CARLA RIGMOR ARCHER v. ORGANISATION SEARCH LTD.

1997 No. A6439

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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Introduction

1. Mrs. Carla Archer was employed by Organisation Search Ltd. ("OSL") from 6th April 1994 as a recruitment consultant. She was dismissed with effect from 5th February 1997. She lodged various claims in the Labour Tribunal, but those claims were transferred to the High Court. Four claims in all are made:

(i) She claims that she was dismissed by reason of redundancy, and that she was accordingly entitled to a severance payment under Part VA of the Employment Ordinance (Cap. 57).

(ii) She claims that OSL broke her contract of employment in a number of respects, as a result of which she earned less commission than she would otherwise have done, and she therefore claims damages for those breaches of contract.

(iii) She claims that OSL failed to pay to her the annual leave pay to which she was entitled.

(iv) She claims that OSL failed to pay to her the commission to which she was entitled in respect of a particular transaction.

2. Mrs. Archer has represented herself in these proceedings, and up to a few days ago, OSL was represented by Mr. Peter Barrett, its Chairman. The fact that both parties were unrepresented for so long has meant, understandably, that the issues were not crystallised in the pleadings or in the witness statements as concisely as they might have been if lawyers had been professionally engaged. In those circumstances, I have allowed both sides considerable latitude to depart from the pleadings and the witness statements, and to give evidence and make such allegations as they chose. It has also meant that I have had to intervene more than I otherwise would have done to make sure that the parties did justice to their respective cases.

3. The case itself has taken three days to try. I think that that has been disproportionate to the amount of money at stake, and to the relatively simple issues which the case has raised. I am not being critical of anyone, because I know that employment disputes are keenly fought and generate strong emotions on both sides, but it is a little unfortunate that a relatively straightforward case such as this has taken so long to try. All references in this judgment to sections of an ordinance are references to sections of the Employment Ordinance, and all references to TB followed by a number are references to the page number in the trial bundle.

OSL's business

4. OSL specialises in executive recruitment. Its clients are firms and companies who have vacancies for suitably qualified personnel. OSL finds such personnel for them. It does so in a number of ways. Sometimes, it does no more than search its database for suitable applicants. On other occasions, it does a much fuller search. And sometimes it advertises for personnel.

5. OSL is paid by its clients on either a retained or a contingency basis. If OSL has been engaged on a retained basis, its fee is guaranteed. OSL will be entitled to invoice its client whether or not it places a suitably qualified candidate with the client. However, OSL is far more often engaged on a contingency basis. That means that OSL is only paid by its clients on results: no placement, no fee. Commission is therefore payable to OSL's consultants in respect of contingency work when the vacancy is filled, because that is when OSL is entitled to invoice its clients.

The reason for Mrs. Archer's dismissal

6. Mrs. Archer's case is as follow. After she had been with OSL for over a year, it was decided that whenever advertisements were to be placed for personnel, those advertisements would be placed by a division of OSL, which was to be called Arrow Selection. Arrow Selection would operate as a separate profit centre within OSL. Mrs. Archer was to run Arrow Selection. She would be the only consultant working in the division. This new division of OSL came into existence at the beginning of October 1995.

7. On 1st August 1996, Mrs. Archer received a memo. from Mr. Barrett (TB 28). The memo. informed her that it had been agreed that "Arrow's business would integrate with that of OSL", and that "in effect, Arrow will become a dormant company". In other words, advertisements would continue to be placed in the name of Arrow Selection, but Arrow Selection would no longer be a separate division and profit centre within OSL. As for Mrs. Archer's own position, the memo. informed her that she would revert to being a consultant with OSL, albeit a senior one. The contents of this memo. were confirmed in a memo. from Mr. Derek Yau, OSL's Managing Director, to Mr. Barrett dated 5th August 1996 (TB 114).

8. However, according to Mrs. Archer, the contents of this memo. were not put into effect. When she returned to work in September 1996 after a holiday, she was told by Mr. Yau that she would continue working within Arrow Selection. That was because OSL had recently been engaged by IBM, and a number of recruitment assignments involving the advertising of vacant posts in IBM were about to be passed to OSL.

9. It was on 6th January 1997 that Mrs. Archer was told that she was being dismissed with effect from 5th February. That was confirmed in a letter to her from Mr. Barrett dated 6th January 1997 (TB 32). The material part of the letter reads:

"As we discussed earlier today, it will come as no surprise to you that we are concerned that you have not produced any fees for the last three months. Bearing in mind that we were obliged to close Arrow Selection as a separate operation under your control due to it ... not reaching its planned revenues, the Board of OSL have concluded that your career would be better served by not being involved with a position that has such high a content of marketing as does Executive Search."

The basis of Mrs. Archer's claim that the reason for her dismissal was redundancy was that Arrow Selection was being closed down as a separate operation. Since the division in which she worked was being disbanded, she was surplus to OSL's requirements.

10. The language of the letter of 6th January 1997 does not really support Mrs. Archer's claim. The letter referred to Arrow Selection as having been closed down already. Indeed, the letter is much more consistent with OSL's case, which is that the memo. of 1st August 1996 had been put into effect in its entirety. The reason why Arrow Selection had been re-integrated into OSL in August 1996 was, according to the evidence of Mr. Barrett, because (a) it had turned out to be unprofitable (which was borne out by internal management accounts), and (b) concerns had been expressed by Mr. Yau and another director about certain aspects of Mrs. Archer's running of Arrow Selection. Moreover, OSL's case is consistent with an internal document prepared by OSL's Administration Manager (TB 193), which shows that from August 1996 responsibility for paying Mrs. Archer's salary was attributed to OSL rather than Arrow Selection. It is true that that document records Mrs. Archer as having continued to receive commission from Arrow Selection after August 1996, but that is consistent with the commission having been earned in respect of placements made while she had been with Arrow Selection.

11. I appreciate that Mrs. Athena Choy, another OSL consultant, and Ms. Elizabeth Whyte, OSL's Database Administrator, gave evidence to the effect that Arrow Selection continued to operate after August 1996. But their evidence, I believe, was no more than a reflection of the fact that Arrow Selection continued to be thought of by employees of OSL as a separate division of OSL, because advertisements were still being placed in the name of Arrow Selection, and because clients were for that reason being invoiced on Arrow Selection notepaper (which referred to Arrow Selection as being a separate division of OSL).

12. I find as a fact that the memo. of 1st August 1996 was indeed put into effect, and that in consequence Mrs. Archer's dismissal was not attributable to the closure of Arrow Selection, which had occurred five months earlier. So what was Mrs. Archer's dismissal attributable to? The decision to dismiss her was made by Mr. Barrett. His evidence was that, although he regarded Mrs. Archer as a woman with many qualities, he dismissed her because of her poor performance. Arrow Selection had not produced the revenues expected of it while it had been in operation, and Mrs. Archer had not produced any revenues herself in the last three months of 1996 when she was back as an OSL consultant. I accept Mr. Barrett's evidence on this issue. Whether his view of Mrs. Archer's performance was justified or unjustified is not relevant for present purposes, because it is the reason for her dismissal which matters, not its fairness. It is sufficient for me to state that the reason for her dismissal, namely Mr. Barrett's perception of her performance, did not amount in law to a dismissal for redundancy. She was therefore not dismissed, to paraphrase the definition of a dismissal by reason of redundancy in section 31B(2), because she was surplus to OSL's requirements.

13. In reaching this conclusion, I have not overlooked the presumption in favour of redundancy in section 31Q. Nor have I overlooked the fact that there are references to Arrow Selection in contemporaneous documents after August 1996. Those references, I find, are references, not to Arrow Selection as a separate division and profit centre within OSL, but simply to the fact that Arrow Selection continued to be a "brand" name, i.e. the name in which advertisements for personnel were placed. Nor have I overlooked OSL's overall requirements for consultants. Shortly after Mrs. Archer was given notice of dismissal, another employee (Claire Barrable) was promoted to consultant, and a new employee (Chin Yun Lin) was recruited as a consultant. OSL's overall requirements for consultants over the remainder of 1997, as revealed by the list of personnel in TB 60-62, did not decrease, and those overall requirements do not easily with the idea that Mrs. Archer was regarded as surplus to OSL's requirements.

14. For these reasons, therefore, Mrs. Archer's claim for a severance payment must be dismissed.

The claim for damages

15. Mrs. Archer claims that, before she was assigned to Arrow Selection in October 1995, she was told that she would be allocated a full-time assistant to help her, and that Arrow Selection would have the use of a new and efficient computer system, which would be installed and properly maintained by OSL. Although a full-time assistant was allocated to her, her assistant had to spend much of her time working on refining the computer system, developing the database and carrying out other duties for OSL. That meant that Mrs. Archer had to spend some of her time on work which her assistant would otherwise have done. There were, Mrs. Archer says, other calls on her time by OSL. All of that prevented her from developing her contacts, through whom other business, from which she could have earned commission, could have been generated.

16. I do not have to decide whether those complaints are justified because, even if they are, I do not think that they caused Mrs. Archer to lose commission which she would otherwise have earned. I was initially sceptical about Mrs. Archer's assertion that she could not generate the business which she would have liked to: if the business is really out there, you make the time to get it. But my scepticism was confirmed when Mrs. Archer was pressed to identify how much of the time denied to her by the breaches of contract which she alleged she could have spent developing her contacts and generating business from them. She referred to TB 185-189, which lists the various functions she attended on OSL business while employed at OSL. She said that it was at functions of that kind that she would have been trying to generate business for OSL and Arrow Selection. However, the documents show, broadly speaking, that there was no difference between the number of functions she attended while she was an OSL consultant and the number of functions she attended during the period of her assignment to Arrow Selection. My conclusion, therefore, is that even if OSL broke her contract of employment by causing her to do some of the work which would otherwise have been done by her assistant, and by giving her other duties, she suffered no quantifiable loss as a result of that breach.

17. The other part of Mrs. Archer's claim for damages is as follows. She claims that before she was assigned to Arrow Selection in October 1995, she was told that if a vacancy was to be advertised, Arrow Selection would not merely place the advertisements. It would process all the responses to the advertisements, and interview the short-listed candidates as well. That was important from the point of view of commission. Commission would only be paid to the consultant who was responsible for filling the vacancy. In the case of vacancies filled as a result of advertisements, the commission would be payable to the consultant who interviewed the short-listed candidates, and who liaised with the clients, because that was the consultant who would be regarded as having been responsible for the ultimate appointment of the successful candidates. It was important to Mrs. Archer, therefore, that OSL stuck to its promise, and allowed her to interview the short-listed candidates and to liaise with the clients - in other words, to handle the assignment in its entirety. Only then would she be entitled to the commission to be earned on a successful placement.

18. Mrs. Archer complains that there were a number of occasions when assignments which should have been completed by her as the only consultant working within Arrow Selection were in fact completed by OSL consultants. In other words, although the advertisements had been placed by Arrow Selection, the short-listed candidates had not been interviewed by her, and she had not been regarded as responsible for the appointment of the successful candidates. That was, she claims, a breach of the terms of her contract of employment which applied after her assignment to Arrow Selection. What she has lost is the commission which she would have earned on those placements which had been taken out of her hands. She estimates her lost commission to be at least $100,000.00.

19. For its part, OSL does not dispute that a number of positions advertised by Arrow Selection were handled by OSL consultants. OSL's case is that there never was an agreement that all the positions advertised by Arrow Selection would necessarily be handled to their completion by Mrs. Archer exclusively. The evidence of Mr. Barrett comes to this. OSL's core business was that of executive search consultants. However, there was perceived to be a niche market in relation to the recruitment of more junior personnel who were usually recruited by advertisement alone. Arrow Selection was to be the division within OSL which was to be responsible for this new initiative. All assignments for the recruitment of junior personnel who were going to be recruited by advertisement only would be handled to their completion by Arrow Selection, and Mrs. Archer would earn commission on the placement of such personnel. However, since Arrow Selection was to be the division within OSL dedicated to recruitment by advertisement, it made sense for those OSL search assignments in which advertisements were to be used as one of the tools of recruitment to be handled by Arrow Selection as well - in the sense that Arrow Selection would be responsible simply for the placing of the advertisements. Accordingly, that subsidiary part of Arrow Selection's business would not result in commission being earned by Mrs. Archer. Commission would be earned on those assignments by the consultants who had merely handed over the mechanics of the advertising of the positions to Arrow Selection, but who both before and after the actual placing of the advertisements had done the work in connection with the assignments.

20. I accept Mr. Barrett's evidence on this issue. I think that the notes of the discussions which preceded the creation of Arrow Selection and the memoranda which came into existence at the time of its establishment (TB 143-144, 14-15, 16 and 18) are more consistent with Mr. Barrett's version of events than that of Mrs. Archer. And if Mrs. Archer was really being denied commission because she believed that commission-generating work was being removed from her, I would have expected her to make specific complaints about that. In fact, the complaints which she made were that some of the advertising was being done by OSL, not Arrow Selection (TB 20-21), and that it was that which gave rise to the blurring of the demarcation lines between Arrow Selection and OSL (TB 23 and 27).

21. In conclusion, therefore, Mrs. Archer has not satisfied me that OSL broke her contract of employment as she claims.

Annual leave pay

22. Mrs. Archer was entitled to three calendar weeks' leave a year. That was treated in her contract of employment as equivalent to "16 working days" (TB3), to reflect the fact that she could be required to work on two Saturday mornings out of three. By the date her employment ended, she had 11.82 working days' leave outstanding. Her contract provided that any entitlement due to her when her employment ended would be paid to her. She was therefore entitled to annual leave pay to compensate her for the 11.82 working days which she had not by then taken as leave. She is therefore entitled to her daily pay multiplied by 11.82. All that is common ground between Mrs. Archer and OSL.

23. What is in dispute is how that daily pay should be calculated. Mrs. Archer claims that it should be calculated by dividing her annual salary by the number of working days a year. OSL claims, on the other hand, that it should be calculated by dividing her annual salary by the number of calendar days in the year, because that is the way OSL had always done it, and that is how pay in lieu of notice is calculated: see para. 12.3 of Mrs. Archer's contract of employment (TB 4). In my view, Mrs. Archer's claim is correct. If OSL was correct, Mrs. Archer would only be compensated for 11.82 calendar days' leave, when she was entitled to 11.82 working days' leave. The fact that OSL has always calculated leave pay differently in the past does not affect the matter.

24. I should add that Mrs. Archer's construction of her contract of employment would have been in accordance with the method of calculating her annual leave pay had her claim been under Part VIIIA of the Employment Ordinance (see sections 41C(1) and 41D(1)), though it is important to emphasise that her claim for annual leave pay is not made under the Employment Ordinance (which would have entitled her only to 7 days' leave pay) but is made under her contract of employment.

25. Accordingly, her annual leave pay should have been $26,000.00 (her monthly pay) x 12 x 11.82 ( the number of days a year when she could be required to work under her contract of employment. I have calculated that to be 267 days (52 x 5, plus 34 half-days on Saturdays, less 10 public holidays). This calculation comes to $13,812.13. However, OSL paid her the sum of $10,079.68 towards her annual leave pay. That sum has to be deducted from the $13,812.13. Accordingly, the sum which I award Mrs. Archer for arrears of annual leave pay is the sum of $3,732.45.

Arrears of commission

26. The provision in Mrs. Archer's contract of employment relating to commission was as follows (TB 2):

"For all business generated and executed by you which has been billed out and received during each month, you will receive 10% of those fees in excess of double your month salary at the end of the month in question."

It is common ground that in December 1996, Mrs. Archer was responsible for the placing of an applicant with Motorola. OSL invoiced Motorola the sum of $115,200.00 for that placement in August 1997, and its fee was paid by Motorola in November 1997. Mrs. Archer argues that she is entitled to receive commission on that placement because the placement was generated by her. In addition, she contends that the sum of $115,200.00 on which her commission would be based should not be reduced by $52,000.00, i.e. twice her monthly salary, because she was not entitled to salary for the month of November 1997 when OSL's invoice was paid by Motorola since she had been dismissed by then. Accordingly, she claims the sum of $11,520.00 arrears of commission, being 10% of $115,200.00. OSL recently tendered her a cheque for $6,320.00 in respect of this claim.

27. Mrs. Archer only become entitled to commission once OSL's invoice had been paid by the client: that is the effect of the word "received" in the relevant contractual provision. That provision does not expressly provide that the commission which Mrs. Archer would be regarded as having earned is not payable to her if her employment has come to an end before payment of the invoice to which the commission relates. Nor do I think that there is any basis for implying such a limitation to the provision. Accordingly, Mrs. Archer continued to be entitled to commission in respect of the placements made by her during her employment, even if that entitlement did not arise until after her employment came to an end.

28. It follows that the crucial question is whether, in calculating that commission, her notional monthly salary for December 1997 has to be ignored. In my view, it cannot be ignored. In order to give effect to the presumed intention of the parties, and in order to give the provision as to commission commercial and business sense, a term has, I believe, to be implied that if Mrs. Archer left OSL's employment, any commission which she earned thereafter in respect of placements made before her employment ended would be calculated by reference to 10% of the fees in excess of double what her salary would have been had her employment not ended. On that footing, the commission to which she was entitled was 10% of ($115,200.00 - $52,000.00), i.e. $6,320.00. That was the very sum tendered to her. Since she has paid that cheque into her account, she is not entitled to a further award.

Conclusion

29. For these reasons, there will be judgment for Mrs. Archer in the sum of $3,732.45 representing the arrears of her annual leave pay, but her other claims must be dismissed.

(Brian Keith)

Judge of the Court of First Instance