Yam Yui Wai and Others v. Wanchai Hsin Kuang Restaurant Co Ltd
Read the full judgment text of CACV 1950/2001 on BabelCite. This Court of Appeal judgment was delivered on 28 May 2002.
1. The present case originates from two rulings of Presiding Officer Winston Leung of the Labour Tribunal dated 22 November 2000 and 5 December 2000 respectively. The Presiding Officer ordered the Defendant company to pay to the 10 Claimants outstanding severance payments totalling $137,960.30. The Presiding Officer also ordered the Defendant company to pay to the 10 Claimants rest day compensation totalling $443,376.20. These figures are not in dispute.
Cited by 2 cases · Cites 1 case
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[English Translation – 英譯本] CACV 1950/2001 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 1950 OF 2001 (ON APPEAL FROM HCLA NO. 9 OF 2001) -------------------------------------
------------------------------------- Before: Hon Woo JA, Cheung JA and Chu J in Court Dates of Hearing: 25 & 26 April 2002 Date of Judgment: 28 May 2002 ------------------------ JUDGMENT ------------------------ Hon Woo JA: Introduction 1.The present case originates from two rulings of Presiding Officer Winston Leung of the Labour Tribunal dated 22 November 2000 and 5 December 2000 respectively. The Presiding Officer ordered the Defendant company to pay to the 10 Claimants outstanding severance payments totalling $137,960.30. The Presiding Officer also ordered the Defendant company to pay to the 10 Claimants rest day compensation totalling $443,376.20. These figures are not in dispute. 2.The Defendant company appealed to the Court of First Instance against the Presiding Officer’s rulings. The appeal was dismissed by Yeung J on 19 July 2001. Having obtained leave from me, the Defendant company now appeals to this Court. 3.The 2nd Claimant Mr Chan Kam Kong has passed away. With the consent of Ms Audrey Eu SC, Counsel for the Defendant company, we allowed the Defendant company to withdraw its appeal against the 2nd Claimant with no order as to costs. Issues on appeal 4.The present appeal focuses on two issues. Put simply, they are:
Facts in respect of “purchasing rest days” 5.The Defendant company was a restaurant proprietor. The Claimants in the present case were under the Defendant’s employ during various periods of time. Upon being employed, each of the Claimants signed a document. The document does not have a specific title, although the employee is named in the document as “the person executing the document of intent” or “the person intending to execute the contract”. Ms Eu SC regarded it as a contract. However, although these documents are in the same form, they make no mention of each of the Claimants’ position, wages and other circumstances particular to him/her. Each of the documents is divided into 4 main sections: (a) conditions of employment and rules of work; (b) provisions relating to injuries at work; (c) provisions regarding rest days, taking of leave and holidays; and (d) year-end bonus. I agree with Ms Eu SC’s submission that the document was signed as a contract by the employee and it contained terms to which the employer and employee had agreed. 6.In respect of Issue (1) in the present appeal, namely the question of “purchasing rest days”, the relevant terms of the document are as follows:
7.In the document, the abovementioned final paragraph is followed by a line “signed by the person intending to execute the contract”, below which the signature of the relevant Claimant appears. 8.The Defendant company alleged that it paid to the Claimants salaries in lieu of rest days in the course of their employment. The Claimants disputed this allegation. The Presiding Officer, however, did not investigate this dispute. With a view to substantiating its allegation, the Defendant company adduced before us a number of accounting documents relating to the Claimants’ salaries. However, as most of these documents were prepared after the present action commenced and do not show calculation of salaries at the material times, I do not consider them to be sufficient evidence of the above allegation. Statutory provisions on rest days 9.The provisions on rest days are contained in sections 11 to 21 of Part IV of the Ordinance. Section 2 of the Ordinance defines “rest day” as “a continuous period of not less than 24 hours during which an employee is entitled under Part IV to abstain from working for his employer”. Section 17 provides that an employee shall be granted one rest day in every period of 7 days. Section 19 provides that, subject to section 19(2) which requires an employee to work on a rest day under specific circumstances, no employer shall require an employee to work on any of his rest days. Under section 19(2), unless it is necessary for an employee to work on a rest day by reason of a breakdown of machinery or plant or other unforeseen emergency of any nature, an employer shall not require an employee to work on a rest day. And where an employer does require an employee to work on a rest day due to unforeseen emergency, the employer shall substitute for that rest day some other rest day within the period of 30 days next following. 10.Section 20 of the Ordinance provides as follows:
11.The other relevant provisions are sections 63 and 70. The relevant parts of these two sections are set out below:
Grounds of appeal 12.In his Judgment, Yeung J made the following conclusion on Clause (C)(2)(iii) of the contract in the present case:
13.Ms Eu SC submitted that the above ruling is incorrect. Her submission comprises two limbs: such a ruling (1) interferes with the parties’ freedom to agree to contractual terms in line with their free will; and (2) departs from the courts’ usual approach in interpreting contractual terms. (1) Freedom of contract 14.Ms Eu SC stressed that at law the parties to a contract are absolutely entitled to agree to any contractual term. The Ordinance does allow an employer to “purchase rest days” from an employee. Section 15C of the Ordinance does not allow a contract of employment to provide for payment of salary in lieu of maternity leave, whereas Section 40A restricts payment of salary in lieu of statutory leave while section 40E (sic) restricts payment of salary in lieu of annual leave. In comparison, the Ordinance does not expressly prohibit or restrict any arrangement to pay salary in lieu of rest days. On the contrary, section 20 of the Ordinance expressly allows an employee to work for his employer on a rest day pursuant to agreement between them. Neither section 20 nor other provisions of the Ordinance provide for payment of salary in lieu to an employee who works on a rest day. As the only restriction imposed by the Ordinance on working on rest days is that it can occur only by agreement between the employer and the employee, the contract in the present case, which merely records an agreement and arrangement made voluntarily by the parties in respect of working on rest days, cannot be said to have contravened the Ordinance. 15.Ms Eu SC also submitted that the Ordinance does not expressly state that any arrangement between the parties in respect of working on rest days cannot be set out in the employment contract and can only be agreed upon after the employee’s employment has commenced. 16.In this respect, Yuen J (as she then was) did address the issue in the case of Hang Fook Lau Seafood Restaurant v Kwok Sek Yuen [2001] 2 HKC 69. Her analysis, set out at 72H to 73E of the report, was applied by Yeung J in the present case. This is what Yuen J said:
17.Ms Eu SC invited this Court to rule that Yuen J’s ruling as set out above is incorrect, on the ground that such ruling deprives both an employer and an employee of their right and freedom to agree on the terms of an employment contract, and that in the present case the term in the contract regarding working on rest days is not something that is prohibited by any of the provisions of the Ordinance. 18.I do agree that, under Hong Kong law, parties to a contract are absolutely free to decide what terms the contract is to contain. However, certain terms may not be allowed at law even though they have been agreed upon by the parties. For example, the court will not enforce an agreement whereby the parties carry out illegal activities or a contractual term which is prohibited or restricted by legislation. In the present case, section 70 of the Ordinance expressly provides that any term of an employment contract which purports to extinguish or reduce any right, benefit or protection conferred upon the employee by the Ordinance shall be void. It is the duty of the courts to prohibit what is not allowed by the Ordinance. Under sections 2 and 17 of the Ordinance, an employee shall, in every period of 7 days, be granted at least one rest day for a continuous period of not less than 24 hours. It is true that an employee can work for his employer on a rest day pursuant to mutual agreement. However, in the present case, Clause (C)(2)(iii) of the employment contract states that the employee has agreed to work for the employer on 2 of the 4 rest days. The clause expressly refers to the employee “agreeing” to work on rest days and, on the face of it, means that the employee, upon being employed, agreed to work for the employer on 2 of the 4 rest days in accordance with section 20 of the Ordinance. In my judgment, such an arrangement did purport to reduce the right, benefit or protection conferred upon the employee by the Ordinance to rest on rest days and therefore must be void under section 70. Furthermore, the final paragraph of the contract expressly provides that the employee agreed to “continue to work on […] rest days” and would only take leave with mutual consent. This obviously means that the employee had to obtain consent from his employer if he wished to have more than 2 rest days in a month, and if the employee rested on a day other than the 2 rest days specified in the contract without the consent of the employer, this would be taken as breach of contract. This amounted to a reduction of the benefits conferred upon the employee by the Ordinance and the term must be void under section 70. 19.For these reasons, although I have reservations about making a distinction, as Yuen J did in the Hang Fook Lau Seafood Restaurant v Kwok Sek Yuen case, between a pre-contract arrangement and a post-contract arrangement in determining the effect of a rest day arrangement, I do agree with Yuen J’s ruling above, i.e. where a contractual term makes the employee feel that if he were to choose to rest on a “working rest day” then he would be liable to be dismissed or disciplined for breach of contract, the term should be regarded as void for being contrary to section 70 of the Ordinance. (2) Approach to be taken in interpreting contract 20.Ms Eu SC drew this Court’s attention to a fundamental axiom that the court should follow in interpreting a contract: the court should not adopt an interpretation which would result in a contract contravening a statute. The cases of Rodger v Comptoir D’Escompte de Paris [1869] L.R. 2 P.C. 393 and Fausset v Carpenter [1831] 2 Dow. & CL. 232 were cited in support. 21.Rodger v Comptoir D’Escompte de Paris concerned an appeal from Hong Kong to the Privy Council. In its judgment, the Privy Council stated that, where the language of a deed of assignment allowed for two interpretations, one being lawful and proper and the other being improper and illegal, the court should adopt the lawful interpretation. 22.In my view, while the abovementioned axiom was clearly applicable to the facts of Rodger v Comptoir D’Escompte de Paris, it does not apply to the present case. The issue in Rodger v Comptoir D’Escompte de Paris was whether an unpaid seller had the right to stop delivery of the goods in transit. The purchaser in that case became indebted to a bank when the goods were in transit, and by a deed of assignment, the purchaser assigned to the bank all the goods in transit including the goods being delivered to him by the seller. Applying the proper rule of interpretation of contracts, the Privy Council held that the deed of assignment executed by the purchaser did not have the effect of undermining or extinguishing the right of the unpaid seller to repossess the goods in transit (the right to stop delivery of the goods in transit). A wholesale application of that case to the present case is unwarranted as the facts of the two cases are completely different. Furthermore, that case did not involve any restriction similar to section 70 of the Ordinance, and therefore the principle of that case should not be applicable to the present case. 23.The facts of Fausset v Carpenter were even further apart from those of the present case. In that case, a trustee of certain estate, who was also the beneficiary of only part of the estate, executed a deed purporting to assign the properties in the estate to others. The deed could be construed either as a transfer of the entire estate or as a transfer of that part of the estate in which the trustee was beneficially interested. On appeal, the English court, accepting Counsel’s submission, held that in determining the design and objective of the deed, if an interpretation could render the deed consistent with what the person executing the deed was entitled to do, then the court would not assume that he intended to do what he was not entitled to do or what he did by mistake. 24.In the present case, the term in the employment contract regarding rest days is not ambiguous and does not allow for two distinct interpretations. Clause (C)(2)(iii) and the final paragraph of the contract make it clear that the employee agreed to work for his employer on 2 of the 4 statutory rest days and that the employee had to obtain his employer’s consent if he did not wish to work on those 2 days. 25.However, Ms Eu SC contended that, as long as the employee made his request to rest on either or both of the 2 rest days to his employer within a reasonable period of time in advance, the employer would grant the permission in accordance with the Ordinance. In other words, the employer was bound to accede to the employee’s request. I am unable to agree with this contention because no such term exists in the employment contract in question. An alternative to this contention is that the contract contained an implied term covering what the parties had not expressly provided for and that the term required the employer to allow the employee’s application to rest on those 2 rest days. This, in my view, contradicts the express provisions of the contract and cannot be taken as an implied term at law (see Chitty on Contracts, 28th Ed., paragraph 13-009). The alternative contention means, in effect, that:
In light of all the circumstances of the present case, I am of the view that, given the employee had signed the contract, he could not possibly understand the meaning of these so-called implied terms. It would be very difficult for an employee who had signed the employment contract in question to understand that he could at any time apply to his employer to rest on the 2 “working rest days” and that the employer was bound to approve the application. 26.Ms Eu SC also submitted that the employment contract in the present case is to be given a reasonable interpretation in accordance with the provisions of the Ordinance. It was submitted that, as section 70 of the Ordinance provides that any term of a contract of employment which extinguishes or reduces any right, benefit or protection conferred upon the employee by the Ordinance shall be void, the contract should not be regarded as void and, instead, should be interpreted as having been made in accordance with the Ordinance, for the reason that the parties to the contract should be taken to have intended to abide by the provisions of the Ordinance. Accordingly, an employee may, in accordance with section 20 of the Ordinance, make a request to rest on the 2 “working rest days” to his employer at any time. 27.I do not accept this submission. An inevitable consequence of the submission is that, even if an employment contract fails to comply with the provisions of the Ordinance, it is still to be regarded as valid as long as both parties to the contract act in accordance with the provisions of the Ordinance. If this were the case, then all terms of employment contracts which contravened the Ordinance would still be valid as long as both parties to the contract acted in accordance with the provisions of the Ordinance. This submission is little short of sophistry and plainly runs counter to the legislative intent behind section 70 of the Ordinance. 28.For the above reasons, I hold that the employment contract in the present case contravenes the provisions of the Ordinance regarding rest days and is therefore void. Compensation for rest days 29.The Defendant company argued that payment in lieu had been made to the Claimants in respect of their work on rest days. It was submitted that the ruling made respectively by the Presiding Officer and Yeung J that the Defendant company was to compensate the Claimants for depriving them of their right to rest on rest days was erroneous because the Defendant company had already paid wages in lieu to the Claimants in respect of their work on rest days, and the Claimants would unjustifiably receive double benefit if they were to be compensated in respect of the rest days. 30.In Hang Fook Lau Seafood Restaurant v. Kwok Sek Yuen, Yuen J affirmed the ruling of the Tribunal requiring the employer to compensate the employee who had to work on rest days, with the amount of compensation to be calculated by multiplying the daily wage payable to the employee by the number of rest days on which the employee had worked. In the present case, Yeung J made the following judgment on the issue of “double benefit”:
31.In Hang Fook Lau Seafood Restaurant v. Kwok Sek Yuen, Yuen J ruled that the employer was liable to compensate the employee in respect of his work on rest days. The learned judge made the ruling on the basis that, on her view of the facts of the case, the employee’s wages had nothing to do with the number of days per month on which he had to work. This is different from what the Defendant company in the present case contended, namely that the salary in lieu that it had paid the Claimants who had to work on rest days was additional salary. If this contention were true, then in my view, as the Claimants had been paid additional remuneration in respect of their work on rest days, they would receive double benefit if they were adjudged to be entitled to even more remuneration by reason of previous contractual arrangements requiring them to work on rest days. Although the relevant contractual term is considered void, I can discern no good reason for requiring the employer to pay double compensation to the employees. Accordingly, in my judgment, if it could be proved on the facts that the Defendant company had paid to the Claimants additional salary in respect of their work on rest days, then they should not be entitled to further compensation in this respect. The Presiding Officer, however, did not conduct an investigation in this respect (see paragraph 8 above). This being an appeal from a labour dispute, this Court is only entitled under the relevant legislation to adjudicate upon questions of law and not questions of fact. Findings of fact are to be made by the Tribunal after he carries out investigations. If the Defendant company considers it necessary for the Tribunal to determine this question of fact, I am prepared to remit this finding of fact to the Tribunal for determination. Pickles money 32.On the issue of whether the pickles money formed part of the wages of the Claimants as employees of the Defendant company, I have had the opportunity to read the draft judgment of Cheung JA and I entirely concur with his analysis of and conclusions on the issue. I will now merely add some observations of mine. 33.The Defendant company argued that the pickles money was earned by the Defendant company on behalf of its employees and did not form part of the company’s profits. Furthermore, the company had, on behalf of its employees, set out the method of apportioning the profits derived from the pickles money income less the amount used by the company for purchasing the pickles. In light of this, Ms Eu SC submitted that the pickles money that the Claimants had received should not be regarded as part of their wages. The Claimants, on the other hand, raised this question: if the pickles money represented profits earned pursuant to arrangements made by the Defendant company on behalf of its employees, then why was an employee who left the company’s employ in the middle of a particular month not entitled to a share of the pickles money? Furthermore, the pickles money formed part of the bill that the customers had to settle after they finished the meal. The total amount payable by customers included a 10% tip (i.e. service charge), which in turn covered the 10% tip of the pickles money, and the Defendant company was entitled to a share of the pickles money just as it was entitled to a share of the other tips. On these facts, I take the view that the treatment by the Defendant company and the Claimants of the pickles money income as part of the tips reflected merely a difference between the method of apportioning this item and that of apportioning tips other than the pickles money. 34.“Wages” is defined in section 2 of the Ordinance as follows:
The definition also sets out various payments or values which are not included as wages. These are payments or values of a non-recurrent nature, or payable at the discretion of the employer, or of a concessionary or gratuitous nature. In light of this wide-ranging definition, no matter how the pickles money was designated or calculated, it cannot be denied that this money was part of the recurrent, non-discretionary, non-concessionary and non-gratuitous remuneration, earnings and allowances received by the Claimants within the meaning of “wages” as defined in the Ordinance. 35.For the reasons set out by Cheung JA and the reasons set out above, the appeal in respect of the pickles money should in my view be dismissed. Conclusions 36.On the question of law in relation to the “purchase of rest days”, I do not accept the arguments put forward by the Defendant company. The appeal on this question of law is dismissed. 37.However, as regards the compensation to be paid to the Claimants in respect of their work on rest days, the Presiding Officer failed to investigate the matter and make findings of fact. The factual issue here is whether the Defendant company had paid to the Claimants salary in lieu in respect of their work on rest days. If necessary, the case is to be remitted to the Tribunal for re-trial so that the Tribunal may investigate and adjudicate upon the relevant facts. Any party hereto who seeks a re-trial in this respect has to apply to this Court within 14 days of the delivery of this judgment, and this Court will then give such directions as are appropriate. 38.The appeal in respect of the pickles money (shortfall in severance payment) is dismissed. Costs 39.At the commencement of the appeal hearing, Ms Eu SC indicated that the objective of the present appeal is to seek a judicial determination on the validity or otherwise of the contractual term regarding the “purchase of rest days” which is commonly adopted in the local restaurant industry, and not to seek recovery from the Claimants of any amount that has been paid to them pursuant to the ruling of the Tribunal. I do agree with the submissions of Ms Eu SC on “double benefit”, namely that the Claimants should not receive double benefit by reason of having worked on rest days. However, this issue merely comprised a small part of the appeal, and most of the grounds of appeal advanced by the Defendant company have been rejected. It is in my view reasonable for the parties to bear their own costs, and I therefore make no order as to costs. Hon Cheung JA: 40.The Appellant Wanchai Hsin Kuang Restaurant Co Ltd (“Hsin Kuang”) is the former employer of the Claimants (i.e. Respondents). On 31 March 2000, Hsin Kuang laid off the Claimants, who then lodged a claim at the Labour Tribunal in respect of severance payments. After trial, the Tribunal ordered the Appellant to pay to the Claimants outstanding severance payments totalling $137,960.30 and rest day compensation totalling $443,376.20. Hsin Kuang appealed against the ruling, and the appeal was dismissed by Yeung J (as he then was). Hsin Kuang was subsequently granted leave to appeal to the Court of Appeal against Yeung J’s judgment. Hsin Kuang has paid to the Claimants the adjudged sums. This Court has allowed Hsin Kuang to withdraw its appeal against the 2nd Respondent, who passed away prior to the appeal. Rest days 41.Under the Employment Ordinance (the “Ordinance”), an employee is entitled to various forms of holidays, one of which is rest days. A rest day is defined as a continuous period of not less than 24 hours during which an employee is entitled under Part IV of the Ordinance to abstain from working for his employer: section 2 of the Ordinance. Section 17 of the Ordinance provides that an employee who has been employed by the same employer under a continuous contract shall be granted one rest day in every period of 7 days. This means the employee is entitled to 4 rest days per month. Section 20 of the Ordinance provides that an employee may, at his own request and if the employer agrees, work for his employer on a rest day. An employee may also work for his employer on a rest day at the request of the employer. An employer may not request his employee to work for him on a rest day unless the employee agrees to do so or unless the exceptional circumstances under section 19 of the Ordinance apply, namely, an employer may require an employee to work on his rest day if it is necessary to do so by reason of a breakdown of machinery or plant or other unforeseen emergency of any nature. Where an employer requires his employee to work on a rest day for the above reasons, he must grant to the employee another rest day in substitute within the period of 30 days next following. An employer who without reasonable excuse fails to grant to his employee any rest day which he is required to grant shall be guilty of an offence: section 63(2)(a) of the Ordinance. Any term of an employment contract which extinguishes or reduces any right, benefit or protection conferred upon the employee by the Ordinance shall be void: section 70 of the Ordinance. 42.Clause C(2)(iii) of the employment contract between Hsin Kuang and each of the Claimants provides that Hsin Kuang shall arrange for the employee 3 days’ holiday per month, including “2 of the 4 statutory rest days; as for the remaining 2 rest days, the employee hereby agrees to work on rest days upon demand of the employer, and the relevant salary in lieu will be paid together with the employee’s month-end remuneration.” The Claimants had all been under Hsin Kuang’s employ for considerable periods of time, with the longest being 19 years and the shortest 9 years. Ever since the parties entered into the employment contracts, there had been no dispute as to whether Hsin Kuang had paid to the Claimants salary in lieu of rest days in accordance with the contracts. It was only upon being laid off that the Claimants lodged a claim in that respect. Judgment of the Court of First Instance 43.Yeung J agreed with the ruling of the Presiding Officer that Clause C(2)(iii) of the employment contract contravened section 70 of the Ordinance in failing to grant to the employee at least one rest day in every period of 7 days, as a result of which Clause C(2)(iii) was void under section 70. As the Claimants were unable to enjoy all rest days during the period of employment, and Hsin Kuang could not possibly grant to them substitute rest days after they were laid off, Hsin Kuang was bound to pay to the Claimants compensation for rest days. Although some of the Claimants had been in Hsin Kuang’s employ for more than 10 years, they could, having regard to the limitation rules, only be compensated for rest days in a 6-year period. Yeung J took the view that, even if Hsin Kuang had paid to the Claimants salary in lieu, it was liable to pay the sums again. 44.Yeung J ruled that the relevant contractual term contravened the Ordinance because the Claimants had, prior to their being employed by Hsin Kuang, been deprived of the right to choose whether to work on rest days. By means of the employment contract, Hsin Kuang had compelled the employees to agree to work on 2 of the 4 rest days. If a Claimant did not agree to work on rest days, he would not be employed; during the period of employment, if he chose to rest on a working rest day, he was liable to be dismissed or disciplined for breach of contract. The same reasoning was adopted by the court in a previous labour case of Hang Fook Lau Seafood Restaurant v. Kwok Sek Yuen [2001] 2 HKC 69. Can the parties enter into an agreement in respect of working on rest days? 45.The first issue on the present appeal is whether the employer and employee can by agreement provide in the employment contract that the employee will only take 2 of the 4 statutory rest days per month and that, in respect of the employee’s work on the other 2 rest days, the salary in lieu will be paid together with the month-end remuneration. My answer to this question is in the affirmative. The legislation does not prohibit an employee from working on a rest day; on the contrary, it allows an employee to work on a rest day pursuant to his own request or his employer’s request. The parties are free to agree upon their own arrangement in respect of working on rest days at the time of execution of the employment contract. The Ordinance does not provide that the parties cannot discuss any arrangement in respect of working on rest days until after the employee is employed. Nor does it only allow the parties to make such an arrangement when they execute the employment contract. The only restriction on the employer is that he cannot include in the employment contract a condition which makes the payment of any annual bonus or any year-end payment subject to the employee working on rest days, because such a condition is void by virtue of section 21 of the Ordinance. In my view, had the legislature intended to prohibit the parties from making advance arrangements in the employment contract in respect of working on rest days, it would have incorporated express provisions to that effect in the Ordinance. The fact, however, is that the Ordinance contains no such provisions. 46.The Ordinance does not stipulate whether an employee who works on rest days is entitled to remuneration. In my view, unless an employee voluntarily works without pay, he should be entitled to salary in lieu, because, if he is an employee who receives a monthly salary, his salary is determined having regard to the 4 rest days per month, and if he agrees to work on a rest day, he should be paid salary in lieu of that rest day. 47.I do not think that the making of such an arrangement at the time of execution of the employment contract amounts to a deprivation of the employee’s right to choose. I appreciate that an employee may be in a passive position when he negotiates the terms of employment with his employer, but this also applies where, following the execution of the employment contract, the employer seeks to vary the terms of the contract. Therefore, the time at which the parties discuss the question of working on rest days is not a determinative factor. It is true that, where the employer makes such a request only after the employment contract is executed, he cannot dismiss the employee for breach of contract if the employee refuses to work on a rest day. However, if the supply of labour exceeds the demand for labour, the employee will not readily refuse the employer’s request. It follows that the argument regarding the deprivation of the employee’s right of choice is a non-issue. In making a choice, the employee will of course take into account the prevailing circumstances such as work opportunities for workers, the general economy and market conditions. That the employee takes these circumstances into consideration does not mean that he is deprived of a genuine right of choice. 48.The Ordinance also contains provisions regarding other benefits of an employee such as maternity leave, statutory holidays and annual leave, and these benefits cannot be replaced with salary: see section 15(c) (maternity leave), section 40A (statutory holidays), section 41E (annual leave). These provisions all the more clearly indicate the legislative intent of retaining the right of the employer and employee to agree to replace rest days with salary. 49.In Hang Fook Lau Seafood Restaurant v. Kwok Sek Yuen, the judge took the view that, on the wording of section 20 of the Ordinance, any agreement in respect of working on rest days only applied to a legal relationship in which an employment contract is already in place. I consider this a rather narrow interpretation. The terms of an employment contract may well encompass conditions of employment discussed by the parties prior to execution of the contract. Legal principles on the interpretation of contracts 50.Yeung J also held that Hsin Kuang intended to circumvent the protection conferred by the law on employees. Contractual terms that contravene section 70 of the Ordinance are void. Furthermore, under section 63(2)(a), any employer who without reasonable excuse fails to grant to the employee any rest day which he is required to grant commits an offence. 51.The legal principles adopted by the courts in interpreting contractual terms are as follows:
See Chitty on Contract, 28th Edition, paragraph 13-009, Lewison: The Interpretation of Contracts, 2nd Edition, page 177, Rodger v. Comptoir D’Escompte de Paris (1869) L.R. 2 P.C. 393 (at 406) and Fausset v. Carpenter (1831) 2 Dow & CL 232 (at 242) (6 E.R. 715 at 719). Interpretation of the contract in question 52.Applying these principles and bearing in mind that an employee is free to agree to work on rest days, I am of the view that Clause C(2)(iii) of the contract represented an arrangement by which the parties agreed that the employee would work on 2 of the monthly rest days and receive additional remuneration for such work. This was a lawful agreement that did not contravene the provisions in the Ordinance in respect of working on rest days. On this interpretation, the agreement contained an implied term, namely that the employee was entitled to vary the agreement to work on rest days by giving reasonable notice to the employer. This entitlement existed as a matter of course – the law grants to an employee rest days but at the same time allows him not to take them, and unless the parties expressly agree that the employee permanently waives his rights, the employee is entitled to turn his back on his original intention and vary the original agreement without having to obtain the employer’s consent. 53.I now discuss whether the final paragraph of the contract rendered the above agreement void for contravening section 70 of the Ordinance. This includes the question of whether the abovementioned implied term could not come into existence as a result of the final paragraph of the contract. I first set out the final paragraph of the contract, as follows:
54.In addressing this issue, a few matters have to be emphasized. First, the fundamental position of the above principles of interpretation of contracts is that the spirit of the contract as agreed upon by the parties is to be preserved as much as possible. Unless a contractual term which clearly governs a specific contractual conduct is plainly contrary to the law, the court will not readily invalidate the contract merely by reason of that term. Second, the principles of interpretation of contracts do not rest upon the subjective understanding of the contract by the parties thereto; rather, they rest upon the objective understanding of the contract by a reasonable bystander armed with knowledge of the factual matrix of the contract. Needless to say, this objective third party has to apply the appropriate principles of interpretation in ascertaining the original intention of the contract. Third, in interpreting a contract, the court is seeking to give effect to the true intention of the contract and is not seeking to rewrite the contract. Fourth, under the Ordinance, rest days are different from other types of holidays in that it is open to the employer and employee to agree whether or not to work on rest days, and such a right belongs to the employee himself. 55.The final paragraph of the contract states that the employee “agree[s] to take holiday only upon consent by both parties”. The agreement to take holidays is detailed in Clause C(1): no leave can be taken on any Saturday, Sunday or public holiday; whenever the employee intends to take leave on any other day, he must submit a leave application form one day in advance, and no leave shall be taken unless approved by the supervisor; and an employee who takes leave has to arrange for his work to be done by a replacement worker. 56.In my view, this agreement applies to Clause C(2)(iii) of the contract. However, I do not consider this an all-embracing clause that applies to all situations, so that an employee who no longer wishes to work on a rest day must still obtain his employer’s consent before he can enjoy again the rest day that the law grants to him in the first place. In interpreting this clause, it is in my view necessary to apply the above principles of interpretation and put the clause within narrow confines, so that only an employee who fails to give reasonable notice to his employer will have to obtain his employer’s consent in varying the agreement in respect of working on rest days. This clause does not apply to an employee who gives reasonable notice to his employer before he no longer works on rest days. Where such notice has been given, the employer is not entitled to insist on the need for mutual consent in order to vary the agreement in respect of working on rest days. A bystander who meets the above legal requirements will not consider that the employee has expressly agreed that, after the employment contract is executed, he has to obtain his employer’s consent before he can vary the agreement in respect of working on rest days. 57.In fact, the above interpretation is supported by the wording of Clause C(1). This clause provides for the procedure of taking holidays and does not specifically concern the variation of an agreement in respect of working on rest days. The procedure requires the employee to submit a leave application form one day in advance and obtain his supervisor’s approval before he can take a holiday. This clause on the taking of holidays is in my view not inconsistent with the giving of reasonable notice by the employee to the employer in order to vary or cancel the agreement in respect of working on rest days. Furthermore, Clause C(1) is not an all-embracing express term which leaves no room for the above implied term. This being the case, the agreement in respect of working on rest days has not contravened section 70 of the Ordinance as it has not extinguished or reduced any legal right or benefit of the employee. The above interpretation is in line with the principle “that the clause may rather become operative than null”. 58.In interpreting contractual terms, the factual circumstances to be taken into consideration are those surrounding the execution of the contract. Circumstances following execution of the contract do not assist in interpreting contractual terms or ascertaining their intention. Some of the Claimants in the present case did, during the subsistence of the employment contract, vary the original agreement by no longer working on rest days and receiving salary in lieu. These facts do not form the factual background against which the contract is to be interpreted. Similarly, Hsin Kuang varied the arrangement over rest days on 1 July 1997 but restored the original arrangement (i.e. that of paying salary in lieu of the 2 rest days per month) on 1 April 1999. In my judgment, these two variations did not affect the lawful status of the contractual terms. The need to re-determine salary in lieu 59.If the contract in question is a proper contract which does not contravene any legislation, and if Hsin Kuang has indeed paid to the Claimants salary in lieu of rest days, then Hsin Kuang is not liable to pay such salary to the Claimants again. However, the Presiding Officer did not make any finding of fact on the question of whether Hsin Kuang has paid salary in lieu. This part of the case should in my judgment be remitted to the Tribunal for re-hearing pursuant to section 35(B) of the Labour Tribunal Ordinance. 60.Even if the contract did contravene section 70 of the Ordinance, it does not follow that, having paid salary in lieu of rest days, Hsin Kuang is liable to pay such salary again. A contract is “void” under section 70 not because it is illegal in that it contains terms which entail criminal liability. Although section 63 of the Ordinance creates criminal offences, an employer will not be liable under that section if he establishes a defence of “reasonable excuse”. A contract which contravenes section 70 does not necessarily render the employer liable under section 63. The legal principle here is that, if a contract is void not because it involves illegal conduct that entails criminal liability, a party to the contract is entitled to rely on the law of restitution and claim against the other party for the return of money paid under the contract: see Chitty on Contract, paragraphs 1-037 and 1-038. As Hsin Kuang enjoyed this right, the Presiding Officer should have ruled on the question of whether Hsin Kuang had paid salary in lieu so that the Presiding Officer could then proceed to determine whether Hsin Kuang was liable to pay such salary. The Presiding Officer should have first ruled on the Claimants’ basic salary and then determined whether Hsin Kuang had paid salary in lieu of rest days over and above the basic salary. Hang Fook Lau Seafood Restaurant v. Kwok Sek Yuen does not apply to the present case. The term in that case regarding working on rest days was different from that in the present case. The agreement between the parties in that case in respect of salary in lieu of rest days read as follows:
61.The court in that case found it impossible to determine, on the basis of the above term, the real value of the salary in lieu. Nor had the employer adduced evidence showing the amount of the net basic salary after deducting the salary in lieu. The relevant term in the present case, on the other hand, provided that salary in lieu “will be paid together with the employee’s month-end remuneration”, and therefore any salary in lieu paid by Hsin Kuang should be ascertainable. Pickles money 62.The Claimants also seek to recover outstanding severance payments. Severance payments are calculated by reference to the Claimants’ wages during the final month of their employment. The Claimants claimed that pickles money formed part of their income but this sum had not been included in their wages during the final month of their employment. The Presiding Officer allowed the Claimants’ claims and ordered Hsin Kuang to include the pickles money in the Claimants’ wages during the final month of their employment. The pickles money accounts for the present dispute over the amount of severance payments payable to the Claimants. 63.Apart from providing food and beverages to customers upon their request, Hsin Kuang would also provide them with side dishes such as peanuts and pickled vegetables. Hsin Kuang charged customers a fixed sum for those side dishes, and the sum of money is known in the industry as “pickles money”. After deducting the capital cost, the pickles money would be distributed among the employees according to their positions or grades, and the money would form part of an employee’s fixed income. All employees of Hsin Kuang, including non-frontline workers such as watchmen, gardeners and electricians, would receive a share of the pickles money. 64.Hsin Kuang claimed that it charged customers the pickles money on behalf of its employees, and upon receipt of the money and having deducted therefrom the cost of the pickled vegetables, Hsin Kuang would distribute the money in cash to the employees in accordance with their positions or grades. The pickles money was not listed in Hsin Kuang’s accounts as income or employee salary, and Hsin Kuang argued that the pickles money was not part of its employees’ salary. Definition of “wages” 65.“Wages” is defined in section 2 of the Ordinance to mean all remuneration, earnings, allowances, tips and service charges, however designated or calculated, capable of being expressed in terms of money, payable to an employee in respect of work done or to be done under his contract of employment. In relation to wages, “tips and service charges” means sums of money received, directly or indirectly, by an employee in the course of and in connection with his employment which are —
66.The Claimants admitted that Hsin Kuang paid to them the pickles money in cash. They claimed that the pickles money had been in existence for at least 8 to 10 years. Hsin Kuang initially increased its employees’ salary annually but subsequently paid them pickles money as a substitute for salary increment. The Presiding Officer made no findings of fact regarding the circumstances under which the pickles money came into being. I would, however, cast doubt about Hsin Kuang’s allegation that it received the pickles money on behalf of its employees. As a matter of common sense, restaurant employees would not for no reason request their employer to provide customers with peanuts and pickled vegetables and charge customers money for these items as the employees’ earnings. 67.Under section 2 of the Ordinance, wages take two forms: first, remuneration paid to the employee by the employer himself; second, payments which are made to the employee by persons other than the employer and recognized by the employer as part of the employee’s wages, i.e. tips. All workers in Hsin Kuang’s employ could be paid pickles money, which means they had to be employed by Hsin Kuang in order to receive such money. This satisfied the requirement under section 2 of the Ordinance that wages had to be remuneration payable to an employee in respect of work done or to be done under his employment contract. Perhaps for some reason, Hsin Kuang did not include the pickles money as part of its income, and I accept this as capable of indicating that Hsin Kuang did not recognize such money as part of the Claimants’ wages. However, in all the circumstances of the case, the objective evidence shows that, although Hsin Kuang did not in form recognize the pickles money as part of the Claimants’ wages, it did in substance recognize the money as such. 68.On 13 October 1991, Hsin Kuang issued a notice which read as follows:
69.If the pickles money did not form part of wages, Hsin Kuang would not have to make the above detailed arrangements that it did in respect of distribution of the pickles money to its employees. This long-standing arrangement serves as sufficient proof of Hsin Kuang’s recognition of the pickles money as part of wages. Furthermore, Counsel for Hsin Kuang submitted to this Court that the “10% charge” received by Hsin Kuang from the customers included the 10% of the pickles money. Although Hsin Kuang did not collect for itself any part of the pickles money, it did apportion with its employees the 10% additional charge of the pickles money just as it did the same with the 10% service charge and tips. This arrangement also serves to show that Hsin Kuang recognized the pickles money as part of the employees’ wages, as otherwise it should not have taken part of the money. In my judgment, the pickles money formed part of the employees’ wages and should therefore have been included in their wages for the final month of employment for the purpose of calculating the severance payments. Conclusions Rest days 70.My conclusions on the issue of rest days are set out below:
Pickles money 71.I dismiss Hsin Kuang’s appeal in respect of the pickles money. Hon Chu J: 72.I do not propose to delve into the background to the present appeal, the issues involved and the relevant statutory provisions, all of which have been detailed by Woo JA and Cheung JA in their judgments. The issue regarding rest days 73.Sections 17, 19 and 20 in Part IV of the Employment Ordinance (hereinafter “the Ordinance”) provide that an employee can work for his employer on rest days pursuant to the voluntary agreement of both parties. In other words, the employer may, with the voluntary agreement of the employee, pay to the employee salary in lieu of rest days. As a matter of principle, both parties may also enter into an agreement in respect of working on rest days provided that it does not contravene section 70 of the Ordinance. It is not necessary for the parties to establish an employment relationship before entering into such an agreement. Even where the parties have made the relevant arrangement by the time of execution of the employment contract and then set out the relevant agreement in the contract, this does not necessarily constitute a contravention of section 63 or 70 of the Ordinance. The crux of the question is whether the relevant arrangement and agreement were entered into by the parties voluntarily and whether such arrangement and agreement purport to extinguish or reduce any right, benefit or protection conferred upon the employee by the Ordinance in respect of rest days. 74.As far as the contract in the present case is concerned, whether the provision in Clause C(2)(iii) requiring the employee to continue to work on 2 rest days is valid must depend on whether the contract has deprived the employee of his freedom and right to choose not to work on those 2 rest days. If the effect of the contract is such that the employee is left with no choice but to continue to work on rest days, failing which he will be deemed to be in breach of contract, then Clause C(2)(iii) will contravene section 70 of the Ordinance. On the contrary, if the effect of the contract is such that the employee is free to cancel or vary the arrangement on rest days under Clause C(2)(iii) upon giving reasonable notice, then there is no question of the clause contravening section 70. Therefore, the validity or otherwise of Clause C(2)(iii) must depend on whether the contract in question contains an implied term allowing the employee to freely cancel or vary the agreement to continue to work on 2 rest days upon giving reasonable notice to the employer. 75.In determining whether a contract contains a specific implied term, the court must have regard to the wording of the contract and the factual circumstances at the time of entering into the contract, in order to determine whether the relevant term is one to which the parties to the contract would definitely have agreed. Generally speaking, the court will make such an inference in two cases. The first case is where the relevant implied term is necessary for the effective execution of the transaction to which the contract relates. The second case is where the relevant implied term spells out the common intention of both parties to the contract. In respect of the second case, the court has to be satisfied that the implied term would have been obvious to both parties and that both parties, as reasonable persons, would have agreed to that term. Where a term is contradictory to or inconsistent with the express wording of the contract, the court will not accept that term as an implied term of the contract: see Chitty on Contracts (28th edition) Vol. 1 paragraphs 13-004, 13-007 and 13-009. 76.The final paragraph of the contract in the present case states as follows:
77.Ms Eu SC submitted that the phrase “and I agree to take holiday only upon consent by both parties” referred to Clause C(1) of the contract, which required the employee to submit a leave application form one day in advance and obtain his supervisor’s approval before he could take a holiday, and that the above phrase did not mean that an employee who no longer wished to continue to work on rest days had to obtain his employer’s consent. 78.In my view, judging from the wording and syntax of the final paragraph of the contract, the phrase “and I agree to take holiday only upon consent by both parties” flows naturally from the phrase “I agree with the Company’s suggestion that I will continue to work on the monthly rest days under the labour legislation”. 79.Furthermore, as a party to the contract and having agreed under Clause C(2)(ii) to work on 2 of the 4 statutory rest days, the employee would naturally associate the phrase “and I agree to take holiday only upon consent by both parties” with the arrangement over rest days and hence think that he had to obtain his employer’s consent before he could rest on the 2 of the 4 statutory rest days, on which he had to work. He would not think that the phrase only applied to Clause C(1) so that, pursuant to the contract, he could insist on exercising his right in respect of rest days. 80.Even if he did think that the phrase referred to Clause C(1), he would not think that he could, upon giving reasonable notice, unconditionally insist on and exercise the right not to work on rest days. The procedure of taking a holiday under Clause C(1) applied generally to holidays other than those specified in Clause C(2) and hence also applied to the taking of leave on the 2 “working rest days” under Clause C(2)(iii). Clause C(1) provided that, apart from submitting an application form and obtaining his supervisor’s approval, an employee who wished to take a holiday also had to look for a replacement worker, whose conditions of work were to be approved by the supervisor and for whose performance the employee had to be responsible. This clause plainly circumscribed the employee’s right to cancel or vary the agreement in respect of working on rest days. 81.In light of these considerations, it is in my view very difficult to infer that, having agreed to the provisions under Clause C(1) and (2) and the final paragraph, the parties would certainly have also agreed that the employee could revive his right under the Ordinance not to work on rest days as long as he gave reasonable notice to the employer, i.e. he could rest on all the monthly rest days without having to obtain his employer’s consent. On this analysis, the contract in the present case cannot be construed as containing an implied term allowing the employee to cancel or vary the agreement under Clause C(2)(iii) in respect of working on rest days upon giving reasonable notice to the employer. This being the case, the agreement under Clause C(2)(iii) in respect of working on rest days did purport to reduce any right and protection conferred upon the employee by the Ordinance in respect of rest days and was therefore void under section 70 of the Ordinance. 82.As regards the submissions of Ms Eu SC on the legal principles applicable to the interpretation of contractual terms and the rules to be adopted by the court in interpreting contractual terms, I agree with Woo JA’s analysis of and conclusions on those submissions. The relevant legal principles are of no assistance to this part of the Defendant’s appeal. The claim for rest day compensation 83.As Woo JA and Cheung JA have pointed out, even if the contract in the present case is void for having contravened section 70 of the Ordinance, if the Claimants had in the course of employment been duly paid additional salary in respect of their work on rest days, then the Defendant would not be liable to pay to them any other compensation. Clause C(2)(iii) of the contract in the present case is obviously different from the contractual term in the case of Hang Fook Lau Seafood Restaurant v. Kwok Sek Yuen [2001] 2 HKC 69, and the relevant part of the judgment in that case is not applicable to the present case. 84.Having said that, the Presiding Officer in the present case did not conduct a hearing and make any finding on the factual issue of whether the Claimants had been paid any additional salary for their work on rest days. This Court is therefore unable to determine whether the Claimants had received double benefit. On the other hand, Ms Eu SC submitted that the Defendant is lodging the present appeal with a view to seeking clarification on the relevant law and that, even if the appeal is allowed, the Defendant may not claim against the Claimants for the return of the judgment sums that the Defendant has paid. 85.In my view, if the Defendant does not intend to seek recovery of the judgment sums that it has paid, it will not be necessary to remit the relevant factual issue to the Labour Tribunal. In the circumstances, this Court should grant leave to the parties to make applications and submissions on whether the case is to be remitted to the Tribunal. The issue regarding pickles money 86.On the basis of the analyses made by Woo JA and Cheung JA on the issue regarding pickles money and their conclusions thereon, I agree that this part of the appeal should be dismissed. Costs 87.The Defendant has raised a valid ground of appeal in respect of whether the claims for rest day compensation amount to double recovery/benefit. On the other hand, the Defendant’s remaining grounds of appeal regarding rest days are rejected. This Court also dismisses the Defendant’s appeal on the question of whether the pickles money formed part of the Claimants’ wages. In these circumstances, I do not think that any order should be made on the costs of the present appeal. Conclusions 88.I propose to make the following orders in the present appeal:
Hon Woo JA: 89.This Court now makes the following orders:
Ms Audrey Eu SC and Mr Horace Wong, instructed by Hobson & Ma, for the Defendant. The 1st, 3rd, 5th to 10th Claimants in person. The 2nd and 4th Claimants absent. Translated by Mr. Edmund Cham, Solicitor. | |||||||||||||||||||||||||||||||||||||||||||||||||||
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