Laing Agnes and Others v. Lisbeth Enterprises Ltd t/a Phillip Wain International
Read the full judgment text of HCLA 133/2003 on BabelCite. This HCLA judgment was delivered on 28 June 2004.
1. The underlying facts giving rise to this Labour Tribunal appeal are straightforward enough. Briefly stated, the 2nd Claimant (the other two Claimants having abandoned their respective appeals) used to work as a consultant in the beauty and health club for ladies owned and run by the Defendant. Her main role was to recommend courses of treatment and exercise packages to new and existing members of the club. She also provided after-sale services and handled any questions or complaints that clie
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HCLA 133/2003 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE LABOUR TRIBUNAL APPEAL NO. 133 OF 2003 (ON APPEAL FROM LABOUR TRIBUNAL CLAIM NO. 11579 of 2002) ____________
____________ Coram: Hon A Cheung J in Court Date of hearing: 25 May 2004 Date of Judgment: 28 June 2004 _______________ J U D G M E N T _______________ Facts 1.The underlying facts giving rise to this Labour Tribunal appeal are straightforward enough. Briefly stated, the 2nd Claimant (the other two Claimants having abandoned their respective appeals) used to work as a consultant in the beauty and health club for ladies owned and run by the Defendant. Her main role was to recommend courses of treatment and exercise packages to new and existing members of the club. She also provided after-sale services and handled any questions or complaints that clients or members might have. 2.The 2nd Claimant and the Defendant signed a contract of employment. Under the contract of employment, she was entitled to a monthly basic salary of $5,600.00. However, that was not her sole source of income from her employment; indeed her basic salary only formed a minor part of her remuneration. 3.This was because under the contract of employment, in addition to her basic salary, she was also entitled to payment of commission. It is common ground that her entitlement to commission was contractual, as opposed to discretionary or gratuitous, in nature. Clauses 7, 7A and 8 read as follows:
4.During her course of employment with the Defendant, the 2nd Claimant was given, as per her statutory entitlement, annual leave and statutory holidays. Moreover, she was also paid annual leave pay and holiday pay by her employer. 5.However, the employer calculated the annual leave pay and holiday pay by reference only to her basic salary; her commission was not taken into account in calculating the pay. As the average monthly income of the 2nd Claimant was in excess of $50,000.00, comprising to a significant extent her contractual commission, the method of calculating annual leave pay and holiday pay adopted by the employer thus produced amounts that were much less than what would have been payable to the 2nd Claimant if her commission had been taken into account. 6.This thus became and still remains the crux of disagreement between the parties both in the proceedings below and in this appeal. Statutory provisions 7.Holidays with pay and annual leave with pay are provided for under Part VIIIA of the Employment Ordinance (Cap. 57). Part IX of the Ordinance contains ancillary provisions relating to, amongst other things, holidays and annual leave with pay. The relevant provisions are extracted below: " PART VIII HOLIDAYS WITH PAY
PART VIIIA ANNUAL LEAVE WITH PAY
PART IX
Sections 41 and 41C ― "wages" 8.The primary focus of counsel's argument is on the correct construction of section 41 and that of section 41C, which are in similar terms for our present purposes. 9.In short, Mr Rimsky Yuen, SC, appearing for the Defendant, argued that "the wages which the employee would have earned on a full working day" in section 41(1) and "the wages which the employee would have earned if he had worked every day during the period of annual leave" in section 41C (1) only refer to the basic salary of the 2nd Claimant under her contract of employment with the Defendant, but do not include her commission. 10.In this regard, Mr Yuen accepted that according to section 2(1) of the Ordinance, "wages" includes commission. But he argued that that general definition is not applicable in the context of section 41 and section 41C. 11."Wages" is defined in section 2(1) of the Ordinance as follows:
12.Section 2(2) of the Ordinance goes on to provide as follows:
13.Mr Yuen argued that under the contract of employment between the parties, commission would only be earned "if and when sales were made" by the 2nd Claimant and "payment was made by the relevant customer". He argued that since ex hypothesi, the 2nd Claimant did not work on her statutory holidays or during her annual leave, there was no question of the 2nd Claimant making any sales, and still less, of any customers making payment in respect of any such sales. 14.As I understand his argument, Mr Yuen was really saying that to take into account commission payment in calculating holiday pay and annual leave pay would be wholly repugnant to the nature of commission payment as provided under the contract of employment. 15.The whole idea of commission payment under the contract of employment, so Mr Yuen submitted in effect, was that the employer would not be out of pocket for anything in relation to commission - unless the employer got paid by the customer, it need not pay any money (by way of commission) to its employees. 16.Mr Yuen also prayed in aid section 41(2) and section 41C(2) (which are similarly worded) in support of his contention. He argued that the two subsections (2) were enacted by the legislature to cater for two specific types of employees, i.e. piece-rate workers and workers on daily wages which vary from day to day. Mr Yuen argued that in those two types of situations, the wages were not fixed but fluctuated. The legislature thus enacted the two subsections to provide a formula for working out the wages payable for the purposes of holiday pay and annual leave pay under the two subsections (1). It demonstrated that apart from these two particular types of situations, the two subsections (1) are meant only to apply to fixed remuneration or that part of the remuneration of a worker that is fixed (as opposed to being fluctuating). 17.I do not accept Mr Yuen's argument. 18.Leaving the policy and the intention of the legislature aside for the time being, the starting point is that "wages" in the Ordinance is defined to include commission that is contractual in nature, "unless the context otherwise requires" (section 2(1)). In other words, in the absence of such a contextual requirement, or put another way, unless such a requirement can be shown, "wages" includes commission. 19.Both section 41 and section 41C, in setting out the rates of holiday pay and annual leave pay respectively, use the word "wages" without any qualification. Unless the contexts in which the two sections use the word "wages" require otherwise, "wages" simply includes commission. In other words, unless the contexts so require, one can legitimately replace "wages" with "commission" in both sections 41(1) and 41C(1), in working out the amounts of holiday pay and annual leave pay respectively, insofar as the same are attributable to commission. In other words, to work out the rates, one simply asks how much commission the employee would have earned in a full working day, or would have earned during the whole period of annual leave, if he or she had worked on that particular day or in that particular period of time, insofar as one is only focusing on commission as the employee's remuneration. 20.Do the respective contexts require restricting "wages" to exclude commission? 21.Mr Yuen's argument based on the nature of commission in the contract of employment in question does not attract me. It is true that under the contract of employment, if no sale was concluded, or no payment was made by the customer to the employer, no commission would be payable to the employee in respect of the sale in question. Yet it is equally true that under the contract of employment, leaving aside special contractual or statutory provisions, if the employee did not turn up for work on a particular day or in a particular period of time, she would not be entitled to payment of her pro rata salary for that particular day or that particular period of time either. To make, by means of statutory provisions, the employer pay the employee her pro rata basic salary for that day or for that period of time would be to require the employer to pay something that he would not otherwise have been obliged to pay under the contract of employment. So to that extent any such statutory requirement could be regarded as being repugnant to the nature of payment of basic salary. 22.Yet Mr Yuen had to concede and accept in submission that, the above analysis notwithstanding, so far as sections 41 and 41C are concerned, the employer under the contract of employment in question had to pay holiday pay and annual leave pay by reference to the employee's basic salary. 23.Thus analysed, I see no logical distinction, whether in terms of the nature of the remuneration itself or in terms of repugnancy, between basic salary and commission. Put another way, by enacting section 41 and section 41C, the legislature has indeed made something payable that would otherwise not have been payable under the contract of employment. I find such a conclusion not surprising at all; that precisely is the whole point of statutory intervention in terms of labour welfare under the Employment Ordinance. 24.Nor am I attracted by Mr Yuen's argument based on contingency, uncertainty and the two subsections (2) in sections 41 and 41C. I accept that generally speaking, in the context of the present contract of employment, commission, as opposed to basic salary, was a contingent payment, in the sense that if no sale was concluded by the employee, or if the customer did not pay, no commission was payable. To that extent, commission may be distinguished from basic salary. But in the context of the present discussion, in my judgment, that distinction is one without any difference. 25.What is under discussion here is whether in the context of holiday pay or annual leave pay, and more specifically, in the context of calculating holiday pay or annual leave pay, "wages" should bear a narrower and different meaning from that defined under section 2(1) of the Ordinance, so that commission should be excluded from wages. The distinction pointed out in the preceding paragraph simply does not, in my judgment, provide the necessary "context" for so restricting the meaning of "wages". The contingency or uncertainty element in the payment of commission, or put another way, the fluctuating nature of the payment, simply goes to the question of quantification and evidence. In other words, it is a question of quantification as well as a question of evidence (and proof) how much commission, if any, an employee "would have earned" if he had worked on the day of his statutory holiday or if he had worked during the period of his annual leave. 26.I see no or insufficient justification, by reason of any uncertainty, contingency or need of quantification, to deny commission a place in working out the statutory holiday pay or annual leave pay. 27.As regards the two subsections (2) in sections 41 and 41C, I do not regard them as indicative of the two subsections (1) in the two sections being applicable to fixed remuneration only apart from the two types of situations covered by the two subsections (2). 28.For my part, I am content to view the two subsections (2) as specific provisions enacted by the legislature to cater for two common types of situations in which a worker's remuneration is not fixed, and thus the advantage of a statutory formula to settle all possible arguments. Without the statutory formula, depending on the facts, there could be more than one possible method of calculating the wages that would have been earned. I do not regard the two subsections (2) as being exhaustive of the situations that may be covered by the two sections. The two subsections (2) simply provide a statutory formula for working out the holiday pay and annual leave pay in the two specified types of situations. They do not mean, in my judgment, that apart from these two types of situations, other types of situations in which the employees' "wages" are contingent or fluctuating in nature are not covered by the two subsections (1). 29.My rejection of the contention of counsel is further reinforced by section 2(2) regarding overtime pay. As has been set out above, overtime pay is included within the wide meaning of "wages" in section 2(1) of the Ordinance, just like commission. Yet unlike commission, section 2(2) of the Ordinance goes on to exclude overtime pay from "wages" in computing, amongst other things, holiday pay and annual leave pay, unless, putting it shortly, the overtime pay is either recurrent in nature or is substantial (20% is the "passing mark"). 30.No equivalent or similar provisions can be found in relation to commission. The exclusion of overtime pay in section 2(2) is instructive. There, the legislature clearly recognises the possible contingent nature of overtime pay - thus the requirement for the overtime pay to be recurrent in order to be taken into account, and the fluctuating nature of overtime pay - thus the requirement for the same to be of 20% or more of the total remuneration in order to be included as "wages". 31.Yet notwithstanding that recognition, the legislature has never found it fit to enact equivalent or similar excluding provisions regarding commission in calculating, amongst other things, holiday pay and annual leave pay. The net result is that commission is simply included within the wide meaning of "wages" in section 2(1), and "wages", with no qualification, is used as the basis in both sections 41 and 41C for calculating holiday pay and annual leave pay. 32.My above views are, in my judgment, fully consistent with the general legislature intent behind the Ordinance. The preamble of the Ordinance says expressly and specifically that the Ordinance is enacted to "provide for the protection of the wages of the employees, to regulate general conditions of employment ... and for matters connected therewith". 33.In my judgment, the obvious intention behind the provisions concerning statutory holidays and annual leave are to give employees statutory holidays and annual leave with pay (subject to certain qualifying provisions and requirements). Assuming that the qualifying requirements are met, the whole idea is that an employee should have statutory holidays and annual leave with pay. Put another way, the legislature intends to give an employee days off without any accompanying economic loss for not working. The intention cannot be clearer in section 40A, which actually prohibits the making of payment in lieu of the grant of holiday. If the granting, and thus the taking, of holiday, are mandatory, I can see no logical or sound policy reason for inflicting on an employee a loss in terms of income when he takes the mandatory holiday, by artificially excluding commission from wages in calculating his statutory holiday pay. To a slightly lesser extent, the same can be said in relation to annual leave - sections 41E and 41EA also prohibit the making of payment in lieu of taking the annual leave, subject to some relatively minor exceptions. 34.I do not think the case of Star Fair Electronics Co. Ltd v Wong Tak Cheung [1985] 2 HKC 92, cited by Mr Yuen, is of any real assistance to the Defendant at all. Whilst I wholly agree, as has been pointed out by Deputy Judge Nazareth (as he then was) at p. 96E of the report, that the Employment Ordinance does not modify the fundamental basis of employment and wages are due under contract and not under the Ordinance, it does not really help the Defendant in finding out whether, in the context of sections 41(1) and 41C(1), "wages" as used there includes commission. 35.For all the above considerations, I am of the view that wages includes commission in sections 41(1) and 41C(1), as a matter of principle. How much would an employee have earned by way of commission is simply a question of quantification, evidence and proof. Section 42 ― "ordinary wages" 36.I now turn to section 42 of the Ordinance. In short, the section provides that if an employee has been paid his "ordinary wages" in respect of his statutory holidays or annual leave, he need not be paid his holiday pay or annual leave pay calculated pursuant to section 41 or 41C. 37.Here, Mr Yuen's argument was that the 2nd Claimant had been paid her "ordinary wages" i.e. her pro rata basic salary, in respect of her statutory holidays and annual leave, and thus she was not entitled to payment of holiday pay or annual leave pay on top. 38.I do not accept this argument. In my judgment, there is no justification whatsoever in construing "ordinary wages" in section 42 as meaning "basic salary" in the contract of employment in question. Mr Yuen's argument sought, in substance, to equate "fixed" wages with "ordinary" wages. I see no justification for so construing "ordinary wages". Mr Yuen's argument also overlooked the definition of "wages" in section 2(1) of the Ordinance, which includes commission. I fail to see how "ordinary wages" could be construed in such a way as to exclude commission, when "wages" includes commission. 39.Insofar as may be necessary, I would simply construe "ordinary wages", which is not defined anywhere in the Ordinance, as meaning wages (bearing its statutory meaning under section 2(1)) that an employee would have earned under normal circumstances, in the ordinary course of his employment (if he had not taken the holidays or leave in question). In other words, if by reason of contract, specific agreement or any other reasons, the employer has paid his employee, in respect of those days on which his employee took his statutory holidays or annual leave, wages as if he had not taken his holidays or leave, in an amount equivalent to what the employee would normally have earned in the ordinary course of his employment on those days (if he had not taken his holidays or leave), then the employer need not pay the employee any holiday pay or annual leave pay on top. The clear intention behind section 42, in my judgment, is to avoid double payment. 40.On the facts of the present case, since the 2nd Claimant was only paid remuneration calculated by reference to her basic salary, in my judgment, she has not been paid her "ordinary wages". For that reason, section 42 is not applicable. Clause 8 of the contract of employment 41.I do not think clause 8 of the employment contract affects the position at all. Clause 8 only applies to annual leave. It refers to the payment of the 2nd Claimant's "full salary" during her annual leave. 42.I agree that on the proper construction of the employment contract, a distinction should be drawn between salary and commission. "Full salary" in clause 8, in my judgment, simply means 100% basic salary. It does not include commission. 43.I therefore also agree that leaving the statutory provisions aside, purely as a matter of contract, so far as annual leave is concerned, the 2nd Claimant would only be entitled to payment of her basic salary for her period of annual leave. No commission could be taken into account. 44.However, one must take into account the statutory provisions in the Ordinance. In my judgment, clause 8 may be disposed of in one of two ways: First, the "full salary" paid pursuant to clause 8 simply was not the 2nd Claimant's "ordinary wages" under section 42 for the purpose of her annual leave pay. In other words, section 42 is not engaged, and thus the 2nd Claimant is entitled to payment of annual leave pay calculated pursuant to section 41C. 45.Secondly (and alternatively), clause 8 in the employment contract falls foul of section 70 of the Employment Ordinance, which reads as follows:
46.In other words, clause 8 is void to the extent that it seeks to reduce the protection and benefits conferred by section 41C on the 2nd Claimant in terms of calculating annual leave pay. 47.In any event, clause 8 (which only applies or purports to apply to annual leave) cannot affect the question of holiday pay. Implied agreement or estoppel 48.Finally, Mr Yuen argued that as the 2nd Claimant never complained about or protested at the method of calculating holiday pay and annual leave pay by her employer during her years of employment, there was either an implied agreement between the parties regarding calculation of holiday pay and annual leave pay or an estoppel preventing the 2nd Claimant from asserting her strict legal rights regarding holiday pay and annual leave pay. 49.No finding of an implied contract was made by the Tribunal. 50.In any event, any such contract would fall foul of section 70 of the Ordinance. Furthermore, I fail to see how an implied contract could be inferred from mere silence and inaction on the part of the employee. 51.As regards estoppel, the Defendant's own case is that it had represented to the 2nd Claimant at the commencement of the employment that holiday pay and annual leave pay would only be calculated, according to the terms of the contract of employment between the parties, by reference to the 2nd Claimant's basic salary. That clearly was a misleading representation of the position or the 2nd Claimant's legal entitlement, no matter how innocently it might have been made. 52.Given that background, in my judgment, it is impossible to found an estoppel on the mere silence and inaction of the 2nd Claimant. I fail to see how it would be fair and equitable to estop the 2nd Claimant from asserting her statutory and legal rights against the employer when her silence and inaction was caused or contributed to by the misleading representation made to her by her employer as regards her strict legal rights. Outcome 53.For all the above reasons, I disagree with the conclusion of the Tribunal below, which held that the 2nd Claimant had been paid her "ordinary wages", and thus could not claim any holiday pay or annual leave pay on top. 54.The appeal must therefore be allowed. 55.The Tribunal below has not resolved the disputes of fact regarding how much holiday pay and annual leave pay should be payable to the 2nd Claimant on the basis that commission should be taken into account. This is a matter of facts and evidence. I do not think it right for this Court to deal with this matter. 56.In the circumstances, I order that the appeal be allowed, the order of the Tribunal against the 2nd Claimant be set aside, the 2nd Claimant's claim for payment of holiday pay and annual leave pay be remitted to the Tribunal for retrial before another Presiding Officer. 57.That said, there is nothing to prevent the parties from reaching an agreement on the quantum of the 2nd Claimant's claim, in which event there would not be any need for a retrial. 58.As regards costs, I make an order nisi that the costs of this appeal be paid by the Defendant to the 2nd Claimant; such costs are to be taxed if not agreed. Unless either side should apply to vary the costs order nisi within 14 days after this judgment is handed down, the same shall become absolute upon the expiry of the 14 days period. 59.Lastly, I would like to thank counsel on both sides for their assistance.
Representation: Mr Andy Hung, instructed by Messrs Philip S W Chan & Co., for the 2nd Claimant (Appellant) Mr Rimsky Yuen, SC, instructed by Messrs Tsang, Chan & Wong, for the Defendant (Respondent) Appeal by the Defendant to Court of Appeal. Appeal allowed. Please refer to the appeal judgment of CACV204/2004. |
Cases cited in this judgment