ESTEE LAUDER (H.K.) LTD. v. LAU YUK PING, MAGDALENE and Another

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

LABOUR TRIBUNAL APPEAL NO.94 of 1996

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J U D G M E N T

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1. This is an appeal by the employer against the decision of the Presiding Officer of the Labour Tribunal. At the end of the hearing, I dismissed the appeal saying that I would reduce my reasons into writing. This I now do.

Background

2. The appellant was the authorised sole agent in Hong Kong of two cosmetic products, namely, Clinique and Estee Lauder. The 1st respondent was a beauty consultant for Clinique products and was employed by the appellant since 6th January 1988. The 2nd respondent was a beauty adviser for Estee Lauder products and was employed by the appellant since 18th April 1988. Both of them had their contracts of employment terminated by the appellant on 8th January 1996. Hence, at the time of termination, the two respondents had worked for the appellant for approximately eight years and seven years and eight months respectively. They each had a basic salary and received commission. In January 1996, the 1st respondent's monthly income was $22,234.60 and the 2nd respondent's was $14,085.20. These figures were not in dispute. The two respondents claimed against the appellant in the Labour Tribunal for wages in lieu of notice and long service payments. They succeeded. Hence, the appellant appealed.

The specific term in question

3. Although the respondents were employees of the appellant, they were posted at the counters of a retailer shop authorised by the appellant, namely, Tack Long Dispensary in Tsimshatsui. The appellant was gravely concerned to control the "grey market", that is, the sales of its products by non-prestigious retailers not through the proper authorisation or agency channels. Because of this concern, the appellant had adopted a very firm policy. Incorporated into the contracts of employment of its employees was a very stringent term with regard to such "unauthorised" sales. The relevant term in respect of the contract of employment with the 2nd respondent was as follows :

"If a customer request(s) to purchase merchandise :

1) totalling up to more than HK$8,000;

2) more than 3 units per product;

3) request for 15% discount;

You are obliged to report the incident to the office immediately.

Anyone who offer(s) 15% to our customers and also sell merchandise to 'Diverters' will be dismissed by the company immediately without any compensation.

If your Store Manager or Supervisor insist(s) that you give a 15% discount to a customer and deal with 'diverters' you must report the incident to the office immediately (same day). Any one who fails to do so will also be dismissed by the company."

With regard to the 1st respondent, the first letter which contained a similar term was dated 10th May 1993 and written in English. She signed at the end of it on 28th July 1993. The relevant term appearing in that letter was much simpler than the one referred to above. However, another letter written in Chinese and signed by the 1st respondent on or about 15th December 1993 contained a term which was similar to the one signed by the 2nd respondent except for the type and amount of products. No issue was taken by counsel for the respondents regarding which letter was to be relied on. It seems that both parties were content that the same term applied to both respondents.

4. I would, however, point out that there is a difference between the English copy and the Chinese version. This relates to the term regarding the making of a report to the office in case a store manager or supervisor should insist on giving a discount to a customer and dealing with diverters. In the English version, the employee was obliged to report to the office "immediately (same day)". In the Chinese version, it simply said that there must be a report to the office within the same day. This Chinese version which was signed by the 1st respondent subsequent in time may throw light on the construction of the term with which I have to deal.

The incidents

5. The events as found by the Presiding Officer which led to the termination of the contracts of employment of the two respondents were as follows.

6. On 5th January 1996, which was a Friday, at 7:30 p.m., a woman by the name of Miss Tina Tapnio together with a friend went to the dispensary and approached the 1st respondent's counter selling Clinique products. They were in fact engaged by the appellant and posed as Japanese tourists. Miss Tapnio asked for 12 pieces of a certain product and requested for a discount of 15%. According to the findings of the President Officer, the 1st respondent explained to the customers the policy of her company. However, the customer insisted. Hence, the 1st respondent consulted the manager of the dispensary, a Mr Benny Chan. Upon the approval of Mr Chan, the 1st respondent acceded to the request of the customers. At the instructions of Mr Chan, four receipts were issued each referring to the sale of three pieces.

7. On 6th January 1996, which was a Saturday, some time in the afternoon, a customer by the name of Mr Augusto Scaglione came to the dispensary and approached the 2nd respondent's counter selling Estee Lauder products. He too was an agent engaged by the appellant. He asked to buy 10 bottles each of two kinds of product and requested for a discount of 15%. The 2nd respondent, according to the findings of the Presiding Officer, explained to the customer the policy of the company. However, the customer insisted. Hence, the 2nd respondent consulted the manager Mr Benny Chan. At the end of the day, with the approval of the manager, the 2nd respondent sold five bottles of each product at a discount of 10% to the customer. Again, on the instruction of Mr Chan, the 2nd respondent issued two receipts, one for three bottles of the product and another for two bottles.

8. The manager Mr Benny Chan who gave evidence before the Tribunal on behalf of the two respondents confirmed that he had been consulted on both occasions by the two respondents individually. He admitted that he supervised and approved the sales and the issue of the receipts in those manners. He explained that he was not aware of the appellant's policy. According to him, he had personally judged the two customers to be genuine tourists and not "diverters". He therefore decided to sell them the products to the two customers.

9. It was accepted that the appellant's office was closed in the evening of 5th January and on 6th and 7th January 1996.

The dismissals

10. On 8th January 1996, which was a Monday, the 1st respondent went back to the dispensary as usual at 11:30 am. Almost as soon as she arrived, a supervisor of the appellant came and looked at the records. She then escorted the 1st respondent back to the appellant's office. At the office, the 1st respondent was confronted with what happened in the evening of 5th January. She was asked to and did sign a document which purported to be a confession. She was then dismissed immediately.

11. The 2nd respondent reported for duty as usual at 12:30. She received a telephone call from her supervisor asking her to go to the appellant's office at 2:00 p.m.. She went there at the appointed time. She was confronted with what happened on the previous Saturday afternoon. Again, she was asked to and did sign a confession. She too was dismissed immediately.

12. It was the appellant's case that it was entitled to dismiss the two respondents summarily, that they were in breach of the special term of employment which allowed the appellant to dismiss them immediately. Hence, it was not necessary to give them notice of termination or wages in lieu of notice or long service payments.

The decision of the Tribunal

13. The learned Presiding Office having looked at the evidence and made the necessary findings of fact, came to the conclusion that the two respondents were not in breach of the restrictive term of their contracts of employment. He said that he would adopt a very narrow interpretation of the term. He came to the conclusion that the two respondents would have the whole of Monday to report to the appellant. He found that the respondents had not been reasonably dealt with by the appellant. He held that there was no reasonable and good ground for a summary dismissal of the two respondents.

Appellant's arguments

14. Counsel for the appellant submitted that summary dismissal was governed by s.9 of theEmployment Ordinance, Cap.57 which re-confirmed the common law position and permitted an employer to dismiss summarily an employee in circumstances where the employee's misconduct was sufficiently serious. He argued that an employer was entitled to dismiss an employee if the latter had disobeyed an order of vital importance or had persistently neglected to carry out an order which was not of great importance. Counsel also submitted that it was open to an employer to point out to the employees and agree with them that certain conduct would be considered very serious and justified immediate dismissal. Counsel said that the term in question in the present case was agreed by the parties as very important and therefore any breach of it would be regarded as serious misconduct. He conceded that in order to justify a summary dismissal, the breach must also be wilful before the employer would be entitled to terminate the contracts of employment summarily. He accepted that mere failure was not sufficient.

15. Counsel referred me to the "confessions" of the two respondents. In these documents it was said that they had admitted that they had deliberately or intentionally violated the specific term of the contracts. It was also pointed out that in their evidence, the two respondents admitted that they had a duty to report to the office.

16. Counsel submitted that the respondents were under an obligation to report the incidents "immediately" or "immediately (same day)". He accepted that as a matter of law these could not be taken literally and that they implied that a report should be made with all convenient speed or at such convenient time as was reasonably necessary for doing it. It was pointed out that the two respondents had the pager numbers of their supervisors. Hence, they could page their supervisors on Friday, Saturday and Sunday. This they had failed to do.

17. Counsel submitted that apart from paging their supervisors, the earliest opportunity for the respondents to report the incidents which occurred on Friday and Saturday was the following Monday, i.e. the 8th. However, Counsel argued that the words "immediately" or "immediately (same day)" required that the respondents should report the incidents first thing in the morning when they returned to work. But both respondents had failed to do so. It was argued that in the case of the 1st respondent, she had the opportunity of speaking to the supervisor when the latter came to look at the documents but she did not do so. In respect of the 2nd respondent, it was argued that she had from 12:30 p.m. to 2:00 p.m. to telephone the appellant's office but had failed to do so.

18. Counsel submitted that the two respondents had been made aware of the seriousness of the specific term in the contracts. They had received repeated warnings from time to time about the importance of the obligation and were aware of it. Yet, they had failed to do so. It was argued that the court could and would in this case draw the inference that their failure was wilful. It was also submitted that in the confessions, the two respondents had accepted that they were not entitled to any further payment apart from those set out in the documents and it would be wrong for them to turn round now and claim for more.

Construction of the term

19. It is accepted that the appellant was legitimately concerned with the control of grey market and was anxious to know the extent to which such market is prevalent. The purpose of the term was no doubt to ensure that the appellant could come to know of such market or matters relating to it. However, as the learned Presiding Officer remarked, it would, broadly speaking, be in the interest of every party, the appellant, the owners of dispensaries and the respondents, that there would be a bigger sale of the appellant's products. The term was clearly very stringent. It entailed instant dismissal of an employee upon a breach of certain parts of it, although counsel for the appellant accepted that only a wilful breach would be sufficient. This term would not lead to any immediate tangible benefit to the appellant but would result in drastic consequences for the employees. Hence, I think the learned Presiding Officer was correct to apply a narrow interpretation to it. Any ambiguity which might arise from the interpretation of the term should be resolved in favour of the employees. Afterall it was a term which was specified and included in contracts of employment by the appellant to its own benefit.

20. In my view, the term in question refers to three different situations. First, where a customer walks in and requests to buy more than a certain quantity of the products and/or requests for a discount of 15% or more. The obligation of the employee is to report the incident to the office immediately. Second, where an employee offers 15% discount to a customer and also sells merchandise to diverters. In that case, there would be immediate dismissal without compensation. Third, where the store manager or supervisor insists on giving a 15% discount to a customer and dealing with diverters. The employee's obligation is to report the incident to the office "immediately (same day)". A failure to do this will result in a dismissal by the appellant.

21. The appellant relied on the first and third situations and alleged that the respondents were in breach of these two parts of the term.

22. In respect of the first situation, there was no provision with regard to the consequence of a failure to comply with this duty. Counsel for the appellant submitted that looking at the term as a whole, it was implied that the consequence would also be instant dismissal. With respect, I cannot agree. The first situation is obviously less serious than the second and third. There is nothing to stop any Tom, Dick and Harry to a walk in and make such a request. The employee has to refuse and politely inform the customer of the policy of the company and then make a report to the office. But after a report is made, there is unlikely to be anything the appellant can do about such customer. There is no way to know whether it is an isolated customer who is interested to buy more at a cheaper price or a diverter of the grey market. Besides, there can be numerous requests during the course of the day. Such reports will provide the appellant with information about how many requests have been made. But their use will not be very great. It would not be right to imply into the term a provision to the effect that a failure to report a casual customer who asks for a bigger discount would result in an immediate dismissal. I do not think it is fair for the court to do so. On the contrary, the absence in this term of what would be the consequence of a breach is in stark contrast with the other two parts of the term which expressly provide for immediate dismissal. This is, in my view, a clear indication that it is not the intention of the parties that such a drastic consequence should follow upon non-compliance.

23. The employee is required to make a report immediately but there is no time limit during which she must report to the office about a request made by a customer. In my view, the employee should report to the office as soon as practicable after a customer has asked to buy more than is permitted either in quantity or in amount or requested for a discount larger than 15%. However, a failure to do so is not regarded as a serious or wilful breach which calls for summary dismissal.

24. In respect of the second situation, there is no obligation to make any report. An employee must not offer any discount of 15% to a customer and to sell merchandise to diverters, otherwise he could be dismissed. It is of course not expected that he would report himself to the office. I do not need to express any view on this part of the term since this was not relied upon by the appellant.

25. As far as the third situation is concerned, I think the effect is this. The appellant's employees are posted at the store of the authorised retailers to whom the appellant has already supplied the products. Hence the products are strictly speaking the property of the stores. There is no question of the employees selling the appellant's product to the customers in such situation. But the retailers may be anxious to sell as much as possible and may insist on selling with a discount more than 15%. There is little the employees of the appellant can do to stop the retailers. Afterall it is the retailers' business. However, in such case, the employees would be under an obligation to report such incident to the office. The third situation can be contrasted with the second situation. In my view, applying a strict interpretation of the term, this obligation only arises if : first, the store manager or supervisor insists; second, the employee at his insistence gives 15% discount to a customer; and third, deals with a diverter. It would seem therefore that all three conditions must be satisfied.

26. Under this part of the term, the employee has the duty to report the incident to the office "immediately (same day)". While counsel for the appellant accepted that this term imposed a period of one day for the reporting by the employee, he argued that the word "immediately" should also be given some meaning. He submitted that it would mean that the employee should make a report within a reasonable time and so long as it is practicable to do so. He submitted that if the employee was fully occupied by other work, then it would be acceptable that she did not make any report immediately. That was because it was not practicable for her to do so since she was doing some other work. However, he argued that if the employee did not have work to do or was not fully occupied and did not make a report within say, half an hour, she would be in breach of this term and if she was wilful, she was be liable to summary dismissal. But counsel accepted that if the employee had delayed in making the report within half an hour because she had forgotten about it, then it would not be a wilful breach and hence the appellant might not be able to dismiss the employee summarily.

27. I do not think this argument is tenable. The fact that counsel suggested that half an hour would be sufficient betrays the weakness of the argument. Why half an hour and not more or less ? Would it be considered as not immediate if it is more than thirty minutes ? In my view, the term should be considered as a whole and the words "immediate" and "same day" must be construed together. When used together, they set the deadline for making a report. The employee must do it within the course of the same day. If counsel's submission was to prevail, it would mean that the employee would be in continuous breach during the whole day even though she makes the report at the close of business on that day. She would still be dismissed immediately because it would then be considered too late. Such a construction of the term would be too harsh and render the words "same day" meaningless. The effect of this part of the term is, in my view, this. The employee should make a report to the office of any such incident as soon as practicable but she is given the indulgence of doing so within the course of the same day. It would not be a breach if the report is made during that day. In my view, the words "same day" not only qualify the word "immediately" but also give a sensible meaning to the whole term.

28. Incidentally, I note that this construction is also consistent with the Chinese version which provides in effect that the employee should have the whole day to make a report. There is no word in the Chinese version meaning immediately.

29. Having considered the purpose of the term, its benefit and importance to the appellant and the drastic consequence to the employee, I think that is the only reasonable construction which can be put to that part of the term.

Any breach by the employees

30. In the present case, the Presiding Officer found, and I think quite rightly so, that there was no specific instruction given as to how a report is to be made. Hence, it was not a breach by the employees for failing to page the supervisors and managers of the appellant and inform them of the incidents. This was argued before the Labour Tribunal. However, counsel did not press on this point. I think this must be correct. It would not be reasonable to expect the employees in the late evening of Friday or on a Saturday and Sunday when the appellant's office was closed to page the supervisors only to inform them of what happened. Looking at the scope of the term in question, if the employees were so expected, the supervisors would be receiving all sorts of phone calls after office hours. What would be the use of such information to the appellant when its office is not open for business? To require employees to page their supervisors would be imposing too onerous a duty not only on the employees but also on the supervisors.

31. With regard to the first situation, the failure to report on a request made by a customer, since there was no time limit for making the report so long as it is done as soon as practicable, I do not think there was a breach on the part of both respondents. The events occurred on Friday evening and Saturday afternoon when the appellant's office was closed. As I shall explain later, because of what happened on Monday morning, it can be said that the respondents were not given a reasonable opportunity to make a report before they were dismissed. In any event, I do not think that a failure to make such a report would entitle the appellant to dismiss the respondents summarily. This, as I said above, was not regarded as a serious or significant breach of duty.

32. With regard to the third situation, looking at the facts of this case, it appears that the appellant had purposely and intentionally sent out agents to retailer stores in the evening of a weekday and on Saturday and insisted on getting a greater discount or buying more products than was allowed. It was a time when their employees would find it difficult if not impossible to make immediate reports since the appellant's office was closed. Then, the first thing which happened on Monday when the appellant opened for business was that a supervisor was sent to the store to check. There is no evidence that anything was asked or said by the supervisor. It was quite clear that the purpose of the supervisor's visit was to get the record to confront the 1st respondent with and not to give her any chance. Counsel argued that she should have immediately made a report to the supervisor. However, I think that faced with a supervisor coming all of a sudden in the early morning, it is not surprising that the 1st respondent did not know what was happening. Afterall, there was a lapse of two days between the incident on Friday evening and Monday morning and it might not have immediately occurred to her what she would have to do. And according to my construction of the term in question, she had the whole day to make such a report.

33. Furthermore, it can also be argued that if she had been wilful in concealing what had happened on Friday evening, she could have immediately told the supervisor the incident as soon as the latter came to check. It might be that her explanation would be accepted by the supervisor. Hence, her not making a report as soon as she saw the supervisor is equally consistent with a momentary lapse as with a deliberate and wilful breach in concealing what happened.

34. In any event, bearing in mind all the circumstances of this case, I do not agree with counsel for the appellant that the breach, even if there was one, was wilful. Knowledge of the term and its seriousness is one thing, wilfulness is another. The fact that she did what was done at the insistence of the manager of the store was neither here nor there and was not sufficient for the inference that she must be wilful in failing to make a report.

35. As soon as the 1st respondent arrived at the office, she was confronted with the incident. Letters which were written in the form of a confession were already there. Even if she had given an explanation and made a report there and then, it would seem that this would be considered as too late by the appellant. When she was in the office of the appellant, I think the circumstances were such that it would be difficult for her to refuse to sign on those letters of confession. She probably had no choice. In these circumstances, I think the learned Presiding Officer was quite right not to attach too much importance to the "confession".

36. Further, I do not think if the 1st respondent was in fact entitled to wages in lieu of notice and long service payment, the documents which she had signed would have bound her and would have affected those entitlements. Her entitlements were based on the Employment Ordinance. I do not think her "acceptance" in the letters that she was owed the amount stated in the letter and nothing else would amount to a waiver of her statutory entitlements.

37. The same reasons should apply to the 2nd respondent. She did not have the opportunity to make any report on Saturday and Sunday. She came back on Monday at 12:30 p.m. and was asked to go back to the office at 2 o'clock. She had, of course, 1½ hours. However, it does appear that she might need time to go to the office or to have lunch. If she had the whole of Monday to make a report, I do not think that she was in breach by not making a report of the incident which occurred on Saturday between 12:30 and 2:00 p.m. on Monday. Similarly, when she was in the office of the appellant, she was immediately confronted with what happened. There was the confession ready for her to sign. I do not think she would have any choice but to comply. Again, her entitlements under the statute should not be affected by what she had signed which obviously purported to curtail her entitlements.

38. I should perhaps also mention the condition that the sale must be made to "diverters". It can be said that the obligation to make a report had not arisen unless it could be shown that the two agents were or believed to be diverters. There is no evidence that the two agents were diverters. In fact, Mr Chan, the manager, said that he was satisfied that they were not. On the evidence before the Tribunal and upon a true construction of the term in question, I also the view that the obligation to report to the office about the incidents had not arisen in the present case. It would follow that there could be no breach on the part of the respondents. It was for the appellant to prove that the reporting obligation had arisen but it had failed to do so.

39. In my view, what the appellant had done in this case had all the hallmarks of a deliberate attempt to trap the employees. This strongly suggests that it was the intention of the appellant to send agents to gather evidence against the employees at times when they could not reasonably be expected to comply with the term and then without providing them with sufficient opportunity to do so, took action to dismiss them purportedly under the term of the employment. In such circumstances, one cannot but doubt the motive of the appellant.

Conclusion

40. In the circumstances, I take the view that there was no breach on the part of the respondents. There was no ground for the appellant to dismiss the two respondents summarily. The dismissal was pre-mature and wrongful.

The learned Presiding Officer was correct in awarding the respondents wages in lieu of notice and long service payments.

41. For the reasons which I have given, I think the appeal must be dismissed. I would also order that the appellant do pay the costs of the respondents. The respondents' own costs will be taxed in accordance with the Legal Aid Regulations.