MILLIES SHOES FACTORY LTD v. LO SIK KWONG AND OTHERS

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JUDGMENT

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1. This appeal raises the question of how to determine whether an employee has been laid off within the meaning of section 31E of the Employment Ordinance ("the Ordinance").

2. The provisions of the Ordinance, insofar as they are material to a consideration of this question, are as follows:-

Part VA

3. The Presiding Officer found that each of the Respondents ("the employees") had been laid off within the meaning of section 31E. As a result he also found that seven of them were entitled to severance payments and the other, who did not have the requisite length of service to qualify for a severance payment, was entitled to wages in lieu of notice.  The Appellant ("the, employer") challenges only the "lay-off" finding contending that the Presiding Officer erred in law in determining the appropriate period of four consecutive weeks.

4. The last day on which the employees were provided with work was Friday 11 March 1983. The Presiding Officer determined that the four consecutive weeks to be considered commenced on Sunday 13 February 1983 and ended on Saturday 12 March 1983. During that period none of the employees had been provided with 12 days' work. There were two holidays and four rest days during that period so that the number of days on which the employees "were not provided with work as a result of rest days and holidays" was six.

5. Both Mr. Ramanathan for the employer and Miss Eu  for the employees submitted that the question of whether there had been a lay-off within the meaning of section 31E was determined by counting the number of days on which work was provided during the relevant four week period: if the count reached 12 there was no lay-off; if less than 12 there was a lay-off. If, therefore, the Presiding Officer was correct in law in detemrining that the relevant period was 13 February 1983 to 12 March 1983 there was a section 31E lay-off.

6. Mr. Ramanthan submitted that the Presiding Officer, having selected 12 March 1983 as the end date for the period erred in law in fixing the commencing date at 13 February 1983 because he counted back from the end date without reference to the proviso. Had the Presiding Ofiicer paid proper regard to the proviso he would have found the correct commencing date by counting back 28 days from 12 March 1983, ignoring for the purposes of the count any day which was a holiday or a rest day. This procedure would have produced a commencing date six days earlier than 13 February 1983, namely, 7 February 1983. Between that date and 13 March 1983 work was provided on at least 12 days.

7. I cannot accept that submission because I think that Miss Eu's answer to it is convincing. The period to be considered must begin on a Sunday and end on a Saturday. There is only one usage of the term "week" throughout the whole of Part VA to which the definition can be sensibly applied and that is the usage in section 31E. The defined meaning must, therefore, be the meaning intended in that section. That being so, it necessarily follows that a period of four consecutive weeks which begins on any day other than a Sunday, or one which ends on any day other than a Saturday cannot be, by definition, a period of four consecutive weeks within the meaning of the section. Consequently, I think that the Presiding Officer correctly determined the period to be considered.

8. At the conclusion of the hearing I announced that the appeal would be dismissed because I was convinced that the Presiding Officer's finding regarding the relevant period was undoubtedly correct. Assuming the correctness of the arguments of both counsel that the court had to concentrate on the days upon which work was provided during that period then, since none had been provided with 12 days' work, lay-off was established.  I did, however, also indicate that I would deliver written reasons in support of the views I expressed during argument that section 31E was concerned only with those contracts which contained an express or implied term empowering lay-off and that the days which had to be counted in determining whether there was a lay-off to which that section applied were the idle days during the relevant period. Those reasons now follow.

9. At common law an employer could not lawfully lay-off or suspend the employment of an employee without pay unless there was an express or implied contractual term empowering him to do so. ⁽¹⁾  In 1969, the considerable body of case-law which had developed around the question of when such a term would be implied was analysed in Jones v. Harry Sherman Ltd.⁽²⁾  The Industrial Tribunal in that case concluded, in effect, that the right "could be implied only in the case of employees whose wages were calculated on a daily or hourly basis, or by the piece, and who did not have a guaranteed minimum weekly wage.⁽³⁾ . An employer who laid off an employee without pay where there was no express or implied term empowering him to do so committed a repudiatory breach which the employee could "accept" and thereby become constructively dismissed. Thus, when the severance payment provisions of the Ordinance were enacted in 1974 employees who-were constructively dismissed under such contracts became entitled, provided they were eligible by length of service, to a severance payment under section section 31B(l)(a) unless the employer could prove that the dismissal resulted from some cause other than a redundancy situation. Their entitlement arose, not by virtue of the provisions of sections 31E and 31B(1)(b) but under section 31B(1)(a). Thus, no question arises in such cases as to whether there has been a lay-off to which the provisions of section 31E apply.

10. A provision such as section 31E is, however, necessary once it has been decided to provide a statutory entitlement to a severance payment for employees dismissed by reason of redundancy. Such a provision is needed in order to prevent employers with a contractual right  to suspend employment without pay from using that right as "a device to outflank the central statutory obligation."⁽⁴⁾.

11. Section 31E is concerned with those contracts under which “an employee is employed ...... on such terms and conditions that his remuneration ...... depends on his being provided by the employer with work of the kind he is employed to do."  In other words it is concerned with those contracts under which an employee's wages are "calculated on a daily or hourly basis, or by the piece".  But it is not concerned with all such contracts: it is concerned only with those under which there is no entitlement to remuneration in respect of a period when no work was provided. In other words it is concerned with those contracts which have no provision for a guaranteed minimum wage whether work is provided or not. The section, therefore, is directly aimed at the type of contract under which, according to the case-law developed before the enactment of the severance payment provisions, it could be implied that an employer had a right to lay off an employee without pay. The effect of the section, therefore, is to limit that right and to provide, in combination with section 31B(1)(b), that where that limit is exceeded there exists the equivalent of a "constructive-dismissal-by-redundancy-situation" entitling the employee, provided he has the necessary length of service, to a severance Payment.

12. The difficulty which both counsel found in construing section 31E arises from the use of the ambiguous expression: "does not provide such work for him on at least a total of 12 normal working days".  This expression could mean either (a) a failure to fulfil an obligation to provide at least 12 days' work or,  (b) allowing an employee to be idle and wageless for 12 or more days.  Since, however, the section is concerned with limiting the contractual right to lay-off so that the right cannot be used to avoid the statutory obligation which results from a redundancy situation, it is the period during which employment is suspended upon which attention has to be focused in order to determine whether the limit imposed by the section has been exceeded. It is therefore the second of the two meanings which should be preferred in the absence of any contrary indication. If that meaning is applied the proviso makes sense. On the other hand, if the first meaning is applied the purpose of the proviso becomes obscure.

13. It is my view, therefore, that in detemrining whether or not an employer has exceeded the limit imposed by section 31E upon the exercise of his contractual right to suspend, the days which must be counted within the relevant period are those days (other than the rest days, holidays and lockout days falling within that period) on which the employer failed to provide the employee with work.  If there were at least 12 such idle days then the employee, if he is eligible by length of service, is entitled to a severance payment by virtue of section 31B(1)(b).

14. There were some employees who could not demonstrate that they had experienced at least 12 idle days. If section 31E had been applicable the appeal against the awards made in their cases must have succeeded. The appeal, however, was conducted on the basis that there was no contractual term express or implied empowering lay off in any of the contracts. Thus, for the reasons mentioned earlier, section 31E was not applicable so that the crucial question was not the period of layoff but the fact that there had been a lay-off. The employees were constructively dismissed because each undoubtedly had accepted the employer's repudiatory breach in laying him off when he had no contractual right to do so. As a result, the seven who had the appropriate length of service to be eligible for a severance payment became entitled to it because they were presumed to have been dismissed by reason of redundancy. The other, who was not eligible, became entitled, by virtue of his dismissal, to payment of wages in lied of notice.

(1)    Freedland, The Contract of Employment,  pp.77-8; Grunfeld, The Law of Redundancy, 2nd edition, p.245

(2)    (1969) 4 I.T.R. 63

(3)    Freedland,  p.78

(4)    Grunfeld,  p.244.