CHENG KWOK WAH AND OTHERS v. LI HING ENVIRONMENTAL SERVICES CO LTD

[English Translation - 英譯本]
HCLA 13/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 13 OF 2012

(ON APPEAL FROM LABOUR TRIBUNAL CLAIM NO.595 OF 2012)

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JUDGMENT

1.  On 13 July 2012, Ms Michelle Lam, Presiding Officer of the Labour Tribunal held that the appellant company was liable to pay severance payment to the claimants. The appellant company now appeals to this court.

Background

2.  The appellant company provided a wide variety of cleaning services to various clients, including the government and public and private organizations.

3.  Following a tender exercise, the appellant company entered into a two-year “Street Cleaning Services Contract for Wanchai” with the Food and Environmental Hygiene Department (“FEHD”) by which the appellant company provided cleaning services to FEHD for streets in Wanchai from 1 January 2008 to 31 December 2009 (“1^st Service Contract”).  The relevant terms of the 1^st Service Contract provided that, in engaging any employee to provide the cleaning services, the appellant company had to enter into a Standard Employment Contract, prescribed by the government, with the employee.  Pursuant to this requirement, on 1 January 2008 the appellant company and each of the claimants entered into a Government Standard Employment Contract by which the appellant company employed the claimants as cleaning workers to provide cleaning services in Wanchai (“1^st Employment Contract”).  Although not expressly stated in the 1^st Employment Contract, there was no dispute that the claimants were employed to work under the 1^st Service Contract.

4.  Upon expiry of the 1^st Service Contract, the appellant company again succeeded in its tender for the provision of the same service.  It entered into another two-year “Street Cleaning Services Contract for Wanchai” (Government Service Contract No. FEHD S C/63/09) with FEHD, by which the appellant company continued to provide cleaning services for streets in Wanchai from 1 January 2010 to 31 December 2011 (“2^nd Service Contract”).  The 2^nd Service Contract likewise required the appellant company to enter into a Government Standard Employment Contract with each employee engaged by the appellant company to provide the relevant cleaning services.  For the purpose of providing the cleaning services under the 2^nd Service Contract, the appellant company and each of the claimants signed another Government Standard Employment Contract in December 2009, which took effect from 1 January 2010 (“2^nd Employment Contract”).  Clause 2 of the 2^nd Employment Contract provided that the claimants’ place of work was “street cleaning services in Wanchai district (as specified in [the 2^nd Service Contract])”; and that, if necessary, the appellant company “shall be allowed to deploy [the claimants] to work within the Hong Kong Island region under an urgent situation or on an ad hoc and limited basis”.

5.  Following the implementation of the Minimum Wage Ordinance, the appellant company and each of the claimants entered into yet another Government Standard Employment Contract on 20 May 2011, which took effect from 1 May 2011 (“3^rd Employment Contract”).  Save and except those regarding the revision of wages, the terms of the 3^rd Employment Contract were by and large the same as those of the 2^nd Employment Contract.

6.  On 7 December 2011, FEHD notified the appellant company that, as its tender had not been accepted, it would not be selected as a contractor for the period from 2012 to 2014, and that upon expiry of the 2^nd Service Contract on 31 December 2011, no new service contract would be made with the appellant company.  As it did, the 2^nd Service Contract came to an end on 31 December 2011, following which the appellant company could no longer provide cleaning services to FEHD in Wanchai.

7.  Section 31B(1)(a) of the Employment Ordinance provides that where an employee who has been employed under a continuous contract for a period of not less than 24 months ending with the relevant date is dismissed by his employer by reason of redundancy, the employer shall be liable to pay to the employee a severance payment.  Section 31D(1)(b) states that an employee shall be taken to be dismissed by his employer if he is employed under a contract for a fixed term and that term expires without being renewed under the same contract.

8.  The claimants’ case was that the 3^rd Employment Contract was a fixed term contract which expired at the same time as the termination of the 2^nd Service Contract on 31 December 2011, and as the appellant company had not renewed the same contract with them, they could according to section 31D(1)(b) be taken to have been dismissed and should be entitled to severance payment or terminal payment under section 31B(1)(a).

9.  The appellant company contended that the 3^rd Employment Contract was not a fixed term contract, nor did it expire on 31 December 2011; that by 29 December 2011 the appellant company had already instructed the claimants to work at new location(s) (not being the location specified in the 2^nd Service Contract) from 1 January 2012 onwards, but they did not comply with the instruction, and hence the appellant company dismissed them on 6 January 2012; and therefore the appellant company was not liable to pay to them severance payment or terminal payment.  To this the claimants responded by arguing that even if the 3^rd Employment Contract was not a fixed term contract, the new work arrangements made by the appellant company was unreasonable and in breach of contract, and it was open to the claimants not to accept such arrangements. 

10.  Accepting the claimants’ arguments, Presiding Officer Lam held that the 3^rd Employment Contract was a fixed term contract which expired at the same time as the termination of the 2^nd Service Contract on 31 December 2011, that sections 31D(1)(b) and 31B(1)(a) of the Employment Ordinance were both applicable, and that the appellant company was therefore liable for severance payment.

11.  Presiding Officer Lam also held that even if the 3^rd Employment Contract was not a fixed term contract, by making new work arrangements the appellant company was in breach of contract, and that in refusing to accept such arrangements the claimants were simply exercising their right to terminate the contract in response to the employer’s breach of contract.  This is the so-called “constructive dismissal”.

Issues on appeal

12.  Although the appellant company has put forward a total of 7 grounds of appeal, its main argument involves only one issue, namely whether the 3^rd Employment Contract is a contract for a fixed term which ended on 31 December 2011.  If it is, section 31D(1)(b) would be applicable, and the claimants could be taken to have been dismissed by the appellant company on the same day, and the appellant company would be liable to pay severance payment pursuant to section 31B(1)(a).

13.  As there is no express term in the 3^rd Employment Contract stating that it is a contract for a fixed term ending on 31 December 2011, I have to determine whether, as a matter of construction, the 3^rd Employment Contract contains an implied term to that effect.

Implied term

14.  The relevant parts of the 3^rd Employment Contract read as follows:

“ Standard Employment Contract

for Employees of Contractors of Government Service Contract (Note 1)

Government Service Contract No.: FEHD S C/63/09 (Note 2)

This employment contract is made between [the appellant company] (“the Employer”) at the address of … and [the claimant] (“the Employee”) at the address of … . The Employer and the Employee understand and agree to observe the terms of employment set out below. Both parties understand that this employment contract is governed by the laws of Hong Kong, in particular, the Employment Ordinance, Chapter 57, the Employees’ Compensation Ordinance, Chapter 282 and the Minimum Wage Ordinance, Chapter 608. Both parties acknowledge that they have read the attached Guidance Notes on Signing of Standard Employment Contract.

1. This employment contract shall commence on 1 May 2011.

2. The Employee shall be employed by the Employer as cleaning worker (post title). The place of work is street cleaning services in Wanchai district (as specified in government service contract no.: FEHD S C/63/09 (Note 2)). If necessary, the Employer shall be allowed to deploy the Employee to work within the Hong Kong Island region (Note 3) under an urgent situation or on an ad hoc and limited basis.

…

22. The Employee consents to the Employer providing his/her wage records, attendance records and other relevant information to the Food and Environmental Hygiene Department[name(s) of procuring department(s)] (Note 9) for the purpose of monitoring the Employer’s fulfillment of employment-related obligations under the government service contract.

23. The Employee consents to the Employer providing copies of this signed employment contract together with the amendments, if any, to the Food and Environmental Hygiene Department[name(s) of procuring department(s)] (Note 9) for record and for the purpose of monitoring the Employer’s compliance with the government service contract. The Employee also consents to the procuring department(s) providing copies of this signed employment contract together with any amendments, and any other relevant information to other government departments and enforcement agencies for the purpose of monitoring the Employer’s compliance with the relevant legislation.

Notes:

Note 1: In accordance with the relevant mandatory requirements specified in government service contracts, government service contractors are required to enter into this Standard Employment Contract with each and every employee who is employed to work under government service contracts for more than 7 days in posts which signing of Standard Employment Contract is specified in the relevant government service contracts.

Note 2: If the Employee is employed by the Employer to work under more than one government service contract undertaken by the Employer in the same region, the parties must also complete the Schedule but are not required to fill in the government service contract no., Clause 2, Clause 3 and Clause 6(b).

Note 3: “Region” refers to an area delineated under the Declaration of Geographical Constituencies (Legislative Council) Order 2007, with the exception of Islands District which is separated from New Territories West. As such, there are 6 relevant regions, namely, Hong Kong Island, Kowloon West, Kowloon East, New Territories West, New Territories East and Islands District. The parties shall state one region only in accordance with the area of the place of work specified in Clause 2.

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Note 9:    If the Employee is employed by the Employer to work under more than one government service contract, the names of all relevant procuring departments have to be filled in Clause 22 and Clause 23 of this employment contract.”

15.  The contract number of the 2^nd Service Contract has been stated in the heading of the 3^rd Employment Contract.  According to Note 2, if the claimants worked for the appellant company under more than one government service contract in the same region, it was not necessary to insert the contract number of the 2^nd Service Contract in the heading of the contract.  That it has been inserted clearly indicates that the claimants only worked under the 2^nd Service Contract.

16.  Furthermore, the second sentence of Clause 2 expressly provided that the claimants’ place of work must be the area as specified in the 2^nd Service Contract, which means that the claimants could only work under the 2^nd Service Contract.

17.  Although the third sentence of Clause 2 permitted re-deployment, this was subject to extremely stringent restrictions. First, the appellant company could not arbitrarily or permanently re-deploy the claimants to work anywhere.  Furthermore, even if the appellant company re-deployed the claimants to perform urgent, ad hoc or limited work at other locations on Hong Kong Island pursuant to the said third sentence, upon completion of such work the appellant company would still have to deploy them back to the location specified in the 2^nd Service Contract to work under that contract.  These stringent restrictions were intended to ensure that the appellant company could not arbitrarily deploy the claimants to places other than what was specified in the 2^nd Service Contract to work for other organizations.

18.  The plain intent of Clause 2 was that, under normal circumstances, the appellant company was not entitled to re-deploy the claimants to work anywhere, and that the claimants only worked under the 2^nd Service Contract.

19.  Clauses 22 and 23 were clearly intended to enable FEHD to effectively monitor the appellant company’s compliance with the 2^nd Service Contract.

20.  In my view, in light of the terms of the contract referred to above, the intention of entering into the 3^rd Employment Contract could not have been clearer: the 3^rd Employment Contract was entered into for the purposes of the 2^nd Service Contract, and the duration of the former hinged on the fixed term of the latter.  Although there is no such express term in the 3^rd Employment Contract, a term must be implied to give effect to the above contractual intention.

21.  In construing the 3^rd Employment Contract, the court is entitled to take into account the objective surrounding factual circumstances known to both parties at the time when the contract was made, i.e. what is called the factual matrix: see paragraphs 34 and 35 of Ribeiro PJ’s judgment in River Trade Terminal Co Ltd v Secretary for Justice (2005) 8 HKCFAR 95.  The thrust of the submissions made by Mr Chiu, Counsel for the appellant company, was that the implied term referred to above was at variance with the factual matrix in the present case.  He cited what Lam J (as he then was) said in paragraphs 18 to 20 of his judgment in Wong Yin Fong and Others v ISS Hong Kong Services Limited[2005] 2 HKLRD 687 to support his contention.

22.  Wong Yin Fong concerns an employment contract which contained the following terms:

“Assignment of work:

The Employee must comply with and abide by instructions from the manager(s) of the Company in relation to work, place of work and time of work, and no argument, disobedience or indolence by the Employee will be accepted.

Re-deployment:

                        The Employee should accept reasonable re-deployment made by the Company as and when the Company considers there is such a need, including re-deployment to another place of work or to another post. Refusal to accept such re-deployment may be regarded as voluntary resignation, in which case the Employee is not entitled to claim any compensation from the Company.”

23.  In that case, the employees had all along been assigned to work under the service contract between the employer and the MTRC. Upon expiry of the service contract but before expiry of the employment contracts, the employer arranged for the employees to work at other places pursuant to the above mobility clauses, but the employees refused to accept the arrangements.  In his judgment Lam J had this to say:

“18. In construing the terms of a contract, it is necessary to have regard to the underlying factual matrix (see Investors Compensation Scheme Ltd v West Bromwich Building Society (No 1) [1998] 1 WLR 896 at p.912F to 913E; Bank of China v Fung Chin Kan [2003] 1 HKLRD 181 at p.199F to G). With regard to these mobility clauses, the relevant factual background were set out in Paragraphs 16 and 17 of the judgment of the Presiding Officer,

16. ISS is an international company with its headquarters at Denmark. Its main business is to undertake cleaning work for various commercial, industrial and residential premises. It has an undeniably substantial operation in Hong Kong. In December 2001, it took up 2,198 subcontracts, 226 of which being major contracts and the rest minor, and the total value of these contracts was approximately 31 million dollars. As cleaning work requires a lot of manpower, the value of the contracts directly reflects the demand for manpower. In November 2001, the total value of contracts undertaken was approximately 34 million dollars and 5,042 cleaning workers were employed, and 19 million dollars were expended by way of workers’ wages. Some of the cleaning work was undertaken by workers of subcontractors, and the expenditure in this respect was approximately 6.5 million dollars, and therefore the total expenditure on workers’ wages in November was approximately 25.5 million dollars.

17. Mr Chu Chung Keung (transliteration) is the manager of the Engineering Department of ISS who supervises the execution of contracts and deployment of manpower. He explained on behalf of ISS the operation in this regard and the policy of retaining workers. ISS provides cleaning service for clients at a great variety of locations, often exceeding 150 in number, including industrial and commercial buildings, buildings of public institutions, passenger halls and platforms of transport operators, private housing estates, shopping arcades, hospitals and so on. Since the manpower required differs from place to place and from shift to shift, re-deployment is inevitable. In order to provide the best services, no matter whether or not a contract specifies the number of workers, sufficient workers are deployed according to actual circumstances so as to meet the customer’s request. For usual cleaning services, apart from day-to-day routine cleaning work, overall cleaning, which is called ‘big job’ in the trade, has to be done on a regular basis. Examples are monthly waxing, stain removal, etc., which have to be done at night and completed within a short period of time, and therefore these jobs require more workers. To ensure stable and consistent work quality and results, he would deploy experienced workers in the Company’s employ to support such work. ISS acquires contracts by way of tender. Since contracts are the source of income, they continuously submit tenders for new contracts and also strive to renew old contracts. However, as a matter of business management, the success or failure of bids is never certain. In their experience, it is often the case that once they obtain a contract, work has to commence within two weeks, and sometimes it is necessary to work on several contracts simultaneously. Therefore they have to reserve a certain number of workers for new contracts. Loss of a contract will produce a surplus of manpower whereas acquisition of a new contract will lead to shortage of manpower, and these situations can be monitored by appropriate deployment.

19. Mr Sarony rightly reminded this court that given the size of the Defendant’s operation, the nature of the cleaning industry, the high mobility of the cleaning workforce, the mobility clauses were clearly intended to provide the Defendant with a degree of flexibility in the deployment of its workers which was essential to the business operation of the Defendant.

20. Against such background, I do not think Mr Chan’s construction of the mobility clauses is correct. I think the “need” under the contracts must be referring to the need of the Defendant. With the termination of the MTRC contract, it became necessary for the Defendant to re-deploy the workers. They could no longer work at the MTR stations. Those were the actual circumstances which triggered the mobility clauses. I do not think the need at the other work places is relevant as far as the engagement of the mobility clauses is concerned. Even if there were no immediate need to have these extra workers at the new designated work places, the Defendant still had a need to post them there due to the loss of the MTRC contract. Mr Chan suggested that the only option available to the Defendant was dismissal of the workers. I reject that submission. It would defeat the purpose of the mobility clauses. Mr Chan’s construction is simply unworkable. If he was correct, it would mean that the Defendant would have to have spare vacancies all the time in order to be able to rely on these mobility clauses to deal with the contingency of its cleaning contracts being terminated. In my judgment, the mobility clause should be construed on the basis that parties would wish to continue with the employment even though the cleaning contracts of one work place might be terminated during the course of an employment. Wong Yuk Ling v East East Food Products Ltd dealt with a case where need could not be established. It could not assist the Claimants in the present case.”

24.  In my view, the facts and the mobility clauses in Wong Yin Fong are completely different from the facts and the provisions of Clause 2 of the 3^rd Employment Contract in the present case, and what Lam J said is not applicable here.

25.  In the present case, the most important objective fact is that the appellant company could only employ the claimants to work for the 2^nd Service Contract by way of Government Standard Employment Contracts but not by way of other employment contracts, because according to the relevant provisions, when government service contractors have to employ workers to work for the service contracts, they must, in compliance with the requirements in the service contracts, enter into the Government Standard Employment Contracts with the employees, the intention of which, as stated by Presiding Officer Lam in her Reasons for Judgment, is:

“As a matter of fact, since April 2005, in respect of service contracts mainly involving the use of non-skilled workers, the government has required the relevant service contractors to enter into Standard Employment Contracts with non-skilled workers in their employ. This is to ensure that the place of work, working hours and calculation and amount of wages of those employed by the contractors to provide services under the service contracts are governed by the relevant terms of the service contracts, the objective of which is to provide clear and stable places and time of work to non-skilled workers who provide services for the government but who are employed by the service contractors ...”

26.  In light of the above objective facts, the 3^rd Employment Contract was obviously entered into for the purposes of the 2^nd Service Contract, and of course the fixed term of the former also hinged on the latter.  As the above analysis shows, this contractual intention had been fully reflected in the 3^rd Employment Contract.

27.  Mr Chiu also submitted that FEHD was not the sole and exclusive entity whom the 3^rd Employment Contract was intended to serve, and that the claimants did not work “in the employ of the government”.  It is true that the claimants were not government employees.  However, as pointed out above, the 3^rd Employment Contract was entered into for the purposes of the 2^nd Service Contract and, under usual and normal circumstances, the claimants worked only under the 2^nd Service Contract.

28.  Mr Chiu also cited Clause 18 of the 3^rd Employment Contract which reads:

“18. Either party may terminate this employment contract under the following circumstances:

R During the first month of the probation period, both parties are not required to give notice or payment in lieu of notice. During the rest of the probation period, a notice period of 7 day(s)/month(s) or payment in lieu of notice is required.

After the probation period, a notice period of 7 day(s)/month(s) or payment in lieu of notice is required.

£ There is no probation period, a notice period of ___day(s)/month(s) or payment in lieu of notice is required.”

He submitted that, as Clause 18 permitted both parties to terminate the contract by way of notice or payment in lieu of notice, the 3^rd Employment Contract was not a fixed term contract.  In my view, Clause 18, which permitted both parties to terminate the contract during the contract term, has little bearing on the question of whether the contract was one for a fixed term.

29.  For the above reasons, I hold that the 3^rd Employment Contract contained an implied term stipulating that it was a contract for a fixed term which hinged on the fixed term of the 2^nd Service Contract, namely that it ended on 31 December 2011.

Conclusion

30.  I agree with the rulings made by Presiding Officer Lam that section 31D(1)(b) of the Employment Ordinance applied, that the 3^rd Employment Contract ended on 31 December 2011, that the claimants could be taken to have been dismissed by the appellant company on the same day, and that the appellant company was liable to pay severance payment in accordance with section 31B(1)(a).  This being the conclusion, it is not necessary for me to deal with the ground of appeal advanced by the appellant company in respect of “constructive dismissal”.

31.  I dismiss this appeal and order that the appellant company do pay the claimants’ costs and that the 7^th Claimant’s own costs be taxed in accordance with the Legal Aid Ordinance.

Translated by the Judgment Translation Unit of the Judiciary and vetted by Mr. Edmund Cham, Solicitor.