LEE LAI MING v. KAM MING E P ENGINEERING CO LTD

HCLA 105/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 105 OF 2002

(ON APPEAL FROM LABOUR TRIBUNAL CLAIM NO. 5956/2002)

____________

____________

_______________

J U D G M E N T

_______________

1. This is an appeal by the Defendant from an award made by the Labour Tribunal on 22 October 2002.

2. In the proceedings before the Labour Tribunal, the Claimant claimed wages in lieu of notice, annual leave pay, statutory holiday pay, wrongfully deducted wages, and terminal payment against his former employer. The Defendant counterclaimed for wages in lieu of notice. At the trial, the issues were narrowed down and the Tribunal was essentially concerned with two matters, namely whether the Claimant (a driver) was constructively dismissed by the Defendant (an environmental protection company) when the Defendant insisted on changing the working hours of the Claimant from 3 p.m. to 12 mid-night to 6 p.m. to 3 a.m., and whether there was wrongful deduction of wages.

3. In relation to the first issue, namely constructive dismissal, much time and effort was expended on the question of whether the change in working hours was agreed to by the Claimant when he wrote his signature on the written notice informing him of the change in working hours. The rest of the time and attention of the Tribunal was spent on the question of deduction of wages, as is apparent from the transcript.

4. In relation to the first issue, the Tribunal essentially found that:

(a) "Working hours is an essential term in an employment contract especially for nightshift worker. The term cannot be changed by an employer unilaterally" (paragraph 43 of the Reasons for decision dated 9 January 2003);

(b) "The contractual working hours of the Claimant were from 3 p.m. to midnight" (paragraph 45);

(c) "The Defendant had unilaterally varied an essential term of the Claimant's employment contract which was not agreed by the Claimant" (paragraph 45);

(d) "By insisting to make substantial change to the Claimant's working hours, the Defendant had repudiated the employment contract with the Claimant" (paragraph 45).

5. The Tribunal therefore concluded that the Claimant was constructively dismissed by the Defendant, and ordered relief in favour of the Claimant accordingly. The Tribunal also made findings in relation to the deduction of wages. In this appeal, this Court is only concerned with the Tribunal's finding in relation to constructive dismissal.

6. As mentioned above, the Tribunal was of the view that "[w]orking hours is an essential term in an employment contract especially for nightshift worker. The term cannot be changed by an employer unilaterally." In so far as this was intended to be a general statement, I am of the opinion that it was too sweeping. Whether working hours is an essential term, or a condition of a contract of employment - the breach of a condition will, regardless of the actual consequences, entitle the innocent party to terminate the contract, must depend on the circumstances and facts of an individual case. Amongst other things, it must depend on the specific agreement (if any) between the parties, the nature of the employer's business or trade, the nature of the job, the agreed working hours and the respective circumstances of the employer and employee (generally and those that were known specifically to the other party at the time of contract).

7. Further, whether the working hours can be unilaterally changed depends, generally speaking, not on whether working hours constitutes an essential term or condition of the contract, but rather whether there is any contractual power (express or implied) to do so. The two questions may very often be related, but they are not identical. It is conceivable that in a particular contract, working hours is a condition of the contract, yet there is also a contractual power on the part of one party to unilaterally change the working hours.

8. On the other hand, if, for instance, working hours, on a proper construction of the contract in question, constitutes an essential term or condition, and there is no contractual power to vary unilaterally the working hours, then any attempt to do so will constitute a repudiation of the contract, regardless of the actual consequences, which entitles the innocent party to terminate the contract.

9. However, if working hours is not an essential term of the contract in the sense that it does not constitute a condition of the contract, and if there is no unilateral power on either party's part to change the working hours, then changing the working hours unilaterally by either party will constitute a breach of contract. However, the legal consequence of the breach will depend on whether working hours is a "warranty", or an "intermediate term" of the contract in question. In the former case, the breach of the warranty will not give the innocent party a right to terminate the contract. In the latter case, the breach of the intermediate term may or may not give rise to such a right, depending on the circumstances and the actual consequences of the breach. See generally Chitty on Contracts (28th ed.) vol. 1 para. 12-019 et seq.

10. All this, as I said, must depend on the circumstances and facts of the individual case.

11. As mentioned above, the Tribunal clearly proceeded on the basis that the working hours in the present contract was an essential term, and there was no power on the part of the employer to unilaterally change the working hours. The difficulty of this approach is that in so far as it was based on the very general statement relating to working hours set out in paragraph 43 of the Reasons for decision already extracted above, it was wrong because it was based on too general and sweeping a premise relating to the nature of a term about working hours, as I tried to explain in the preceding paragraphs. On the other hand, in so far as the Tribunal's approach was based on the evidence in this particular case relating to the particular employment contract in question, it was problematic because there was really little investigation into the relevant circumstances.

12. All that really is known about the contract of employment in the present case is that there was no written contract; it was entered into by the Claimant with the Defendant orally. It is, for example, not known with whom of the Defendant did the Claimant negotiate and agree orally his terms of employment. That individual was not identified, still less did he or she give evidence at trial. The evidence of the Claimant in relation to what was agreed when he was employed by the Defendant was very brief. All that is known is that since he was employed, his working hours had been 3 to 12, subject to some occasional exceptions when he was required by his employer to work at later hours. There were also records of the overtime work done by the Claimant for the Defendant throughout his period of employment with the Defendant (which lasted over 2 years). The records showed that the Claimant had done much overtime work for the Defendant, and on many occasions, the durations of overtime work were in the region of 2 to 3 hours or more.

13. As I said, very little was extracted from the Claimant regarding what was agreed at the time when he was hired by the Defendant. Apart from the Claimant, there was no other witness for the Claimant. As for the two witnesses called by the Defendant, they did not deal with and the Tribunal did not ask them any question about what was agreed between the Defendant and the Claimant at the time when the Claimant was hired, particularly in relation to the working hours, and any right to change the working hours.

14. In particular, the Tribunal did not find out whether there was any express agreement reserving to the employer a power to unilaterally vary the working hours. No such finding was made. To be fair to the Tribunal, no such case was put forward by the Defendant. So understandably, the Tribunal did not make any serious investigation into this possibility.

15. However, this is not the end of the matter. The absence of an express power on the part of the employer to unilaterally change the working hours does not necessarily mean that there could be no implied power on its part to change the working hours to suit its working requirements, provided that the power was to be exercised reasonably, in good faith and for good reasons. Whether such a power could be implied into the contract of employment by reason of, say, necessity or business efficacy, and what was the scope or extent of such a power, if any, would be a question of fact. No finding was made, and indeed no finding could be made without an investigation into the circumstances prevailing at the time when the contract of employment was entered into.

16. Of course, if there was an implied power on the part of the employer to change the working hours unilaterally, then the case of the Claimant would not be as straightforward as the Tribunal apparently thought. The claim would, in that case, depend on the content of the implied power, whether there were good grounds for the exercise of the power, whether the power would allow the changing of the working hours by 1/3 of the total working hours (i.e. putting back the working hours by 3 hours out of a total of 9 hours' working time), and considerations of that sort.

17. Without these investigations, one simply could not conclude, as a matter of factual finding, that in this particular case, the working hours was an essential term of the contract of employment, or that there was no unilateral power on the part of the employer to change the working hours. In fact, as explained above, even if there were no express or implied power to vary the working hours unilaterally, it does not necessarily follow that the working hours was an essential term (i.e. a condition) of the contract of employment. Whether the working hours, in such circumstances, was an essential term of the contract would depend on the express agreement between the parties, if any, and in the absence of that, the circumstances of the case.

18. So for these reasons, the basic premises of the Tribunal that the working hours in the present case was an essential term, and that there was no power on the part of the employer to unilaterally change the working hours, cannot be sustained. It must follow that the further conclusion of the Tribunal that the Defendant, by unilaterally changing the working hours, has committed a repudiatory breach of contract is flawed.

19. Since all this goes to the core question of whether there was a constructive dismissal of the Claimant, this part of the finding and award of the Tribunal in favour of the Claimant cannot be allowed to stand.

20. In the circumstances, this appeal must be allowed, and this part of the case remitted to the Labour Tribunal for a re-trial before another Presiding Officer. Special attention should be paid to the terms of the employment contract, whether express or implied, particularly those relating to the working hours, the contractual nature of the term on the working hours (i.e. whether it was a condition, an intermediate term or a warranty), and any express or implied term giving the employer a power to vary unilaterally the working hours (and if so, what the content of the term was); if it is eventually concluded that there was a breach of contract by changing the working hours, whether it was a breach of a condition, and if not, whether the breach was nonetheless so fundamental as to entitle the employee to leave his employment, thus amounting to a constructive dismissal: see Western Excavating (ECC) Ltd v Sharp [1978] QB 761; Pedersen v The Mayor and Burgesses of the London Borough of Camden [1981] ICR 674. And in relation to the last-mentioned aspect, the records of the overtime work and pay (which did not receive much if any attention by the Tribunal) must be looked at to see whether the deviation from the previous working hours was so serious that it amounted to a repudiation of the contract of employment, assuming that the deviation constituted a breach of contract of employment but the working hours did not constitute a condition of the contract of employment.

21. As regards costs, having heard counsel's arguments on a provisional basis, I agree with counsel for the Defendant that the merits of this appeal are quite separate from the merits of the substantive claim before the Labour Tribunal, the present appeal does not really involve the fault on the part of either party, and it would be fair to order each party to bear its own costs (as opposed to making the costs of this appeal in the cause of the re-trial). The Defendant is prepared not to ask for a more favourable order as to costs. In the circumstances, I order that the costs of this appeal be borne by the parties respectively. I also order that the Claimant's own costs be taxed in accordance with the Legal Aid Regulations (Cap. 91).