LAU YUK HUNG v. TSANG KWONG MING AND ANOTHER

DCEC 614/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO. 614 OF 2009

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J U D G M E N T

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Background

1.  Mr. Lau claims to be an employee of Mr. Tsang. Mr. Tsang is the registered sole proprietor of the business of Ming Fai Engineering ("Ming Fai"), which was engaged to carry out works at a construction site at St Honore Cake Shop in Tin Shui Wai in the New Territories ("Site"). There is no dispute that Winning, the 2nd Respondent in these proceedings, is the main contractor at the Site. Mr. Lau was injured when he fell from a wooden ladder in the course of carrying out works at the Site. The focus of the dispute in these proceedings for employees’ compensation is whether Mr. Lau was at the material time of the accident an employee of Mr. Tsang.

2.  Mr. Tsang and Winning deny that Mr. Lau was Mr. Tsang's employee.  In their respective Answers, Mr. Tsang and Winning claim that Mr. Lau was an independent contractor. In Mr. Tsang's witness statement, and later in his testimony in Court, Mr. Tsang claims that Mr. Lau had worked in partnership with Ming Fai when the subject construction work was carried out. Initially, it was not clear what this means, but it was later confirmed by Mr. Tsang in his evidence, and by Mr. Chan who appeared for Mr. Tsang at trial, that Mr. Tsang's case is that Mr. Lau was in fact a partner of Ming Fai at the material time, notwithstanding the fact that Ming Fai was at all material times registered as Mr. Tsang's sole proprietorship. The Answers were amended to plead that Mr. Lau, together with Mr. Tsang, was an independent contractor, such that neither Mr. Tsang nor Winning is liable to him for employees' compensation.

Issues

3.  The issues for determination at trial are therefore:

(1)  whether Mr. Lau is an employee, or a partner, of Ming Fai; 

(2)  if Mr. Lau is an employee of Ming Fai, the compensation payable to him.

Whether Mr. Lau is an employee, or a partner, of Ming Fai

Legal principles

4.  The modern approach to the question whether a person is an employee of another, as adopted in the case of Poon Chau Nam [2007] 1 HKLRD 951, is to examine all the features of their relationship against the background of the indicia of employment with a view to deciding whether, as a matter of overall impression, the relationship was one of employment, bearing in mind the purpose for which the question is asked.  The passage of Mummery J’s judgment in Hall v. Lorimer [1992] 1 WLR 939 at 944, cited in the judgment of Ribeiro PJ in Poon Chau Nam (supra), provides the most useful guidance in the task which the court undertakes :

"In order to decide whether a person carries on business on his own account it is necessary to consider many different aspects of that person's work activity.  This is not a mechanical exercise of running through items on a checklist to see whether they are present in, or absent from, a given situation.  The object of the exercise is to paint a picture from the accumulation of detail.  The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole.  It is a matter of evaluation of the overall effect of the detail, which is not necessarily the same as the sum total of the individual details.  Not all details are of equal weight or importance in any given situation.  The details may also vary in importance from one situation to another.”

5.  Time and time again, the Courts come across cases of employers or employees adopting particular terminology or labels when describing their work relationship, but which are actually inconsistent with the facts that usually support the label, and without regard to the rights and liabilities which come with the label. Employers and employees should recognize that there is no magic to the phrase "self-employed" or "independent contractor" such that the adoption of such labels would automatically mean that the liabilities of an employer, such as the duty to provide insurance against employees’ compensation and the liability to make payment of such compensation in the event of an accident, would not follow. The Courts will have to scrutinize the actual facts in order to determine whether the person described as a "self-employed" "independent contractor" truly enjoys the rights of an independent contractor (for example the opportunity to profit from sound management in the performance of his task), or whether the person so described actually has the obligations of an employee (for example being subject to the control of the employer). In this regard, the authorities are clear that it is for the Court and not the parties to determine the legal nature of their relationship, such that the parties' own description of their relationship is not determinative (Chan Kwok Kin v. Mok Kwan Hing [1991] HKLR 631).

Factual evidence on relationship

6.  According to Mr. Lau, he was paid a daily wage of $650, and normally paid in cash on a monthly basis. He worked an average of 24 days a month, had fixed hours of work from 9 am to 12 noon, and from 1 pm to 6 pm.  His working tools were provided by Mr. Tsang. He had never shared in any profit of Ming Fai. He had never taken part in any management or business decisions of Ming Fai.

7.  It is not in dispute that from February 2001 to January 2002, Mr. Tsang had made MPF contributions for Mr. Lau. According to Mr. Lau, Mr. Tsang informed him at the end of 2001 that as business was not good, he would cease making MPF contributions for Mr. Lau until business should improve. According to Mr. Tsang, he ceased making MPF contributions for Mr. Lau after January 2002 as he realized that he did not have to make these contributions when Mr. Lau was a partner, and not an employee, of Ming Fai.

8.  Mr. Tsang's evidence is that although only Mr. Tsang was registered as the sole proprietor of the business of Ming Fai, Mr. Lau was in fact a partner of Ming Fai in respect of the project at the Site and in respect of another project at Cheung Sha Wan ("CSW Project"). He claims that he and Mr. Lau had worked as partners since 2000, but that they had only worked on 2 projects during this period up to January 2008, namely, the CSW Project and the project at the Site, in December 2007 and January 2008. According to Mr. Tsang, the tools and materials required for projects on which he and Mr. Lau worked as partners, the salary payable to workers engaged on the project, and the working salary payable to Mr. Tsang and Mr. Lau if they should work on the project, would all be deducted from the price received on the project, and the balance would then be shared between Mr. Tsang and Mr. Lau as profits.

9.  According to Mr. Tsang, he had paid a total sum of $12,250 to Mr. Lau in February 2008, which amount represents the working salary payable to Mr. Lau for 16 1/2 days on which he had worked on both the CSW Project and the project at the Site ($8,250) and Mr. Lau's share of the profits from the 2 projects in question ($4,000).

10.  Mr. Lau claims that he had received from Mr. Tsang a sum of $5,000 as periodical payments for the compensation payable to him for his injuries and incapacity. He denies having received any share of profits, as Mr. Tsang claims.

11.  Mr. Tsang's claim that Mr. Lau was a partner of Ming Fai is in many respects inconsistent with the evidence.

12.  Mr. Tsang seeks to rely on the profit and loss accounts prepared for Ming Fai for the years from 1 April 2001 to 31 March 2009. These were prepared for him by an accountant, Miss Tse, but it is clear from Mr. Tsang's evidence that it was he who gave the necessary details and instructions to Miss Tse in respect of these accounts for a period of over 8 years. These accounts include expenses of Ming Fai representing "subcontractor fees", "salary for proprietor", "salary for labour" and "self employed person fee".

13.   Mr. Lau was recorded in Ming Fai's accounts for the year ending 31 March 2002 as having received $161,600 as "salary for labour". For the years ending 31 March 2003, 31 March 2004 and 31 March 2006, Mr. Lau was recorded as having received amounts described as "self employed person fees". According to Mr. Tsang, Mr. Lau's receipt of the sum of $12,250 in February 2008 should likewise have been recorded in Ming Fai's accounts (either for the year ending 31 March 2008, or the year ending 31 March 2009) as "self-employed person fees", but for the fact that Mr. Lau had failed to acknowledge receipt of the amount by signing Mr. Tsang's records as he should have done, and/or the fact that Mr. Tsang had been totally unnerved (as he claims) by the warning he had received from the Labour Department after Mr. Lau's accident that an offence may have been committed by Mr. Tsang as he had failed to report the accident which Mr. Lau had sustained as an employee of Ming Fai.

14.  Mr. Tsang relies on the fact that he had referred to Mr. Lau in Ming Fai's accounts as a "self employed person". He claims that this was consistent with the forms he had filed with the Inland Revenue Department in respect of the amounts he had paid to Mr. Lau as a "self employed person".

15.  When Mr. Tsang was asked in cross-examination as to the meaning of the term "self-employed person" which he had used, Mr. Tsang explained that he regarded workers who did work for him on a particular day to be "self employed", including casual workers who did not work for him on a long-term basis. Mr. Tsang further explained that he did not regard Mr. Lau as his employee and for whom he had to make MPF contributions because Mr. Lau did not always work for him. He would only give work to Mr. Lau when he or Ming Fai had jobs to do, and likewise, Mr. Lau would not do work for Mr. Tsang when Mr. Lau had work engagements elsewhere. For that reason, Mr. Tsang regarded Mr. Lau as a self employed person, and not an employee. Mr. Tsang accepted that when he asked another worker, Mr. Kwok, to do work for Ming Fai for a day, he considered Mr. Kwok to be a casual worker and an employee for the day. Nevertheless, the payments made by Ming Fai to Mr. Kwok were recorded in Ming Fai's accounts as a self-employed person's fees. Mr. Tsang also accepted in his testimony that he likewise filed notices with the Inland Revenue Department referring to the payments made to Mr. Kwok as payments to a self-employed person. It appears from Mr. Tsang's evidence that he made no distinction between Mr. Lau and Mr. Kwok with regard to his description of their relationship with Ming Fai.

16.  Mr. Tsang was able to explain that the parties he had referred to in the accounts of Ming Fai as having received "subcontractor fees" were those to which he had assigned work on a subcontracting basis. He made a distinction in the accounts between subcontractor fees and self-employed persons fees, and did not include the amounts which he had paid to Mr. Lau as amounts paid to subcontractors. This shows that Mr. Tsang did not regard Mr. Lau in any way as an independent contractor to whom Ming Fai had delegated work in relation to any project.

17.  Importantly, when Mr. Tsang was asked questions as to how he would treat the payment of $12,250 made to Mr. Lau, his evidence is that the whole amount, including Mr. Lau's salary for the days worked as well as his alleged share of profits from the CSW Project and the project at the Site, would be recorded as "self-employed person fee". Irrespective of how he calculated Mr. Lau's share of and entitlement to profits from the projects, if it is true that Mr. Lau was at the material time a partner of Ming Fai, Mr. Lau's share of profits should be reflected in or represented by the amount shown in Ming Fai's accounts as "net profit", and not as an expense item.

18.  Further, Mr. Tsang's evidence as to the treatment of the entire contract price of the project at the Site, the total purchase price of the tools and materials for the project and Mr. Lau's salary/alleged share of profit shows that the expenses and costs of the project, including the payment made to Mr. Lau, were all regarded as Ming Fai's costs and expenses, and that the income and net profit from the project belong to Ming Fai, and hence Mr. Tsang, solely. In this regard, Mr. Tsang's testimony contradicts his claim that Mr. Lau is a partner and entitled to the net profit of Ming Fai, and that Mr. Tsang had in any way worked in partnership with Mr. Lau on the project in question.

19.  In any event, Mr. Tsang's evidence that he had shared Ming Fai's profits with Mr. Lau is not credible. Mr. Tsang first claimed in his witness statement that the profits were shared between Mr. Lau and himself equally (平均分). This was changed in the course of his evidence in Court, to the effect that the profits would be shared in accordance with the number of days on which he and Mr. Lau had respectively worked on the project in question, and further, that if Mr. Lau had not worked on a project, he would not be entitled to any profit thereon.

20.  With regard to Mr. Tsang's claim that the sum of $4,000 was paid to Mr. Lau as his share of the profits from the CSW Project and the project at the Site, he relies partly on a document which was disclosed late in the proceedings, in the course of trial. This is a record of the number of days on which Mr. Lau had worked on the CSW Project and the project at the Site, and the calculation of the wages payable to Mr. Lau. When Mr. Tsang gave evidence, he had originally claimed that the record would not show Mr. Lau 's share of profit. However, when the document was finally produced, it shows a sum of $4,000, which on Mr. Tsang's case represents Mr. Lau's share of the profits from the 2 projects in question. This casts doubt on Mr. Tsang's evidence with regard to the nature of the payment of the sum of $4,000 and on his alleged sharing of profits with Mr. Lau.

21.  Mr. Tsang’s claim that Mr. Lau was paid $4,000 as profits from the CSW Project and the project at the Site can also be seen to be  unbelievable from the fact that Ming Fai's total net profit for the year to which the projects relate is merely $6,364. Bearing in mind that Mr. Tsang had worked more days on the project at the Site, and even leaving aside the fact that he is a more experienced worker than Mr. Lau, it is inherently more improbable that Mr. Lau's share of profit should be larger than Mr. Tsang's share.

22.  On the totality of the evidence, therefore, I prefer Mr. Lau's evidence on the essential features of the working relationship between Mr. Tsang and himself. He worked for fixed hours at an agreed daily wage. Mr. Tsang accepts that he had negotiated and procured the contract in question, obtained payment therefor, and although he said that he had informed Mr. Lau of the scope and timing of the work and on the contract price, this does not contradict my finding on employment as an employer benefits from keeping employees informed on the work they are employed to do. I have rejected Mr. Tsang's evidence that Mr. Lau was a partner of Ming Fai and was entitled to profits. Besides Mr. Tsang's bare assertion that the materials for the project were paid from the contract sum, there is no other evidence that Mr. Lau had contributed to the capital of Ming Fai, which is of course solely registered in Mr. Tsang's name. As a matter of overall impression, I find against the background of the established indicia of employment that Mr. Lau was a casual worker employed by Mr. Tsang on the project at the Site.

23.  Mr. Tsang repeatedly sought to justify the absence of an employment relationship with Mr. Lau by virtue of the fact that Mr. Lau did not work for him exclusively or on a long-term basis. Even if Mr. Lau had accepted work from other parties, that does not contradict the existence of a contract of employment between Mr. Tsang and Mr. Lau in the context of the Employees’ Compensation Ordinance, which includes casual employment within the definition of "employee".

The compensation payable to Mr. Lau

Section 9

24.  The issues in dispute in the context of the compensation payable are Mr. Lau's daily wages and the number of days he had worked.

25.  Although I reject Mr. Tsang's evidence concerning the sum of $4,000 as Mr. Lau's share of profit paid to him in February 2008, I accept his evidence that Mr. Lau was paid a daily wage of $500, as supported by Mr. Tsang's record of the days on which Mr. Lau had worked in December 2007 and January 2008. On such evidence as is available in this case, I find Mr. Lau to work on an average 22 days a month. The evidence I have considered includes Mr. Tsang's record of the 27 days on which Mr. Lau had worked between 21 December 2007 to 16 January 2008, the Form 2 filed by Mr. Tsang and by Winning, and Ming Fai's accounts with details of the wages paid to workers such as Mr. Lau and Mr. Kwok. Mr. Lau’s average monthly income would be $11,000.

26.  The parties agree that the loss of earning capacity suffered is 4.75%. Accordingly, the amount payable under s.9 of the Ordinance is $11,000  x  72 x 4.75 % = $37,620.

Section 10

27.  According to the Certificate of Review of Assessment issued by the Employees' Compensation (Ordinary Assessment) Board on 11 March 2009, Mr. Lau was granted 282 days of sick leave.  The compensation payable under s. 10 is: $11,000 /30 x 4/5 x 282 =   $82,720.

Section 10A

28.    The parties agree the sum of $5,620 as medical expenses.

Summary

29.  The total compensation payable to Mr. Lau is :

(1) loss of earning capacity	$ 37,620
(2) sick leave payment	$ 82,720
(3) medical expenses	$   5,620
	$125,960
Less : Advance payment	$   5,000
	$120,960

30.  Being the main contractor on the project, Winning is liable under s.24 of the Employees' Compensation Ordinance in respect of the compensation payable to Mr. Tsang's employee, Mr. Lau.

31.   Mr. Lau is entitled to interest at half judgment rate from the date of the accident to the date of judgment.  I will make an order nisi that Mr. Lau is to be paid the costs of the action, to be taxed if not agreed, with certificate for Counsel.  Mr. Lau's own costs are to be taxed in accordance with the Legal Aid Regulations.