LUI LIN KAM AND OTHERS v. NICE CREATION DEVELOPMENT LTD t/a FU ON SEAFOOD RESTAURANT

HCLA 106/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 106 OF 2002

(ON APPEAL FROM LABOUR TRIBUNAL CLAIM NO. 3887 OF 2001)

____________

_______________

J U D G M E N T

_______________

1. The Defendant operated a seafood restaurant and the Claimants were its employees working as waitresses and captain at the restaurant. By a notice dated 14 February 2001, the Defendant terminated the employment of the Claimants. It was said that the restaurant needed redecoration and its scale of operation would be reduced thereafter. The Claimants lodged various claims against the Defendant after the termination of their contracts. The claim was filed on 28 May 2001. Some claims were admitted by the Defendant, some not. This is an appeal by the Defendant against the award of the Labour Tribunal made on 22 October 2002. By that award, the Presiding Officer Mr Henry Wai awarded in favour of the three Claimants severance payments as well as compensations for rest days. This appeal only concerns the former and it does not affect the 1st Claimant.

2. A number of grounds were set out in the application for leave to appeal. This court only granted leave to appeal on 22 January 2003 on one ground, which is as follows,

" (a) As far as the 2nd and 3rd Claimants are concerned, the learned Presiding Officer erred in law in holding that there must at least be a break for a period of 4 weeks or more or alternatively during the 4 weeks preceding, the employee had worked for less than 18 hours per week, before it could be held that there was a break in the continuity of employment.

(b) The learned Presiding Officer erred in law in relying or following the dictum of Yam J in David Hot Blocking Press Ltd v Ho King Yam [1996] 1 HKC 270 at 276C, which was wrongly decided or decided per incuriam.

(c) In the premises, since there was a break in the continuity of the 2nd and 3rd Claimants' employment during the period between 1 October 1999 to 15 October 1999 (both days inclusive), the 2nd and 3rd Claimants were not entitled to any severance payment, redundancy payment or long term service payment."

3. There was a dispute of fact as to whether the 2nd and 3rd Claimants actually worked at the restaurant between 1 and 15 October 1999 ["the Disputed Period"]. The Claimants said they did work on those days and were paid with cash. The Defendant said otherwise. The Presiding Officer did not make any finding of facts in this regard. Hence, if Mr Chu succeeds in persuading me in setting aside the award of the Tribunal, the case would have to be remitted for trial.

4. The background was that the 2nd and 3rd Claimants were employed by the Defendant both before and after the Disputed Period for substantial periods. As stated in Paragraph 4 of the Reasons for Decision of the Presiding Officer, the 2nd Claimant commenced his employment with the Defendant on 23 October 1996 and his last day of work was 15 March 2001. The 3rd Claimant commenced her employment with the Defendant on 1 September 1995 and her last day of work was also 15 March 2001. Throughout these years, each of the Claimants signed three written contracts with the Defendant, each contract lasted for 18 months. In respect of the 2nd Claimant, the contract that had been effective immediately before the Disputed Period was the one dated 1 February 1998 (on the face of its term, it ran up to 31 August 1999). There is no dispute, however, that he continued to work for the Defendant up to the end of September 1999. On 15 October 1999, he signed another contract with the Defendant for another 18 months. It was therefore terminated pre-maturely on 15 March 2001. In respect of the 3rd Claimant, the immediate contract before the Disputed Period was the one dated 1 February 1998 (again ran up to 31 August 1999 on its face). Again there is not dispute she continued to work at the restaurant up till the end of September 1999. Like the 2nd Claimant, the 3rd Claimant also signed a contract on 15 October 1999 for another 18 months and her employment was pre-maturely terminated on 15 March 2001.

5. If these two claimants had worked during the Disputed Period, there cannot be any doubt that their employment under these successive contracts would be regarded as continuous under the First Schedule of the Employment Ordinance. But as I said, the Presiding Officer did not resolve the dispute of facts in this regard. He did not find it necessary to do so. His reasoning was set out in Paragraphs 9 to 14 of his Reasons for Decision. He relied on the following dictum of Yam J in David Hot Blocking Press Limited v Ho King Yam [1996] 1 HKC 270 at 276C.

"In other words, in order to defeat the purposes of this part of the Ordinance, an employer must dismiss an employee for four or more weeks or during those four weeks preceding, the employee was not asked to wrok for 18 or more hours."

6. The Presiding Officer therefore held that since the Disputed Period did not last for the minimal period of four weeks, even if the Claimants did not work during the same, the continuity of their contracts of employment was not broken.

7. The continuity of the employments of the Claimants has important impact on their claims for severance payment. Mr Chu, counsel for the Defendant, argued that if there was a break in continuity during the Disputed Period, neither Claimants met the 24 months requirements under Section 31B(1) of the Employment Ordinance to claim severance payment. Nor could they met the requirement for claiming long service payment under Section 31R(1) of the Ordinance (5 years of service required). Mr Chu accepted that this question had no bearing on the award of compensation for rest days.

8. The relevant provisions in the Employment Ordinance are Section 3 and the First Schedule thereof. Section 3 reads,

" (1) In this Ordinance, "continuous contract" (連續性合約) means a contract of employment under which an employee is deemed by virtue of the provisions of the First Schedule to be in continuous employment.

(2) In any dispute as to whether a contract of employment is a continuous contract the onus of proving that it is not a continuous contract shall be on the employer."

9. In the present context, the relevant provisions in the First Schedule are as follows,

"1. (a)	The provisions of this Schedule are to ascertain whether or not any contract of employment is a "continuous contract" for the purposes of this Ordinance.
(b)	In the case of a contract of employment existing at the commencement of this Ordinance, such period of employment next preceding the date of commencement of the Ordinance as may be necessary shall be taken into account in order to ascertain whether or not the contract of employment is a continuous contract.

2. Subject to the following provisions, where at any time an employee has been employed under a contract of employment during the period of 4 or more weeks next preceding such time he shall be deemed to have been in continuous employment during that period.

3. (1)	For the purposes of paragraph 2, no week shall count unless the employee has worked for 18 hours or more in that week, and in determining whether he has worked in any hour the provisions of sub-paragraph (2) shall apply.
(2)	If in any hour the employee is, for the whole or part of the hour-

(a) incapable of work in consequence of sickness or injury; provided that any such incapability in excess of 48 hours is supported by a certificate issued by a registered medical practitioner or registered dentist; or (Amended 5 of 1995 s. 11)

(b) absent from work in circumstances such that, by law, mutual arrangement or the custom of the trade, business or undertaking, he is regarded as continuing in the employment of his employer for any purpose, then, save as provided in paragraph 4, that hour shall count as an hour in which he has worked.

...

6. For the purposes of this Schedule, any reference to hours in which an employee has worked shall mean hours in which he has worked for his employer whether or not the hours were worked under the same or another contract of employment with that employer and whether or not they were consecutive hours. (Replaced 41 of 1990 s. 23)

7. In this Schedule, unless the context otherwise requires - "week" means a week ending with Saturday."

10. Mr Chu's submissions focused on the correct construction of paragraphs 2 and 3 of the First Schedule. He submitted that on proper construction, these two paragraphs did not require a lapse of four weeks during the whole of which the employee did not work for 18 hours or more before there could be a break in continuity. He contended that the dictum of Yam J cited above were only obiter and unnecessary for the decision on the facts of that case. He said the obiter was wrong in law and the Presiding Officer in the present case therefore erred in law in following that dictum.

11. Mr Chu referred to several authorities in support of his argument. In Leung Wan Kee Shipyard v Lik Shau Foo [1995] 3 HKC 229 at p. 232I to 233B, Waung J held that the correct approach that a presiding officer should adopt in resolving the issue of "continuous contract" was to ask these questions,

" (1) Whether there had been any week from Sunday to Saturday, when the respondent had not worked for 18 hours (para. 3 (1) question).

(2) If so, would any of the following four exceptions apply:

1. sickness or injury incapability (para. 3(2)(a) question);

2. mutual agreement or trade custom (para. 3(2)(b) question);

3. strike (para. 4(a) question); or

4. lock-out by employer (para. 4(b) question).

(3) If so, to what extent each exception applies."

12. The emphasis is on Waung J's reference to 18 hours within a week from Sunday to Saturday instead of 18 hours within four weeks. The implication is that if an employee did not work for at least 18 hours within a week, unless he came within the stipulated exceptions, the continuity of contract would be broken.

13. Mr Chu also referred to paras. 26 and 27 of my recent judgment in Wong Man Kwan v Chun Shing Holdings Ltd HCLA 29 of 2002, 7 March 2003. I said the following in Para. 27 of that judgment,

"The combined effect of Paragraphs 2 and 3 [of the First Schedule] is that so long as an employee has worked for 4 weeks preceding the relevant date and worked at least 18 hours for each week, he would be deemed to be in continuous employment, or in other words, deemed to be employed under a continuous contract."

14. Mr Chu also cited the following passage from Halsbury's Laws of Hong Kong, Vol. 10(2) 2001 Reissue, Para. 145.060,

"The continuity of service of an employee will be broken whenever in any week less than 18 hours of service is worked. The courts, however, have frequently treated service as being continuous which might have otherwise been regarded as broken under the statutory provisions."

Several cases were cited by the learned editor for the last proposition. On proper reading, those were cases falling within the scope of Paragraph 3(2), e.g. Ip Pui-wai v Siu Kwok Keung LTA 37 of 1993 was a case of absence from work for two months by agreement.

15. Ultimately, it is a question of construction of Paragraphs 2 and 3 of the First Schedule. With respect to Yam J, I prefer the approach of Waung J and agreed with Mr Chu that when these two paragraphs are read together, the First Schedule does not require a lapse of four weeks with working hours less than 18 hours in the whole period to break the continuity of contract.

16. I can quite understand why Yam J came to that view in his obiter because these two paragraphs were not well drafted. If one were to read Paragraph 2 on its own, one could easily get the impression that a lapse of four non-working weeks is required to break the continuity as Yam J did. However, it is necessary to read that paragraph together with paragraph 3. In my judgment, Paragraph 2 is primarily dealing with the deeming of certain situations which, but for this paragraph in the First Schedule, would not be regarded as continuous employment. For example, a casual worker who worked intermittently for an employer without any global contract may rely on this paragraph to show that he is under a continuous employment after working so for four weeks. However, this is subject to the provisions in Paragraph 3(1), which is the crucial sub-paragraph on break of continuity. That sub-paragraph provides that subject to Paragraph 3(2), a worker who worked for less than 18 hours within a week would not be reckoned as working in that week for the purpose of Paragraph 2. Hence, the net effect is that a worker has to show that he worked for 18 hours or more in each week for four consecutive weeks in order to rely on the deeming provision under Paragraph 2.

17. In my judgment, the phrase "at any time" in Paragraph 2 may have a misleading effect. On proper reading, the phrase only describes the point in time by reference to which the court has to decide if an employee was in continuous employment. Paragraph 2 directs the court to examine the position during the four weeks next preceding "such time". Hence, Paragraph 2 should not be construed as saying that an employee is deemed to be under a continuous employment if he has been employed at any time during the four weeks preceding. The Chinese version of Paragraph 2 supports this construction. It reads,

"2. 在符合以下條文的規定下，不論何時，凡僱員在緊接該時間前，根據僱傭合約受僱4個星期或以上者，須當作在該段期間內是連續受僱。"

18. I therefore stand by what I said in Para. 27 of the judgment in Wong Man Kwan.

19. There is however one rider I wish to add regarding the approach of Waung J. In addition to mutual agreement (or arrangement) and trade custom, Paragraph 3(2)(b) also referred to absence from work in circumstances such that by law an employee is regarded as continuing in the employment. I have referred to the recognition of the concept of global contract under the common law in my judgment in Wong Man Kwan and this should be taken into account in applying Paragraph 3(2)(b). Hence, in the consideration of the Para. 3(2)(b) exception in the approach of Waung J the general law as to continuity of employment should also be taken into account.

20. Applying the above principles, I hold that the Presiding Officer erred in law in his reason for deciding the continuity point against the Defendant as set out in Paragraphs 5 and 6 above.

21. This is however not the end of the matter. Under Section 35(2) of the Labour Tribunal Ordinance, this court can draw inference of facts in dealing with an appeal from the Labour Tribunal. On the material before me, I am prepared to draw an inference from the indisputable facts in the present case that there was an agreement or tacit understanding between the Claimants and the Defendant in September 1999 that they would be re-engaged after the expiry of the contracts of 1 February 1998 as they eventually did on 15 October 1999. The evidence showed that the Defendant had adopted this practice of signing successive contracts with its employees and having read the transcript of the evidence given in the Labour Tribunal, I found nothing from the testimonies of the defence witnesses to indicate that the Defendant did not intend to continue with the employment of the Claimants in September 1999. To the contrary, their evidence clearly showed that there was a tacit understanding of re-engagement of the Claimants in October 1999 (DW1 at p. 94K to T of appeal bundle; DW3 at p. 112P to 113P). Hence, even if the Claimants did not work during the Disputed Period, the case may come within Paragraph 3(2)(b).

22. In this connection, Mr Chu accepted that these two Claimants had not claimed severance payments in October 1999. Mr Chu said it is now too late for them to claim the same by reason of the time bar in Section 31N of the Employment Ordinance. Mr Chu also submitted that in any event there was no redundancy in October 1999. It seems to me that the whole point of this arrangement of successive contracts was a scheme to avoid liabilities for severance payment or long service payment. DW3 admitted as much in his testimony. In these circumstances, taking the defence case to its highest, the so-called break at the Disputed Period was an artificial one. It is clearly a case caught by Section 32A(1)(a) of the Employment Ordinance reading together with Section 32B(1)(b). The Defendant clearly intended to extinguish or reduce the Claimants' right to severance payment or long service payment. Had an application been made by the Claimants for relief in 1999 under Part VI A, given the contracts of 15 October 1999, the Labour Tribunal could have made an order for reinstatement under Section 32N which could have stipulated that the continuity of the period of employment of the Claimants shall not be treated as broken by the absence during the Disputed Period (see Section 32N(4)(b)).

23. As a matter of fact, no claim under Part VI A had been filed by the Claimants in 1999 and they could not make such a claim now due to the time limit in Section 32J(2). However, I am of the view that it does not matter. This is because in applying Paragraph 3(2)(b) of the First Schedule, the court needs to consider whether a period of absence from work was in circumstances such that an employee is regarded as continuing in the employment of his employer by law. Such consideration involves not only taking into account the common law concept of global contract as stated above but also the employment protection legislation in Part VI A. As I said the inescapable conclusion on the evidence before the Tribunal was that there was at least a tacit understanding between the Claimants and the Defendant that they would continue to work for the Defendant after the expiry of their second contracts. This amounted to a global contract situation (see Para. 13 of my judgment in Wong Man Kwan and the cases cited in Para. 40 of that judgment). Insofar as the Defendant could show that there was an agreement to break the continuity of the contract to extinguish the right of the Claimants to severance payment or long service payment, that would be contrary to Part VI A and void under Section 70 of the Employment Ordinance. In those circumstances, I am of the firm view that in the eyes of the law, the employment of the Claimants was regarded as continuing despite the alleged absence from work during the Disputed Period.

24. I am glad to come to this conclusion because if the law were otherwise, an employer could easily escape liabilities under Part VI A by offering to re-engage an employee after a short break. It is unlikely that an employee in the same position as these two Claimants would file any claim against his employer after he has been offered a new contract after a short break. When he is finally dismissed, he would invariably find that it is too late to seek relief under Part VI A for breaches on the part of the employer many years ago by reason of Section 32J(2).

25. Hence, although I agree with Mr Chu on his construction of Paragraphs 2 and 3 of the First Schedule, I hold that the award of severance payment in favour of the 2nd and 3rd Claimants was correctly made by the Presiding Officer. For reasons already given, I hold that even if there had been absence of work during the Disputed Period, the continuity of the employment of the 2nd and 3rd Claimants were preserved. The appeal is therefore dismissed. Both the 2nd and 3rd Claimants attended the appeal in person. I will make a costs order nisi that the Defendant shall pay them the costs of this appeal, such costs be fixed at $500.00 for each of the 2nd and 3rd Claimants. As I told the Claimants at the appeal, they could make an appointment with the court to have this judgment interpreted to them by the court interpreter and I have directed my clerk to liaise with them for this purpose.