Lee Wai Kei Wicky v. World Family Ltd

HCLA 35/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO 35 OF 2015

(ON APPEAL FROM LBTC NO 3175 OF 2014)

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Before: Hon Lok J in Court

Date of Hearing: 6 April 2017

Date of Judgment: 3 October 2017

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J U D G M E N T

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1.This is an appeal by the Claimant against the decision of the Labour Tribunal dated 14 August 2015.

2.The Claimant joined the Defendant in 1999 to promote the sales of English education materials.  After he left the Defendant in 2014, he brought an action in the Labour Tribunal for compensations and various statutory payments.

3.Deputy Presiding Officer S. L. Leung of the Labour Tribunal (“the Presiding Officer”) rejected the claim after finding that the Claimant was not an employee of the Defendant.  This issue is now the central dispute of the appeal.

BACKGROUND

4.The Defendant was a company which sold English education materials licensed by “Disney”.  The Claimant was engaged by the Defendant as an “education consultant” in 1999.  He was later promoted to various posts, and eventually to the position of district manager. In all these positions, the Claimant’s job was to promote the sales of education materials to clients.

5.The Claimant signed three agreements titled “Agency Agreement” with the Defendant respectively on 1 & 2 November 1999 and 30 May 2003 (“the Agreements”).  The Agreements provided that, among other things, the Claimant, being education consultant, was not an employee of the Defendant and was not entitled to receive any benefit which the Defendant provided to its employees.

6.Education consultants could promote sales through three major methods which had different implications:

(1) They could market the education materials through the booths set up by the Defendant in different places (booth marketing).  The consultants had to pay a fee for the use of the booth, and the conduct of such marketing was subject to the Defendant’s specific regulations.  The sales performance of the education consultants would also affect the resources they received from the Defendant for further booth promotion.

(2) They could market the materials through “local marketing”.  One of the examples for local marketing was promoting the sales in public places.  The consultants would have to inform the Defendant of their proposed plans to avoid overlapping of marketing activities with other consultants, and the conduct of local marketing was also subject to the Defendant’s regulations.

(3) They could market the materials through “personal marketing” using the consultants’ own personal network.  There was no specific regulation relating to such method of marketing. 

7.Education consultants were also subject to other regulations set by the Defendant which I will deal with in the latter part of this Judgment.

8.The Claimant left the Defendant in 2014.  He brought the action for payment in lieu of notice for termination of employment, paid annual leave, paid leave, commission, and severance payment or long service payment, totalling $870,846.27. 

9.The trial lasted for 9 days.  Originally, there were 4 more claimants but they withdrew their claims as the trial progressed. After the trial, the Presiding Officer dismissed the claim on the ground that the Claimant was not an employee of the Defendant.

APPROACH OF THE APELLATE COURT

10.Under s 32 of the Labour Tribunal Ordinance (Cap 25), a party can only lodge an appeal against a decision by the Labour Tribunal on the ground that the decision is erroneous in point of law or outside the jurisdiction of the Tribunal.

11.For this appeal, the Claimant challenges the Presiding Officer’s decision on the ground of errors of law.  As mentioned above, the central issue here is whether the Claimant was an employee of the Defendant.

12.This question is regarded as a question of fact by the appellate court.  In Poon Chau Nam v Yim Siu Cheung, Ribeiro PJ said the following:[1]

“It is ‘firmly established that the question of whether or not the work was performed in the capacity of an employee or as an independent contractor is to be regarded by an appellate court as a question of fact to be determined by the trial court.’ Accordingly, so far as the trial judge’s classification of the contract is concerned, an appellate court can only intervene on Edwards v Bairstow & Another grounds. In other words, a finding that an employer-employee relationship does or does not exist can only be interfered with on appeal if it can be shown that the tribunal misdirected itself in law or came to a decision which no tribunal, properly directing itself on the relevant facts, could reasonably have reached.”

13.The following principles are also well established:

(i) The appellate court may interfere if the tribunal’s finding of fact or inference from the facts is: (1) perverse or irrational; (2) unsupported by evidence; or (3) made by reference to irrelevant factors or without regard to relevant factors.[2]

(ii) Where the question involved is one of fact and degree, the circumstances may be such that reasonable minds may differ as to the conclusions to be drawn from the primary facts.  If so, the appellate court cannot disturb a reasonable conclusion made by the tribunal, even if it may prefer a contrary one.[3]  It can only interfere “where the degree of fact is so inclined towards one frontier or the other so as to lead it to believe that there is only one conclusion to which the Tribunal could reasonably have come”.[4]

(iii) The burden on the appellant is therefore a heavy one.  But if the appellate court is satisfied that the only reasonable conclusion on the fact is inconsistent with the tribunal’s determination, the court should not hesitate to intervene.[5]

14.Mr Kwok, counsel for the Claimant, does not seek to challenge these well-established principles.

LEGAL PRINCIPLES ON EMPLOYER AND EMPLOYEE RELATIONSHIP

15.The landmark case on employer-employee relationship is Poon Chau Nam v Yim Siu Cheung[6].   Ribeiro PJ said the following in respect of the approach that should be adopted by the court in considering this particular question:[7]

“The modern approach to the question whether one person is another’s employee is therefore to examine all the features of their relationship against the background of the indicia developed in the abovementioned case-law with a view to deciding whether, as a matter of overall impression, the relationship is one of employment, bearing in mind the purpose for which the question is asked.”

16.The fundamental question is whether the worker performs the services as a person in business on his own account.  If so, he is an agent.  If not, he is an employee.[8]

17.It is trite that the court would consider the following indicia of employment and decide, as a matter of overall impression, whether the relationship is one of employment:[9]

(1) control (but it is not the sole determining factor);

(2) whether the person who provided the service provided his own equipment;

(3) whether such person could hire his own helpers;

(4) what degree of financial risk he took;

(5) whether he could profit from sound management in performing his task;

(6) whether he assumed investment and management responsibility;

(7) whether he could be identified as part of the employer’s business;

(8) whether he could perform his own business in the area;

(9) the parties’ own views of their relationship;

(10) incidence of tax and insurance; and

(11) traditional structure of the trade and arrangements within it.

REASONS FOR DECISION OF THE PRESIDING OFFFICER

18.In her Reasons for Decision dated 23 October 2015 (“the Decision”), the Presiding Officer had set out the evidence of the Claimant and the Defendant’s witnesses in some details.[10]  Having considered such evidence, the Presiding Officer found that the Claimant was an incredible witness.  Hence, save as his evidence which was supported by documents, the Presiding Officer rejected his evidence.[11] The Presiding Officer also found that two of the Defendant’s witnesses, Madam Hung and Madam Chan, to be credible witnesses overall.  Save as one aspect of Madam Chan’s evidence relating to the advertisement made by the Defendant at the Labour Department, the Presiding Officer accepted their evidence as the truth.[12]  For the first witness of the Defendant, Madam Tsui, the Presiding Officer accepted the Claimant’s complaint and found that she might not be an independent witness.  She rejected Madam Tsui’s evidence given in the morning of 9 July 2015 and gave little weight to the remainder of her evidence.[13]  The Presiding Officer then set out her findings on some of the primary facts in §65 of the Decision.

19.The Presiding Officer proceeded to apply the principles in Poon Chau Nam[14] and examined the variousindicia of employment.[15]  Having considered the commercial reality in this case, the Presiding Officer formed the overall impression that the Claimant was not an employee.[16] 

20.The Presiding Officer also dismissed the Claimant’s claim for commission on the ground that the Claimant had been receiving reports of the commissions he was entitled to, and all along understood how to calculate his commissions.[17] In any event, the Labour Tribunal has no jurisdiction to entertain such claim as the Presiding Officer found that the Claimant was not an employee of the Defendant.[18]

21.Although the Claimant has raised 4 grounds of appeal at the leave application, it becomes clear from the submissions of Mr Kwok that the main challenge of the appeal is that the Presiding Officer has failed to accurately evaluate the various indicia of employment, and as a result the conclusion reached by her is irrational and perverse.

22.I will deal with the Claimant’s arguments by reference to the various indicia of employment as set out in Mr Kwok’s written submissions.

INDICIA OF EMPLOYEMENT

(i)   Control

23.Mr Kwok argues that the Presiding Officer had ignored the following facts which point towards a high degree of control by the Defendant over the Claimant:

(i) The Claimant was required by the Agreements to act and observe any directions, rules or regulations that might be issued by the Defendant from time to time.

(ii) Local marketing had to be done with the consent or the approval of the Defendant.

(iii) The Claimant was not allowed to wear any clothing which bore the Disney character labels.

(iv) The Claimant was required to observe the “Booth Guidelines” whilst he was on duty on booth marketing.

(v) The Booth Guidelines were applicable to the Claimant even if he was conducting local marketing.

(vi) The Claimant was required to keep an attendance record.

(vii) The Claimant could not, without the consent of the Defendant, transfer to other teams or ask to be supervised by different managers.

(viii) All name cards and uniforms had to be bought and ordered through the Defendant.

(ix) There was a non-competition and non-solicitation clause in the Agreements.

24.I do not accept that the Presiding Officer had ignored these factors.  In fact, she found that the Defendant did exercise control over various aspects of the Claimant’s work, in particular in respect of the Claimant’s dealing with customers, whenever his conduct would affect the image of the Defendant and the brand, and in relation to competition or dispute resolution among the education consultants.  However, she found that such control was imposed for good commercial reasons, i.e. to maintain the image of the Defendant and the brand and to promote fair competition among the consultants.  The Presiding Officer rightly took the view that such control, given its nature, purpose and degree, was not necessarily control exercised by an employer over an employee.  Outside these areas, the Defendant exercised little or no control over the Claimant, who enjoyed high degree of flexibility in terms of working hours, working days, methods of promotion and sales targets.  He also had complete freedom in choosing which sales method to earn his income. 

25.Furthermore, the approach adopted by the Presiding Officer is entirely consistent with the dicta of Ribeiro PJ in Poon Chau Nam[19], where he explained that due to the more complex conditions of modern industry, the courts depart from the traditional “control” test and turn to examine the economic reality of the relationship.  Control does not equate employment, because “one party’s reservation of a right to control the manner of working could be overridden by economic or commercial realities which point to the other party being engaged as an independent contractor and not as an employee”[20].

26.In my judgment, the observations and the conclusion made by the Presiding Officer are both correct and reasonable.  The Claimant’s argument is merely an invitation to the appellate court to attach different weight to the matters and to substitute the appellate court’s conclusion with a reasonable one made by the Presiding Officer, which the appellate court is not entitled to do.

(ii)   Parties’ use of the term “agency” in the Agreements and their own view of their relationship

27.Mr Kwok argues that the Presiding Officer was unduly influenced by the label of “agency” used in the Agreements.  In support of the argument, he relies on the findings and observations made by the Presiding Officers contained in §§65(2) & (13), 75, 77 and 78 of the Decision.

28.In my judgment, there is no basis to support such complaint:

(i) §65(2) of the Decision just refers to the finding of fact that the Claimant entered into an agency agreement with the Defendant in 2003.

(ii) §65(13) of the Decision refers to the finding of fact that the consultants could hire subordinate consultants through the Defendant.  The Presiding Officer observed that in the advertisements issued by the Defendant, there were words like “full time”, “salary provided” which might lead the readers to have the impression that the job offered was a full time employment.  However, the Presiding Officer accepted Madam Chan’s evidence (supported by the Agreements signed by the Claimant and the Defendant) that when the consultant signed a contract with the Defendant, the contract would expressly provide that the worker was not an employee of the Defendant. Further, there was no evidence to suggest that the Claimant became a consultant of the Defendant after having read any of those advertisements.  These are again findings of fact which cannot be disturbed upon appeal.

(iii) In §75 of the Decision, the Presiding Officer considered one of the indicia of employment, namely whether the consultant was properly regarded as part of the Defendant’s organization.  The consultants’ relationship with the Defendant was provided in the agency agreements and guidelines, which was different from that relating to the internal employees of the Defendant.

(iv) In §77 of the Decision, the Presiding Officer considered one of the indiciaof employment, namely the incidence of tax and insurance.   The Presiding Officer correctly observed that the Defendant did not bear any employer’s tax or insurance responsibility for the Claimant.

(v) In §78 of the Decision, the Presiding Officer considered one of the indicia of employment, namely the parties’ own view of their relationship.  The Presiding Officer reiterated her previous holding that the Claimant was not a credible witness, which she was entitled to do, and rejected his evidence that he considered himself an employee of the Defendant.  The Presiding Officer further found that the Claimant knew he signed agency agreements with the Defendant, and the Claimant was further aware that he had different leave arrangement as compared with those of the Defendant’s employees.

29.The Presiding Officer was certainly entitled to make these observations.  In Poon Chau Nam, the Court of Final Appeal held that if an employment relationship is otherwise shown, the parties cannot contract out from the legal consequences of an employment relationship by a mere expression of intention.[21] But that was not the approach taken by the Presiding Officer.  She only took into account the arrangements between the parties relating to MPF contributions, tax and insurance responsibility as some of the factors in determining whether there was employment relationship between the parties.  It was appropriate for the Presiding Officer to have regard to these matters, and there is no basis for the Claimant to say that the Presiding Officers had paid undue weight to the label of “agency” used in the Agreements.

30.As to the argument that the Presiding Officer ignored the evidence which referred to consultants as “員工” (staff) or references to their “入職” (taking up employment) and “離職” (leaving employment), the Presiding Officer was fully aware of these matters and considered them in some details in §§31 & 65(13) of the Decision.  The Presiding Officer’s analysis is a reasonable one and there is no room for intervention by the appellate court.

(iii)   Helpers

31.The Presiding Officer found that the Claimant could not hire his own helpers.  The Claimant argues that the Presiding Officer had not given proper weight to such finding.  I disagree.

32.The Presiding Officer had considered extensively that such limitation was only put in place so that the Defendant could coordinate the publication of job advertisements, and that this indicium of employment was further limited by the fact that the performance of the subordinate would affect the Claimant’s own profits.  She also recognised that that the Claimant would have to pay for the job advertisements.

33.The Presiding Officer further held that although technically there was no direct employment relationship between a consultant and his subordinate, the consultant could ask the Defendant to hire subordinate and profit from the hiring by the taking of commissions (上線佣金).  The Presiding Officer was entitled to consider such commercial reality.

34.Hence, the Claimant’s complaint that the Presiding Officer “failed to properly deal with this important point” has no substance at all.

(iv)   Equipment

35.The Defendant provided office space, computer, telephone, photocopying and fax machine.  The Presiding Officer found that this was merely to provide convenience to the Claimant.  Instead, the Claimant shouldered the costs of most of the necessary tools for his job, including name cards, name lists, booth fees, secretary salary, gifts for clients, mobile phone, uniforms, stationery and deposit for the Sales Kit.

36.There is evidence to show that the Sales Kit was provided to the Claimant only upon a payment of deposit of $2,000.  The deposit would be refunded if the Sales Kit was returned to the Defendant without damage.  As conceded by the Claimant himself, the Sales Kit was “one of the most important tools which the Claimant needed in order to perform his task as a sales”.  The fact that he had to finance the provision of the Sales Kit is an important factor showing that there was no employment.

37.Mr Kwok further argues that the Presiding Officer had failed to have regard to the fact that the Defendant was partly responsible for the printing costs of the name cards.  However, this hardly detracts from the Presiding Officer’s conclusion that the Claimant was responsible for most of the costs of running his business.  Name cards were only one of the long list of tools for which the Claimant paid.  In any event, the Claimant still had to pay for the name cards.

(v)   Financial risk assumed by the Claimant

38.The Claimant accepts that his earning of commissions was directly determined by the efforts he put in.  The Claimant plainly had to bear substantial financial risk.  Consider a salesperson who is hired as an employee, he is paid fixed salary even if there is zero sale.   That was not the case for the Claimant.   Not only that he would be paid no commission, he also had to bear out of pocket expenses relating to the Sales Kit, mobile phone bills, travel expenses, etc.  This remains the case even if he was reimbursed for the meal expenses for entertaining the workers of his team which was for the purpose of boosting morale of the team.  It is therefore unrealistic for the Claimant to argue that apart from this risk “there is otherwise very little financial risk”.

39.Even if Claimant did not incur out of pocket loss, the very fact that he would earn nothing in a particular month because he was not productive is an important factor in finding that he had to bear substantial financial risk in the relationship.  In other words, it shows that the Claimant was running a business on his own account.

(vi)   Responsibility for investment and management

40.Mr Kwok submits that the guidelines issued by the Defendant “governed the conduct of the Claimant and managed every aspect of their work and behavior”.

41.I cannot accept such argument.  On the Claimant’s own case, despite the aspects of control exercised by the Defendant in relation to competition and external image as mentioned above, he was afforded great flexibility in the manner of his work.[22] He might even ask the Defendant to recruit subordinate consultants from whom he might derive commissions.

42.It is also not correct for Mr Kwok to say that the Claimant made very little or virtually no management or investment decisions, or that his task was just to perform the sales work and the rest was for the Defendant to manage or decide.  The truth was that the way that the Claimant managed his own work (including how much time and effort to spend on the sales activities, and through which method he tried to sell the products), as well as how effectively he managed his subordinates, determined his productivity, which in turn determined his income.  The Presiding Officer was therefore correct to find that, coupled with the financial risk the Claimant took and the way he could profit from sound management of his own tasks, this is an indicium against the existence of employment relationship.

(vii)   Structure of the industry

43.The Presiding Officer observed at §79 of the Decision that there was no evidence to support any particular tradition or custom in the industry of sale of education materials.  However, she agreed with the submissions by the Defendant that the nature of the business is similar to that of the insurance industry, such that this indicium points away from the existence of employment relationship.

44.Mr Kwok submits that since there was evidence before the Presiding Officer as to how the insurance industry is run, let alone how other similar operators in the education materials industry conduct this line of business, it was a mere speculation on the part of the Presiding Officer in making the observation as mentioned in the preceding paragraph.

45.However, such observation should be considered in its context.  In the Defendant’s closing submissions before the Presiding Officer, the Defendant cited and relied on Leung Suk Fong Peggy v The Prudential Assurance Co Ltd[23] which was a case concerning the relationship between insurance company and its agents.  In that case:

(i) The insurance company (defendant) imposed no restriction on where, when, how and how often the insurance agent (claimant) performed her work.  J Poon J (as he then was) held that the lack of restriction pointed decisively against any employment relationship.  Control was imposed over the quality of the agent’s work, but such control was necessary to ensure that the agent’s performance would meet the standard required as the defendant’s agent. It was not control over her as employee.

(ii) Similar to this case, the agent had no fixed salary and had to bear considerable financial risk.

(iii) The agent was an integral part of the defendant’s organization, but that did not bear much weight in the overall context of the parties’ relationship.

(iv) Similar to this case, the defendant company provided office accommodation, furniture, computer and fax machine for the agent’s use.  The court agreed with the tribunal’s finding that these were provided to her for convenience.

(v) Similar to this case, the agent said she considered herself to be an employee, but never raised the issue of statutory holiday or annual leave, which supported the tribunal’s finding that the parties took the view that they were not in an employment relationship.

46.Properly understood against the context, it is clear that the Presiding Officer was not speculating as to what was the traditional structure of either the insurance or the education materials industry.  The Presiding Officer was only deriving assistance from the analysis in Leung Suk Fong Peggy, the facts of which bear great resemblance to those in the present case.  She was entitled to consider how the other judges were dealing with similar issues.  It is clear that the Presiding Officer was not blindly following the judgment in Leung Suk Fong Peggy v The Prudential Assurance Co Ltd[24], rather she considered all the indicia of employment including the structure of the business in forming the overall impression that the Claimant was not working as an employee.  There is nothing wrong with the approach taken by the Presiding Officer. 

(viii) Overall impression as to the relationship between the parties

47.For the above reasons, I am satisfied that the Presiding Officer has reached her conclusion based on a reasonable determination of the indicia of employment.  Some of the indicia point towards, and others away from, the existence of an employment relationship between the parties.  The Presiding Officer has weighed those indicia carefully, and there is nothing to indicate that the weight attached to the factors is either unreasonable or perverse.  I am satisfied that the conclusion reached by the Presiding Officer is both correct and reasonable.

OTHER GROUNDS OF APPEAL

48.The Claimant has also lodged other grounds of appeal:

(i) The Presiding Officer had failed to investigate into matters that had significant impact on the case.

(ii) The decision of the Presiding Officer is contradicted by the true and only reasonable conclusion drawn from the evidence.

(iii) The Presiding Officer did not or failed to consider the inherent improbabilities of the Defendant’s case.

49.I do not find that these arguments can take the Claimant’s case any further.

50.In respect of the complaint of failure of investigation, I understand from Mr Kwok’s submissions that the Claimant is relying on the following points:

(i) If the Claimant earned no commission for a particular month or suffered a loss, there is no evidence to show that the Defendant would deduct the losses from the Claimant’s future entitlements.  The Presiding Officer should have investigated such matter.

(ii) In agreeing that the nature of the business of selling education materials is similar to that of the insurance industry, the Presiding Officer should have conducted an investigation as to how the insurance industry is run.

51.There is no merit in such argument.  The evidence of the present case has already revealed that the Claimant would be liable for certain costs of running his business.  If it was the Claimant’s case that the Defendant would absorb such “loss” on his behalf, he should have told the Presiding Officer.  One cannot expect the Presiding Officer to carry out extensive investigation covering every eventuality.

52.For the alleged duty to investigate the operation of the insurance industry, I have already mentioned above as to the context in which the Presiding Officer referred to the similarities of the two industries.  She only derived assistance from an another decided case, and she was of the view that some of the dicta made by J Poon J in that case are applicable here.  I cannot quite understand why the drawing of such analogy would require the Presiding Officer to undertake an extensive inquiry into the structure of the insurance industry, which both the Claimant and the Defendant cannot provide any assistance.

53.For the reasons already discussed, there is also no substance in the complaint that the decision made by the Presiding Officer is contradicted by the true and only reasonable conclusion drawn from the evidence.

54.The complaint relating to the inherent improbability of the Defendant’s case is not pursued by Mr Kwok in the appeal, and rightly so.  There is nothing inherent in the Defendant’s case, and there is no basis for the court to disturb the primary findings of fact made by the Presiding Officer.

55.Finally, Mr Kwok also raises a procedural challenge in respect of the evidence given by Madam Tsui of the Defendant.  He refers to an incident that occurred during the trial on 9 July 2015.  According to Mr Kwok, the Presiding Officer should have disallowed part of Ms Tsui evidence because a trainee solicitor hired by the Defendant was feeding the answers to her.  However, the Presiding Officer had dealt with such complaint in the Decision.  She had already rejected Madam Tsui’s evidence given in the morning of 9 July 2015 and accorded very little weight to the rest of her evidence.[25]  Hence, such procedural challenge simply has no merit at all.

56.For the above reasons, the Presiding Officer was entitled to make the finding that the Claimant was not working as an employee of the Defendant.  I therefore dismiss the appeal.  I also make a costs order nisi that: (i) the costs of the appeal be to the Defendant; and (ii) the Claimant’s own costs to be taxed in accordance with legal aid regulations.  The order nisi shall be made absolute 14 days after the date of the handing down of this Judgment.

Mr Dennis Kwok, instructed by John C H Suen & Co, for the Claimant (Appellant)

Ms Frances Lok, instructed by S T Cheng & Co, for the Defendant (Respondent)