YING CHEONG SHOE MFY. v. YAM YUK BING AND ANOTHER

L.T.A. No 102 of 1986

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is an employee's appeal against those parts of a decision of the Labour Tribunal which ordered him to pay wages in lieu of notice and severance payments for laying off two of his employees.

2. The employer operates a factory at Kwai Chung, manufacturing shoes. Both the employees worked for the employer in that factory at piece rates, stitching shoes. It was common ground that one month's notice of the termination of the employment was required by either side.

3. For the purposes of the present appeal, it can be taken that the first employee commenced her employment in July 1983, whereas the second employee did not begin until March 1984. It was not in dispute that both employees enjoyed continuous contracts of employment until such time as those contracts came to be terminated. On the finding of the learned Presiding Officer of the Labour Tribunal, those contracts were in fact terminated on the 20th July 1986.

4. Until June 1986, the employees were able to work at least 7 hours every day, earning an average of $150 per day each from their piece work. (That the employees worked not less than six hours per day was of relevance only for the purpose of showing they fell within the definition of "continuous employment" set out in the First Schedule to the Employment Ordinance). There was no suggestion from the evidence of any sum being promised to the employees by way of payments in the nature of a basic wage or guarantee payments.

5. In June 1986, a drastic change occurred in the amount of work made available to the employees. In the four-week period from Sunday, the 22nd of June till Saturday, the 19th of July, the first employee was provided with work on only 11 days. For that, she earned in total $1,090, so that her daily average for each of those 11 days was approximately $99 (See Appeal Bundle, pages 72-74). During that same period, the second employee was only given work on 10 days, from which she earned in total $969, so that her daily average was approximately $97 (Appeal Bundle, pages 93-95). There were no public holidays in that four week period from the 22nd June till the 19th July.

6. On the 20th July 1986, the two employees collected their pay to date for the work they had actually done, but let it be known to the employer that they refused to work for him any more. They then took proceedings in the Labour Tribunal for, inter alia, the severance payments and wages in lieu of notice which give rise to the present appeal.

Severance payments for lay-off

7. This claim was brought by the employees under Part VA of the Employment Ordinance, Cap. 57, Section 31B(1) of which provides:-

"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-

(a) is dismissed by his employer by reason of redundancy; or

(b) is laid off within the meaning of section 31E, the employer shall, subject to this Part, be liable to pay to the employee a severance payment calculated in accordance with section 31G.."

That in turn leads on to sections 31E and 31G which are as follows:-

"S.31E (1) Where an employee is employed under a contract on such terms and conditions that his remuneration thereunder depends on his being provided by the employer with work of the kind he is employed to do, he shall for the purposes of section 313(1) be taken to be laid off where the employer does not provide such work for him on at least a total of 12 normal working days in any period of 4 consecutive weeks and whereby he is not entitled to any remuneration under the contract for such period:

Provided that any period during which an employee is not provided with work because of a lock-out by his employer, or as a result of a rest day or holiday, shall not be taken into account in determining whether an employee has been laid off.

(2) The continuity of a contract of employment of an employee shall not be treated as broken by any lay-off as a result of which no severance payment has been made.

(3) For the purposes of this Part the "relevant date" in respect of the right of an employee to a severance payment arising by reason of lay-off means any day on which the period of 4 consecutive weeks referred to in subsection (1) has expired."

"S. 31G (1) Subject to the provisions of this Part, the amount of a severance payment to which an employee is entitled in any case shall be calculated by allowing-

(a) in the case of a monthly rated employee, two-thirds of his last full months wages;

(b) in any other case, 18 days' wages based on any 18 days chosen by the employee and occurring during his last 30 normal working days, for every year (and pro rata as respects an incomplete year) of employment under a continuous contract by that employer subject in all cases to a maximum payment not exceeding the total amount of wages earned during the period of 12 months immediately preceding the relevant date:

Provided that the employee may elect to have his wages averaged over the period of 12 months immediately preceding the relevant date."

8. It is not necessary to set out the rest of S31G for present purposes.

9. So long as their claim succeeded, it made no difference to the employees whether it was on the basis of redundancy under (a) or lay-off under (b) of section 31B(1). Because the learned Presiding Officer held in the employees' favour on the basis of lay-off under (b), he did not find it necessary to explore the possibility of redundancy under (a) in any depth. I am satisfied the present appeal can be disposed of on the basis of lay-off, and find it unnecessary to express any opinion of the alternative ground of redundancy.

10. On lay-off, the issue turned out to be a narrow one. The relevant four week period for the purpose of section 31E(1) was from the 22nd June to the 19th July. The submission made on behalf of the employer focussed on the words "and whereby he is not entitled to any remuneration under the contract for such period" in the subsection. According to that submission, if the employees received any remuneration whatsoever - even $1 - for the period from the 22nd June to 19th July, they fell outside the subsection. That argument contended that the words "for such period" related back to the words "period of 4 consecutive weeks" (which in this case meant from the 22nd June to the 19th July). I rejected the employer's argument on that. Adopting a purposive and (I hope) common-sense approach, I construe the words "for such period" as referring to the period or time when the employer does not provide work for his piece-rated employees. If, as in the present case, the employer provides the employee with less than 12 normal days work in the period of four consecutive weeks, the employer has, in my opinion, brought about a lay-off situation for the purposes of section 31B. On the view I take, the words " and whereby he is not entitled to any remuneration under the contract for such period" are meant to provide for the position where an employer has agreed to make some sort of guarantee payments or to pay a basic wage to those on piece-rates. An employee who at least gets a guarantee payment or basic wage does not need the same degree of protection as an employee relying on piece rates alone. If the words "and whereby he is not entitled to any remuneration under the contract for such period" have the meaning which counsel for the employer seeks to attribute to them, one could be forgiven for thinking that the legislature had chosen an extremely cumbersome form of wording to achieve that objective. The words "on at least a total of 12 normal working days" would seem to serve no useful function if the interpretation contended for by the employer is correct. On the employer's interpretation, the court need only concern itself with whether the employee received any remuneration during the period of four consecutive weeks, so why include all the rigmarole about "on at least a total of 12 normal working days"?

11. A word needs to be said about the meaning of "normal working days" in section 31E(1). I am satisfied that, in its context, it means a normal day's work which enables an employee to earn a normal day's wages. A normal day's wages is, in effect, no different from an average day's wages for a piece-rated employee. In the present case, neither employee earned anything like her average wage of $150 per day for 12 working days in the four consecutive week period spanned by the 22nd June and 19th July. As already mentioned, the first employee earned a total of $1,090 in that period, whereas the second employee's total was $969.

12. I am satisfied that the learned President applied the law correctly in arriving at his conclusion that the employer was liable to his two employee for severance payments as the result of laying them off. No question arose in the appeal before me about the amount of such severance payments. The employer's appeal in relation to the severance payments accordingly stands dismissed.

Wages in lieu of Notice

13. This learned presiding officer correctly decided that the employer had brought about a "constructive dismissal" situation by laying off the employees for more than 12 normal working days in the four week period from the 22nd June to the 19th July. That result inevitably flowed from the combined effect of section 10 and section 11(3) of the Employment Ordinance.

14. Section 10 is as follows: -

"An employee may terminate his contract of employment without notice or payment in lieu -

(a) if he reasonably fears physical danger by violence or disease such as was not contemplated by his contract of employment expressly or by necessary implication;

(b) if he is subjected to ill - treatment by the employer; or

(c) on any other ground on which he would be entitled to terminate the contract without notice at common law."

15. Althougth the words "constructive dismissal" are nowhere to be found in section 10, they are sometimes used to describe the section : see, e.g. Industrial Relations and Law in Hong Kong by England and Rear, p. 235. For present purposes, the Court is concerned with (c) of section 10, namely, the grounds on which an employee is entitled to terminate the contract without notice at common law. That ties in with section 11(3). I will now set out the which of section11: -

"(1) Notwithstanding any other provision of this Ordinance or of any other law, an employer may without notice or payment in lieu suspend from employment any employee for a period not exceeding 14 days -

(a) as a disciplinary measure for any reason for which the employer could have terminated the contract of employment under section 9 ;

(b) pending a decision by the employer as to whether or not he will exercise his right to terminate the contract of employment under section 9; or

(c) pending the outcome of any criminal proceeding against the employee arising out of or connected with his employment: Provided that where such criminal proceedings are not concluded within the period of 14 days such suspension may be extended till the conclusion of the criminal proceedings.

(2) An employee who is suspended from employment under subsection (1) may at any time during the period of his suspension, notwithstanding sections 6 and 7, terminate his contract of employment without notice or payment in lieu.

(3) Without prejudice to the provisions of subsection (1), an employer may lay-off an employee for such periods as are expressly agreed in, or may be implied from, the contract of employment:

Provided that the period of lay-off shall in on case exceed a total of 12 normal working days in any period of 4 consecutive weeks.''

16. By failing to pay either of the employees for at least 12 normal working days in the period from the 22nd June to the 19th July, the employer was clearly in breach of the employment contract with his employees, such breach being of a nature entitling them to terminate the contract without notice at common law. (Again see England and Rear, op. cit. p. 238).

17. "Normal working days" in section 11(3) of the Employment Ordinance should, in my opinion, also bear the same meaning I have already ascribed to the identical words in section 31E(1) of the same ordinance, namely, a normal day's work in which the employee can earn a normal day's wages. In the present case, a normal working day for the employees, who are piece-rated, is one where they can earn their daily average of $15C.

18. On any view of the facts in the present case, it is clear that the employer fell foul of Section 11(3) by laying the employees off for more than 12 normal working days in the four week period up till the 19th July. It might well even be that the employer was not entitled to lay the employees off at all. Lay-off can constitute a breach of the contract of employment unless provision is made for it either expressly or impliedly. Certainly, there was no material before the Labour Tirbunal indicating that the employer had expressly reserved power under the contract of employment to lay off his employees, and it might well be that the employer would have experienced difficulty in satisfying the Tribunal that there was such an implied power. See Hepple and O' Higgins, Employment Law (4th Edition) para. 331.

19. Even without resort to Section 11(3) of the Employment Ordinance, there was an alternative ground on which the employees could rely to show they had been constructively dismissed under S.10 of the same ordinance. The employer was obliged to provide these piece-rated employees with sufficient work to earn a reasonable wage. The contract of employment was one requiring a month's notice on either side. It is unreasonable to expect an employee to be bound by a contract for a period as long as a month unless there is an obligation implied into the contract that the employer will provide a reasonable amount of work for that period. A reasonable amount of work is sufficient work to enable the employee to earn the same average wage as he has received from the employer in the past. Authority for how the employer must provide piece workers with a reasonable amount of work can be found in Devonald v. Rosser & Sons⁽¹⁾ and Langston v. Amalgamated Union of Engineering Workers⁽²⁾.

20. The average earning of the employees had been $150 per day before the employer unilaterally started to lay them off or put them on short time in June 1986. By depriving the employees of the opportunity to earn their normal average pay of $150 per day during the period from the 22nd June to the 19th July, the employer repudiated the contract of employment. In the words of Lord Denning in Western Excavating (ECC) Ltd. v. Sharp⁽³⁾, the employer, by denying the employees the opportunity of earing a proper wage, had commited "a significant breach going to the root of the contract of employment". On the 20th July, the employees chose to accept that Repudiation, thus terminating the contract.

21. Because the employer's breach resulted in the employees being contructively dismissed in accordance with Section 10 of the Employment Ordinance, the employees, in terminating the contract, were not obliged to give the employer any notice or make a payment to the employer of one month's wages in lieu of notice.

22. Having found that the employees had been constructively dismissed, the learned Presiding Officer went on to hold that they were entitled to one month's wages in lieu of notice on that account. I am satisfied that the learned Presiding Officer erred by adopting that approach. The Court's power to order payment of wages in lieu of notice is derived from Section 8A (1) of the

Employment Ordinance, which is as follows: -

"8A. (1) Without prejudice to section 9, 10 or 11(2), where a contract of employment is terminated otherwise than in accordance with section 6 or 7, a sum equal to the amount of wages which would have accrued to the employee during the period of notice required by section 6 shall be payable by the party terminating the contract to the other party."

23. Already I have set out Sections 10 and 11(2). There is nothing in Section 9 which is relevant for present purposes. From Section 6, it is only necessary to set out sub-section 1 which is as follows: -

"(1) Subject to subsection (2), (2A), (3) and (3A) and sections 15 and 33 (4B), either party to a contract of employment may at any time terminate the contract by giving to the other party notice, orally or in writing, of his intention to do so."

24. It is common ground that the length of notice required from either side in the present case is one month. For the sake of completeness, I will set out section 7: -

"(1) Subject to section 33 (4B), either party to a contract of employment may at any time terminate the contract without notice by agreeing to pay to the other party a sum equal to the amount of wages which would have accrued to the employee during the period of notice required by section 6.

(2) Either party to a contract of employment, having given proper notice in accordance with section 6, may at any time thereafter terminate the contract by agreeing to pay to the other party such proportion of the sum referred to in subsection (1) as is proportionate to the period between the termination of the contract and the time when the notice given would have expired.

(3) In the case of an employee whose remuneration is calculated by the piece or task the amount of wages which would have accrued to such employee during the period of notice referred to in subsection (1) shall be deemed to be the amount of wages earned by the employee during the equivalent period immediately prior to the giving of the notice or, if for any reason it is impracticable to compute the amount in this manner, it may be calculated by reference to the amount earned during such equivalent period by a person in the same trade or occupation at the same work in the same district.

(4) Notwithstanding any other provision of this Ordinance the term"wages" shall, for the purposes of this section, be deemed not to include overtime pay ".

25. That should lay sufficient ground work for now considering how section 8A(1) should be interpreted. Section 8A(1) provides that wages in lieu of notice "shall be payable by the party terminating the contract to the other party". Although section 10 has been characterised by the description "constructive dismissal", there can be no doubt in the present case that it was the employees who terminated the contract when they accepted the employer's repudiation. As the employer was not the "party terminating the contract", there is no obligation on the employer to pay wages in lieu of notice. That does not mean, however, the employer is entitled to walk away scot-free. Instead of being liable to pay liquidated damages under section 8A(1), the employer is instead liable to pay liquidated damages according to ordinary common law principles for breach of contract. Thus, instead of ordering the employer to pay wages in lieu of notice, the learned Presiding Officer should have assessed common law damages for the employer to pay.

26. At least two heads of damage flow naturally and ordinarily from the breach of contract committed by the employer against his employees in the present case.

27. Firstly, there is the employees' loss of wages from not being supplied with sufficient work by their emploter during the period from 22nd June to 19th July 1986. The extent of this loss will depend on the view taken as to whether the employer enjoyer any implied right to lay-off the employees up to the maximum 12 days. Because of the operation of section 11 (3) of the Employment Ordinance, the employees must be entitled to pay for at least 12 normal working days. If there was no implied provision for lay-off, the employees will be entitled to pay for 24 days. There is already a finding of fact that the rate per days is $150. A deduction will have to be made for the wages already paid to the employee's for this period 22nd June to 19th July-in the first employee's case $1,090 and in the second's $969.

28. The second head of these common law damages will be for depriving the employees of their entitlement during the minimum one month notice period if the employer had not wrongfully repudiated the contract. That entitlement is to be calculated in accordance with section 7 (3) of the Employment Ordinance for these piece-rated employees. Following usual common law principles of mitigation of damages, that sum stands to be reduced if the employees found or should have found employment elsewhere during the one month notice period which should have run from 20th July to 19th August 1986. (See section 6 (4) of the Employment Ordinance for the meaning of "month" for the purpose of terminating a contract of employment by notice).

29. The onus of proving failures to mitigate will, as always, be on the employer.

30. In view of the foregoing, the employer is entitled to have the awards of wages in lieu of notice set aside, but if that happens, the matter will have to go back to the Labour Tribunal for the assessment of damages. The employer might then find that he has picked up a rock only to drop it on his own foot - the damages arising from the constructive dismissal could be assessed at a higher figure than the $3,900 awarded each employee for wages in lieu of notice.

31. There is no cross-appeal from the employees. Rather than force a position on the employer where he might finish up with a Pyrrhic victory, I will make an order which leaves the employer with a choice as to whether he returns to the Labour Tribunal. My order is that if the employer formally applies to the Labour Tribunal within fourteen days of today for the damages to be assessed, then the present awards of $3,900 each for wages in lieu of notice are thereupon to be set aside and as far as practicable, such assessment is to be carried out by the Presiding Officer who conducted the trail since he is familiar with the whole matter. In default of such an application by the employer, those awards of $3,900 are to stand.

Conclusion

32. The employer's appeal against the severance payments stands dismissed, but in relation to wages in lieu of notice is conditionally allowed on the basis set out above.

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(1) [1906] 2 K.B. 728

(2) [1974] I.C.R. 510,522

(3) [1978] I.C.R. 221,226

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