WONG MAN SUM v. WONDERLAND SEA FOOD RESTAURANT O/B LONG YIELD CO LTD

CACV 241/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 241 OF 2005

(ON APPEAL FROM HCLA NO. 133 OF 2002)

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REASONS   FOR   JUDGMENT

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Hon Cheung JA:

1.  We allowed the appeal at the conclusion of the hearing.  I have the benefit of reading the reasons for judgment given by Tang JA which I respectfully agree.  I would add the following observations.

24 months continuous contract

2.  Section 31B of the Employment Ordinance (Cap. 57) confers on an employee the right to receive severance payment when he is dismissed by his employer by reason of redundancy or when he is laid off.  However the precondition for this entitlement is that the employee must be employed under a continuous contract for a period of not less than 24 months.

3.  In order to avoid paying the severance payment many industries in Hong Kong have adopted a method which precludes the operation of the section.  It is by way of a series of contracts of employment of less than 24 months.  The employee is required to take a short break before taking up a new contract.

4.  This case illustrates how it works : the employee entered into a 18 months contract with his employer, a restaurant operator.  At the end of the 18 months, after taking the holidays which he had accumulated during the contract, he was required by the employer to take a break of two more weeks before he was to start work again.  The parties then signed another 18 months contract.

Unsatisfactory state

5.  The Employment Ordinance is clearly in the nature of a social legislation.  Its aim is to provide some minimum benefits to workers who, more often than not, do not have equal bargaining powers as their employers.  This disparity is even more intense in Hong Kong when there is no system of collective bargaining between employers and workers’ unions.

6.  The situation is clearly unsatisfactory when employers are able to adopt devices which relieve them of their obligation towards their employees.  The consequence is that a large sector of the labour force is being deprived of the entitlement intended by the legislature for their benefit.  This is not conducive towards social harmony. 

Global contract

7.  No doubt as a natural reaction against this highly unsatisfactory situation, many cases have attempted to overcome the artificial device by means of the concept of ‘global’, or ‘umbrella’ contracts : a series of contracts are treated as a single contract so that even though an employee may be required to take a break between each employment, he is nonetheless treated as if he is still being employed during the break.  But as the cases showed this concept really depends on something said or done by the employer such as to show that the parties regarded the employment relationship as continuing despite the termination of the contract of employment.  A settled expectation that the employee would return to his old job after a short break is insufficient.  In other words there must be evidence of mutual arrangement of the parties which recognize the continuous employment of the employee despite his absence from work, see Lui Lin Kam & Others v. Nice Creation Development Ltd [2006] 3 HKLRD 655, Booth & Others v. United States of America [1999] IRLR 16 and Curr v. Marks and Spencer  PLC [2003] IRLR 74. 

8.  As this case and other cases have shown such evidence are often lacking.  It is equally unsatisfactory to stretch the limits of adjudication in order to overcome the problem.

Suggested changes

9.  I for one, would very much like to see changes being introduced along the lines ‘The Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002’ of the United Kingdom which implemented the European Union Directive on Fixed Term Work (1999/70/EC).  The Regulations provide for, among other things, a maximum limit of four years for fixed term contracts so as to prevent the abuse of the use of successive fixed term contracts.  Obviously any change in Hong Kong must cater for local conditions.

Appreciation

10.  I would like to thank counsel for assisting us especially Mr. Bleach S.C. who had agreed to act as the Friend of the Court.

Hon Yeung JA:

11.  I agree.

Hon Tang JA:

12.  The respondent was employed on an employment contract dated 20 March 1999 for the term of about 18 months, commencing on 1 April 1999 and ending on 15 October 2000 (“the 1^st Contract”).  Clause 2 of the 1^st Contract stipulated that:

“As from the second month, the Contract shall be deemed to be an 18-month Contract.”（第二個月起本合約將被視為18個月合約。）(page 106).

13.  The respondent also signed a “declaration of resignation” (「離職聲明書」) on 5 October 2000, resigning his employment on 15 October 2000.

14.  The respondent was re-employed by another employment contract dated 1 November 2000 (“the 2^nd Contract”).  Clause 2 of the 2^nd Contract is the same as that of the 1^st Contract. (page 108)

15.  The respondent was summarily dismissed on 8 September 2001.

16.  He successfully claimed against the appellant for wrongful dismissal in the Labour Tribunal.  There is no appeal from that decision.

17.  However, the respondent was also awarded $12,565.80 as severance payment.  The Labour Tribunal held that although the respondent did not work between 15 October 2000 and 1 November 2000, there was no break in the respondent’s employment with the appellant such that for the purpose of section 31B of the Employment Ordinance, Cap. 57 (“the Ordinance”), he had been employed under a continuous contract from 1 April 1999.

18.  The decision was affirmed by Yam J.

19.  Leave to appeal was granted by Le Pichon JA on 26 July 2005 against the appellant’s voluntary undertaking not to seek costs or refund of the compensation already paid to the respondent.

20.  In the meantime, for reasons unconnected with the present proceedings, the respondent has been adjudicated bankrupt.

21.  This matter was set down to be heard before this court (then differently constituted) on 20 June 2006.  However, the hearing was adjourned for the appointment of an amicus curiae.  Mr John Bleach SC, was appointed.

22.  There is no dispute that the respondent did not work between 15 October 2000 and 1 November 2000.  For the purpose of the calculation for severance pay, time would only run from 1 November 2000, unless he was:

“absent from work in circumstances such that, by law, mutual arrangement or the custom of the trade, business or undertaking, he is regarded as continuing in the employment of his employment for any purpose.”  Para. 3(2)(b) First Schedule, the Ordinance.

23.  It is clear from the evidence that there was no mutual arrangement, under which he was regarded as continuing in the employment during the period from 15 October 2000 and 1 November 2000 for any purpose at all.  To the contrary, it is clear from the evidence that the appellant deliberately so arranged its affairs that the period of employment of the respondent should be broken during that period.

24.  So unless, that there was a global contract, which covered both periods of employment, the appeal must be allowed.

25.  The English authorities are clear that there cannot be a global contract in the absence of the mutual obligations subsisting over the entire duration of the relevant period.  That was also so decided by this court in Lui Lin Kam and Others v Nice Creation Development Ltd [2006] 3 HKLRD 655.

26.  In the proceedings before the Labour Tribunal, it was the respondent’s evidence that he was told, on 5 October 2000, before he left his employment under the 1^st contract, to sign a “declaration of resignation” and then “to come back to work on 1 November 2000”  (See transcript at 62N).

27.  The evidence of the appellant’s witnesses were to different effect.  The Labour Tribunal, however, made no finding on the matter.

28.  Counsel have very helpfully addressed us on the significance of the omission and whether we should remit the matter to the Labour Tribunal.

29.  We were persuaded that such evidence of the respondent, even if accepted, would make no difference.

30.  In Booth and Others v United States of America [1999] IRLR 16, the employees were employed by the US army, under a series of employment contracts, each for a fixed term of less than 2 years with a break of not less than 2 weeks in between.  A new contract would be signed for each period, and in one case, it was signed before the existing contract came to an end.

31.  The following passages in the decision of the Employment Appeal Tribunal presided over by Morison J, are relevant:

“9      It seems to us that the expression ‘by arrangement’ at least requires that something was said or done by the employers such as to justify the conclusion that the parties regarded the employment relationship as continuing despite the termination of the contract of employment. The industrial tribunal will, ex hypothesi, be considering the question at issue after there has been a termination of a contract, and a break followed by re-employment. Thus, it will have the advantage of the benefit of hindsight when deciding whether this was by arrangement. We respectfully agree with what was said by the EAT in Letheby & Christopher v Bond [1988] ICR 480, at 486, where they said:

‘What the tribunal have to look at is whether, when the absence from work takes place, the parties regard the employment as still continuing.’

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11     Were the industrial tribunals entitled to conclude that there was no such arrangement on the facts before them?  It seems to us that they were.  At the highest, it can be said that there was a settled expectation that the employees would return to their old job after a short break; that on their return they would use the same tools and take up  where they had left off.  But what the statute requires is that the arrangement should be one pursuant to which the employee is regarded  as still being in the employment of the USA.  In fact, there is no evidence that any of the applicants had any right to enter the base during the break; the documents suggest that passes had to be handed back when the old contract was terminated, although it is fair to say that there is no finding by the industrial tribunal on this point.  None of the matters referred to by Mr O’ Dempsey, either when taken alone or together, are pertinent to that issue.  It is clear that at least the employer did not want the employment relationship to continue and did not regard it as continuing.  It seems to us that the industrial tribunals were well entitled to reach the decision which they did no this issue and we agree that we cannot and should not interfere with their decisions.”

32.  In Curr v Marks and Spencer Plc [2003] IRLR 74, a decision of English Court of Appeal, Mrs Curr began her employment with Marks and Spencer on 3 March 1973.  After she was employed for 17 years, she entered into the child break scheme for 4 years.  Under the child break scheme, Marks and Spencer had undertaken to offer re-employment at the end of the child break period, and that Mrs Curr was obliged during each year of the child break to work for “a minimum of two weeks full time, or equivalent part time” for Marks and Spencer.  She returned to work on 28 August 1994.  When she was made redundant in 1999, her redundancy payment was calculated on a basis that she had been continuously employed only from 28 August 1994.  The question before the Court of Appeal was whether the period during which she was on the child break scheme was a period of continuous employment.  There the English Court of Appeal was concerned with section 212(3) of the Employment Rights Act 1996.  In particular, section 212(3)(c) which permitted absence from work “in circumstances such that, by arrangement or custom, he is regarded as continuing in the employment of his employer for any purpose” to be counted in computing the employee’s period of employment.

33.  This is what Peter Gibson LJ said at para. 30 of his judgment:

“30.   … Similarly a week in which the conditions of para. (c) are satisfied will so count.  But the ex-employee (who is included in the definition of ‘employee’) must, by arrangement (which can, but need not, be a contract) or custom, be regarded by both the employer and the ex-employee as continuing in the employment of the employer for any purpose in that week.  The parties might, for example, agree that for pension purposes the ex-employee is to be treated during the Child Break as continuing in the employment of the employer.  But there must be a mutual recognition by the arrangement that the ex-employee, though absent from work, nevertheless continues in the employment of the employer.  Without there being a meeting of minds by the arrangement that both parties regard the ex-employee as continuing in that employment for some purpose, s. 212 (3)(c) will not be satisfied.  Further, unless in every week of the Child Break the ex-employee is so regarded there will be a break in the continuity of employment.”

34.  Thus, in our opinion, even if the evidence of the respondent were accepted, namely, that there was a promise to re-employ the respondent on 1 November 2000, that would not assist the respondent.  That is not evidence that there was any mutual arrangement that during the break the respondent should be regarded as continuing in the employment for any purpose.

35.  For the above reasons, we allowed the appeal.