LEUNG YU TING and Another v. GOLD UNION FAR EAST LTD. t/a Ristorante Romano

LTA No. 185/1995

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

(On Appeal from Labour Tribunal Claim No. E3563 of 1995)

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J U D G M E N T

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1. The two Respondents Leung Yu Ting and Pui Chi Hung were first employed as restaurant manager and assistant general manager respectively by a ASEAN Cuisine Ltd in 1991. The ASEAN Cuisine Ltd changed its name to Piazza Di Romano Ltd in 1993. In 1994, the Appellant Gold Union Far East Ltd became the holding company. It was not disputed that the two Respondents were the employees of the Appellant since 1991 and the Appellant dismissed them on 21st June 1995. No reason was given for their dismissal and they were paid wages in lieu of notice of termination. The two Respondents claimed annual leave pay, statutory holiday pay, annual bonus, rest day pay and severance pay at the Labour Tribunal against the Appellant. At the trial before the Labour Tribunal, the Appellant disputed only the claims for annual bonus and severance pay.

2. The Appellant adduced evidence that partly due to the Respondents' unsatisfactory performance, the restaurant had suffered huge losses and they decided that the Respondents should be replaced. Prior to the dismissal of the Respondents, they had advertised in February 1995 for replacements. As a result, they recruited a lady Ms Mckinley on 1st May 1995. She formerly worked as manageress in the Appellant's fashion outlet in the former Hilton Hotel and it closed at the end of April 1995. She was then transferred to work in the restaurant. On 21st June 1995, the Appellant recruited a Mr Cheung Sek Ming who was formerly assistant operational manager of ASEAN Cuisine Group. The post of assistant operational manager in ASEAN Cuisine Group was abolished and Mr Cheung was transferred to the restaurant. Both recruits took up the positions of the two Respondents when the latter were dismissed. The Appellant contended that there was no redundancy.

3. The Appellant's ground for resisting the claim for annual bonus was that under s.11F of the Employment Ordinance, the Respondents were not entitled to pro rata annual bonus.

4. The Presiding Officer found that under the terms of their employment, the Respondents were entitled to annual bonus. He found s.11F(1)(b) of the Employment Ordinance applicable and for the period of employment in 1995 the Respondents were entitled to annual bonus on a pro rata basis.

5. The Presiding Officer found the allegation of bad performance was not substantiated by evidence. On the question of redundancy, the Presiding Officer found as follows:

"11. By dismissing the two Respondents, the Appellant made room for DW1 and DW2 would otherwise be rendered redundant by reason of cease of business of the fashion outlet in Hilton Hotel and the redundancy of the post Assistant Operational Manager respectively.

12. I was satisfied, after considering all the evidence, that this was a case of dismissal by reason of redundancy, therefore I found for the Respondents re: severance pay."

6. The Presiding Officer proceeded to award pro rata annual bonus and severance payments as claimed to the Respondents.

7. The Appellant now appealed against both awards. Counsel for the Appellant submitted that under their employment contracts, the year end bonus payable to the two Respondents were gratuitous in nature or payable only at the discretion of the Appellant. Alternatively, even if they were entitled to year end bonus, the Respondents were not entitled to it on a pro rata basis for the period they were employed during the year of 1995. Counsel argued that s.11F required a minimum of 26 weeks employment during a payment period before proportional year end payment was payable by the Appellant to an employee. The Respondents had not been employed for a period of 26 weeks during that year. It was submitted that the Presiding Officer was wrong in his interpretation of s.11F of the Employment Ordinance.

8. On the issue of redundancy, Counsel argued that two persons had been employed to take over the jobs used to be carried out by the two Respondents prior to their dismissal and this was not disputed. The fact that these recruits formerly worked in related companies of the Appellant was not relevant. He submitted that under s.31B(b) of the Employment Ordinance, the crucial point was whether at the time of dismissal, the jobs formerly performed by the Respondents were no longer required or expected to reduce. He submitted that the jobs occupied by the Respondents were still required, otherwise replacements would not be necessary and there was no evidence to show the restaurant was closing down or these jobs were no longer required or expected to diminish.

9. The Respondents contended that the restaurant was closed in February 1996, six months after they left. They argued that the replacements were employed as a temporary measure to avoid severance payments and they should be entitled to annual bonus because the payment period for the purpose of calculating pro rata annual bonus under s.11F in their case was from the 1st of January to 31st of December each year and they had worked the requisite 26 weeks.

10. Only two points required consideration: one is whether for the period 1st January 1995 to 21st June 1995 when the Respondents were still employed by the Appellant, they should be entitled to year end bonus on a pro rata basis; the second one is whether the Respondents' dismissal was by reason of redundancy.

11. The term in their contracts providing for year end bonus is as follows:

"Year End Bonus

The amount of year end bonus will normally not be less than one month of your salary and will be proportional to your performance in discharging your duties and your contribution to the company's business growth. The bonus for the first year of employment will be calculated on a time pro rata basis and by applying the time factor to your monthly salary. Should you leave the company before the payment of bonus, you will not be entitled to same."

12. The rest of the contracts is silent on year end bonus and thus no payment period for year end bonus has been specified.

13. Section 11F of the Employment Ordinance which provides for payment of year end bonus in so far as it is relevant here is as follows:

"(1) Where, in the case of an employee to whom this Part applies who has not been employed by the same employer for the whole of a payment period but has been so employed for a period of not less than 26 weeks in the payment period -

(a) the contract of employment is terminated -

(i) at any time during the payment period; or

(ii) on the expiry of the payment period,

otherwise than by the employee under s.6 or 7 or by the employer under s.9; or

(b) the employee continues to be employed by the employer after the expiry of the payment period,

the employee shall be paid a proportion, calculated in accordance with subsection (2) of the end of year payment that would have been payable under this Part if he had been employed by the same employer for the whole of the payment period"

14. "Payment period" is defined in s.11A and 11C as follows:

"The payment period in respect of which an end of year payment is payable under this Part shall be-

(a) the payment period specified in that behalf in the contract of employment; or

(b) if a payment period is not so specified, a lunar year."

15. "Lunar year" under s.11A means a Chinese lunar year ending immediately before a Lunar New Year's Day.

16. On a careful reading of this term in the Respondents' contracts, it is beyond doubt that year end bonus was an entitlement and not gratuitous or discretionary in nature. Only the amount of year end bonus was subject to the discretion of the Appellant. The Presiding Officer was correct in deciding it was the Respondents' entitlement under their terms of employment. There was no denial that the Respondents had received year end bonus from the Appellant in the past years.

17. The Respondents' submission that the payment period should be from the 1st of January to 31st of December of each calendar year could not be right since this was not provided in the contracts and there was no evidence for this to be implied into their contracts. Sections 11C and 11F thus applied. The payment period for year end bonus should be the lunar year and whether the Respondents would be entitled for proportional payment of their year end bonus for 1995 depended on whether they had been employed for 26 weeks or more during the relevant payment period in 1995. The lunar year in 1995 started from 31st January 1995 to the last day of that lunar year which was 18th February 1996. It was apparent that the Respondents had not worked up to 26 weeks during this period before they were dismissed on 21st June 1995. The Presiding Officer's conclusion that the Respondents were entitled to pro rata year end bonus could not stand.

18. Under s.31Q of the Employment Ordinance, a dismissal is presumed to be by reason of redundancy until the contrary is proved and the burden lies on the employer. An employer may discharge that burden by showing the job for which the employee has been employed has not been abolished or the requirement of the business for the work for which the employee has been employed has not diminished or is not expected to diminish. It is not disputed that two persons who had been working at managerial level had been transferred from other individual companies within the same group to replace the two Respondents and they occupied the positions of assistant general manager and restaurant manager. In fact one was employed a month prior to the dismissal of the 1st Respondent so that the replacement could familiarise with the running of the restaurant. Where the replacements came from was not important. The question to ask was: was the requirement for the two jobs of assistant general manager and restaurant manager by the restaurant still there and not expected to diminish at the time of the Respondents' dismissal? From the undisputed evidence, it would appear that it was not and it was not an internal transfer of personnel. There was no evidence before the Presiding Officer to the contrary or that the restaurant was expected to close down shortly after 21st June 1995. There was no ground to suspect that it would close down at any time thereafter which would have required the Presiding Officer to make an investigation. The fact that according to the Respondents' submission that the restaurant had now closed down six months after their dismissal was not relevant. The conclusion by the Presiding Officer that the dismissal was by reason of redundancy cannot stand and the appeal must be allowed.

19. The awards are set aside and there shall be no order as to costs.

(Arthur Leong)

Judge of the High Court