Au Sou Lin v. Zielona Transport Ltd

CACV 99/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 99 OF 2010

(ON APPEAL FROM HCLA 46 OF 2008)

________________________

BETWEEN

________________________

Before : Hon Tang Ag. CJHC, Cheung and Yuen JJA in Court

Date of Hearing : 13 January 2011

Date of Judgment : 17 February 2011

________________________

J U D G M E N T

________________________

Hon Cheung JA (giving judgment of the Court) :

Appeal on the counterclaim

1.The 6^th claimant Au Sou Lin was a dock truck driver.  He succeeded in the Labour Tribunal in his claim against the defendant in respect of claims for annual leave pay, statutory holidays’ pay and long service payment for the total amount of $277,031.83 together with interest. The dispute between the parties was whether the 6^th claimant was an employee (as contended by him) or an independent contractor (as contended by the defendant).  Deputy Presiding Officer Mr. K K Pang found that the 6^th claimant was an employee of the defendant.

2.Mr. Pang initially allowed the counterclaim by the defendant that it was entitled to recover from the 6^th claimant the difference between the remuneration, on the one hand, which he received from the defendant on the basis that he was hired as an independent contractor and, on the other hand, that which the defendant would have paid him if he was hired as an employee.  On review, Mr. Pang reversed his decision on the counterclaim and rejected it.

3.The defendant appealed against Mr. Pang’s decision on the counterclaim.  To J reversed Mr. Pang’s decision on the counterclaim and awarded the difference to the defendant.  Pursuant to leave granted by a single judge of the Court of Appeal, the 6^th claimant appeals against the decision of To J.

4.There are other claimants in the same case in similar situations as the 6^th claimant.  However, the parties agreed that the 6^th claimant’s case should be tried first as a test case.

Findings

5.We will first repeat the findings of fact by Mr. Pang as stated in the judgment of To J :

‘2. The defendant-company runs a dockyard transportation business and employs about 80 truck drivers. When it started its business in 1980, all the drivers were hired as employees (employee drivers). In 1996, the defendant-company introduced a contractor or labour contract system. Some drivers opted to work as contractors or labour contractors (contractor drivers); they would earn about 15% more than employee drivers but would neither be entitled to the benefits of employee drivers nor any other benefits and protection conferred to employees under the Employment Ordinance (Cap. 57). Among all the 80-odd drivers working for the defendant-company in 2008, about two-thirds were employee drivers and one-thirds were contractor drivers.

3.The sixth claimant voluntarily opted to be hired as a contractor driver.  From 23 August 1996 to 31 March 2008, he signed a “Contractor (Labour Contractor) Agreement” with the defendant-company every year.  Each “Contractor (Labour Contractor) Agreement” has the same terms and provisions.  It is stipulated in the provisions in the “Applicant’s Letter of Intention to Provide Container Haulage Services” that he signed on 1 March 2006 that:Zielona Transportation Ltd gives the following option to anyone who is interested in becoming a container haulage service provider: to be employed on a contract basis or to be hired on a contractor (labour contractor) basis.  The applicant should read the provisions carefully before signing in confirmation of his option.

He also signed a “Contractor (Labour Contractor) Agreement” which stipulates that:

(F) Status of Party B

Having carefully read the Letter of Intention of an Applicant for provision of Container Haulage Services, Party B opts to sign this Agreement in the capacity as a contractor (labour contractor), meaning that Party B clearly understands that his status is not an employee, agent or lawful representative of Party A.  Party B is an independent contractor and is not entitled to any benefits arising by reason of employment or any benefits conferred by the labour laws.  Party A shall pay to Party B service charges higher than the sums it pays to a contract employee, and the difference in amount will cover all the benefits stipulated by the labour laws.  If the laws provide that an independent contractor shall pay tax as a self-employed person and make contribution to his own mandatory provident funds as a self-employed person, Party B is responsible for all such payments.’

Mr. Pang’s view

6.As stated earlier Mr. Pang found that the true legal relationship between the parties was that of an employer/employee relationship.

7.The reason why Mr. Pang rejected the defendant’s counterclaim was because in view of clause (F) of the Contractor (Labour Contractor) Agreement, the difference in remuneration between a contractor driver and an employee driver covered not only the compensation for the benefits and protection conferred to an employee under the Employment Ordinance, but also other rights and benefits under other legislations, for example, the Employees’ Compensation Ordinance (Cap. 282) and the Mandatory Provident Fund Schemes Ordinance (Cap. 485).  He listed out a number of provisions dealing with employees’ protection and benefits under those legislations.  He held that since the defendant could not specify how much of the difference in remuneration between a ‘contractor driver’ and that of an ‘employee driver’ went towards the sixth claimant’s compensation for the annual leave pay, statutory holidays’ pay and long service payment, the defendant’s argument of the 6^th claimant receiving double benefit could not stand and he dismissed the counterclaim by the defendant.

To J’s view

8.To J held that

‘ 26. …… the sixth claimant voluntarily opted to be employed as a contractor driver in order to earn a higher remuneration. The defendant-company did not by any undue, oppressive or deceptive means force the sixth claimant to make the choice that he did. If he was entitled to other benefits after he was paid a higher remuneration, he would obtain double benefits. What he did was in contravention of the common intention of both parties when the contract was entered into, deceiving the defendant-company and being unfair to employee drivers. I am of the view that it is unfair to allow the sixth claimant to retain the benefits. Otherwise, there would be the adverse effects of encouraging employees to put monetary gains before moral considerations, to go back on their promises, to cheat their employers and to abuse the Employment Ordinance.’

The amount

9.The difference in remuneration received by the 6^th claimant between 1 April 2000 and 31 March 2008 is made up as follows :

	Remuneration as a contractor	$1,923,116.50
	Wage as an employee	$1,674,596.50
		$248,520.00

10.This difference included $86,729.92 as the defendant’s notional 5% contribution (based on the wage) under the Mandatory Provident Fund Schemes Ordinance (Cap. 485).  As the 6^th claimant had recovered long service award in the sum of $157,895.60 from the defendant, he could not at the same time recover the employer’s MPF notional contribution.

Formulation of the claim

11.As the parties were unrepresented in the Labour Tribunal the defendant’s counterclaim was simply based on an overpayment of the remuneration to the 6^th claimant.  Before To J, the defendant formulated its counterclaim on the basis of unjust enrichment.  The requirement of this principle can be stated as follows :

1) the defendant has been enriched by the receipt of a benefit;

2) this enrichment is at the expense of the claimant;

3) the retention of the enrichment is unjust and

4) there is no defence or bar to the claim.

See Banque Financière de la Citè v Parc (Battersea) Ltd [1999] 1 A.C. 221, 234, per Lord Hoffmann, who added that a further question was whether there were any reasons of policy for denying a remedy.

The defendant’s case

12.Mr. Maurice Chan, counsel for the defendant, argued that the bundle of rights contracted out by the 6^th claimant are all the benefits under the Employment Ordinance, a remunerative rate can be attributable to that bundle, there is actual evidence as to what it precisely is, namely, the rate difference between the lower ‘employment rate’ and the higher ‘contractor rate’.  He argued that it does not matter how the rate difference can be further broken down into components apportionable to any employment benefits in particular.

13.In effect Mr. Chan argued that the consideration for giving up all the benefits is the difference between the two levels of remuneration, hence the quantification of the benefits does not really matter and it is not an obstacle to the defendant’s counterclaim (‘the consideration argument’).

Section 70 of the Employment Ordinance

14.Section 70 of the Employment Ordinance provides that,

‘ 70. Contracting out

Any term of a contract of employment which purports to extinguish or reduce any right, benefit or protection conferred upon the employee by this Ordinance shall be void.’

15.On the true legal position that the 6^th claimant was an employee of the defendant, section 70 operates to render void the provision of Clause (F) that ‘(the 6^th claimant) is not entitled to any benefits arising by reason of employment or any benefits conferred by the labour laws’.

Benefits under the Employment Ordinance

16.If the clause (F) provision is rendered void, then the 6^th claimant is entitled to recover from the defendant the benefits under the Employment Ordinance he had not previously sought from the defendant.  So far the 6^th claimant has claimed three types of benefits, namely, annual leave pay under section 41AA ($67,089.25), statutory holidays’ pay under section 39 ($52,046.98) and long service payment under section 31V ($157,895.60) at a total amount of $277,031.83.  However, he is also entitled to rest day claims under section 17.  In Leung Ka Lau v. The Hospital Authority (2009) 12 HKCFAR 924, the Court of Final Appeal held that where an employee is deprived of a rest day, he is entitled to be compensated by a day’s salary as a means of compensation.  An employee is also entitled to sickness allowance under section 33.

17.As this is a test case, in respect of female employees, the issue of maternity pay under section 14 may also be relevant.

Intangible benefits

18.Mr. Shum, counsel for the 6^th claimant, also referred to the ‘intangible’ benefits that an employee is entitled to under the Employment Ordinance. He argued these intangible benefits together with benefits under other labour legislation preclude the defendant’s counterclaim.  These intangible benefits include maternity leave under section 12, rights of an employee in respect of trade union membership and activities and the criminal sanction for an employer who hinders such activities under section 21B; criminal sanctions for non-payment or delay in payment of wages under section 63C and prohibition against the employer unilaterally altering the contract terms under section 32A. 

Our view

19.1) The Employment Ordinance is clearly a piece of social legislation enacted to protect our labour force.  It contains both the tangible and intangible benefits that an employee may be entitled to.  The ‘intangible’ benefits cannot be quantified in terms of monetary value, but they are necessary in order to give the legislation strength in ensuring that the employer will observe the provision which conferred the tangible benefits on the employee.  Viewed in this light, the policy consideration together with the operation of section 70 will provide a strong basis to defeat the ‘consideration argument’ of the defendant.  In other words, if the employer says that he has overpaid the employee because the latter has opted for the higher contractor pay, there must be quantification of the amount of the actual tangible benefits that the employee is entitled to recover from the employer under the Employment Ordinance before the employer is entitled to use the ‘overpayment’ to set off the employee’s claim for the benefits.  It is in that sense that the employee may be said to be ‘unjustly enriched’.

2)  We do not, however, agree that the presence of the intangible benefits is a bar to the employer’s claim for overpayment.  It will go too far to say that these intangible benefits will somehow preclude the overpayment claim to be made by the employer.  There is nothing in the Employment Ordinance or the other labour legislations which may suggest such a drastic construction.

3)  We disagree with To J’s categorization of the employee’s conduct as a deception.  The Court is concerned with the legal consequence that arose as a result of ascertaining the true legal relationship of the parties.

4)  Although rest days and sickness allowance claims were not made by the 6^th claimant, bearing in mind the inquisitorial role of the Labour Tribunal, these claims ought to have been examined first by the Labour Tribunal before one can say that there has been overpayment and the extent thereof to the 6^th claimant. 

Conclusion

20.Accordingly we would allow the appeal, set aside the order of the Judge and remit the case to the Labour Tribunal to determine whether the 6^th claimant is entitled to the two claims we have mentioned earlier and if he is so entitled, deduct the amount he is found to be entitled from the sum of $248,520.

Costs

21.As the 6^th claimant succeeds in this appeal, he is entitled to the costs of the appeal and the hearing before To J with his own costs to be taxed in accordance with Legal Aid Regulations.

Mr. Erik Shum, instructed by Messrs Liu, Chan & Lam, assigned by Director of Legal Aid, for the 6^th Claimant

Mr. Maurice J. Chan, instructed by Messrs Fan Wong & Tao, for the Defendant