Payment Bill to complete the legislation within the year. The Legislative Council papers indicate that the Development Bureau conducted a study on payment practices in the construction industry. The study found that unpaid amounts represent 5% to 12% of a company’s yearly income, with payment delays often lasting more than six months. In severe cases, delays have lasted up to three years. It is typical for subcontract agreements to stipulate that payment will be given only after the payer has received payment from the higher-tier contract, known as the “pay-when-paid” clause. The subcontract agreements also lack clear payment terms, such as the number of payments and dates The proposed legislation would prohibit unfair clauses such as “pay-when-paid” in contracts between subcontractors and lower-tier construction companies. If the lower-tier company does not obtain payment after filing a claim and going through arbitration, it may cease or slow down work to recover the funds. However, the current legislation mainly regulates payment arrangements between main contractors and subcontractors. Therefore, self-employed individuals or sole proprietors without signed subcontract agreements may not be protected by this law.
The industry’s malpractice has long violated workers’ rights and tackling it with legislation now is like closing the stable door after the horse has bolted. With the economic downturn, wage arrears disputes in the construction industry are expected to increase. To defend labour rights effectively, legislation should not use a “tick-the-box” approach. It must address the underlying causes and close current gaps.