NG CHIU KOW AND ANOTHER v. CHAN SAU LIN t/a PANG LEE TRANSPORTATION CO

HCLA 65/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 65 OF 2003

(ON APPEAL FROM LABOUR TRIBUNAL CLAIM NO. 748 OF 2001)

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J U D G M E N T

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1. In this appeal, the Defendant, the former employer of the 2nd Claimant, seeks to overturn the order of the Labour Tribunal giving judgment in favour of the 2nd Claimant on his claim for payment in lieu of notice, arrears of wages, paid leave, annual leave pay and severance payment, in the total sum of $443,286.10, together with interest.

2. In a nutshell, the 2nd Claimant used to be employed by the Defendant as a cross-border container truck driver. Up to December 2001, he had been in the employ of the 2nd Claimant for 12 years. His remuneration was calculated by reference to the transportation charges earned by his employer from the transportation work done by him. He was to receive 28% of the transportation charges less various expenses, including fuel, toll fees, traffic tickets and penalties, and some miscellaneous expenses. Apart from that, he received no basic salary. Wages were paid in arrears on a monthly basis. However, it was the Defendant's case that it was agreed between the parties, in view of the time required to ascertain and finalise the figures and calculations given the formula agreed for remuneration, that the remuneration for a particular month's work would only be payable "after 2 months". Thus for instance, the remuneration in respect of the transportation work done in the month of September would only be paid on 1 December.

3. The 2nd Claimant did not admit the existence of such an agreement, but accepted that during his past 12 years of service with the Defendant, wages were indeed usually paid 2 months after the transportation work in question had been done.

4. The Tribunal found, having heard evidence from the witnesses called by both sides, including some fellow drivers called by the Defendant who testified to the existence of such an agreement, that no such agreement existed. In any event, the Tribunal held that on the facts, the "wage period" in question was 1 month, and therefore according to section 23 of the Employment Ordinance (Cap. 57), wages "shall become due on the expiry of the last day of the wage period and shall be paid as soon as is practicable but in any case not later than 7 days thereafter". The Tribunal went on to hold that the alleged agreement sought to give the employer a much longer period of time than the time allowed under section 23 for making payment of wages, and was therefore void by reason of section 70 of the Ordinance¹. The Tribunal found as a fact that the 2nd Claimant, in the above circumstances, was quite entitled to exercise his statutory right under section 10A of the Ordinance to terminate the contract of employment in December 2001, because by that time only the wages in respect of work done in August had been paid to him.

5. In this appeal, the Defendant through counsel takes a number of points: that the Tribunal made a wrong finding of fact relating to the existence of the agreement, that the wage period in the present case was 2 months, that there was no contracting out within the meaning of section 70, that the 2nd Claimant was not entitled to terminate the contract under section 10A, and that in any event the 2nd Claimant had not successfully exercised his right under section 10A to terminate the contract. For reasons that will become immediately apparent, I will first deal with the all-important question of wage period.

6. The more relevant provisions in the Ordinance are:

"2. Interpretation

(1) In this Ordinance, unless the context otherwise requires -

...

"wage period" (工資期) means the period in respect of which wages are payable under a contract of employment or under section 22;

"wages" (工資), subject to subsections (2) and (3), means all remuneration, earnings, allowances including travelling 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 -
(Amended 48 of 1984 s. 2; 76 of 1985 s. 2; 74 of 1997 s. 3)

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

(b) any contribution paid by the employer on his own account to any retirement scheme; (Amended 41 of 1990 s. 2)

(c) any commission which is of a gratuitous nature or which is payable only at the discretion of the employer; (Replaced 74 of 1997 s. 3)

(ca) any attendance allowance or attendance bonus which is of a gratuitous nature or which is payable only at the discretion of the employer; (Added 74 of 1997 s. 3)

(cb) any travelling allowance which is of a non-recurrent nature; (Added 74 of 1997 s. 3)

(cc) any travelling allowance payable to the employee to defray actual expenses incurred by him by the nature of his employment; (Added 74 of 1997 s. 3)

(cd) the value of any travelling concession; (Added 74 of 1997 s. 3)

(d) any sum payable to the employee to defray special expenses incurred by him by the nature of his employment;

(da) any end of year payment, or any proportion thereof, which is payable under Part IIA; (Added 48 of 1984 s. 2)

(e) any gratuity payable on completion on termination of a contract of employment; or

(f) any annual bonus, or any proportion thereof, which is of a gratuitous nature or which is payable only at the discretion of the employer.

...

10A. Deemed termination of contract under section 7

(1) Without prejudice to the rights of an employee under common law, an employee may terminate his contract of employment without notice or payment in lieu of notice if any wages are not paid within one month from the day on which they become due to him under section 23.

(2) Where a contract of employment is terminated under subsection (1), the contract shall be deemed to be terminated by the employer in accordance with section 7 and the employer shall be deemed to have agreed to pay to the employee the sum specified in section 7.
(Added 74 of 1997 s. 5)

...

22. Wage period

The wage period in respect of which wages are payable under a contract of employment shall, until the contrary is proved, be deemed to be 1 month.

23. Time of payment of wages

Wages shall become due on the expiry of the last day of the wage period and shall be paid as soon as is practicable but in any case not later than 7 days thereafter."

7. It is clear from the above provisions that "wage period" refers to the period in respect of which wages under a particular contract of employment are payable. There is a presumption that the wage period in a contract of employment is 1 month (section 22). This is a rebutable presumption. The significance of the wage period in a particular contract of employment is that, as mentioned above, wages shall become due on the expiry of the last day of the wage period and shall be paid as soon as is practicable but in any case not later than 7 days thereafter (section 23). Failure to pay wages within the 7-day period will result in interest on late payment being payable: section 25A. Moreover, if wages are not paid within 1 month from the date on which they become due to him under section 23, the employee may terminate his contract of employment without notice or payment in lieu of notice (section 10A).²

8. Indeed, the Ordinance requires an employer to inform all prospective employees both of the amount of wages payable and of the duration of the wage period observed by the employer (section 44(1)(a)). Where the amount of wages is subject to variation over each payment period, the employer must provide details of wages for each period (section 45(1)(b)). Employers are also required to keep records detailing the wages paid to an employee for each wage period and the duration of the wage period (section 49A(1)). See generally Halsbury's Laws of Hong Kong, Vol. 10(2) (2001 re-issue), para. [145.062] et seq.

9. Mr Siu, counsel for the Defendant, contends that in the present case the wage period is 2 months, in the light of the agreement alleged by his client. He rightly observes that the presumption of a wage period of 1 month in section 22 is rebutable. He argues that the presumption is rebutted by the alleged agreement contended by his client. As described above, the agreement is that the remuneration of the 2nd Claimant in respect of a particular month's work is only payable "after 2 months". Therefore, so Mr Siu argues, the wage period in the present case is 2 months. He accepts, however, remuneration itself is calculated by reference to a month's work.

10. I reject this argument. If the wage period is 2 months, and if, for instance, the relevant period of time is August and September, then on 1 October, the remuneration earned by the employee in August and September shall become due and it shall be paid as soon as is practicable but in any case not less than 7 days thereafter. Yet if I have not misunderstood the Defendant's contention regarding the alleged agreement and its effect, in the example that I have just used, no remuneration would become due for payment until 1 November. Furthermore, the remuneration that would become due for payment on 1 November would only be in respect of the work that was done in August. For the remuneration in respect of the work done in September, it would only become due, as per Mr Siu's interpretation of his client's alleged agreement, on 1 December.

11. In relation to this latter aspect, it is clear from section 2 as well as section 22 of the Ordinance that when wages are payable in respect of a particular period of time, that period of time is termed the "wage period". It must follow from this that upon the expiry of the last day of the wage period, the remuneration in respect of the whole of the just-expired wage period shall become due (as per section 23). Put another way, everything that the employee has earned within a wage period shall become due upon the expiry of the last day of that wage period. Thus analysed, Mr Siu's argument must be rejected. For the alleged agreement is that whilst the remuneration in respect of the work done in August shall become due on 1 October, that in respect of the work done in September shall only become due on 1 November.

12. I do not think Mr Siu's contention can square with the actual wording used to define a wage period, i.e. the period in respect of which wages are payable under a contract of employment.

13. But that does not conclude the matter. Given that a wage period is defined as the period in respect of which wages are payable, logically the next question is what are the wages that are payable in respect of a particular period of time, which the Ordinance calls the wage period.

14. It is here that the case becomes tricky. In a normal situation where an employee is remunerated by a fixed amount of salary payable on a periodical basis, then regardless of the length of the wage period, one sees no difficulties whatsoever in obliging the employer to make payment of the fixed salary immediately upon the expiry of the last day of the wage period and in no case later than 7 days thereafter.

15. Yet the same cannot be said when remuneration is calculated by reference not to a fixed sum, but to a certain formula requiring computation, or when it is dependent on certain external circumstances. For instance, payment of commission as remuneration. Commission is wages within the meaning of the term as defined in section 2 of the Ordinance. Very often, for totally legitimate business or commercial reasons, remuneration is tied in with the employer's business turnovers, profits, expenses and so forth. Not unusually, the employer would agree to pay a percentage of his turnovers or profits, gross or net, by way of commission to the employees. Commercial or business reality dictates that sometimes the formula for calculation may not be very straightforward, and there can be all sorts of adjustments and deductions. Take the present case as an example, it is perfectly normal for the employer and driver to agree that the driver should be remunerated at a certain percentage of the transportation charges charged by the employer, less a number of agreed items of expenses relating to the transportation services performed by the employee for the customers of the employer, in respect of which the transportation charges were earned in the first place.

16. In those circumstances, it is perfectly legitimate (at least commercially speaking) and understandable that the parties, particularly the employer, may require a reasonable amount of time to ascertain all the figures and do the calculations, in order to know how much remuneration he has to pay his employee. The parties may thus agree that the remuneration is only payable when it is quantified, or within an agreed period of time, or a combination of both.

17. Furthermore, by agreement, remuneration may be made dependent upon the happening or non-happening of contingencies. For example, in the case of estate agents, no matter how hard an estate agent may have worked in introducing properties to prospective buyers or tenants, he would only earn his commission, in normal cases, when a deal is concluded, or perhaps in some cases, when the client actually pays the agreed commission to the estate agent's employer. In those circumstances, whilst the estate agent may receive a pay cheque every month, the money he receives may have very little if anything to do with the work he has performed in the course of his employment in the preceding month, i.e. the just-expired/preceding wage period.

18. In my judgment, the Ordinance does not make provisions governing what wages are "payable" in respect of a particular period of employment, which must depend on what wages have been earned, have accrued, or have become payable within that period of time. And this must be a matter of contract between the employer and employee.

19. In my view, it is open to an employer and employee to agree, as part of the contract of employment, that the employee only earns a certain remuneration upon certain conditions, or at a particular point of time. Put another way, it is a matter of contract for the two parties to agree under what circumstances wages are "payable". So for instance, they may agree that commission is only earned and thus payable when the customer actually pays the corresponding price or service charge to the employer. They may also agree, again for instance, that a certain remuneration is only payable in favour of the employee upon the expiry of a period of time (so as to serve a legitimate business, commercial or administrative purpose).

20. In my judgment, the combined effect of sections 22, 23 and 70 of the Ordinance is to prohibit the postponement of the time when wages shall become due and thus must be paid. The sections do not regulate the circumstances under which wages are or shall become payable in the first place. And those circumstances could have a built-in time element.

21. Of course, here I am only concerned with a genuine agreement of an employer and his employee on the circumstances under which wages shall be regarded as earned or payable. Sham agreements serving no genuine commercial, business or administrative purposes, the real purpose of which is merely to postpone the time of payment of wages, shall of course be caught by sections 22, 23 and 70.

22. I find the contrary contention unattractive: it has been said during submission that if the employer needs time to ascertain the figures and do the calculations, he can agree with his employee for a longer wage period, say 2 months instead of 1. This is unattractive because whilst it would meet the employer's requirement for time in calculating the remuneration in respect of work done during the earlier part of the wage period, it would not help him in relation to work done towards the end of the wage period. If an employer needs 1 month to ascertain the figures and work out the commission payable to an employee in respect of a transaction, a wage period of 2 months will enable him to calculate in time all the transactions done by his employee during the first month of the 2-month wage period; he would still be left with insufficient time to work out the commission amounts in respect of those transactions done by his employee during the second month of the 2-month wage period.

23. In that type of situations, the only sensible course is to allow the employer the 1-month he needs to work out the amount of the commission: this can and should be achieved by way of agreement with the employee, i.e. that the commission should be regarded as payable only upon the expiry of 1 month after the transaction.

24. Mr Lam, appearing for the 2nd Claimant, argues that in the example that I have mentioned, the employer may still have an extra 7 days (as per section 23) or even 1 month or 1 month plus 7 days (per sections 23 and 10A), after the expiry of the wage period, to work out the amount of commission payable to the employee. I do not think that is attractive either: prima facie, the legislature in enacting the relevant provisions in the Ordinance should not be taken lightly to have intended to render an employer with a genuine need for time to compute his employee's remuneration in contravention of the provisions in the Ordinance. Secondly, as I mentioned above, payment later than 7 days after the expiry of the last day of the wage period would attract interest. I cannot, in the absence of compelling reasons, ascribe to the legislature such an intention. It does not make commercial or business sense to the employer, and is quite unnecessary so far as protection of the employee is concerned.

25. Having adopted a purposive approach to interpretation of the Ordinance, and having borne carefully in mind the obvious general legislative intent behind the Employment Ordinance to afford employees protection in areas where they need protection from possible abuse and exploitation, I am unable to discern any or any sufficiently valid reason for construing the relevant provisions in the Ordinance (particularly those that I have outlined above) as outlawing an agreement to the above effect.

26. In summary, I agree that wage period means the period in respect of which wages are payable. I also agree that upon the expiry of the last day of the wage period, the wages that have become payable within that wage period shall become due and must be paid as soon as practicable and in no case later than 7 days thereafter. But in my judgment, sham agreements aside, the Ordinance leaves it to the parties to agree between themselves under what circumstances or when wages are or shall become payable, based on which one may work out what wages are payable in respect of a particular period of employment, i.e. the wage period.

27. It is clear from the transcript and the judgment of the Tribunal that the subtleties of the law involved in the present case have escaped the Tribunal's attention. In those circumstances, there was simply no relevant finding as to what agreement, if any, was reached by the employer and employee either at the time when the contract of employment was entered into, or subsequently by way of a variation to the original agreement, regarding what wages were payable in respect of a period of 1 month (given the common ground that remuneration was indeed calculated on a monthly basis). The Tribunal simply called the Defendant's alleged agreement an agreement to pay salary after 2 months. The alleged agreement of the Defendant in fact could mean two different things: i.e. an agreement to postpone the time of payment of wages that have become payable by 2 months in which case it would fall foul of sections 23 and 70 of the Ordinance; or an agreement to define when wages shall become payable. Allowance must be given to laymen like the Defendant who would not be expected to know the subtle difference between the two, when they expressed themselves as to what had been agreed.

28. Earlier on, I have mentioned that the Tribunal rejected the allegation of the Defendant on the existence of the alleged agreement. In view of my analysis of the situation involved, that finding is quite unsafe because the Tribunal did not know what agreement, if any, it had to look out for in the first place.

29. In any event, in so far as may be necessary, I would express my agreement with Mr Siu's submission that the finding against the existence of the alleged agreement is problematic, because it obviously goes against the evidence of the fellow drivers as well as the past practice of 12 years of the 2nd Claimant and the Defendant. Of course, I am not for a moment saying that the Tribunal would not be entitled to prefer the 2nd Claimant's evidence to the evidence of the other drivers. But the Tribunal, in its judgment, did not explain why the evidence of the fellow drivers was not accepted, or if such evidence was accepted why it was not sufficient to tilt the balance in favour of the Defendant. Furthermore, the past conduct of 12 years was highly relevant to whether there was any subsequent variation by conduct regarding salary payment; a finding that there was no agreement at the beginning of the employment would not necessarily preclude that the employment contract was subsequently varied by the conduct of the parties. The judgment totally failed to address this area. Again I am not saying that there must have been a variation. But on the facts, it was incumbent upon the Tribunal to look into this possibility.

30. For all these reasons, notwithstanding the express finding by the Tribunal that the alleged agreement did not exist, I am of the view that the main defence raised by the Defendant, i.e. that the 2nd Claimant had sought to exercise his statutory right under section 10A of the Ordinance to terminate the contract of employment for non-payment of wages prematurely, has yet to be properly disposed of. (For on a true analysis of the Defendant's case, the remuneration in respect of the work done in September 2001 only became payable in November 2001 and did not become due until 1 December 2001, and thus the right to terminate the agreement under section 10A would not be exercisable until 1 (or 8) January 2002.)

31. For these reasons, I have come to the conclusion that this appeal must be allowed, and given the insufficient findings of fact, there is no way this Court can come to a final conclusion on the claim of the 2nd Claimant or the defence of the Defendant. In those circumstances, the right order to make is to remit the matter to the Labour Tribunal for a re-trial before another presiding officer. I so order.

32. It thus becomes unnecessary for me to decide the further submissions made by Mr Siu, particularly the submission on the failure on the part of the 2nd Claimant to exercise his right under section 10A in any event. Since there is going to be a re-trial, I do not find it appropriate to express any observations on the submissions made, particularly when they are "fact-sensitive".

33. Having heard the parties' submissions on costs on a provisional basis, I order that the costs of this appeal be in the cause of the re-trial: whoever should be successful at the re-trial shall get the costs of this appeal; such costs are to be taxed if not agreed.

1 Section 70 reads: "Any term of a contract of employment which purports to extinguish or reduce any right, benefit or protection conferred upon the employee by this Ordinance shall be void."

2 I need not deal with here the question of whether the 1-month period, referred to in section 10A of the Ordinance, shall be calculated from the expiry of the last day of the wage period, or from the expiry of the 7-day period after the expiry of the last day of the wage period referred to in section 23. In Chiu Wing Hang v. B G Lighting Co. Ltd HCLA 67/1999 (8 March 2000), To DJ seems to have preferred the latter interpretation: see page 12F-H.