KWAN KA MAN BLANCHE v. ESPRIT RETAIL (HONG KONG) LTD

HCLA 160/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 160 OF 2003

(ON APPEAL FROM LABOUR TRIBUNAL CLAIM NO. 7082/2003)

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J U D G M E N T

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1. The Claimant was formerly employed as an assistant store manager by the Defendant. She worked for the Defendant between 1997 and 2003 (she had also worked for the Defendant earlier but that is not relevant for present purposes). As from May 2000, she received a basic salary of $12,000 plus a sum of $7,000. The latter was described as a "target bonus". In addition the Defendant also paid their employees commission under an Incentive Scheme. This appeal only concerns the "target bonus".

2. In about February 2003, the Defendant implemented changes to their target bonus scheme. The net effect was that instead of a fixed sum of $7,000, the new target bonus would be calculated on the basis of a percentage of the turnover of the shop with a guarantee that the bonus would be at least 50% of the one previously paid. The Claimant contended that the Defendant could not do so unilaterally. She said the target bonus was part of her contractual remuneration package and by reducing the same unilaterally without the consent of the Claimant, the Defendant acted in breach of the contract of employment. The Defendant disagreed. As from May 2003, the Defendant paid the Claimant target bonus under the new scheme despite her objection.

3. The Claimant found such alteration of her target bonus to be unacceptable and regarded that as constructive dismissal on the part of the Defendant. She worked for the Defendant up to 31 July 2003.

4. The Claimant filed a claim against the Defendant in Labour Tribunal on 13 August 2003. The trial took place before the Presiding Officer Mr.Tony Poon on 12 December 2003. The Presiding Officer held that the target bonus was a contractual entitlement and the Defendant did not have any discretion to change its method of calculation. He further held that the unilateral alteration of the target bonus scheme by the Defendant constituted constructive dismissal. He therefore awarded the Claimant the sum $67,366.12 comprising of wages in lieu of notice, arrears of wages and long service payment.

5. The Defendant sought leave to appeal against such decision. Leave was granted by this court on 10 March 2004. The appeal was heard by me on 29 June 2004.

6. Although leave was granted in respect of four grounds, Mr Yuen SC who argued the appeal on behalf of the Defendant, accepted that the substantive grounds were Grounds 1 and 2 and the rest were just consequential. Hence I will focus on these two grounds. They are as follows,

"1. The Claimant had no contractual entitlement to target bonus since, as a matter of law and/or on the true and proper construction of the employment agreement dated 20th October 1997 ("Employment Agreement") made between the Claimant and the Defendant, the target bonus was wholly gratuitous and discretionary. Hence, there could not be any unilateral change of employment by the Defendant when the Defendant altered the terms concerning the gratuitous and discretionary award of target bonus.

2. As an alternative to paragraph 1 above, even if the Claimant had any contractual entitlement to target bonus under the Employment Agreement (which is denied):

(1) the Defendant at all material times under the Employment Agreement and/or in law had the sole and unfettered discretion to vary the terms concern the payment of target bonus;

(2) further and in any event, there is no suggestion, let alone evidence, that the Defendant's variation of the terms concerning target bonus was other than a proper exercise of the discretion conferred under the Employment Agreement; hence, the Defendant's exercise of its discretion is in law not open to challenge."

7. The key issue is therefore what were the terms of the employment contract between the Claimant and the Defendant. The reasons given by the Presiding Officer in holding that the target bonus was contractual and Defendant did not have any discretion to alter the same can be found in Paragraphs 8 to 10 of his Reasons for Decision dated 20 February 2004. I set them out below,

"8. 本席認為，上訴人是否有權隨意更改"Target Bonus"的計算方法，是在於該"Target Bonus"在相方合約中的位置。雖然在僱傭合約中並沒有提及到它，但這並不代表它一定不是雙方合約中的一部份。相反，從證據中可見答辯人一直有支取到相同的"Target Bonus"。有關"Target Bonus"的支付條件，在員工手冊中已有列明，而手冊中並沒提及公司可酌情付給此款項或可隨時更改支付條件。

9． 基於下列理由，本席認為對於有關"Target Bonus"的發放，上訴人並沒有酌情權：

(a) 答辯人一直以來支取"Target Bonus"的基礎均沒改變，基本金額亦一直不變；

(b) “Target Bonus”的金額是由職位級別區分的，與店舖營業額沒有關係，相反，案中所提的"Commission"卻與店舖營業額掛鉤；

(c) 公司並沒有就"Target Bonus"的數額及支付基礎定下任何檢討政策或相關營業額指標，亦沒足夠證據顯示公司曾就此方面作過檢討。雖然公司曾就有關佣金需要按比例支付時每月的日數應以多少日計算方面作過改動，但這只是為了防止混亂情況出現而作出的行政安排，並不能反影公司有絕對權力作出改變；

(d) 公司管理層數次以「保證佣金」來表達此"Target Bonus"，由此可反影他們對於此款項的理解，雖然上訴人解釋說這只是他們不專業的錯誤描述，但本席認為對於此款項的理解根本不需要任何專業概念作為基礎，而有關描述的字面意思亦最明白不過，亦是反影了公司管理層對它的確切理解。

10． 雖然在合約中公司有權更改公司規例，但合約中並無明確表示公司規例的範圍，即僱員守則的內容並不等如公司規例。”

8. In attacking the Presiding Officer's decision, Mr Yuen built his case on the premise that all the terms of the contract of employment were set out in an employment agreement signed by the Claimant on 20 October 1997. There was no reference to target bonus in that agreement. Although target bonus was referred to in an employees benefit handbook issued by the Defendant, the evidence showed that the handbook was only given to the Defendant after she started working and Mr Yuen therefore submitted that they could not form part of the contract. He also submitted that in any event, the handbook did not set out the exact mechanism for determination of that bonus and it was simply too uncertain to be treated as an enforceable term of the contract of employment.

9. I have examined the so-called employment agreement. It is more appropriate to describe it as an engagement letter. It does not purport to contain all the terms of the contract between the parties although it does set out some terms of employment. The evidence also showed that the engagement letter was only signed after the Claimant started working whilst the decision to employ the Claimant and the acceptance thereof was made at the job interview, see transcript of the trial at p.477M to P of the Appeal Bundle. It is a question of fact whether the parties intended all the terms of employment to be set out in the engagement letter and extrinsic evidence is admissible to show that that was not the common intention (see Chitty on Contracts, 29th Edn. Paras. 12-097 and 12-107).

10. It is quite plain to me that the Presiding Officer made a finding of fact that the engagement letter did not contain all the terms of the contract of employment. There is ample evidence before the tribunal to justify such a finding. The evidence of the Claimant about what happened when she was interviewed for the job was as follows,

“問： 面試當時有冇講嗰個工作條-即係嗰個待遇，嗰個條件個問題呀？

答： 有。

問：嗰-當時點樣講?？

答：	當時講底薪11,000鈫，再加番7,000鈫個佣金；另外，如果每月再過番指定嘅target嘅，會有額外嘅佣金。

問： 嗱，嗰啲額外佣金有冇講畀你聽幾多錢？

答： 冇?，額外佣金視乎呢個做唔做到佢嘅指標。

問： 你頭先話佢同你講話係底薪11,000鈫，加7,000鈫佣金吖，係咪？

答： 係。

問： 佢有冇講話呢7,000鈫佣金係咩嘢嚟?？即係同埋係點樣先至會攞到?？

答：	當其時梁小姐請我係講咗底薪11,000鈫喇，而嗰個7,000鈫嗰個佣金係每月都會畀我嘅；咁即係話total，佢會係每個月出畀我嘅人工嗰度就係18,000鈫。

問： 你當時個理解就係咁樣，係咪？

答： 係。

問： 當時佢同你講話係11,000鈫底薪，就7,000鈫佣金?？

答： 唔，係。

問：	佢唔係話18,000鈫底-人工，或者18,000鈫薪金咁講?，佢話即係分開兩鍾唔同嘅數額講畀你聽嘅，係咪？

答： 分開兩種數額講，然後再補充，總共嘅薪金係18,000。

問： 你知道佢分開咗兩種唔同嘅叫做薪金喇，係咪？

答： 唔。

問：	嗱，咁你有冇問即係嗰7,000鈫佣金點解要叫做佣金，唔係叫做其他呢？唔係話你直情叫做18,000鈫人工咁，點解要分開呢，你當時有冇問過佢？

答：	當時就冇問到佢，講呢個employment letter嘅時候有提明囉，因為呢個year-end 嗰個payment就會係以呢個底薪出嘅。

問： 哦，即係你簽嗰個合約嘅時候？

答： 係。

問： 就有講。嗱，我哋睇到簽合約嗰份合約上面，就冇提到有關於佣金嗰部分?，係咪？

答： 係。

問： 當時你簽合約嘅時候，你有冇即係注意呢一點呀？

答： 冇。

問： 但係當時你有冇懷疑，點解佣金呢一部分唔成為你簽嘅合約上面嘅其中一欄呀？

答：	我當時理解，零售業會係即係有埋佣金嘅制度喇，因為有個額外佣金講畀我聽嘅時候，咁變咗一部分，即係我理解嘅係guarantee嘅，因為每個月亦都有出到畀我囉；而另外一部分，我哋超過咗營業指標，佢會額外再放畀我哋。咁而同時亦都有理解到，我哋個底薪同埋佣金嗰個分別，就係因為如果我哋請病假嘅時候，底薪唔會扣我哋囉，咁樣會扣咗我哋個佣金作一個deduct咁樣囉。”

These evidence were not challenged by the Defendant.

11. I do not accept Mr Yuen's submission that what happened at the interview was that the Claimant was only informed about the target bonus and that did not make it part of the bargain. The evidence was she was specifically told that this $7,000 target bonus was part of her remuneration. Any reasonable employer and employee must surely regard this as an intimation on behalf of the employer that the $7,000 target bonus was part of the contract and the employee would take that into account in accepting the employment.

12. In addition, the Presiding Officer also made a finding as to the Defendant's understanding as to the nature of the target bonus in Paragraph 9(d) of his Reasons for Decision. He found that the Defendant regarded the target bonus as a guaranteed commission payable to its employees. That is also a finding of fact which is supported by evidence before the tribunal. Mr Yuen submitted that subsequent conduct of the parties could not be relied upon to construe a written contract. However, we are not dealing with construction of a written contract. Instead, we are examining whether the contract was partly written and partly oral (the oral part being what was said in the interview) and what were the terms of the contract. On the authorities cited by Mr Yuen himself (viz. Chitty on Contracts, 29th Edn. Para.12-126 and Kim Lewison, The Interpretation of Contracts, 2004 Edn., Para.3.12 at p.89), evidence of subsequent conducts is admissible for these purposes.

13. Hence, the findings by the Presiding Officer were to the effect that both the Claimant and the Defendant intended the payment of the target bonus to be a contractually binding obligation. By reason of Section 35(2) of the Labour Tribunal Ordinance, this court cannot disturb findings of fact by the Tribunal.

14. Given the evidence about the interview, there is no uncertainty about the amount. The reference to the employees' benefit handbook is not necessary for that purpose.

15. The Presiding Officer did refer to the employees' benefit handbook in his Reasons for Decision. I do not think the Presiding Officer made any error of law in so doing. In Alexander v Standard Telephones and Cables [1991] IRLR 286, Hobhouse J (as he then was) set out the proper approach concerning incorporation of other documents as part of the contract of employment,

"The principles to be applied can therefore be summarized. The relevant contract is that between the individual employee and the employer; it is the contractual intention of those two parties which must be ascertained. In so far as that intention is to be found in a written document, that document must be construed on ordinary contractual principles. In so far as there is no such document or that document is not complete or conclusive, their contractual intention has to be ascertained by inference from other available material including collective agreements. The fact that another document is not itself contractual does not prevent it from being incorporated in the contract if that intention is shown as between the employer and the individual employee. Where a document is expressly incorporated by general words it is still necessary to consider in conjunction with the words of incorporation, whether any particular part of that document is apt to be a term of the contract; if it is inapt, the correct construction of the contract may be that it is not a term of the contract. Where it is not a case of express incorporation, but a matter of inferring contractual intent, the character of the document and the relevant part of it and whether it is apt to form part of the individual contract is central to the decision whether or not the inference should be drawn."

That dicta was endorsed by the Court of Appeal in Wandsworth London Borough Council v D'Silva [1998] IRLR 193 at p.196.

16. The Presiding Officer obviously regarded the terms concerning target bonus set out in the handbook as being incorporated into the contract of employment between the Claimant and the Defendant. This is apparent from what he said in Paragraph 8 of his Reasons for Decision. Given his finding that the engagement letter did not contain all the terms of the contract, the description of the handbook (Employees' Benefit Handbook), the reference to the target bonus in the course of job interview, the provisions in the handbook with regard to target bonus, and the finding that the Defendant also regarded the target bonus as a guaranteed sum payable to the Claimant together with the evidence of the Defendant's witness at the trial that target bonus would invariably be paid if an employee did not breach the conditions relating to target bonus in the handbook (see Para.6 of the Reasons for Decision), the inference of incorporation is almost inescapable even though there was no express incorporation.

17. Mr Yuen complained that the Presiding Officer did not give reasons for his findings in the manner as I have done in the foregoing paragraphs. I acknowledge that even in the context of Labour Tribunal, there is a duty on the part of a presiding officer to give reasons (see Karchoud v Incorporated Trustees of the Islamic Fund [2003] 4 HKC 79 at para.14). However, it is also necessary to have regard to the context under which a presiding officer performs his duty, in particular the general lack of forensic assistance from the parties, the informal nature of the proceedings, the heavy caseload and the need to decide matters efficiently and expeditiously. In the context of the Employment Tribunal in England (where legal representation of parties are permissible), Lord Hope had said in Shamoon v Chief Constable of the Royal Ulster Constabulary [2003] UKHL 11 at para.59,

"It has also been recognized that a generous interpretation ought to be given to a tribunal's reasoning. It is to be expected, of course, that the decision will set out the facts. That is the raw material on which any review of its decision must be based. But the quality which is to be expected of its reasoning is not that to be expected of a High Court judge. Its reasoning ought to be explained, but the circumstances in which a tribunal works should be respected. The reasoning ought not to be subjected to any unduly critical analysis."

18. In Meek v City of Birmingham District Council [1987] IRLR 250, Bingham LJ (as he then was) said at p.251,

"It has on a number of occasions been made plain that the decision of an Industrial Tribunal is not required to be an elaborate formalistic product of refined legal draftsmanship, but it must contain an outline of the story which has given rise to the complaint and a summary of the Tribunal's basic factual conclusions and a statement of the reasons which have led them to reach the conclusion which they do on those basic facts. The parties are entitled to be told why they have won or lost. There should be sufficient account of the facts and of the reasoning to enable the EAT or, on further appeal, this court to see whether any question of law arises; and it is highly desirable that the decision of an Industrial Tribunal should give guidance both to employers and trade unions as to practices which should or should not be adopted."

This dicta was adopted by Lord Hutton in Shamoon at Para.86.

19. In the present case, the Presiding Officer's reasons for decision were brief. But he did set out the salient findings by him as identified above. As regards the reasons for making such findings, it would be better if he had elaborated on what he said in paragraphs 8 and 9. But I do not think this court should reverse his decision in the present appeal by reason of inadequacies in the reasons for decision. To start with, I think the reasons for decision have satisfied the bare minimum required under the test set out in Shamoon and Meek. The Defendant knew they lost because the Tribunal found that the engagement letter did not contain all the terms of the contract of employment and the target bonus was part of the contract.

20. Further, the Defendant did not specifically rely on the alleged failure to give reasons as a ground of appeal. Had they done so, this court may follow the practice suggested by the English Court of Appeal in English v Emery Reimbold & Strick Ltd [2002] 1 WLR 2409 Para.25, viz. adjourn the application for leave to appeal and at the same time invite the Presiding Officer to provide additional reasons for his findings. The Presiding Officer may give fuller and satisfactory reasons for the relevant findings on such invitation. As it happened, the grounds of appeal did not raise the question of lack of reasons for the findings identified above and in such circumstances, it would not be right to allow the Defendant to rely on that ground in this appeal.

21. In any event, given the evidence before the tribunal, in particular the evidence about the interview and the contract of employment made earlier than the signing of engagement letter, any finding other than that made by the Presiding Officer as stated in Paragraph 10 above would be perverse.

22. For these reasons, I think the Presiding Officer was absolutely correct in holding that the letter of engagement did not contain all the terms in the contract of employment and the target bonus was a contractual entitlement. He was also correct in holding that the conditions for payment of target bonus were set out in the handbook. Ground 1 therefore fails.

23. As regards Ground 2, it should be regarded as settled law by now that in the context of employment contract, contractual entitlement could contain discretionary element exercisable by one party to the contract, see Clark v Nomura International plc [2000] IRLR 766; Wood v Jardine Fleming Holdings Ltd [2001] 2 HKC 735; Jane v Nomura International HCA No.7259 of 1997, 29 May 2001; Wong Huey Lan v Colgate-Palmolive (HK) Ltd HCLA 77 of 2001, 11 March 2002; Wong Shun v General Security (HK) Ltd HCME 4 of 2002, 11 April 2003; Mallone v BPB Industries Ltd [2002] ICR 1045. I do not regard New Bright Industrial Co Ltd v Wong Sau Chi [1995] 2 HKC 357 as a decision inconsistent with this proposition (see my discussion in Wong Shun v General Security (HK) Ltd). The question in this appeal is whether the entitlement to target bonus contained such an element. The Presiding Officer held that the Defendant had no discretion whatsoever. The Defendant said the Presiding Officer was wrong.

24. During the material time, there had been two editions of the handbook: a 1995 edition and 2002 edition. As regards target bonus, there was no material difference between the two editions. It suffices for present purposes to set out the relevant provisions under the 1995 edition,

“1. TARGET BONUS

※ 公司每月均按各個職級設有Target Bonus , 並於隨後一個月底發放。

※ 於下列情況下，職員將不能享有Target Bonus：

1． 任職未滿一個月而離職

2． 被公司解僱

3． 離職而無任何通知

4． 曠工即無故缺席而無預先通知店鋪主管者，或未能於指定工作時間半小時前通知店舖主管請假

※ 一般離職者可獲得按比例計算Target Bonus

※ 職員如若遲到、病假、事假、缺席等...，均須扣除Target Bonus，規條請參照本手冊其有關事項之內文。”

25. It is common ground that the mechanism for calculation of target bonus for the Claimant had all along remained the same until May 2003. There is no suggestion in the relevant provisions in the handbook or in what transpired at the job interview that the Defendant reserved the discretion to alter the same.

26. Mr Leo, appearing for the Claimant in this appeal, referred this court to a dicta of Lord Woolf MR in Wandsworth London Borough Council v D'Silva [1998] IRLR 193 at p.197,

"The general position is that contracts of employment can only be varied by agreement. However, in the employment field an employer or for that matter an employee can reserve the ability to change a particular aspect of the contract unilaterally by notifying the other party as part of the contract that this is the situation. However, clear language is required to reserve to one party an unusual power of this sort."

27. Mr Yuen relied on the following matters to contend that a general discretion to alter the scheme for calculation of target bonus had been reserved by the Defendant,

(a) the nature of target bonus was that it was an incentive scheme linked to the Defendant's overall sales performance;

(b) the absence of specified amount for target bonus in the handbook;

(c) there had been amendments to the scheme prior to 2003;

(d) Clause 3 of the letter of engagement.

28. It is ultimately a question of mixed law and fact whether the Defendant reserved the discretion in the contract of employment to adjust the basic quantum of target bonus. Insofar as findings as to what constituted the terms of the contract between the parties in respect of target bonus are concerned, the Presiding Officer found that the conditions in the handbook concerning target bonus were part of the contract. He also regarded the letter of engagement as part of the contract. I do not see any valid basis for attacking such findings in this appeal.

29. The Presiding Officer rejected the submission of the Defendant that Clause 3 gave the Defendant the power to adjust the target bonus unilaterally. This is a question of construction. Mr Yuen urged this court to adopt that construction. Clause 3 provides,

"Your employment shall be subject to all the Company's regulations in force from time to time. In the event of misconduct, persistent lack of punctuality, neglect of duty, dishonesty, or breach of any Company regulations, your employment may be terminated by the Company without notice."

30. I have no hesitation in rejecting Mr Yuen's contention. There is no evidence that during the course of employment the Defendant had ever intimated to the Claimant that all the provisions in the handbooks were to be regarded as company's regulations under Clause 3. It is quite obvious to me that the reference to "Company's regulations" in that clause is primarily a reference to regulations governing the conduct or performance of employees in connection with their employment. Hence, in the latter part of that clause, it refers to breach of Company regulations and its possible consequence. Having considered the contents of the handbooks, I do not regard the expression "Company's regulations" to be an apt description for all the provisions in that document. The 1995 handbook has four sections: (1) additional payment; (2) holidays; (3) discipline and (4) fringe benefits. Take the example of a provision under section (4), clause 14 provided for employee compensation and it stipulated that an employee had to submit a medical report by a doctor of a Government hospital and he should receive medical treatment from such hospital instead of private hospital. It cannot be seriously suggested that this is one of the Company's regulation, the contravention of which may attract the consequence of dismissal. If one adopts a narrow construction having regard to the latter part of Clause 3, the only provisions that could be breached by an employee were those set out in section (3). Hence, on that view, amongst all the provisions in the handbook, only section (3) comes within the ambit of the company's regulations referred to under Clause 3.

31. Focusing on the provisions governing target bonus in the handbooks, it is difficult to see how an employee could act in breach of those provisions. As Mr Leo submitted, those provisions only set out an employee's eligibility to the benefit and the only party that could act in contravention of the same was the Defendant.

32. The Presiding Officer's written reasons for rejecting the construction of clause 3 contended for by the Defendant were very brief. His oral reasons given at the trial were as follows,

"雖然申索人喺合約中，所簽嘅合約裏面係同意公司係有權係更改個公司規例，即係話company's regulation; 但係合約中係並冇明確表示呢一啲規例嘅範圍係包括啲乜嘢，亦即係話係咪包括晒所有僱員守則裏面列明嘅內容。換句話講，即係話僱員守則裏面所載嘅內容，並唔代表就係等如係公司規例，法庭認為有關嘅呢個target bonus部分並不屬於公司規例。或者清楚啲嚟講，呢一方面嘅target bonus 係申索人嘅薪金，合約薪金嘅一部分，就並唔係只係公司規例所列嘅一啲部分咁簡單。法庭認為，因此公司係冇權喺申索人不同意之下，係自行更改係有關部分嘅薪金嘅。

On the material before the tribunal, I am of the view that the Presiding Officer was entitled to adopt that approach.

33. Another way of putting forward essentially the same point is this. Guided by the approach set out in the dicta of Lord Woolf in D'Silva, Clause 3 in the engagement letter is not clear enough to reserve to the Defendant the power to alter the scheme for calculating target bonus unilaterally.

34. Given the discussion during the job interview, the lack of reference to the amount of the target bonus in the handbook is neither here nor there. There is no suggestion that it had been mentioned during that interview the Defendant had the discretion to alter the calculation of target bonus. Mr Yuen's submission on the nature of the target bonus was by reference to the evidence of Miss Tsang. However, there is no suggestion that the Defendant's perception as to the nature of target bonus as set out in such evidence had ever been made known to the Claimant when she was employed. Her evidence is therefore of limited value as to what was the common intention of the parties as regards the terms of the employment contract. Nor should any weight be attached to her bare assertion that company regulations under Clause 3 referred to the handbooks.

35. As regards the so-called amendments to the calculation of target bonus over the years, the Presiding Officer had dealt with it succinctly in Paragraph 9(c) of his Reasons for Decision. Having studied the details of these amendments, I agree with him. I also agree with the submission of Mr Leo that in view of the trivial nature of the amendments and the lack of significant practical impact on the Claimant, it would not be right to infer from such amendments that contractually, the Defendant reserved a discretion to alter the scheme for target bonus (c.f. Jones v Associated Tunnelling Co Ltd [1981] IRLR 477 at p.480 Para.22).

36. On the whole, I do not think the Presiding Officer erred in law in holding that the Defendant did not have any discretion to alter the scheme for calculating target bonus under the contract of employment.

37. Ground 2(1) therefore fails. It is thus unnecessary to consider Ground 2(2).

38. In the circumstances, the appeal is dismissed with a costs order nisi that the Defendant shall pay the Claimant's costs of this appeal, such costs to be taxed if not agreed. I also lift the stay of execution imposed under the order dated 21 January 2004.