NEW BRIGHT INDUSTRIAL CO. LTD. v. WONG SAU CHI and Others

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

LABOUR TRIBUNAL APPEAL NO.66 OF 1994

(ON APPEAL FROM LABOUR TRIBUNAL CLAIM NO.E-1643 OF 1994)

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REASONS FOR JUDGMENT

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1. The appellant is the former employer of the respondents who were claimants in their claims against the appellant in the Labour Tribunal. The respondents were dismissed by the appellant without notice by reason of redundancy. Payments were made by the appellant to the respondents who claimed that they were paid less than their entitlement. An award was made by the learned presiding officer on 13 July 1994 granting the respondents all their claims against the appellant. Reasons for the award, though given verbally at the time of pronouncement of the award, were not recorded in the notes of proceedings. Written reasons were given on 13 August 1994 after the appellant had lodged the application for leave to appeal on 21 July 1994. Ex parte leave to appeal was granted on 9 September 1994. The grounds of appeal were amended at the hearing of the appeal without objection from the respondents. The appeal was allowed with reasons reserved. I now hand down the reasons.

2. It is not controversial that the respondents were dismissed by the appellant without notice by reason of redundancy. It is the appellant's case that the respondents were all paid their full entitlements in law. The respondents disputed such a claim. They had successfully obtained an award from the Labour Tribunal for the balance of their claimed entitlements. The dispute related to the manner the wages for the respondents should be calculated for the purposes of payments in lieu of notices, annual leave pays and severance payments.

3. It is common ground that the respondents were paid "basic wages" at the rate of $ 109.50 per day of work. In addition they would be paid various payments under a variety of labels to make up their total income for the month. Such additional payments included transportation allowance, overtime pay, overtime allowance, attendance bonus and over limit bonus. The learned presiding officer found in favour of the respondents and held that all such additional payments should be included as wages for payments in lieu of notices, annual leave pays and severance payments of the respondents. It is against this finding that the appellant appealed submitting that only the basic wages should be taken into account for calculating the said claims.

4. "Wages" is defined in the Employment Ordinance, Cap. as:

"subject to subsections (2) and (3), means all remuneration, earnings, allowances, 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 contact of employment, but does not include

(c) any travelling allowance or the value of any travelling concession;

(e) ally gratuity payable on completion or 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."

Sub-section (2) excludes overtime pay in the calculation of wages for, inter alia, severance payment and annual leave pay. It is to be noted that though s.2(2) does not exclude overtime pay from the calculation of payment in lieu of notice, the exclusion is to be found in s.7(4).

5. The written reasons prepared by the learned presiding officer is short and can be easily reproduced as follows:

"The descriptions of these items were given in a defence document (D8 of Exh. T2). There was no dispute that these items were in fact paid according to these descriptions. Section 2 of Employment Ordinance provides that wages include all remuneration, etc. in respect or (sic) work done or to be done, however designated with certain exceptions. Notably travelling allowance is one of the exceptions mentioned. One of the items included in the earnings of the claimant was travelling allowance. However the circumstances under which it was paid must be looked at. On the true construction of s.2 I was of the view that the mere fact that the employer designated this component of earnings as travelling allowance was not conclusive. Otherwise the purpose of the legislation would be defeated by an unscrupulous employer describing any part of the earnings as travelling allowance at his wish. The travelling allowance the claimants were receiving before dismissal and its amount did not depend on how much each in fact spent on travelling to and from work. It was admitted by the defence that it did not depend on the distance an employee had to travel each day. Further it was paid to encourage punctuality. That being so I found that it related to length of working time and therefore work to be done. Although it was designated as travelling allowance, it was paid in respect of work to be done and was part of the wages within the meaning of s.2 of Employment Ordinances. A fortiori all the other items which were paid in respect of work done or work to be done and which did not fit in any of the names or descriptions of the exceptions in s.2 should be included as wages within the meaning of the section. All the other items were either overtime payment or payment to encourage performance or overtime work. These were all paid in respect of work done or to be done. I was of the view that all items should be included in the wages. The claimants were right in including all those items to arrive at their average wages. And I found for them."

Attendance Bonus

6. In the "Special terms used for the calculation of wages", attendance bonus was provided in the following terms :

"If an employee's total lateness and absence record in the morning and afternoon on weekdays and on Saturday morning for one term (on a half month basis) is < 15 minutes, he will be entitled to a bonus equivalent to the basic wages for one day."

7. It would appear from the circumstances giving rise to such an entitlement that the bonus was a reward for punctuality rather than attendance per se. It is submitted by the appellant that as such the payment was not work-related in that it was not for "work done or to be done" as defined by the statute. The appellant submits it is therefore distinguishable from the Court of Appeal decision on "attendance bonus" in Wong Ping-kong and Others v. Tai Hing Cotton Mill Ltd. [1994]2 HKLR l07. In that case, it was held that "attendance bonus" payable to an employee under his contract of employment only if the employee attended at his place of work on every day during a wage period (except Sundays) was "payable to an employee in respect of work done .... under his contract of employment" within the meaning of "wages" in s.2(1) of the Employment Ordinance, and was therefore to be included in the calculation of the employee's severance payment. "Regular attendance at his place of work qualified the employee for a higher rate of pay for the work he had done which was attributable to his regular attendance at his place of work" (see page 110 of judgment). It is submitted that the bonus herein was at a fixed rate of a day's basic rate for each wage period. In this respect, it is factually different from Tai Hing Cotton Mill as in that case the bonus would entitle the employee to be paid at an increased basic rate. In the premises, the effect of the bonus herein would be less dramatic than in that case.

8. I am not convinced that the bonus herein is different from that in the Court of Appeal decision, though the results on the quantum of payments are substantially different. The rationale that such bonus was payable in respect of "work to be done" does not differ. The bonus was to secure the presence of the employee at the employer's premises in a state of readiness to perform whatever task that the employer might see fit to instruct such employee. There need not be any actual discharge of duty by the employee. Payment of basic wages, to secure regular attendance of employees at the place of work, did not require actual performance of work. However, basic wages had always been accepted by the public as did the appellant in this case, as part of the "wages". That the bonus herein not only secured regular attendance, but also punctual attendance; and the less dramatic resultant increase in quantum; have no bearing in the determination of the legal nature of such payment. The bonus was payable to an employee only if the employee had attended at his place of work punctually, within a margin of 15 minutes or less from time for commencement of work, during a wage period.

9. Deputy Judge Yeung held in Tai Hing Cotton Mill at first instance, at page 5 of the unreported judgment, that:

"I am of the view that the mere attendance at the factory by a worker at the request of the employer in order to carry out work should such work be available per se is 'work to be done' within the Employment Ordinance. When the workers attended the factory, they were ready, willing and able to carry out work assigned to them. 'Work to be done' in the context of the Employment Ordinance must necessarily mean 'work to be done as and when the work become available'."

What the learned deputy judge observed had not been disturbed by the Court of Appeal in any respect in the appeal judgment. I am not persuaded that the learned presiding officer erred in holding that the attendance bonus formed part of "wages" for the purposes of the calculation of the respondent's claims.

Transportation Allowance

10. Pursuant to the "Special terms", transportation allowance (or "driving allowance") would be payable if an employee was punctual for work. A sum of $3 each would be payable for any morning or afternoon session where the employee was not more than 30 minutes late for work.

11. The appellant's case on this issue is identical to its attack on the last issue. It is submitted the so-called travelling allowance was payable for punctuality and not related to "work done or to be done". As such the allowance had little relevance to its label. The payment was not to be made in respect of any matter related to travelling.

12. Section 2(1) expressly provided that the substance rather than the label is to be looked at in the determination of "wages" when it specified the caveat "however designated". Yan Tak Cheung v. Famous Horse Garment Factory limited & Another, LTA No.3 of 1992, judgment dated 15 April 1992, held, at page 3 of the unreported judgment, that:

"But the label is not conclusive. It is not what the parties call it but what it is in substance that matters. One has to look at the nature of the payment, the reasons therefor, and the circumstances or conditions under which such payment is made."

Deputy Judge Chan, as he then was, was considering the meaning of "allowance" under the Employment Ordinance. Similar to "travelling allowance", there is no definition of "allowance" in the Ordinance.

13. "Travelling allowance" in s.2(1) of the Ordinance means an allowance payable in respect of expenses or payments incurred in or made in connection with travelling to and from his place of work.

14. It may be suggested that it would take a complicated and detailed scheme to take into account individual employee's peculiar travelling mode and distance. It would require undue manpower to work out the correct amount of each employee's entitlement. It would depend on the honesty of the employees in claiming any particular mode of transport as receipts for fares are impossible. It is not inconceivable that a factory owner would prefer the beauty of a simple scheme though it may benefit unduly the few workers that walked to work. The small amount involved could hardly warrant any more complicated scheme than the one in question. It may be suggested that the $3 per session of work was to encourage employees to take a faster but more expensive form of transport to get to work. This is perhaps not such a far-fetched contention in view of the small amount involved. An allowance of $3 per session of work is hardly any incentive for punctuality. Surely, such an amount is less than the value of the 30 minutes that qualified an employee to claim the allowance.

15. Despite the attraction of the above argument, I am not persuaded the learned presiding officer erred in placing too much emphasis in the indiscriminate nature of the allowance in not taking individual cases of travelling fares and distances into account. The formula adopted would render the allowance payable even for those who walked to work from their home in the neighbourhood of the appellant's factory. In that respect, notwithstanding its label, the allowance has little to do with expenses related to travelling to work. The learned presiding officer made a finding that the allowance "related to the length of working time and therefore work to be done". That is a finding of the purpose and intent behind the contractual provision. Section 35(2)(b)(i) of the Labour Tribunal Ordinance, Cap.25 makes any reversal or variation of a finding of fact impossible. There is nothing before me to show that he necessarily erred in that finding. The written reasons, being as short as it is, are not helpful in ascertaining if the learned presiding officer had taken into account the suggestions against inclusion of such allowance into "wages" discussed in the preceding paragraph. Nevertheless, the learned presiding officer's finding is capable of being supported by the evidence and materials before him. In the premises, I am not persuaded that the learned presiding officer had erred in his finding.

16. As I was told this is a test case, parties may wish to draw the conflicting considerations discussed supra to the attention of the tribunal when hearing the other cases.

Overtime Pay and Allowance

17. In the "Special terms", "working hours" was defined as "8:00 a.m. to 12:00 noon and l:00 p.m. to 5:00 p.m. each day, totally 8 hours". Then under the caption of "Overtime Payment (OTP)" it was provided that "overtime work after 5:00 p.m. will be charged at 1.5 flat rate. Overtime work on Saturday after 1:00 p.m. will be charged at 1.5 flat rate". For the calculation of wages, it was provided that "Basic wages 8 hours (daily working hours: 8 hours) x 1.5 flat rate = hour rate for overtime work".

18. "Overtime" is not defined in the Ordinance. In Tarmac Roadstone Ltd. v. Peacock (1973)1 WLR 594, it was held that if the overtime work was compulsory, in the sense that the employer is obliged to provide and the employee obliged to accept, it should be included within the definition of "normal working hours" in Schedule 2 to the Contract of Employment Act 1963 for the purpose of redundancy pay. As with Leong J inPang Tin Yee I do not find the English Court of Appeal decision of particular assistance in construing "overtime" payment under our Ordinance. Leong J accepted the approach of appellants' counsel that:

"Mr Miu for the appellants submits that, following the golden rule of construction of statutes, the ordinary meaning of 'overtime' should apply. He refers to the meaning of 'overtime' in the Shorter Oxford English Dictionary. There 'overtime' means 'time during which one works over and above the regular hours; extra time; payment for work performed in excess of normal hours.' He also refers to the meaning of 'regular'. In the Oxford Encyclopaedia Dictionary, it means 'acting or done or recurring uniformity or calculable in time or manner; habitual, constant, orderly.' He submits that following these definitions, before considering the question whether the two hours after 5 p.m. daily are overtime, it is necessary to decide what were the regular hours of work of the appellants since overtime is what is over and above what are regular hours." (page 5 of judgment)

19. It is true to say that it matters not how the parties attempted to label it, it is the substance and nature of the actual regular working hours that the court should have regard to in finding what is overtime work. Regular working hours were agreed by the parties to be 8 hours a day between 8:00 a.m. and 12:00 noon, and 1:00 p.m. and 5:00 p.m. Overtime was defined in the contract as work after 5:00 p.m. on weekdays and l:00 on Saturdays, and as work outside the specified 8 hours. In the premises, there can be no doubt what the parties intended and agreed should be overtime. Their agreement and understanding did accord with reality. Unlike Pang Tin Yee, the parties herein had agreed in their contracts of employment what were regular and overtime hours. Furthermore, from the evidence before the court, unlike Pang Tin Yee, there is no established pattern of regular overtime hours to justify any inference that any particular number of hours outside the specified 8 hours had by conduct of the parties been adopted as regular hours. The respondents worked overtime irregularly and for irregular duration. Not only none of the respondents worked with similar patterns of overtime, there is no regular pattern identifiable for the same respondent for different wage periods. There is a complete lack of evidence to justify any adverse inference to be drawn against the unequivocal definition of regular and overtime hours in the contractual documents. Furthermore, during the interviews held by the tribunal officer, all respondents agreed without exception that the working hours were as per the hours set out in their contract. In the premises, any finding by the learned presiding officer that the said overtime payment or allowance was not "overtime pay" within the meaning of the Ordinance is bound to be flawed. It is difficult to identify any ground for the learned presiding officer's finding that overtime payments and allowances should be included in the calculation of wages for the respondents' claims. The only ground given in the brief reasons was "These were all paid in respect of work done or to be done." Irrespective of what other reasons he might have, in the light of the uncontroversial evidence before the tribunal, I am unable to see how his finding in this respect can be support by any ground at all.

Over Limit Bonus

20. The bonus was provided in the "Special terms" in the following terms: "OVBN is designed to encourage employees to work positively. Piece-rated calculation method is not adopted by the company. Therefore, even the employees fail to achieve the basic quota, the company will not deduct their wages. The company manufactures over tens of different products everyday. The quantity, style and difficulty of each product vary, so as the amount of bonus obtained by the employees everyday."

21. The learned presiding officer did not specifically consider this item of bonus in his written reasons. There is, therefore, no finding at all as to the scheme of operation of this bonus. There is, likewise, no finding as to the nature or effect of this bonus. There has not been any investigation carried out at the trial in respect of this claim.

22. The first issue to determine is the nature of this bonus. Was there any contractual right to the bonus? Or was it merely wholly gratuitous? The contract specified what the employer would not do, i.e. to deduct wages for failure to achieve the basic quota. It did not stipulate that an achievement of work over and above the basic quota would "entitle" the employee to the bonus. The purpose was said to encourage positive working attitude. The difficulty of specifying a fixed formula or any uniform basic quota, due to varying style and difficulty or different products, was expressed. It appears that the working of the scheme was left very much to the unilateral decision of the employer. He could set however high a basic quota as he liked making payment of the bonus illusory. He could fix the rate of the bonus (which was not based on any piece-rated calculation) at whatever amount he liked. In short, even if there was a contractual obligation to pay the bonus, the employer could make payment of it wholly illusory and unattainable in reality. It, therefore, appears that it is unlikely there was ever any intention to bind the employer to an obligation to pay the bonus. It is more likely than not that it was a mere expression of an intention to give a bonus when the employer decided to make one, and in a manner and amount as he liked. It is, therefore, more probable than not that payment of the bonus was gratuitous.

23. The appellant submits that if the bonus was gratuitous in nature, it could not be included in the calculation of wages. Section 2(1) expressly excludes "gratuity payable on completion or termination of a contract or employment" and "any annual bonus, or proportion thereof, which is of a gratuitous nature or which is payable only at the discretion of the employer". It is submitted that though there is no express exclusion of all payment of a gratuitous nature, the expressed exclusion being of a confined scope, the spirit of the statutory provision is that all such payments should be excluded. Furthermore, the definition of "wages" is that "all remuneration ........ payable to an employee in respect of work done or to be done under his contract of employment". It is submitted that "under his contract of employment" qualifies all that goes before it in the definition. In the premises, it only covers money payable under the contract. If payment of the bonus is discretionary under the contract of employment then it could not be said that it is payable under the said contract.

24. The appellant further submits it is common sense only that the legislature could not have intended to force an employer to pay to the employee what the parties had by contract specifically agreed to be payable only at the absolute discretion of the employer. It could not have been the intention of the legislature to make contracts of employment for the parties contrary to their agreement. Statutory intervention would only be enacted to supersede contractual intent if it becomes necessary to afford fundamental protection to a contracting party who lacks bargaining power. If the legislature has seen fit not to afford protection to employees in respect of gratuitous annual bonus and gratuity, by the same token it could not have thought otherwise for other bonuses of similar nature. The logic for exclusion is the discretionary nature of such payments. The court in Pang Tin Yee observed that: "the definition of 'wages' in s.2(2) of the Employment Ordinance only excludes annual bonus or bonus of a gratuitous nature" (emphasis added). The learned judge then proceeded to consider if the diligence bonus was a discretionary payment.

25. I am persuaded that a wholly discretionary bonus not capable of being contractually enforceable against the employer is not "wages" as defined in the Ordinance. In the premises, the learned presiding officer erred in including the over limit bonus in the calculation of the awards. Even if he was right in including such a bonus, he had not examined at all what ought to be the proper amount payable.

Wage Period for Calculation

26. The respondents do not seek to support the erroneous manner chosen by the learned presiding officer in calculating the "wages" for the respondents' claims for severance payment and annual leave pay. The learned presiding officer had adopted the respondents' erroneous manner of calculation in their claim forms without query. What the respondents did were to adopt a wage period of their own choice without reference to the statutory provisions.

27. Calculation of severance pay is provided in s.31G, in particular s.3lG(1)(b). The wage period to be taken into account for calculation of an average wage ought to be a period of 18 days during the last 30 normal working days; and not just any 18 days during any period the respondents freely selected. The position of annual leave pay is dealt with in s.41C. Section 41C(2) provides that wages should be calculated on the average wage during a complete wage period, comprising not less than 28 days and not more than 31 days. The manner of calculation adopted by the respondents and the learned presiding officer was not in accordance with the statutory scheme.

28. For reasons given supra, the appeal was allowed in the manner following. The entitlement of the respondents to include transportation allowance and attendance bonus in the calculation of their wages was confirmed. Their alleged entitlement to include over limit bonus, overtime payment and overtime allowance cannot be substantiated and are to be excluded from the calculation of wages. In the premises the appeal was allowed in respect of the claims for payment in lieu of notice, severance pay and annual leave pay and the awards in respect thereof are to be reduced by excluding therefrom the over limit bonus, overtime payment and overtime allowance. Furthermore, the awards are to be re-calculated : for severance pay on the proper basis as per s.31G(l)(b); and for annual leave pay on the proper basis as per s.4lC(2). The parties have agreed to adopt the wage periods most favourable to the respondents under the said statutory provision, and in the event of any difficulty in reaching consensus on such wage periods the parties were given liberty to apply. The appellant having agreed to waive costs against the respondents acting in person, its costs of the appeal were allowed against the 1st respondent to the extent of 50% on a party to party basis. The 1st respondent's own costs are to be taxed in accordance with legal aid regulations.

(J. Chan)

Judge of the High Court