XCHRX CHAK CHONG CHI v. MAXIM'S CATERERS LTD.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

LABOUR TRIBUNAL APPEAL NO. 25 of 1992

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J U D G M E N T

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1. This is an application for leave to appeal against the decision of the learned Presiding Officer in awarding long service payment in the sum of $78,155 to the Claimant on 22nd April 1992.

2. The Claimant was last employed as the sales manager of the Respondent at the Sichuan Garden Restaurant at the Landmark. He commenced his employment with the Respondent on 21st September 1982 as a waiter. His employment was terminated on 22nd November 1991 which was his last day of work. On that day he was informed that he was dismissed and was given one month's payment in lien of notice. Though it was the Respondent's case that the Claimant was summarily dismissed for misconduct, its represenrative conceded at the trial that the Claimant was not dismissed under s.9 of the Employment Ordinance, Cap.57. It was also agreed that the Claimant was aged 29 and had 9 year and 2 months service with the Respondent.

3. Pursuant to the concession made by the Respondent that the Claimant was not dismissed under s.9 of the Employment Ordinance, the learned Presiding Officer found that -

"The reason or motive behind such payment (i.e. payment in lieu of notice) to be irrelevant. And whether the Defendant Company subjectively took it to be an instant dismissal is also irrelevant. The payment in lieu of notice brought the dismissal under section 7 and not section 9. Hence the Claimant would not be precluded from his entitlement to LSP provided other requirements are satisfied."

4. It is against this finding that the Respondent made its first complaint. It is submitted that when an employer is entitled to rely on s.9 of Cap.57 and could have summarily dismissed the employee for misconduct, he is entitled to rely on the exclusion provisions in s.31S(1) and s.31T(1) (a) to deprive the employee of his entitlement to long service payment, notwithstanding that the employment was in fact terminated by the employer by the payment of one month's wages in lieu of notice pursuant to s.7 of the Ordinance.

5. Section 31R making provisions for long service payment in situations where the employees are not   eligible for severance payment despite their long services, only came into existence on 29th November 1991 i.e. 7 days after the date of dismissal. The Learned Presiding Officer concluded that the relevant date for the purpose of s.31R is the date up to which the wages under s.7 was calculated and not the date of dismissal pursuant to the definition contained in s.2. In the premises, he made the finding that the relevant dated for the purpose of s. 31R is 21st December 1991 i.e. one month after the date of dismissal. Thus, on the relevant date, s.31R already enacted and operative to confer the right to long service payment upon the Claimant. The Respondent submitted that the learned Presiding Officer erred in his said construction of the said statutory provisions, and that the relevant date ought to be 22nd November 1991, the date of dismissal, prior to the coming into existence of s.31R.

The Termination

6. In view of the concession made by the Respondent at the trial that the dismissal was not made under s.9 without notice or payment in lieu of notice, there is no question that the dismissal can be a s.9 dismissal despite the Respondent's qualification that it was treated as an "instant dismissal" For the purpose of this application I will assume that the facts giving rise to a right for a s.9 dismissal, i.e. misconduct of the Claimant, have been proved... What then, is the relevance, if any, of the unexercised right to a s.9 dismissal to the Claimant's entitlement to long service payment.

Section 31S(1) provides: -

"Except as provided by section 31X, an employee shall not be entitled to a long service payment by reason of dismissal where his employer, being so entitled by reason of the employee's conduct, terminates his contract of employment without notice or payment in lieu in accordance with section 9."

Section 31X deals with situation of a strike which has no hearing in the present case. Furthermore, s.31T(1) (a) provides: -

"For the purposes of and subject to this Part, an employee shall be taken to be dismissed by his employer if, but only if (a) the contract under which he is employed is terminated by the employer with or without notice or payment in lieu thereof other than in accordance with section 9."

7. Pursuant to s.31S(1) and s.31T (1) (a), if an employment is terminated by the employer in accordance with s.9, then the employee would have np right to any long service payment. I am unable to read into either of these 2 sections words to the effect that the section will apply notwithstanding that the termination was effected by the giving of a s.6 notice or the making of a s.7 payment, simply because the employer could have , but elected not to, exercise an existing right to terminate the employment in accordance with s.9. It is obvious that both sections deal with the manner the contract of employment was in fact brought to an end, and not with what might or could have been the case but was not the case. In the face of the concluding wordings in s.31S(1) that the termination is one " without notice or payment in lieu in accordance with section 9", any contention that the termination described therein also includes a termination with payment in lieu in accordance with s.7 defies both logic and common sense. Such a construction would also violate the clear wordings of s.9. The opening words of s.9 refer to a termination without notice or payment in lieu. How, then, could it be argued that a termination with payment in lieu is a termination "in accordance with section 9"?

8. Much emphasis has been placed by Mr Ho for the Respondent on the words "being so entitled by reason of the employee's conduct" in s.31S(1). It is his submission that these words are suggestive of the sufficiency of a right to terminate under s.9 to give rise to the exclusion. I do not accept, nor do I accept it is arguable, that the said words can give rise to a construction that would render a mere presence of an unexercised right under s.9 to be sufficient to bring the exclusion into operation. The reason for the existence of that phrase becomes clear when one traces the source of s.31S(1). There is no similar provision in England for long service payment though there is the similar English system for redundancy payment. Section 31S(1) is in fact in identical terms with s.31C, a provision dealing with severance payments. The English counterpart for s.31C is s.82(2) of the Employment Protection (Consolidation) Act 1978, which is a reproduction of the earlier provisions in s.2(2) of the Redundancy Payment Act 1965. Section 82(2) of the 1978 Act reads: -

"Except as provided by section 92, an employer shall not be entitled to a redundancy payment by reason of dismissal where his employer, deing entitled to terminate his contract of employment without notice by reason of the employee's conduct, terminates it either

(a) without notice, or

(b) by giving shorter notice than that which, in the absence of such conduct, the employee would be required to give to terminate the contract, or

(c) by giving notice (not being such shorter notice as is mentioned in para. (b) ) which includes, or is accompanied by, a statement in writing that the employer would, by reason of the employee's conduct, be entitled to terminate the contract without notice."

9. It is apparent upon a comparison between the English and the local provisions, that the local provision follows closely the format and wordings of the English provision until it reaches a point where simple reproduction would be possible. TheEnglish Acts only contain a reference to the minimum period of notice required to terminate a contract of employment. There is no English provision dealing with grounds for termination of employment contracts. Rather than providing statutory grounds and modes for terminating an employment contract, the English Acts conferred remedy for unfair dismissal. As the title of the 1978 Act suggests, the Act is a consolidating Act. The grounds for terminating an employment contract in England are still very mech governed by the common law position. The local statute attempts to introduce statutory grounds and modes for termination of employment contract in section 5, 6 and 7 whilst preserving the common law position by sections 8, 9 and 10. Thus, under the local scheme, apart from the saving provision in s.9(b), an exhaustive array of grounds for termination of employment contracts are stipulated. Bearing this important distinction between the English and local scheme in respect of the grounds and modes of termination of employment contract in mind, it can be realised immediately as to why it is no longer possible to carry on the exact reproduction of the English provision after the words "where his employer, being _ _ _ *_ The rest of the sentence in s.31S(1) appears to be an attempt to try to remain as closely as possible the same as the English provision whilst completing the sentence by a short-hand reference to s.9.

10. The plain wordings of s.82(2) clearly indicate an intention to deprive employees guilty of misconduct sufficient to afford a ground for summary dismissal in common law of the benefit of redundancy payments irrespective of the particular mode of termination used by the employer. The distinction between "grounds" and "modes" for termination is clear. Even if the employer terminates the employment by giving notice, if the notice given falls within sub-paragraphs (b) or (c) of the sub-section, the exclusion provision will operate to deprive the guilty employee of his entitlement to redundancy payment. However, the employer must make his stance perfectly clear by either giving a shorter notice; or if the same period of notice as would be given to an innocent employee is given, by giving a written statement of his entitlement to summary dismissal on ground of misconduct.

11. Our s.9 restated the common law grounds for summary dismissal in sub-paragraph (a) and preserve other common law grounds in sub-paragraph (b). Other common law grounds covered by sub-paragraph (b), which have not been enacted as express statutory grounds, would include situations such as frustration, death or consent on the part of the employee. It would be most unreasonable if an employee whose employment was terminated by the employer on account of frustration, death or consent on his part without notice or payment in lieu thereof, should be deprived of his entitlement to long service payment (different considerations may apply to severance payments). Thus, if becomes necessary to distinguish terminations involving culpability under sub-paragraph (a), with those innocent situations under sub-paragraph (b) for the purposes of long service payments. Hence the refernce to "being entitled by reason of the employee's conduct" must be retained in the local legislation to qualify a termination in accordance with s.9. The phrase, so heavily relied on by Mr Ho, is a clear reference to s.9(a) to distinguish it from s.9(b). The phrase in effect is the same as "being entitled by reason of subsection (a) thereof".

12. I am unable to draw any distinction between the mode of termination which would arise under an entitlement to terminate by reason of the employee's conduct, and a termination in accordance with s.9. A dismissal on the ground of the employee's conduct gives rise to the same mode of termination as a termination "in accordance with section 9" i.e. one that is without notice or payment in lieu thereof. The words "in accordance with section 9" has the same meaning and effect as s.82(2) (a) (save the reference to payment in lieu). Section 82(2) (b) and (c) are totally absent in our s.31S(1). Section 31S(1) did not refer to any mode of termination that is inconsistent or different from the ordinary mode the employer is entitled to in law in a summary dismissal for misconduct, unlike s.82(2) (b) and (c). To admit of the construction suggested by Mr Ho, the concluding words of s.31S (1) would have to become "being entitled by reason of section 9(a), terminates his contract of employment with or without payment in lieu thereof.", i.e.similar to s.31T(1) (a).

13. If it is the intention of the legislature to amend s.31S(1) to bring it in line with the English provision to deprive a culpable employee of his entitlement to long service payment irrespective of the mode of termination used, serions consideration should be given to incorporate the provisions of s.53 of the 1978 Act to oblige the employer to supply a written statement of the ground of dismissal upon request so that the employee can know precisely what are his legal rights and entitlements at the time of dismissal. It is of special importance to the employer as well in view of the penalty under s.310.

14. I am unable to see how s.31T(1) can possibly come to the aid of the Respondent when it was conceded on its behalf at the trial that the Claimant was not dismissed under s.9. It is to be noted en passant that pursuant to thi section an innocent employee whose contract is terminated by the employer "in accordance" with s.9(b), with or without notice or payment in lieu, i.e. for grounds such as frustration by illness, death or consent, would not be taken to be dismissed by his employer and thus not be entitled to long service payment. This appears to me to be contrary to the spirit in making provisions for long service payment. In view of the clear and unambiguous reference to employee's conduct only in s.31S(1), the reference to s.9 rather than s.9(a) in s.31T(1), can only be viewed as an unfortunate slip of the draftsman. The English equivalent in s.83(2) of the 1978 Act contains no reference similar to our s.31T(1) in respect of a s.9 situation. The English provision simply reads "An employee shall be treated as dismissed by his employer if, but only if, - (a) the contract under which he is employed by the employer is terminated by the employer, whether it is so terminated by notice or without notice ...". In view of the specific exclusion provision in s.31S(1), it is, in my view, totally unnecessary to refer to "other than in accordance with section 9" in s.31T(1). Such a redundant duplication of efforts should be avoided. A simpler version in line with s.83(2) would suffice for the purposes of our legislation.

15. It is to be noted that though the archaic doctrine that "an employer, where he dismisses his employee, need not allege any specific act of misconduct on the employee's part as the ground for the dismissal; it is sufficient if such a ground still exist, whether or not the employer knew of it at the time of the dismissal" (see Chitty on Contracts, Vol II, 26th ed., para. 3979) survives the local legislation when his English counterpart is obliged, at the pain of statutory penalty, to supply written reasons for dismissal to his employees upon request pursuant to s.53 of the 1978 Act, it is still necessary for the employer to decide and inform the employee of the mode an ground for the termination i.e. whether it is a termination by notice, by paymen in lieu of notice or summary dismissal pursuant to s.9. If the termination is one pursuant to s.9, the employer must expressly states thus in clear terms rather than kept quiet about the fact and gave notice or made payment as if the termination was one under s.6 or 7, if he is to escape the consequence of payment of severance or long service payment. If the employer intends to be generous he should state in unequivocal terms that the termination is one under s.9 and the notice is given, or the payment is made, only on an ex gratia basis. Further, employers who elect to give notice or make payment in accordance with ss.6 and 7 though he could have summarily dismissed the employee in accordance with s.9 are warned of the danger of being liable to the statutory penalty under s.310 for a failure to pay severance payment within 2 months after receipt of the employee's notice if neither he nor the employee took the matter to the Labour Tribunal within those two months.

"Relevant date"

16. The entitlement to long service payment under s.31R only arises when the employee has accumulated a specified number of years of service at the "relevant date". "Relevant date" is defined in s.2 as :-

"(a) where the employee's contract of employment is terminated by notice in accordance with s.6, the date on which that notice expires;

(b) where the employee's contract of employment is terminated by payment in lieu of notice in accordance with section 7, the date up to which such wages are calculated; or ...

(g) where the employee's contract employment is terminated other than in accordance with the provisions of this Ordinance, the date of termination."

17. Again, for the purpose of the "relevant date", one looks at the actual mode and basis founding the termination and not what might have occurred or been used. In the premises, Mr Ho's criticism that the learned Presiding Officer ought to have applied (g) and not (b) cannot be sustained at all. It cannot be argued that as a result of the existence of the unexercised right to dismiss for misconduct in addition to the payment under s.7, the termination has become one that is "other than in accordance with the provisions of this Ordinance". Paragraph (g) is a reference to a mode of termination that is not covered by the Ordinance e.g. a wrongful/unlawful dismissal. The existence of a right to summary dismissal for misconduct, which has not be exercised to found the termination, cannot have any effect of changing the character of the actual mode of termination for the purposes of the Ordinance.

18. I do not find the reference by Mr Ho to Delanev v. Staples [1992] 1 All ER 944 of assistance to the consideration of the relevant date. The House of Lords in that case held that payment in lieu was a payment on account of damages and not wages. Apart from the fact that the House was dealing with the English common law situation where there is no "right" to terminate a contract of employment by such payment, and not the Hong Kong statutory right to terminate by payment in lieu of notice; the decision only determined that such payment does not come within the definition of "wages" in the Act. Likewise under the local legislation, such payment is "a sum equal to the amount of wages which would have accrued to the employee during the period of notice required by s.6" (S.7). It is not wages but a sum equivalent in amount. It is interesting to note that despite the definition in s.7 of such payment, s.2(b) erroneously refer to "the date up to which such wages are calculated" rather than "payments" or "sums". However, for those who had academic interest in having better understanding of the operation and legal characteristic of "payments in lieu of notice" under the English common law, Lord Browne-Wilkinson did give a comprehensive analysis at p.947 of the report.

19. Lastly, it is of interest to note that despite its allegation that it has always regarded the dismissal of the Claimant to be an "instant dismissal" on 22nd November 1991, the Respondent's record of the Claimant's employment stated the termination date of his employment to be 8th December 1991 and the last day of work to be 22nd November 1991.

20. For reasons given above, I find the grounds of appeal raised by the Respondent to be void of any merits and are unsustainable. In the premises, the application for leave to appeal is dismissed with costs.