HUI LAI YING v. KWONG WAI TAI SPORTS WEAR FACTORY LTD.

HCLA8/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO.8 OF 2001

(ON APPEAL FROM LBTC NO.7288 OF 2000)

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REASONS FOR DECISION

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This is an appeal by the defendant against the decision of the Presiding Officer of the Labour Tribunal made on 27 December 2000, awarding the claimant annual leave pay and payment in lieu of statutory holidays totalling $30,233.40. Leave to appeal was granted on 2 March 2001 by Deputy Judge Poon. At the conclusion of the appeal, I dismissed the appeal and indicated that I shall hand down the reasons in writing, which I now do. The appeal was argued by Mr Shum for the defendant in English and by Mr Kwong for the claimant in Chinese. Having regard to the legal arguments involved, these reasons are written in English.

Facts

Since April 1992, the claimant was employed by the defendant as a garment worker. She started with a daily payment of $200 which was increased in 1993 to $220 and in 1994 to $240. Throughout her employment with the defendant, the claimant had signed two Chinese agreements dated 1 June 1994 ("the 1994 Agreement") and 11 July 1997 ("the 1997 Agreement") respectively.

The 1994 Agreement provides as follows :

"臨時抄貨協議書

本人許麗英 .....

同廣慧泰製衣廠有限公司（包裝執鷄部門）做臨時抄貨工作（日工計），日工工資每日240元。本人與廣慧泰製衣廠有限公司的關係是臨時幫工，並非連續工作者，所以有工開就要返工及有工資計算，如果公司沒有工開的就不須要返工，也沒有工資計算。本人除了享有勞保之外，無權享受公司的任何福利及不受解僱或離職日期的約束。"

As for the 1997 Agreement, it reads as follows :

"臨時炒貨協議書

本人許麗英與廣慧泰製衣廠有限公司[以下簡稱公司]訂定協議，本人許麗英願意遵守公司廠規的原則下做臨時炒貨工作為期一年，並同意下列各協此議。

[1] 公司每半個月出一次糧，每次照實際工作天計算每天160元出糧，照工資額另加百份之伍拾[50%]預付款，該款係包括勞工假期工資、病假工資津貼、有薪年假、長期服務金、分娩假期、年終酬金及解僱遣散補償等等。

[2] 炒貨日期之長短，不論連續或斷續，不受任何限制，亦不計算工齡之長短。

[3] 本人[臨時炒貨者]無權再享受公司及勞工法例[僱庸條例]所規定的任何福利；例如有薪勞工假期、病假工資津貼、長期服務金、分娩假期、有薪年假和各項利益及解僱遣散補償等等。

[4] 享有公司代買之勞工保險保障。"

It is common ground that the claimant had not received any annual leave pay nor statutory holidays pay since the commencement of her employment. In the claim before the Labour Tribunal, she claimed against the defendant annual leave pay and statutory holidays pay for the period between April 1993 to August 2000. She was still employed by the defendant when she lodged the claim with the Labour Tribunal. The defendant disputed the claim on the basis that, under the 1997 Agreement, the claimant had already received $80 for each day of work (i.e. $160 x 50%) on account of advance payment for all her entitlements and benefits under the Employment Ordinance ("the Ordinance"), including annual leave pay and statutory holidays pay. The defendant said that the claimant had received such advance payment totalling $76,999.40 which far exceeds her claim of $30,233.40. It was also argued that the claimant had by the 1997 Agreement agreed that she had no entitlement to any benefit under the Ordinance.

The Presiding Officer considered the claimant a truthful and reliable witness and accepted her evidence. He found as a fact that the claimant was employed under a continuous employment within the meaning of the Ordinance and was therefore entitled to paid annual leave and statutory holidays as prescribed by the Ordinance. He also found as a fact that the claimant had never been told that the respective daily payments of $200, $220 and $240 had included an advance payment to cover her entitlements and benefits under the Ordinance. The Presiding Officer rejected the defendant's account that a system of advance payments for the benefits under the Ordinance had been in place before 11 July 1997. He further noted the claimant's evidence that the figure "160" was not written on the document when she signed the 1997 Agreement.

The Presiding Officer held that the 1997 Agreement was a sham arrangement for the purpose of reducing or extinguishing the claimant's rights under the Ordinance and that clauses [1] to [3] are therefore rendered void by section 70 of the Ordinance. The Presiding Officer further held that the daily payment of $240 represented daily wages of the claimant and did not include any payment in advance of the claimant's entitlements and benefits under the Ordinance. He accordingly awarded the claimant her claim but made no order as to costs since the claimant did not seek costs from the defendant.

Grounds of appeal

The Substitute Grounds of Appeal raises three grounds. The first ground contends that the Presiding Officer ought not to have held that clauses [1] to [3] of the 1997 Agreement were rendered void by section 70 of the Ordinance. The second ground argues that the Presiding Officer ought to have severed the illegal part(s) of the 1997 Agreement from the rest of it. The third ground complains that the Presiding Officer had accepted the plea of non est factum in relation to the 1997 Agreement when there was no evidence to show that the claimant had acted carefully in the execution of it.

Reasons for decision

1. The first two grounds are inter-related and are to be dealt with together. The defendant does not argue against the Presiding Officer's holding that clause [2] of the 1997 Agreement was void. What is sought to be argued is that the Presiding Officer erred in holding that clauses [1] and [3] are wholly void.

2. It is convenient to deal with clause [3] first. I accept that clause [3] clearly follows on from clause [1] in that it provides that the claimant has no further rights (無權再享受) to the benefits prescribed by the Company, the labour law and the Ordinance. If clause [1] is void, it must follow that clause [3] is also void as being against the Ordinance. Quite apart from that, clause [3] is in itself contrary to the Ordinance. There are, as Mr Shum acknowledges, benefits under the Ordinance which cannot be met by payment in lieu, for example those under sections 40A and 41E of the Ordinance. Clause [3] is capable of extending to those benefits, which will not be covered by the advance payment stipulated under clause [1]. Its effect is to deny the claimant those benefits and must be void by reason of section 70 of the Ordinance.

3. As to clause [1], the Presiding Officer, in holding that clauses [1] to [3] were void as being contrary to the Ordinance, had taken into account the fact that, before the 1997 Agreement, there was no system of advance payment in place and that the 1994 Agreement made no reference to advance payment. He also had regard to that fact that if the daily wages was only $160 under the 1997 Agreement, that would represent a reduction in salary with drastic repercussions on the claimant's other entitlements such as long service pay and wages in lieu of notice. He concluded therefore that the irresistible inference was that the 1997 Agreement was to reduce or extinguish the rights benefits and protection conferred by the Ordinance.

4. In my judgment, the Presiding Officer's conclusion cannot be flawed. It is obvious from a plain reading of the 1997 Agreement as a whole or clauses [1] to [3] on their own, that it was an attempt to circumvent the provisions of the Ordinance with regard to the employee's benefits and protections thereunder. It is in no way a genuine agreement to provide for payment of the statutory benefits in advance. The matters taken into account by the Presiding Officer further reinforces such an observation. It is difficult to understand how an arrangement can be a genuine attempt to provide for benefits in advance when its very effect is to reduce the amount of daily wages and consequentially the other benefits which an employee is entitled to.

5. It is argued that the Ordinance does not prohibit advance payment of benefits under the Ordinance. That is correct. But it is important to note that clause [1] is wholly arbitrary and artificial. There was no or no good basis for the 50% or $80 as the amount of advance payment. When the 1997 Agreement was concluded, neither the defendant nor the claimant could say with any certainty as to the actual amount of long service pay that the claimant would be entitled to at the end of the employment. It was also not known whether the claimant would be entitled to any sick leave pay or maternity leave pay and also the amount involved. The 50% payment or $80 therefore cannot be a genuine pre-estimate and advance payment of the benefits under the Ordinance. At the same time, there was a distinct possibility that, under the 50% or $80 formula, the claimant would receive much more than her actual entitlements. Yet the 1997 Agreement does not see fit to provide for a refund in such eventuality. I doubt why an employer would want to put in place a system that would subject him to immediate payments for liabilities which may never arise.

6. There can be no doubt that the 50% or $80 payment is a sham arrangement as opposed to a genuine advance payment. Clause [1] insofar as it purports to provide that the claimant has agreed to accept the $80 in substitution for and in extinguishment of her benefits under the Ordinance must be void.

7. I turn now to deal with the submission that the Presiding Officer ought to have separated the "bad" part of clause [1] from the "good" part and to uphold the "good" part. The argument here is that even if clause [1] is contrary to the Ordinance, that is only in relation to the part providing for advance payment. It should not affect the opening part which provides for a daily payment of $160 as wages (公司每半個月出一次糧，每次照實際工作天計算每天$160元出糧). The Presiding Officer should therefore have calculated the annual leave and statutory holidays pay on the basis of $160 per day and not $240 per day.

8. I have no difficulty accepting that, in appropriate cases, the court should adopt the "blue pencil test" by upholding and enforcing the part of the contract which is separable from and not dependent on the part of the contract which is void : Chitty on Contracts, (28th Ed) Vol.1 para.17-186 at p.937. I also agree with the approach adopted in Rice v. Baring Securities (HK) Ltd [1997] 1 HKC 76, a case cited as an example of how the "blue pencil test" was adopted. In my view, however, they are of no assistance to the defendant.

9. Prior to the 1997 Agreement, the undisputed evidence is that the claimant was paid $240 per day. The Presiding Officer found as a fact there was no advance payment system. The claimant was therefore receiving $240 daily wages before 11 July 1997. The purpose and the purported effect of clause [1] is to provide that the claimant would receive $160 per day as wages, with an extra 50% or $80 as advance payment on account of benefits under the Ordinance. It is an attempt to re-define the nature of the $240 payment. Once the Presiding Officer came to the view that the provision of $80 as advance payment was to circumvent the Ordinance, then there is no question of severing the part dealing with $80 as the advance payment from the rest of the clause. The rest of clause [1] in purporting to make $160 out of the $240 daily payment as wages is an inseparable part of the attempt to circumvent the Ordinance.

10. Even if there is room for the application of the "blue pencil test", the Presiding Officer would only be striking out the part of the clause stipulating that the extra 50% payment was an advance payment. He would not be striking out the entitlement to receive 50% extra payment, which in itself is not contrary to the provisions of the Ordinance and is therefore not the offending part of the clause.

11. Looking at the matter from another perspective, "wages" for the purpose of reckoning annual leave and statutory holidays pay has been defined in section 2 of the Ordinance to mean "all remuneration, earnings, allowances ..., however designated or calculated, ... payable to an employee in respect of work done or to be done under his contract of employment, ...". The definition excludes certain payments which are either gratuitous or discretionary in nature or not in respect of the work done or to be done under the contract. As pointed out above, the uncontroverted evidence is that the claimant was paid $240 per day prior to the 1997 Agreement. She continued to receive the same daily amount after the 1997 Agreement. The payment of $80 per day was void and unenforceable only to the extent that it purports to be an advance payment of the benefits under the Ordinance. The $80 payment was made to the claimant for every day on which she had worked. It is a component in the pay for the work rendered by the claimant. That being the case, the whole of the $240 is "remuneration, earnings, allowances" payable to the claimant in respect of work done or to be done under her employment : see Wong Ping-kong and Others v. Tai Hing Cotton Mill Ltd [1994] 2 HKLR 107. The Presiding Officer is therefore correct in adopting $240 as the claimant's wages for calculating the annual leave and statutory holidays pay.

12. The defendant had also criticised the adoption of $240 as the wages on the basis that the Presiding Officer while concluding that the 1994 Agreement was void, had nevertheless relied on it in holding that the daily wages was $240 per day. This criticism is based on a mis-reading of the transcript on the oral reasons delivered by the Presiding Officer. The Presiding Officer did not hold the entire 1994 Agreement to be contrary to the Ordinance. The part that he held to be void relates to the stipulation that the claimant was not employed under continuous contract of employment and therefore not entitled to any benefit : see p.36E of the transcript. In addition, there is apart from the 1994 Agreement, clear undisputed evidence that the claimant was receiving $240 per day before the 1997 Agreement. The Presiding Officer further accepted the claimant's evidence that she had been paid daily wages of $240 as from January 1994 : see p.37E of the transcript.

13. The Presiding Officer is thus entitled to rely on the 1994 Agreement to say that the daily wages was $240. Even without the 1994 Agreement, the finding of $240 daily wages is supported by evidence. The criticism has no substance.

14. Finally on the third ground relating to the plea of non est factum, it has to be pointed out that the Presiding Officer no where in his oral reasons or written decision indicated that he accepted or relied on this plea. The Presiding Officer only indicated that he believed the claimant's version that when she signed the 1997 Agreement, the figure "160" was not written on the document. He refused to accept and enforce the 1997 Agreement solely on the basis that clauses [1] to [3] thereof were void as being contrary to the Ordinance. This ground of appeal is misconceived.

Conclusion

15. For the reasons above, the appeal is dismissed with costs to the claimant against the defendant, to be taxed if not agreed. At the hearing of the appeal, I had directed for taxation of the claimant's own costs under the Legal Aid Regulations. I have since been given to understand that the claimant is not legally aided in this appeal. That part of the order is therefore not necessary and is hereby recalled.