WONG CHI HIN HENRY v. LEPI CHINA LTD

HCLA16/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 16 OF 2008

(ON APPEAL FROM LBTC 4392 OF 2007)

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R E A S O N S  FOR  J U D G M E N T

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Introduction

1.    The claimant was employed by the defendant as its project manager since 1999.  The initial salary was stated in the employment contract to be HK$21,500 per month.  After several increments, the monthly salary was increased to HK$32,000 on 1 July 2006.  The claimant tendered his resignation on 29 January 2007.  In the resignation letter, he said that according to the defendant’s policy, the last working day should be 28 February 2007 but for various reasons, he wished to leave immediately.  The defendant’s chairman, Mr Saw Lip Boon, allowed to let him go because he thought it would be detrimental to the defendant’s interest to allow the claimant to stay on. 

2.    The claimant later commenced proceedings in the Labour Tribunal, claiming annual leave pay of HK$64,106.94 and travel expenses of HK$1,200.  After trial, the presiding officer allowed his claims. 

3. The defendant then appealed against the award on annual leave pay.  Two grounds were raised :

(1) The presiding officer had wrongly refused to ask the claimant to give credit for his failure to pay one month’s wages in lieu of notice. 

(2) The presiding officer’s finding that the claimant’s salary was HK$32,000 per month was against the weight of the evidence. 

4. On 18 December 2008, after hearing the parties, I remitted the matter back to the Labour Tribunal for further investigation on two issues :

(1) whether the defendant had waived the right to payment in lieu of notice;

(2) what is the amount of the claimant’s monthly salary payable by the defendant. 

I also stayed the execution of the award pending the determination of the above issues. 

5. These are my reasons. 

Waiver of payment in lieu

6. In his reasons for decision, the presiding officer said :

“24.    The claimant stated in his resignation letter dated 29 January 2007 that his last working day was 28 February 2007.  His original intention was to give one month’s notice to the defendant company.  When the claimant tendered his resignation letter, he had a meeting with Mr. Saw.  After the meeting, Mr. Saw allowed the claimant to leave the job immediately.  Mr. Saw said he let the claimant to leave immediately because it would be to the detriment of the company if the claimant was allowed to stay.  This was a decision made by Mr. Saw after taking into consideration the interests of the defendant company.  Had it not been for this consideration thereby waiving his right to notice, Mr. Saw could let the claimant to stay in the defendant company for one more month before ending their employment relationship.  

25.  The conduct of Mr. Saw sufficiently demonstrated that he had chosen to waive his right to notice on 29 January 2007 in order to protect the interests of the defendant company.  The defendant company cannot say afterwards that it is still entitled to payment in lieu of notice in an attempt to kill two birds with one stone.”

7. When properly read, the resignation letter did not give one month’s notice.  It set out in effect the claimant’s understanding that one month’s notice would be required but he wished to leave immediately.  So I doubt if it is correct to say, as the presiding officer did, that the claimant’s original intention was to give one month’s notice.  I agree with Mr Carolan, for the defendant, that the claimant wanted to leave immediately despite the notice requirement.  However, the undisputed evidence is that Mr Saw did allow the claimant to leave immediately.  The presiding officer was entitled to conclude that Mr Saw had waived the right to notice.  But that is not the end of the matter.  For it does not necessarily follow that Mr Saw had also waived the right to payment in lieu.  Unfortunately, the presiding officer had not conducted any investigation on this point at all.  His finding that the defendant is now debarred from claiming wages in lieu cannot stand. 

Salary

8. It is common ground that upon the claimant’s request, his salary had since April 1999 been spilt into two parts — the defendant paid HK$12,000 and its subsidiary in the Mainland paid the balance.  It is also common ground that the claimant spent a significant portion of his time working in the Mainland. 

9. The defendant’s case is that since the arrangement to spilt his salary was put in place, the contract of employment had been varied to the effect that the claimant had since been employed jointly by the defendant and its subsidiary in the Mainland.  The monthly salary that the defendant was responsible for was HK$12,000 only. 

10. In the reason for decision, the presiding officer said :

“21.    The defendant company alleged that upon the request of the claimant, it paid only a portion of the claimant’s salary, namely $12,000.  The balance was to be paid by its subsidiary company, LEPI (Zhongshan) Manufacturing Ltd.  The defendant company had adjusted the claimant’s salary on three occasions, namely in May 2000, April 2005 and July 2006 (see Documents D4, D5 and D6).  On each occasion, the defendant company notified the claimant by its letter.  There was no mention at all that the defendant’s liability to pay his salary was limited to $12,000 only.  Nor was there any declaration that since the claimant also worked for LEPI (Zhongshan) Manufacturing Ltd. at the same time, it was liable to pay part of his salary.  Indeed, in contract between the claimant and the defendant company did not provide that the claimant was required to work for another company, therefore, the defendant company was only liable to pay part of the claimant’s salary under the contract.  The defendant company had never sought to amend the claimant’s contract of employment.  Obviously, it was a term of the employment contract between the claimant and the defendant company that the latter promised to pay the claimant the whole of the salary as stated in the contract or the adjusted amount thereafter.  The defendant company only paid part of the salary on the books and the balance was paid by another company.  This was only the manner in which the payment was made.  It did not affect or diminish the contractual obligation of the defendant company towards the claimant. 

22.  The defendant company only declared on behalf of the claimant the income he received from it to the Hong Kong Inland Revenue Department.  Objectively, the tax liability of the claimant towards the HKSAR Government was reduced.  However, it did not alter or diminish the contractual obligation of the defendant company towards the claimant.  Whether or not the defendant company had assisted the claimant in evading his tax liability, it has yet to be investigated by the relevant authority.”

11. In my view, the presiding officer’s finding suffers from lack of investigation into all relevant matters. 

12. First, the presiding officer did not inquire with the claimant why he requested his salary to be spilt into two parts and paid by two companies.  The claimant said the spilt was just an internal account exercise of the defendant and its subsidiary.  But it did not answer the question why it was he who asked for the arrangement in the first place. 

13. Second, the presiding officer did not deal with the admission by the claimant under cross-examination that he was paid HK$20,000 a month for his work in the Mainland by the Mainland company and the salary payable by the defendant was limited to HK$12,000. 

14. Third, the presiding officer did not conduct any investigation with the parties as to why the claimant’s tax returns stated his salary to be HK$12,000.  He seemed to have concluded that it was a tax avoidance scheme but that was never gone into at trial.  If that were in fact a tax avoidance scheme, why would the defendant agree to it when apparently it would only reduce the claimant’s tax liability?

15. Fourth, the presiding officer placed reliance on the increment notices issued by the defendant, which made no reference to the spilt arrangement or joint employment at all.  It is true that those notices are inconsistent with the defendant’s case.  But the presiding officer had not asked Mr Saw to explain why the defendant issued the notices in such manner.  I think he should have when he relied on them to refute the defendant’s case. 

16. Fifth, the presiding officer said that the defendant had not amended the employment contract.  That is another point which does not sit well with the defendant’s case.  But similarly, Mr Saw should have been asked to explain why the contract was not amended. 

17. A contractual relationship may be varied by conduct.  The presiding officer should conduct further investigation on all the relevant matters including those identified above before he could safely reject the defendant’s case and find that the salary that the defendant was responsible for remained HK$32,000. 

18. Finally, Mr Lam, for the claimant, raised a technical objection, which is this.  Leave on Ground 2 was granted on a different basis, namely, the presiding officer did not properly take into account the tax returns.  It was not based on the joint-employment point.  He may well be right.  But I do not consider this objection fatal.  After all, it is a very technical point.  The substance of the joint-employment point was before the presiding officer.  It was articulated in the written submissions of Mr Carolan for the defendant.  Mr Lam was able to deal with it with no difficulty.  The claimant has not suffered any prejudice at all.  If need be, it would only require a formal amendment. 

Conclusion

19. For the above reasons, I made the order as I did.