CHAN KIN MAN, SIMON AND OTHERS v. PACIFIC DRAYAGE CO LTD

HCLA49/2007 & HCLA50/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 49 OF 2007

(ON APPEAL FROM LBTC 2683 OF 2007)

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AND

LABOUR TRIBUNAL APPEAL NO. 50 OF 2007

(ON APPEAL FROM LBTC 2914 OF 2007)

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BETWEEN

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(HEARD TOGETHER)

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j u d g m e n t

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INTRODUCTION

1. The defendant has since 1976 been operating the business of drayage.  It used to employ drivers to drive its container trucks.  In 1992, it laid off all its drivers and has since engaged drivers under a Chinese written contract called「貨櫃拖運業合作經營合約」(“the Engagement Contract”).  The claimants were drivers so engaged by the defendant since the 1990s.  In March 2007, when the defendant issued to all drivers a notice which, the claimants complained, reduced the drayage charge unilaterally thereby adversely affecting their income, the claimants left. 

2. The claimants then commenced proceedings in the Labour Tribunal, claiming against the defendant for annual leave pay and statutory holiday pay.  The defendant disputed liability, alleging that the claimants were its subcontractors and not employees.  After trial, the Presiding Officer allowed the claims. 

3. The defendant now appeals against liability only.  It raised three grounds of appeal which boil down to one contention — the claimants were its subcontractors. 

THE APPROACH

4. The modern approach to the question if one person is another’s employee is to examine all the features of their relationship against the background of indicia developed in the case law with a view to deciding whether, as a matter of overall impression, the relationship is one of employment, bearing in mind the purpose for which the question is asked.  It involves a nuanced and not a mechanical approach : Poon Chau Nam v. Yim Siu Cheung (2007) 10 HKCFAR 156, per Ribeiro PJ at paragraph 18 at p. 167F-168B. 

5. The indicia, as established by the case law, include the degree of control exercised by one side said to be the employer; whether the person performing the services provided his own equipment; whether he hired his own helpers; what degree of financial risk he took; what degree of responsibility for investment and management he had; whether and how far he had an opportunity for profiting from sound management in the performance of his task; and the parties’ own views as to the relationship.  The list is not exhaustive.  No single factor is determinative and the weight of a given factor may vary from case to case.  See Leung Kam Wah v. Fung Yuk Ching Yvonne trading as Hong Kong Transportation Co., HCLA43/2006, unreported, at paragraph 5. 

THE PRESIDING OFFICER’S FINDINGS

6. The Presiding Officer followed the above approach.  He first carefully considered all the evidence before him and after evaluation, accepted the claimants’ version and rejected the defendant’s.  He then examined the various indicia and, applying Poon Chau Nam, came to the finding that the claimants were all the defendant’s employees who provided labour to the defendant in return for a percentage of the fees that it collected from its clients.  (It is common ground that the percentage (拆賬) ranged from 31% to 35%.)  In particular, the Presiding Officer found that the Engagement Contracts were sham. 

7. In my view, the Presiding Officer’s findings are well supported by the evidence before him. 

The indicia of employment

          (1)     Contract

8. The clearest indicium of employment is control exercised by the defendant over the claimant. 

9. The evidence of one of the claimants, Mr Chan Kin Man (1^st Claimant in HCLA49/2007), which the Presiding Officer accepted, is this.  Mr Chan was first employed by the defendant in 1991.  He was laid off in 1992.  Despite the Engagement Contract that he signed in 1992, the way he performed his work was no different from that when he was an employee.  Each claimant had to obey the orders issued by the supervisor and report to work at the appointed place and time punctually and perform the work accordingly.  The claimants had to apply for and obtain permission in advance before going on leave.  They could not leave their post without authorization.  Nor could they hire any replacement driver.  If no drayage work was assigned to them, they had to perform other duties as directed by the defendant. 

10. As rightly concluded by the Presiding Officer, Mr Chan’s evidence clearly shows that the defendant did exercise a considerable degree of control over the claimants. 

11. Mr Kwok, counsel for the defendants, disagreed and took a number of points. 

12. He first submitted that the Presiding Officer erred in referring to the version of the Engagement Contract that Mr Chan signed in 1992 because since 1995, it was replaced by another version, which all claimants had signed.  I disagree.  Properly understood, the thrust of Mr Chan’s evidence is that regardless of the Engagement Contracts, be it the 1992 or the 1995 version, the way how the drivers performed their work was just the same as it was before 1992 when they were employees. 

13. Mr Kwok next submitted that the Presiding Officer erred in accepting the claimants’ evidence that they had to apply for sick leave.  Since all the claimants said that they had never taken ill during their engagement with the defendant, what they said about the sick leave arrangement was mere opinion.  Again, I disagree.  The fact that the claimants had not taken ill does not necessarily mean that the defendant had imposed no requirement for sick leave application. 

14. On the contrary, there is clear documentary evidence showing that the claimants had to apply for leave of absence to attend their affairs (事假).  A reasonable inference to draw is that the defendant required the claimants to apply for sick leave as well.  This supports the Presiding Officer’s acceptance of the claimants’ evidence on sick leave application. 

15. The third point that Mr Kwok took is this.  He said that the Presiding Officer erred in finding that if no drayage work was assigned, the claimants could not work for others.  Mr Kwok relied on the oral evidence of Mr Lam Shui Tim (2^nd Claimant in HCLA49/2007) that in the past there were two occasions when the defendant did not give him any drayage work because the vehicle broke down, he worked for another truck company on casual basis for some 10 to 20 odd days.  Mr Kwok therefore submitted that Mr Lam’s evidence shows that he was free to work for others if the defendant did not arrange any work for him. 

16. In my view, Mr Lam’s evidence must be understood in its entirety.  In his witness statement, which he adopted as his evidence, he said that if the defendant did not arrange drayage work for him, then it would simply direct him not to drive any truck.  He did not say that he could not work for others on casual basis.  So when properly understood, Mr Lam’s evidence which is clearly confined to his case only, did not contradict the evidence of other claimants who all said that if no drayage work was assigned to them, they had to perform other duties as directed by the defendant.  Taking the matter in the round, the Presiding Officer is quite entitled to come to the finding as he did. 

17. Finally, Mr Kwok took issue on the restriction prohibiting the claimants from hiring replacement drivers. 

18. It is not disputed that the claimants could not hire replacement drivers on their own.  All replacement drivers were arranged by the defendant.  This goes against the notion that the claimants were the defendant’s subcontractors.  For as subcontractors, the claimants should be able to engage replacement drivers to carry out the work subcontracted from the defendant. 

19. However, Mr Kwok submitted that the arrangement was dictated by the terms of the Engagement Contract.  The clauses (in the 1995 version) that Mr Kwok relied on read :

“1.     乙方必須負起駕駛向甲方租出之車輛時所有交通違例事件責任。

   2.       乙方應小心保管使用甲方租出之車輛，工具，如有遺失或故意損壞，須立即報告甲方，並負責賠償。”

Mr Kwok submitted that those clauses obliged the claimants to drive the vehicle personally. 

20. I disagree.  Those clauses do not impose such a duty on the claimants.  What is imposed is that the claimants must be accountable for the damage caused to the defendant arising from traffic accident or other losses, and no more.  Nothing in the expressed provisions of the Engagement Contract required the claimants to drive the trucks personally. 

21. Mr Kwok then submitted that the restriction against hiring replacement drivers was not evidence of control.  It only shows that the defendant wanted to control its vehicle and the cargoes. 

22. In my view, the defendant required the claimants, who must follow its instructions, to drive the trucks personally because it wanted to ensure that that they duly performed the orders received from its clients.  The Presiding Officer is in such circumstances entitled to regard the restriction against hiring replacement drivers as evidence showing the defendant’s control over the claimants as its employees. 

23. None of the points taken by Mr Kwok on control is meritorious and I reject them all. 

          (2)     The claimants were not sub-contractors

24. The defendant relied on a number of points to support their contention that the claimants were subcontractors. 

25. First, the defendants said the claimants set up their own companies with business registration certificates.  The claimants’ evidence is that the defendant employed them as drivers but requested them to obtain a business registration certificate before they commenced their employment.  Other than Mr Pang Wah (3^rd Claimant in HCAL49/2007), all the claimants had after the commencement of their employment cancelled the registration.  The defendant was fully aware of this but did not take any action.  Mr Pang’s case is that he did not cancel the registration because the defendant continued to pay wages to his company’s account.  In short, the effect of the claimants’ evidence is that the business registration certificate was just a sham.  Apparently, the Presiding Officer must have accepted their evidence.  I can see no ground to disturb his finding. 

26. Second, the defendant argued that the claimants shared part of the running costs of the trucks, although they were provided by the defendant.  This argument goes against the Presiding Officer’s finding that the defendant alone was responsible for the running costs.  Mr Kwok supported this argument by submitting that the trucks were rented to the claimants and run party at their costs because 45% of the fees obtained from clients were deducted towards payment of the running costs. 

27. I disagree.  The evidence clearly shows it was the defendant who collected the 45% fees and then applied to defray the running costs of its trucks.  The claimants did not contribute to any of the running costs at all.  Mr Kwok’s submission is sound only if the claimants were entitled to share part of the 45% fees so that the deduction was made at their expense and cost.  But there is no evidence to support such a proposition. 

28. Third, the defendants contended that the claimants had their own financial risk to bear.  In this regard, Mr Kwok referred to the claimants’ liability of the damage arising from traffic accidents and other losses : see paragraph 19 above. 

29. In my view, such liability does not necessarily suggest a sub-contractor relationship.  For an employee can equally be made liable to his employer for such loss.  

30. Finally, the defendant relied on the Engagement Contract.  Mr Kwok submitted that it was clearly stipulated that in the Engagement Contract the claimants were subcontractors of the defendants.  He criticized the Presiding Officer’s finding that the Engagement Contract was a sham. 

31. With all the circumstances considered in the round, I fully agree with the Presiding Officer that the Engagement Contract was a sham.  It is a finding of facts which, on the evidence accepted by the Presiding Officer, cannot be flawed : see in particular paragraph 23(8) of his Reasons for Judgment. 

          (3)     Other indicia of employment

32. The Presiding Officer took into account other indicia including :

(a)      The claimants did not take part in the negotiations of the fees to be charged on the defendant’s clients, which were all fixed by the defendant. 

(b)     The claimants just provided their labour to the defendant as drivers and in return took a percentage of the fees (拆賬). 

(c)     They took no financial risk in the defendant’s business. 

(d)     They took no part in the management of the defendant’s business. 

33. I agree with the Presiding Officer’s view that those indicia show an employment relationship. 

CONCLUSION

34. The Presiding Officer was clearly right when he found that the claimants were the defendant’s employees.  I can see no merit in any of the grounds of appeal or arguments advanced by Mr Kwok. 

35. I will accordingly dismiss the appeals. 

36. Costs should follow the event.  I will order that the defendant do pay the claimants costs of the appeals, to be taxed if not agreed.  The legally aided claimants’ own costs are to be taxed in accordance with the legal aid regulations.