CHEUNG SAU CHING AND OTHERS v. FASHION GRAMENT MANUFACTORY LTD

1986 No. A6298

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HEADNOTE

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Employment Ordinance (Cap. 57) s.31(E) - conditions applying where a worker may be taken to have been laid off - interpretation of this provision - contract of employment which reduces benefits conferred by the Ordinance is void.

1986 No. A6298

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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JUDGMENT

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1. The 7th plaintiff in this case is one of a number of claimants who initially filed claims in the Labour Tribunal seeking severance pay and damages on the grounds that they were constructively dismissed from their employment with the defendant Company in May 1986. These claims were subsequently transferred to the High Court as it has thought the issues which arose were sufficiently important to warrant this course.

2. The other plaintiffs are now content for the 7th Plaintiff 's action action to be tried as a test case as the issues are identical to all.

3. The facts are, with one exception, not the subject of serious dispute but in any case after hearing evidence I have come to the following findings. Sometime in the early part of 1986 the management of the Defendant Company decided to refurbish the factory and replace the machines. The Defendant, as its name suggests, was a garment manufacturer and employed a numbers of sewing workers. It is an agreed fact that these female employees were employed on a piece rate basis with no minimum salary or other allowance. Their working hours were from 9:00a. m. to 1:00p.m. and 2:p.m. to 6:00p.m. from Monday to Saturday with a rest day on Sunday. They were paid twice per month and for the period from 1st to 15th of each month the wages were payable on the 20th day of that month whereas wages earned during the second half of the month were paid on the 5th day of the following month. It is also clear that on some days, either through a shortage of available work or for other reasons, a worker would not work a full eight-hour day and her wages for that day would, understandably enough, be less than what she would earn in a full day.

4. As the proposed renovations to the factory would result in it being completely closed down for a six week period the management sought advice from the Labour Department as to its position with regard to the workers. I have not the slightest doubt that they were immediately referred to the Employment Ordinance and in particular to Section 31 which provides that if an employee is laid off the employer shall be liable to pay a severance payment. They should also have been told that Section 31E specifically sets out the circumstances which dictate when an employee can be taken to be laid off and it is, perhaps, timely to consider that particular provision. Section 31E states :

5. What actual advice the defendant received is not clear but I am satisfied that in a genuine attempt to act on it the management announced its intention to close the factory for a period of about 6 weeks and that during that time it would pay compensation to the employees on the basis of 12 working day's wages for each four week period and the employment of all such workers would continue.

6. I am also satisfied that the Company was concerned to avoid the workers being laid off and its consequential liability for severance pay but at the same time wished to meet only the minimum requirements in order to do so. This is, perhaps, one of the factors that has led to its downfall because section 31E does not refer to the number of working days on which work is provided but rather the number of working days in any period of four consecutive weeks on which work is not provided. The distinction may seem illusory but it has far-reaching consequences in this particular case. As the workers were employed from Monday to Saturday inclusive there would be 24 normal working days in a four week period and were the Defendant only to provide work on 12 of those days it must follow that he has failed to provide work on the remaining 12 days and provided the workers are not entitled to any remuneration under their contract for such period (i.e. the twelve days on which no work was provided) they can be taken to be laid off.

7. I am informed that the interpretation of this provision as adopted by the defendant in this case is not an isolated example and it would be an inequitable situation if employers who seek guidance from the Labour Department and act upon it responsibly were, nevertheless, liable to meet claims for severance payments. Any sympathy I might have had for thin defendant, however, has been severely diminished as a result of its subsequent actions which were designed to shrink from its obligations to the workers an wring every possible benefit from the arrangement.

8. After the announcement was made on the morning of the 18th April 1986 the employees were invited to consult the Labour Relations Office if they doubted the adequacy of the compensation offered. This some of then did and the question arose as to whether the calculations should be based on a six or eight hour day. Several members of the Company's management then came to the Labour Department's offices and held a meeting with a Labour Relations Officer and Madam Cheung Sau Ching, who represented the workers. It was in the course of this meeting that the Defendant says an agreement was reached between it and the employees whereby all the workers (including the 7th Plaintiff) would accept compensation for the close-down in terms of 12 days' pay per a four week period on the basis of 8 hours per day. It was also agreed that they would resume their employment after the renovation work had been concluded. All those who attended at that meeting on behalf of the Defendant have given evidence that the Labour Relations Officer present was asked if, since at least 12 days work had been given in April, the period for which compensation would be paid need not start until 1st May. To this suggestion he was said to have agreed. The worker's representative denied that this was said. Rather surprisingly, the Labour Relations Officer was not called to give evidence so I am left with a clear conflict in the matter.

9. If the matter was raised and agreed to I am surprised to the point of concern at the lack of understanding which this particular officer had of section 31E. Nowwhere does this provision speak of calendar months but, on the contrary, refers to "any period of 4 consectuive weeks". It is also the first example of the defendant attempting to whittle away its obligations to its employees. On balance I have to find that it probably was raised but I am equally sure that Madam Cheung did not grasp the implications of it as her one and only concern had been to ensure payments were based on an 8 hour day.

10. I am satisfied that all the employees were in a position where they had no option but to accept what they were being told was the Defendants minimum requirements under the law. It is patently clear that these representations did not accurately reflect the statutory provisions governing the close-down and were being interpreted, as far as they were concerned, adversely as to two aspects, namely the number of days compensation they were entitled to and the starting date of the period for which compensation would be paid.

11. It is the Defendant's case that the agreement reached constitutes a variation to the employment relationship. It is argued that section 31E is not applicable as none of the three criteria have been satisfied, they having been superceded by the agreement.

12. The Plaintiff states the agreement is void and cites section 70 of Ordinance (Cap. 57) in support. This provides as follows :

"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. "

13. As I have found the position of the employees was one where they believed the agreement gave them the minimum rights and benefits accorded by the law and they accepted it as such. I have also found that the terms of the agreement gave them something less than they were entitled to and thereby reduces certain rights or benefits conferred by the Ordinance. For this reason I am satisfied s. 70 does apply and the agreement must be regarded as void. Without the mantle of the agreement s. 31E becomes the applicable provision regulating the position of the parties.

14. Can the employees be taken to have been laid off? The factory closed on 18th April 1986. On the next pay day, 5th May 1986, the 7th Plaintiff was paid her wages earned for the 16th and 17th April but received no compensation. On the 20th May she received a sum equivalent to 6 days' pay based on slightly less than a 6 hour day. This meant that for the four consecutive weeks from 18th May she had received compensation equivalent to only 6 days work and then, not as agreed, on a 6 hour basis. This was as foolhardy an act as it was mean because, in understandable anger, the employees again complained to both the Labour Department and their own Trade Union and received advice which prompted this action.

15. The Defendant, as the author of its own misfortune, has clearly failed to provide work or adequate compensation for the period necessary and the 7th Plaintiff must he regarded as having been laid off.

16. The final matter which I must deal with is the Defendant's argument that the employees, having agreed to the arrangement reached on the afternoon of 18th April, are estopped from going back on their agreement and reverting to their statutory rights.

17. That point can, in my view, be answered quite simply. Estoppel is an equitable remedy and the agreement which the Defendant relies on was the very one it failed to comply with before the Plaintiff gave notice she sought severance payments. I also accept the argument advanced on behalf of the Plaintiff that the employees in this case made no representations. They merely accepted the situation as being the law and went along with it. I do not find that equitable estoppel is applicable in this case.

18. In view of my findings it is my judgment that the Plaintiff has been constructively dismissed from her employment and the defendant is liable to pay her severance pay to be calculated in accordance with the Ordinance. It has been agreed by the parties that should I reach such a finding the damages under s. 8(A) will be the equivalent of 7 days wages in lieu of notice. The Plaintiff should also be entitled to pro-rata annual leave from 1st January 1986 to 17th May 1986 and calculations are to be based on average daily wages.

19. The amount paid to the Plaintiff on 20th May 1986 should be set-off from the damages awarded in this judgment. Costs of the action to the Plaintiff.