MACKINLAY ANDREW ANTONY v. HONG KONG DRAGON AIRLINES LTD

DCCJ 2228/2016

[2020] HKDC 64

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2228 OF 2016

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JUDGMENT

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1.  The plaintiff is a recently retired commercial airline pilot and this is a claim of alleged underpayment by his employer of:

i)    Statutory holiday pay (pursuant to s.41 of the Employment Ordinance Cap.57 (“EO”);

ii)   Statutory annual leave pay (pursuant to s.41C EO); and

iii)  Contractual pay for leave in excess of statutory annual leave (“Excess Leave Pay”)

2.  The disputes between the parties regarding paragraphs 1(i) and 1(ii) are on statutory interpretation. As for paragraph 1(iii), the disputes are matters of contractual interpretation.

3.  I will deal with paragraphs 1(i) and 1(ii) first.

A) Statutory holiday pay and statutory annual leave pay

Background

4.  This concerned with the provisions in EO which deal with how much an employer should pay an employee on each day of statutory holiday pay and annual leave taken. The EO provides a formula which aims to calculate the average wage of a working day of that employee.

5.  However, the ruling of the Court of Final Appeal in the case of Lisbeth Enterprises Limited v Many Luk [2006] (1HKLD 1005) exposed a “loop hole” in the formula: the commission accrued by an employee and calculated on a monthly basis could not be taken into the calculation.

6.  To plug this hole, the EO was amended by the Employment (Amendment) Ordinance 2007 which revised the formula (“EO Formula”).

7.  The EO Formula applied for both statutory holiday pay and statutory annual leave pay, as the relevant statutory provisions are materially identical and can be summarized as follows:

DAW = [W – (D Wages)] / [365 (or 366 on a leap year) – D]

Where:

“DAW” is the daily average wage for the period of 12 months immediately before the statutory holiday / annual leave;

“W” is the total wages earned by an employee in the preceding 12 months;

“D” is the disregarded period under s.41(3) and 41C(3) EO (“Disregarded Period”; “Disregarded Provisions”)

“D Wages” is the wages paid to an employee for the Disregarded Period.

8.  The rationale for this is obvious: “that “wages” inclusive of commission of a contractual nature, however designated or calculated, should be used as the basis of all calculations. This is to ensure that an employee’s take home pay would not be affected if he / she enjoys a statutory entitlement such as taking a statutory holiday or a period of annual leave.” (paragraph 2, Legislative Council Brief on Employment (Amendment) Bill 2006, page 2967 of Trial Bundle 10)

9.  The EO Formula, as it now stands, aims to provide a method for fair calculation of the remuneration of an average working day by ensuring that the calculation would not be “diluted” by including days that the employee was not paid “wages or full wages” for reasons as stipulated under s.41(3)(a) (for statutory holiday pay) and s.41C(3)(a) (for statutory annual leave pay). Such days would be disregarded in the calculation.

10.  The dispute between the parties is in the interpretation of what days should be “disregarded” given the particular circumstances of the plaintiff’s employment and remuneration system.

11.  The crux is whether on any particular day, the plaintiff was paid “full wages” or not, and if not, whether the reason for not being paid such fell within the reasons stipulated in the legislation so the day should be “disregarded”.

12.  As a preliminary issue, with regard to the interpretation of the EO Formula, the court has been referred to two documents which may assist to gain an insight into the legislative intent.

13.  The first document was titled “Administration’s Response to the Submission by the Employment Law Committee of the Law Society of Hong Kong” by the Bills Committee on Employment (Amendment) Bill 2006 (page 2993 Trial Bundle 10).

14.  In response to the Law Society’s comments on “employees without variable elements of pay” (i.e. employees on fixed pay) on a 12-month “moving average” being too complicated etc. and whether employees on fixed pay should be singled out for different treatment in the calculation, the Committee “pointed out that that it would be very difficult if not impossible to provide a simple definition of “fixed” wages”, and that the proposed approach “is that a workable mode of calculation is provided for all categories of employees. Given the evolving and increasingly complex nature of the remuneration systems in Hong Kong, what we need is a simple, predictable and consistent mode of calculation for all statutory entitlements.”

15.   In response to the Law Society’s comments that the “Formula not being sufficiently detailed” and suggestion that “a single definition of “daily average” or “monthly average” be used, together with a detailed formula”, the Committee replied that “the Bill has already spelt out the general principle of calculating statutory entitlements...The rationale for taking this general approach instead of providing a detailed calculation formula is that given the wide-ranging and ever-changing remuneration systems in the labour market, it is impossible to have one detailed formula that could cater for all possible scenarios. Indeed, a one-size-fits-all approach to cover all wage reckoning methods would be impracticable.”

16.  The second document was from the Legislative Council titled “Report of the Bills Committee on Employment (Amendment) Bill 2006”.

17.   In reply to the comment of the Law Society that “a definition should be given to the term “full wages” to differentiate it from the term “wages” provide under s.2(1) of the EO”, the Administration “considers that the term “full wages” is clear enough in the relevant context and need not be given a statutory definition. Again, given the evolving and increasingly complex nature of the remuneration systems in Hong Kong, detailed statutory definitions could easily become unclear and may be subject to different interpretations...Whether an employee was paid his “full wages” would hinge upon the terms of his employment contract and the definition of wage under EO.”

18.  It is thus clear that it is the intention of Administration to avoid specific and detailed definitions in order that there is a flexibility to cover all wide-ranging and evolving remuneration systems in Hong Kong. Having a “general approach” is so that there is no need for the legislation to draft detailed definitions for each and every different employment remuneration system in Hong Kong and then to draft a “one-size-fit-all formula” for each such defined remuneration system.

19.  In other words, whilst the EO Formula should remain “a simple, predictable and consistent” mode of calculation, one would need to look at the actual remuneration system on a case by case basis (e.g. looking at the “the terms of his employment contract and the definition of wage under EO”) to determine what is a fair calculation of the remuneration of an average working day under this formula.

The relevant legislation of the Disregard Provision

20.  The relevant paragraph of s.41 and s.41C states as follows:-

“(3) In calculating the daily average of the wages earned by an employee during the period of 12 months or the shorter period –

(a) Any period therein for which the employee was not paid his wages or full wages by reason of –

(i)     any maternity leave, paternity leave, rest day, sickness day, holiday or annual leave taken by the employee; (“Type 1 Reason”)

(ii)    any leave taken by the employee with the agreement of his employee; (“Type 2 Reason”)

(iii)   his not being provided by his employer with work on any normal working day; (“Type 3 Reason”)

(iv)   (not relevant in this case); and

(b) Any wages paid to him for the period referred to paragraph (a),

are to be disregarded.”

The test

21.  There is no dispute that there should be a two-stage test for this Disregarding Provision:

i) Firstly, what days, if any, should be considered as days that the plaintiff was not paid “wages or full wages”; and

ii) Secondly, for those days, whether the non-payment of “wages or full wages” was by way of reasons as prescribed, that is, whether it could be considered Type 1, Type 2 or Type 3 Reasons and as such should be disregarded in the calculation.

Legal principles of statutory interpretation

22.  The legal principle is trite and were summarized by Ma CJ in Town Planning Board v Town Planning Appeal Board (2017) 20 HKFCAR 196. In short, the court construes the relevant words having regard to their context and purpose. In ascertaining the purpose of a statutory provision, the court adopts a flexible and open-minded approach, and it may have regard to the legislative history.

23.  Further, in Cathay Pacific Airways Ltd v Kwan Siu Wa Becky (2012) 15 HKCFAR 615 (“the Becky Kwan case”), Ma CJ stated:

“As a general approach to statutory interpretation, particularly where a piece of legislation deals with a subject matter which most people would expect to be dealt with in a common sense and purposive approach (and I would put holiday pay and annual leave pay in this category), the court should aim to arrive at an interpretation that, as far as the wording of the legislative provision in question will follow, will accord with such common sense and which can be easily applied.”

The plaintiff’s remuneration system

24.  The plaintiff performed his duties according to a roster. This was prepared and issued by the defendant on a monthly basis. The roster contains the details of the planned duties of the pilot in the following calendar month. The roster would also be updated if needed on a real time basis to reflect the actual duties performed.

25.  The remuneration system of the plaintiff (set out in the defendant’s standard form “Conditions of Service” which has been varied from time to time) was a combination of a “fixed” wage being the basic monthly salary and monthly accommodation allowance (“Accommodation Allowance”); and a “non-fixed” payments, being variable payments.

26.  The “non-fixed” payments were in form of Hourly Duty Pay (“HDP”), Guaranteed Day Off Callout Compensation (“GDOCC”), Excess Flying Pay (“EFP”).

27.  HDP was introduced on 1 April 2008 as a form of “productivity-based variable pay” for pilots in lieu of a more substantial increase in fixed monthly wage. COS specified that HDP was for actual duty hours (flight duties, positioning as a passenger, training, ground duties, reserve duties etc.) with a fixed hourly rate up to first 65 hours of duty in a month after which it increases to a higher hourly rate. For example, when HDP was first introduced, the hourly rate was HK$50 per hour for the first 65 hours and then HK$75 per hour for duties hours beyond 65 hours. The payment was calculated “by the minute”.

28.  The vast proportion of the plaintiff’s wages was his monthly “fixed” wages. When HDP was first introduced, it comprised of 5% of the plaintiff’s wages. This increased to 9-10% when the claim was made and more than 15% when the plaintiff made his witness statement.

29.  GDOCC was paid when the pilot agreed to work despite that the day on the roster was a “guaranteed day off” with no duty assigned. In this case, the plaintiff would be paid a flat daily rate of HK$4,500.

30.  EFP was paid when the plaintiff was called upon to work in excess of 75 “credit hours” per month. “Credit hours” would be given for various duties including flying duties, positioning as a passenger, simulator duties, standby and annual leave days. This was an overtime bonus.

31.  The plaintiff’s case was that for the calculation of DAW under the EO Formula, all the days that he was not paid HDP or GDOCC should be disregarded. As such, the plaintiff claims that the following days on the roster should be disregarded in the calculation:

Code of the day in the Roster	Short description
L	Annual leave
S or U	Sick / unfit for duty
G	Guaranteed day off
A	Available day which the plaintiff is free of duty (in the old roster)
O	Available day which the plaintiff is free of duty (in the new roster)
NB	“Not a legal day off”: a day free of all duties
Layover	Days on which the plaintiff rests overseas in between flights
SU	Days when the plaintiff was on suspension as he was subject to an investigation

32.  The defendant disputes that the days without HDP or GDOCC should be disregarded, but does not dispute that L (in so far that they refer to statutory annual leave and Excess Leave Days so they are disregarded under Type 1 or Type 2 Reasons), S or U should be disregarded days (as they are disregarded under Type 1 Reason).

33.  As for the “non-active” days (G, A, O, NB, Layover), the defendant accepts that these are disregarded only if they are in nature of statutory “rest days”, “statutory holidays”, “substituted holidays” or “alternative holidays”, otherwise, they should be counted because non-active days are essential part of the duties of a pilot, who requires rest to get into a physically and mentally fit state to fly.

34.  The defendant also claims that SU should not be disregarded: the plaintiff was suspended when under investigation of an incident and such days should not be disregarded under Type 3 Reason given that it was not a “normal working day” that he was not provided with work.

35.  As such, the court does not need to deal with L days (on the assumption that they refer to statutory annual leave and Excess Leave Days since no contrary evidence was produced) or S or U days. The dispute concerns the “non-active” days and SU days.

The roster system

36.  The most important feature of the plaintiff’s remuneration system is that he was working under a pre-determined monthly roster. On the whole, the time he went on duty (flying duties or otherwise), and the time he had his non-active days (like his rest days, layover days etc.) were assigned beforehand. This, I would imagine, must be necessary in the complex operation of an international airline with hundreds of pilots operating perhaps thousands of flights a month.

37.  As such, the plaintiff was working within a structured system. The days that he would go “on-duty” and the days that he would not were largely pre-determined by the employer (subject to some relatively minor “real time” adjustments like being offered an option to work on a “G” day etc.).

38.  By way of example, I would propose a scenario where 2 pilots performed the same hours of duty per month (say, 60 hours) in such a roster system. However, by sheer luck, one pilot got in his roster longer periods of duties grouped entirely within whole days. Let’s just say that each month, he got a roster duty of 20 hours per day over 3 days. The remaining days of the month are his non-active “rest” days. His colleague, however, was unlucky enough to get a monthly roster of 4 hours of duty a day over 15 days.

39.  Both pilots would receive the same fixed salary and the same HDP (at, say, HK$50 an hour so both received a total HDP of HK$3,000 per month).

40.  The legislative intention is to provide “a simple, predictable and consistent” mode of calculation.

41.  As such, one would expect that the DAW calculation of both pilots should be the same.

42.  Let’s consider the plaintiff’s case: according to the plaintiff’s construction, only the days that HDP was paid (i.e. “on duty” days) should be counted in the EO Formula. As such, the first pilot’s DAW would be more than the second pilot because he earned 5 times more HDP on the days that were counted.

43.  This means that, by sheer luck in the grouping or “concentration” of duty hours within their respective rosters, the first pilot would get paid more per day in his statutory holiday and statutory annual leave than the second pilot, despite the fact that they have worked exactly the same number of duty hours and have earned exactly the same wages in the whole previous 12 months.

44.  Of course, this is just a scenario I proposed, but I can imagine that such variation of duty hours might occur in real life situations: perhaps one pilot was rostered for longer flights than the others (thus could “load up” his “on duty” days with more hours of HDP per day), or that another pilot being rostered with flights that were always scheduled to land a few minutes after midnight (thus “diluting” his DAW calculations since the next day would be counted as a “on-duty” day, but he was only paid a few minutes of HDP), or that a third pilot, by sheer luck, has no delays in the flights so the “on-duty” times did not stray a few minutes into the next day (thus there was no dilution in his DAW calculations).

45.  Nor would this be a problem exclusive for pilots on such rosters. I can see the same illogical dichotomy with any general shift workers: a day-shift worker, say, working 8 a.m. to 8 p.m. will be deemed to have all his pay within single “on-duty” days, whilst his colleague on night shifts (working the same number of hours but from 8 p.m. to 8 a.m.) will have his pay spread over two “on-duty” days.

46.  It is clearly not the intention of the legislation for the calculation of DAW to be affected by such irrelevant, capricious and downright unfair factors. In fact, it serves the exact opposite of the aim for “a simple, predictable and consistent” mode of calculation.

47.  Indeed, Mr. Man SC, Counsel for the defendant, submitted that the plaintiff’s “cherry-picking” construction would skew the DAW calculation exceedingly in favour of the plaintiff instead of giving a “fair average”.

48.  The “concentration” of duty hours in the plaintiff’s roster is such that, as pointed out by Mr. Man, following the plaintiff’s construction would result in disregarding 193 days out of 365 days for one year and 232 days out of 365 days in another.

49.  This would mean that the court is asked to disregard the majority of his working year in the DAW calculation.

50.  This is clearly against common sense and not the intention of the legislation which aims to provide a calculation for a fair average of an employee’s earnings.

51.  Much time was spent on arguments on whether the “non-active” days in the plaintiff’s roster was due to the requirement of adequate rest in pilot’s profession: there was a minimum legal threshold for rest as set out under the Approved Flight Time Limitation Scheme (“AFTLS”) but the plaintiff’s “non-active” times under the roster never came close to the threshold. There were thus arguments on whether a pilot was paid to “rest” because of the nature of the job.

52.  My view is that the reason why a roster is drawn up in any particular way is not important. The plaintiff’s work system is by no means unique: many employees work in rosters: Accident and Emergency doctors, for example, come to my mind.

53.  The reasons why some employees need to work under a roster system must be related to the very job nature: it may require longer stints of working hours, working in unsociable hours or during holidays, or there may be a need to be “on call” to cover emergencies, to co-ordinate the coverage of service with colleagues or logistics, or for adequate rest and recovery of the employee etc. Under such circumstances, a roster is a suitable work system since this provides a structured shift time table: the employees work the designated longer stints or the unsociable hours etc., and then be compensated by designated durations for going “off-duty”.

54.  Further, I imagine that an employee on such shift rosters may not necessarily be working more hours in total than his colleagues working normal “office working hours”, but his “on-duty” / “off-duty” periods are different: a roster may simply reflect that there are longer “off-duty” periods after longer working stints. In other words, the periods of “on-duty” and “off-duty” may be more “concentrated” over time compared to an employee working normal office working hours.

55.  A roster work system is very different from, say, the work of an asphalt layer (as in the case of Wui Yip Asphalt Co. v Cheng Pak Yan [1986] HKC 487): an asphalt layer does not subscribe to a roster: whether he would “work” or be “laid off” (that is, when he was not provided with work) on a particular day would have depended on extrinsic, variable and uncontrollable factors like the weather (e.g. that asphalt could not be laid in the rain). It was entirely correct for the judge in that case to find, for that particular job nature, that a “laid off” day (due to, say, unfavourable weather condition) should be disregarded in the DAW calculation under the Type 3 Reason.

56.  Of course, each roster must be assessed on a case by case basis as to how it is structured, how time periods are designated and for what purposes these periods serve. However, it must be a common sense observation that a roster, by its very nature, is an integral work system with designated “on-duty” and “off-duty” periods. Whether the roster stipulates any difference in payment for different designated time (and the reasons why) does not distract from the fact that an employee has signed up for the roster as a whole package. There must be a prima facie case that when one signs up to work in such a system, one gets paid by subscribing to the pre-determined “on-duty” / “off-duty” timetable for the period covered by that particular roster.

57.  As such, the general rule must be that in a roster system, one cannot de-construct the timetable and “cherry-pick” only those designated “on-duty” days as days one gets paid “wages or full wages”, and disregard the designated “off-duty” days as days not paid “wages or full wages” either due to “his not being provided by his employer with work on any normal working day” (i.e. under the Type 3 Reason), or “leave taken by the employee with the agreement of the employer” (i.e. under the Type 2 Reason) in the DAW calculation. Otherwise, by its very nature of having different “concentration” of “on-duty” and “off-duty” durations, a roster system would tend to skew the DAW calculation against the legislative intention of providing a fair average of the employee’s earnings.

58.  In other words, employees working in a roster should generally be deemed to be paid his “wages or full wages” on both his “on-duty” and “off-duty” periods for the duration of that particular roster.

Non-active days (G, O, A, NB and Layover)

59.  As such, the test should be whether, under the set of circumstances of this case, any so-called “non-active” days should be considered “off-duty” periods designated in this particular roster system and therefore “wages or full wages” should be deemed to be paid.

60.  A G day is a “guaranteed day off”. There are provisions to define this is in the Dragonair Rostering Practice Agreement May 2014 (“RPA”) (Core Bundle Page 159). I need not recite the details but I am satisfied that this is a designated “off duty” day in the roster.

61.  Similarly, the O, A and NB days are also designated “off-duty” days (the term used in the RPA was “free of all duties”) in the roster.

62.  A Layover day are single days spent away from home base in between flying duties. No duty is assigned to the plaintiff on such days which are also designated in the roster. These should also be considered “off-duty” periods.

63.  Therefore, I find that the G, A, O, NB, Layover days could not be disregarded in the calculation of DAW in the EO Formula.

64.  However, I would accept that for those “non-active” days which were in the nature of statutory rest days, statutory holidays, substituted holiday or alternative holidays, they should not be considered “off-duty” periods and the Type 1 Reason is applicable. Therefore, they could be disregarded in the calculation of DAW in the EO Formula.

SU days

65.  As for the suspension days (SU days), I agree with Mr. McLeish, counsel for the plaintiff, that the very nature of a suspension is that the employee is prevented from working on a normal working day. It was the defendant’s decision for the suspension, otherwise the plaintiff could have been put on duty.

66.  Thus, under the circumstances, these should not be considered “off-duty” periods designated in the roster system. The Type 3 Reason is applicable so I would think that the SU days should be disregarded in the DAW calculation.

B) Excess Leave Pay

67.  I now turn to the issue in paragraph 1(iii) above.

68.  There is no dispute between the parties that how the plaintiff should be paid his Excess Leave Pay is one of contractual interpretation of his Conditions of Service (“COS”). The dispute is whether the plaintiff should be paid according to statutory leave pay or otherwise.

69.  The legal principle of contractual interpretation is trite: “It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve.” (per Lord Hoffman NPJ in Jumbo King Ltd. v. Faithful Properties Ltd. & Others [1999] 2HKCFAR 279)

70.  The leading case for Excess Leave Pay is again the Becky Kwan case mentioned above. In that case, the employment contracts of two of the respondents (Ms. Kwan and Ms. Wu) provided for “an entitlement to annual leave and such leave should be “paid leave”. However, there were no provisions in the contracts that explicitly orimpliedlyprovided “that there should be different computations of leave pay between statutory leave and the excess period.” (paragraphs 35 and 36 of the judgment of the Becky Kwan case)

71.  As such, Ma CJ found that “Nothing in these contracts make a distinction between statutory pay leave and excess, much less a distinction in the rate of payment for such leave and any excess period of leave. The contractual intention can therefore be assumed to favour the same rate of pay irrespective of whether such relates to the statutory annual leave or to the contractual annual leave.” (paragraph 35)

72.  On the other hand, the employment contract of the third respondent, Ms. Ho, was very different: her contract provided a “Minimum Guaranteed Flying Pay...which...meant 70 “block hours” a month. These “block hours”...compromised not only the hours of actual working time but...credits...including the time used...attending training course...the taken up by various duties...included leave credits...these are credits given in respect of items such as annual leave...each day of annual leave equated to 3.25 block hours...Ms. Ho was in fact paid for the 70 hours...irrespective whether or not she actually worked or earned any credits.” (paragraph 39)

73.  Ma CJ stated that “From this analysis of her contract of employment, it can readily be seen that Ms. Ho would effectively have been paid for each day of her annual leave (in form of leave credits, at 3.25 block hours a day)...Accordingly...in relation to the excess period, Ms. Ho cannot be entitled, as a matter of contract, to any further payments...I am of the view that she is not entitled to be paid any annual leave pay in respect of the excess period.” (paragraphs 40 and 41)

74.  In the current case, the plaintiff’s COS provided:

i)   Under clause 1(a) and Appendix A: a fixed monthly salary to be paid to the plaintiff;

ii)  Under clause 28(vi): a pro-rata credit (called “Leave Credit”) in respect of annual leave in the calculation of Excess Flying Pay (“EFP”)

75.  The crux of the dispute is whether these two clauses could be interpreted as to provide for payment of Excess Leave Pay. 

76.  Mr. Man argued that the provision for a fixed monthly salary (under clause 1(a) and Appendix A) meant that the salary would not be decreased by the plaintiff taking excess leave, thus this could be considered a contractual payment for Excess Leave Pay.

77.  I will deal with this fixed monthly salary later.

78.  In addition, Mr. Man argued that the EFP “Leave Credit” is akin to Ms. Ho’s situation in the Becky Kwan case.

79.  I disagree.

80.  The system of EFP is detailed in clause 28, which provided for a “standard hourly rate” for each hour the plaintiff worked over 75 (up to 80) credit hours a month. The “standard hourly rate” is calculated as his monthly salary divided by 75. And if the plaintiff accumulated over 80 hours, he would be paid double this “standard hourly rate” for each hour.

81.  Under clause 28(vi), there was a reference to “Leave Credits” which stated that “pro-rata credit for annual leave based on full months leave equaling to the EFP threshold.”

82.  As such, clause 28(vi) provided a credit towards EFP, but it cannot be considered a system to pay the plaintiff his Excess Leave Pay because if he did not make the 75 credit hours in the month that he took leave, he would not receive any EFP at all. Unlike Ms. Ho’s contract in the Kwan case, in this case, there is no “minimum guaranteed payment” for EFP per month. As such, I agree with Mr. McLeish that this cannot be considered to be any form of Excess Leave Pay.

83.  Returning to Mr. Man’s first argument. One needs to look at the relevant provisions in the COS. The provision for “Leave and days off” was under clause 12. It specified, amongst others, the numbers of days of annual leave in the corresponding the year of service, how they were accumulated and how they would be published in the roster.

84.  However, unlike Ms. Kwan and Ms. Wu’s contracts in the Becky Kwan case, there was no provision in clause 12 that specified that these should be “paid leave”.

85.  I think this is important.

86.  The rationale in the Becky Kwan case is that, if the contract provides for an entitlement to “paid leave” (as opposed to mere “leave”), and if the contract is silent on how the payment is calculated, then one shall, on proper construction of the intention of the parties, deem that the calculation shall be on the basis of the statutory formula.

87.  However, in my analysis, there is no provision for any entitlement to “paid leave” in the COS, so one cannot impute such an intention on the contracting parties, let alone an intention on how the payment should be calculated.

88.  Therefore, I cannot see how the Becky Kwan case would apply here.

89.  This makes perfect sense given that a roster is an integral work system and one gets paid by subscribing to the whole system.

90.  Looking at all the relevant clauses in the COS, it is clear that the intention of the plaintiff, by signing the COS, was to subscribe to the roster work system (with the annual leave, amongst others, built into the system) and be paid as it specified: for example, be paid each month a fixed monthly salary (clause 1 and Appendix A) regardless of the number of leave days, on-duty days, non-active days etc. indicated in that month’s roster.

91.  There was never any intention that there would be any “separate” contractual leave payment outside this roster system, and that must be the reason why there was no provision for any entitlement to “paid” leave nor any method of calculation of such pay specified in the COS.

92.  The COS provided in the trial bundle has an “effective date” on 1 September 2003 and there is no evidence to show that clause 12 was varied by any later amendments.

93.  I think the parties’ intention was re-affirmed in the Circular the defendant released on 25 October 2007 setting out the adjustments relating to the amendments of the EO by the Employment (Amendment) Ordinance 2007 (the background mentioned in paragraphs 4, 5 and 6 above). Here, the defendant made it clear that the EO Formula would only apply to the plaintiff’s Statutory Annual Leave but not other contractual entitlements.

94.  I do not think this was an attempt to vary or amend the COS (as Mr. Man suggested): this was a simple confirmation of the defendant’s understanding of clause 12 of the COS: the agreement was for the annual leave to be built into the structure of the roster system and that the plaintiff would not be paid for such separately (besides any statutory entitlements).

95.  Further, in his Re-Amended Reply (Trial Bundle A page 57 under paragraph 8(2)), the plaintiff stated:

“At the time the Circular was issued (25 October 2007), the plaintiff had (and has) no disagreement the Arrangements and did not indicate any disagreement with it accordingly”. (The term “Arrangements” refer to the adjustments set out in the Circular as stated paragraph 92 above: paragraph 6(2) of the Re-Amended Reply.)

96.  During cross-examination, the plaintiff also accepted that he had read and agreed with the Circular at the time.

97.  As such, it must be that this was the understanding of both the defendant and the plaintiff regarding clause 12 of the COS at the time.

98.  It was not until after the judgment in the Becky Kwan case that the plaintiff first raised the issue of Excess Leave Pay (in a letter dated 13 June 2013: Core Bundle page 172). The letter actually referred to the said judgment. But this was 6 years after the Circular and, more importantly, in my analysis, the plaintiff’s claim was based on an erroneous reading of the Becky Kwan case: that case should not apply to this situation.

99.  As such, I find that the plaintiff is not entitled to any Excess Leave Pay.

C) Accommodation Allowance

100.  There is a third issue: whether Accommodation Allowance should be included in the calculation of DAW in EO Formula.

101.  “Wages” is defined in s.2(1) of the EO as:

“Subject to subsections (2) and (3), means all remuneration, earnings, allowances including traveling allowances and attendance allowances, attendance bonus, commission, overtime pay, tips and service charges, however designated or calculated, capable of being expressed in terms of money, payable to an employee in respect of work done or to be done under his contract of employment, but does not include:

(a) the value of any accommodation, education, food, fuel, light, medical care or water provided by the employer”

102.  In Chinese, the exception is referred to as “由僱主提供的居所⋯的價值”

103.  The plaintiff opted for Accommodation Allowance under the house purchase scheme provided by the defendant. It is not disputed that the defendant did not provide accommodation directly to the plaintiff but only a form of payment in cash allowance which was for assistance to the plaintiff’s mortgage payment for his primary residence (owned by the plaintiff directly or beneficially through a company) located in Hong Kong.

104.  The plaintiff’s evidence was that his mortgage repayment was HK$59,631 per month in 2008 and he was paid the ceiling allowance of HK$55,000 per month. The ceiling was increased to HK$66,100 on 1 June 2008 and the plaintiff was paid HK$66,000 per month and later HK$66,100. His housing expenses exceeded this so he was claiming the maximum amount.

105.  Mr. McLeish argued that the exception would apply because this allowance was fully accountable: the plaintiff’s evidence was that the housing allowance was subject to a two-year review to ensure the plaintiff was not paid more than the total of his mortgage repayment and management charges.

106.  I cannot agree to that line of argument: the plain and proper construction of the wordings of s.2(1) is that if the employer provided quarters for its staff (that is, a benefit in kind), the value of the actual housing should not be considered “wages”.

107.  In Neckel Nils v Dual Voltage Company Ltd [1996] HKCFI 580, Yeung J (as he then was) held that a “non-accountable” housing allowance was not “the value of the accommodation provided by the employer”.

108.  That case was not about an “accountable” housing allowance but I cannot see how an “accountable” housing allowance which aimed to help the plaintiff to pay the mortgage of his own accommodation could be, by any degree of imagination, “value of the accommodation provided by the employer”. The fact here was that the defendant did not provide accommodation to the plaintiff: the plaintiff bought his own and was paying the mortgage with help from the defendant.

109.  I would therefore hold that the Accommodation Allowance received by the plaintiff must come within the definition of “wages” under section 2 of the EO.

EO s.41(6) and s.41C(6)

110.  S.41(6) and s.41C(6) reads:

“If, pursuant to the terms of his contract of employment or any other agreement or for any other reason, an employee is paid by his employer a sum of money in respect of a holiday taken by him, the holiday pay payable to the employee in respect of that holiday is to be reduced by the sum.”

111.  The legal principle as stated in the Becky Kwan case and Mak Wai Man v Richfield Realty Ltd [2016] HCKI 1056 is that:

“...an employee employed on a monthly basis and paid a monthly sum of wages at the end of each month for work carried out in that month, irrespective of whether the employee has been on sick leave/holiday/annual leave or not, the monthly sum should generally be treated as being paid for each day of that month, unless the nature of a particular item of wages indicating that the item is only attributable to specific working day(s), e.g. “overtime pay””

112.  There is no dispute that the fixed monthly basic salary should come under this section. The dispute is whether the Accommodation Allowance should come under this section as well and thus be deducted from the final calculated holiday pay under the EO Formula.

113.  Given that the Housing Allowance is considered “wages” under the EO and given that it is given on a monthly basis, I cannot see how it should not be treated as a sum paid in respect of a day of holiday or annual leave following the cases of Becky Kwan and Mak Wai Man as above.

114.  Mr. McLeish argued that the Housing Allowance was a general benefit paid in consideration for the plaintiff being an employee and was not earned on a daily basis but paid on a monthly basis in advance.

115.  I do not think that the decisions in the Becky Kwan and Mak Wai Man cases made any distinction on the nature and purpose for the payment: as long as this was considered “wages” and paid on a monthly basis, it should generally be treated that the employee was paid for each day of that month. As such, there should be an appropriate deduction of the final holiday pay under the EO Formula to avoid double payment.

Conclusion

116.  The plaintiff sought a declaration in that he intended that this would serve as a “test case” for his colleagues. However, I do not see this case as any different from a normal civil claim: the court has set out its interpretation of the relevant statute and the relevant contract in the particular circumstances of the plaintiff’s case in this judgment, and this should be adequate to serve the purpose.

117.  In conclusion, I find for the defendant except on the point of disregarding SU days in the DAW calculation.

118.  In view of the complicated calculations, the court shall give the following orders:

i)   parties shall agree on the assessment of quantum and lodge the same within 56 days, failing which the parties shall apply to court for directions for further arguments;

ii)  costs of this action be reserved until the quantum is assessed.