KWAN SIU WA BECKY v. CATHAY PACIFIC AIRWAYS LTD

CACV 92/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 92 OF 2010

(ON APPEAL FROM HCLA NOS. 3, 4, 5, 7, 8 & 9 OF 2009)

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HCLA 3/2009

BETWEEN

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JUDGMENT

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Hon Tang Ag CJHC:

1.  These appeals mainly concerned the calculation of holiday pay and annual leave pay under sections 41 and 41C of the Employment Ordinance, Cap. 57 (all references are to this Ordinance unless otherwise stated), prior to the Employment (Amendment) Ordinance.

2.  At issue are whether “Line Duty Allowance” (“LDA”), “Ground Duty Allowance” (“GDA”), “Outport Allowance” (“OA”) and “Duty Free Sales Commission” (“DFSC”) should be included in such calculation.

3.  Becky Kwan and Vera Wu, the claimants in Labour Tribunal Claims 2827 and 2828 of 2008 respectively, claimed that “Line Duty Allowance” and “Outport Allowance” should be included in the calculation of the statutory holiday pay and the statutory annual leave pay, whilst Jenny Ho, the claimant in Labour Tribunal Claim No 2829 of 2008, contended that in addition to the “Outport Allowance”, a “Ground Duty Allowance” and a “Duty Free Sales Commission” should be included in such calculation.  In addition, Ms Ho claimed that she has not received any statutory holiday pay at all.

4.  In the Labour Tribunal, Mr Pang Ka Kwong, Deputy Presiding Officer, decided that LDA, GDA and DFSC should be included but not the OA in the calculation of statutory holiday pay and statutory annual leave pay.  He also held in favour of Jenny Ho that she had not received any holiday day pay at all.  As a consequence, the Deputy Presiding Officer ordered that the Defendant (Cathay Pacific Airways Limited) (“CPA”), should calculate and pay the shortfalls to the Claimants in accordance with the formulae which he prescribed.

5.  Leave to appeal and cross-appeal were granted by A Cheung J on 27 March 2009.

6.  Stone J allowed the appeal by CPA and dismissed the cross-appeals by the Claimants.  This is the appeal by the Claimants against the decision of Stone J.

Line Duty Allowance

7.  The LDA is paid to all cabin attendants for each hour spent on flying duty.  It is calculated and paid on the basis of a “Flying Duty Period” as defined within CPA’s Operations Manual.  The LDA is paid only when the cabin attendant is on flying duties and, for purposes of calculation, time begins to run when the cabin crew in question reports for flying duty, and finishes when the engine is turned off at the end of the final sector flown.  It is calculated to the minute, and is paid on the total number of line duty hours operated by each crew member. 

Ground Duty Allowance

8.  This is relevant only to Ms Jenny Ho, and its features are fundamentally similar to those of LDA, save that they refer to time spent in undertaking ground duties as opposed to flying duties.  The learned judge pointed out that whilst LDA and GDA refer to differing activities, for the purpose of these proceedings, there is little or no practical difference. With respect, I agree.

Outport Allowance

9.  This is relevant to the cross-appeals of all 3 claimants.  Essentially, it is an allowance which is calculated by reference to a formula agreed with the Flight Attendants’ Union, which takes account of the actual cost of meals and services at the relevant crew hotel in each layover port.  The amount of the OA payable is a genuine pre-estimate of the amount of that which the particular expense (be it meals, taxis, laundry etc) is likely to be, and such pre-estimate of miscellaneous out of pocket expenses relating to the staff layover between flying duties varies according to the particular port.  The OA is paid in the form of a fixed allowance calculated in accordance with specific rates laid down in the company Operations Manual, as opposed to an actual reimbursement against receipts, and is non‑accountable – thus, if, for example, the particular crew member wishes not to eat at any particular layover, this does not affect payment of that part of the allowance referable to the cost of meal(s) at that port.  See paras. 34 to 36 of the judgment. 

10.  I should mention that one of the items of OA was what was called “Indian Port Allowance”.  It appears that the only difference from this and other allowances is that due to foreign exchange restrictions, allowance for Indian ports is paid when crew members report for duty in the Hong Kong airport as they start their flying duty as opposed to being paid when they arrived at the relevant crew hotel.

Duty Free Sales Commission

11.  This is only relevant to Ms Jenny Ho’s claim.  This allowance is simply a commission paid to the attendant who has been assigned to the sale of duty free items based upon the inflight duty free sales she has achieved, which is a flat rate of 3.5% of sales made by the particular attendant.  The commission is paid at the end of the month following the sale, and there is a system of incentives: thus, for example, an award is given to the top team with the best inflight sales performance, and individuals receive awards for top performers.  The learned judge also pointed out that not all flights have duty free sales, and of course, even if a cabin attendant is rostered on a flight with such service, there is no certainty that she will be assigned responsibility for such sales; and of course, there is no such guarantee that any such sales will be effected by the individual concerned.  See paras. 37-40 of the judgment.

Employment Background

12.  This is what the learned judge said regarding the employment background of the Claimants:

“15. Ms Becky Kwan was appointed by Letter of Appointment dated 20 September 1975, joining CPA as a Junior Flight Hostess. She was promoted to Chief Purser L1011 on 18 September 1987, a post retitled ‘Inflight Service Manager’ on 1 April 1999, and she remains in this position to-date. She is required to perform air and ground duties as directed by her employer.

16. Ms Kwan receives a basic salary and title allowance each month, and in addition she receives allowances such as the Line Duty Allowance and the Outport Allowance.

17. She is entitled to 5 weeks’ paid annual leave and 94 Guaranteed Days Off per year.

18. Her Conditions of Service are those issued in 1986.

19. Ms Vera Wu was appointed by Letter of Appointment dated 12 June 1995, joining CPA as a Cabin Attendant. She was promoted to Purser on 1 December 2000, and remains in that position to-date, being required to perform air and ground duties as directed by CPA.

20. She is paid on a monthly basis, receiving a basic salary and title allowance, and also allowances such as the Line Duty Allowance and the Outport Allowance.

21. Ms Wu is currently entitled to 5 weeks’ paid annual leave and 94 Guaranteed Days Off per year.

22. Ms Jenny Ho, the third in this triumvirate of claimants, was appointed by Letter of Appointment dated 19 January 2005, joining CPA as a Flight Attendant of the Inflight Services Department, a position in which she currently remains. She is required to perform air and ground duties as CPA directs.

23. Ms Ho’s Conditions of Service are those issued in 2003, under which she enjoys a different payment structure from that of her colleagues; this structure is set out in Clause 3.1 of the relevant Conditions of Service. This involves, inter alia, a salary on a monthly basis, which salary is calculated with reference to detailed calculations which take into account the concepts of ‘Minimum Guaranteed Flying Pay’, ‘Block Hours’ and ‘Work Credits’ and ‘Leave Credits’ earned within each month.

24. In company with her claimant colleagues, Ms Ho similarly receives an Outport Allowance. However, unlike Ms Kwan and Ms Wu, in addition she receives a ‘Duty Free Sales Commission’ and a ‘Ground Duty Allowance’.

25. With less than 5 years’ service with CPA, Ms Ho receives 21 days’ paid annual leave, and also is provided with days without work, which variously enjoy the title of ‘short break’, ‘stop over in outports’, ‘standby duty’, and ‘days without duties’.”

Statutory Provisions

13.  Section 2 defines “wages” as meaning

“all remuneration, earnings, allowances including travelling allowances and attendance allowances, attendance bonus, commission, overtime pay, tips and service charges, however designated or calculated, capable of being expressed in terms of money, payable to an employee in respect of work done or to be done under his contract of employment, but does not include –

………..

(d) any sum payable to the employee to defray special expenses incurred by him in the nature of his employment;

………”

14.  Section 41:

“(1) Holiday pay shall be a sum equivalent to the wages which the employee would have earned on a full working day.

(2) Notwithstanding subsection (1), where an employee on piece rates or where the daily wages of an employee vary from day to day, the holiday pay shall be a sum equivalent to the average daily wage earned by the employee, and for the purposes of this subsection the average daily wage shall be the average of the daily wages earned by the employee on each day on which he worked during each complete wage period, comprising not less than 28 days and not more than 31 days, immediately preceding or expiring on the holiday or the first day of the holidays.”

15.  Section 41C:

“(1) Annual leave pay shall, subject to subsection (2), be a sum equivalent to the wages which the employee would have earned if he had worked every day during the period of annual leave.

(2) Where an employee is employed on piece rates or where the wages of an employee vary from day to day, the annual leave pay shall be calculated by reference to the average daily wage earned by the employee, and for the purposes of this subsection the average daily wage shall be the average of the daily wages earned by the employee on each day on which he worked during every complete wage period, comprising not less than 28 days and not more than 31 days, immediately preceding or expiring on the first day of the annual leave or on the day on which the contract of employment terminates, as the case may be.”

Line Duty Allowance and Ground Duty Allowance

16.  It is not disputed that LDA falls within the definition of wages under section 2.  Stone J, however, held that it should not be included for the calculation because of the decision of the Court of Final Appeal in Lisbeth Enterprises Ltd v Mandy Luk (2006) 9 HKFAR 131. 

17.  In Lisbeth, the issue was whether certain commissions should be included in the calculation of wages for the purposes of sections 41 and 41C.  The essence of that decision could be gathered from the following passage in the judgment of Bokhary PJ, where he said:

“24. … But I do not see how wages can be so regarded unless they at least accrue and are calculated on a daily basis. …”

18.  Bokhary PJ explained that was not possible in Lisbeth because:

“25. … Her commission was payable according to fluctuating monthly results and on a sliding scale which moved up and down with such results. So her commission simply could not accrue or be calculated until the end of the month arrived and that month’s results were known.”

19.  Stone J said that the learned Deputy Presiding Officer erred because he had elided the concept of “daily calculability” with that of “daily accrual”.  He noted that the learned Presiding Officer had said:

“…given that LDA and GDA is calculable daily and therefore can be said to accrue daily, in my view they can be said to be daily wages that vary from day to day …”

20.  In Lam Pik Shan v Hong Kong Wing On Travel Service Ltd [2008] 3 HKC 578, a tour guide was paid a basic salary but also earned tips calculated on a daily basis on tours led by him.  This Court (Rogers VP, Le Pichon JA and Suffiad J) rejected a submission on behalf of the employer that on the basis of Lisbeth, the tips should not be included in the calculation of wages for sections 41 and 41C.  In the leading judgment Le Pichon JA said:

“20. Prima facie, tips received from tour participants would fall squarely within the statutory definition of ‘wages’. The real question is whether a workable mode of calculation exists for working out the net tips and whether it can be said to accrue daily.

21. As already noted, the discretionary nature of tips is not a bar (as distinct from the case of commissions) to their forming part of an employee’s wages. Further any discretion in the payment of a tip would be that of the tour participant and not employer i.e. the tour operator. While the amount of tips received per month may vary, depending on a number of factors including the number of days spent escorting tours, the type of tour, the number of persons joining the tours etc., in the present case, these factors do not pose any particular difficulty in the way of calculating daily wages. Not only is the rate of recommended tips made on a per person per day basis, the tips the tour guide/escort had to defray in the foreign country are also expressed in a similar fashion. Even if the tour guide does not receive his tips until the end of the tour, given that the duration of the tour is a fixed number of days, the net tips per day can be said to “accrue” on a daily basis and are readily calculable on the same basis.”

21.  The Appeal Committee (Bokhary PJ, Chan PJ and Ribeiro PJ), on 19 January 2009, when refusing leave to appeal to the Court of Final Appeal, said:

“4. It shows that there has never been any difficulty calculating the amount of such ‘tips’ accruing in respect of each tour guide. This has been so both before and after the enactment of the Employment (Amendment) Ordinance 2007 which followed upon the Court’s decision in Lisbeth Enterprises Ltd v Mandy Luk.”

22.  Here, as noted, the LDA was calculated to the minute.  It was earned as soon as the duty was performed.  There is no practical or theoretical difficulty in calculating the exact amount earned on a daily basis.  It was not, nor could it be, suggested that if one is paid by the hour, or by the minute, but not by the day, such income would lack the dailyness required by Lisbeth.

23.  Furthermore, neither section 41 nor section 41C requires that LDA or the same amount of LDA, has to be earned everyday.  Wages may vary from day to day.  It may vary for different reasons, including, for example, the fact that one might be on different duties from day to day, or working longer hours some days than others.  So it does not matter that as Stone J observed in para. 30 of his judgment (“the Judgment”):

“30. … It follows that no two flights produce the like amount of LDA, which varies based on the flight the crew member is rostered to operate, and the length of time spent on that flight.”

24.  Stone J stressed the importance of daily accrual.  Here, LDA was payable monthly.  I do not believe accrual is used in the technical sense of an accrual of a cause of action.  Daily wages do not need to be payable daily before it could be said to have accrued on a daily basis.  It is common for persons who are remunerated on a daily basis to be paid periodically, say monthly or weekly, such that the employee could not sue for payment before the due date.  I believe it is sufficient for Lisbeth if the income is calculated and earned on a daily basis.

25.  It follows that I am of the view that LDA or GDA should be included in the calculation of wages for the calculation of holiday pay or annual leave pay.

Duty Free Sales Commission (“DFSC”)

26.  Lisbeth is not authority that contractual commission could not form part of one’s wages.  The definition of “wages” in section 2 makes it clear that it is included as such.  So the question is: “Is there any reason why the commission earned on the sale of duty free products should be excluded from the calculation of holiday pay and annual leave pay?”

27.  Mr Burns, SC, who appeared for CPA, contended that DFSC does not accrue on a daily basis.  Stone J agreed when he said:

“83. … I do not consider that there was a ‘daily accrual’ in the sense of the earning of ‘daily wages’ or ‘daily wages that vary from day to day’.”

28.  With respect, I do not agree.  There is no suggestion that the commission of 3.5% was not earned as soon as a sale is made.  Of course, the amount earned would depend on whether any such sale was effected, which in turn would depend on a number of things including whether one has been assigned to that particular duty.  But what is important is that if such commission was earned during a relevant complete wage period, they should be included in the calculation of the holiday pay or annual leave pay.  It was not CPA’s case that the possibility of incentive payment in the form of awards for top performance affects the basic commission of 3.5%.  Nor do I think they matter.

Outport Allowance (“OA”)

29.  This depends on whether OA falls within exception (d) in section 2, which excludes:

“(d) any sum payable to the employee to defray special expenses incurred by him by the nature of his employment;”

30.  The learned Deputy Presiding Officer said:

“70. … It appears that the amount of OA payable is a genuine pre-estimate of what the amount of the expense is likely to be.”

31.  Mr Ambrose Ho, SC (leading Mr Erik Shum), for the Claimants, contended that since OA was a non-accountable payment as opposed to an exact reimbursement of the expenses, it does not fall within exception (d). He submitted that if an expense had to be accounted for, a crew member would have to produce a receipt in support of a claim.

32.  I believe it is important to give exception (d) a purposive and common sense construction.  In Lisbeth Bokhary PJ mentioned the importance in the calculation of regular payment of holiday pay and annual leave pay to avoid chaos.  He also recognized the necessity for a simple and certain mode of calculation.  I have no doubt that if the OA was spent as intended, they should not be counted as wages whether or not receipts are required.  The Deputy Presiding Officer noted:

“68. In practice, the Claimants have never paid salary tax on income earned by OA.”

33.  I do not agree that an employer should insist that receipts be obtained for all expenditure.  That would only add unnecessary paper work. Suppose the rule is that an Employer would pay in advance an estimate of the expenditure and employees are required to return any excess, but they are not required to prove that they had actually spent any money, I can see no reason why this should not satisfy exception (d).  Here, the fact that an employee is not required to return any unspent OA is insufficient to take it out of exception (d).

34.  Mr Ho relies on London Borough of Southwark v O’Brien [1996] IRLR 420, a decision of the English Employment Appeal Tribunal.  In that case, the English Employment Appeal Tribunal was concerned with the Wages Act 1986, in particular sections 7(2)(b) under which:

“(b) any payment in respect of expenses incurred by the worker ...”

was excluded from the definition of “wages” in section 7(1) and thus outside the scope of the Wages Act.

35.  It was held that it was not necessary for the payer to show that what was paid was a reimbursement of the precise amount expended by the worker. Mummery J said at page 6:

“… if a payment, which is clearly not in the nature of expenses, is labelled ‘expenses’, it is open to the tribunal to conclude that ‘expenses’ is a misdescription of the payment made. But when asking, ‘Is the payment in respect of expenses incurred by the employee?’, it is not necessary for the payer to show that what he has paid is precisely a reimbursement of the sum expended by the worker. ‘In respect of’ means ‘referring to’or ‘relating to’or concerning in a general way, whereas the expression used by the chairman in his decision, ‘payment of expenses’, would appear (wrongly, in our view) to equate the statutory provision with reimbursement of a precise amount.”

36.  Mr Ho submitted that O’Brien is distinguishable because there the expression used was payment “in respect of expenses incurred by the worker” whereas here, exception (d) refers to any sum payable “to defray special expenses incurred by him in the nature of his employment”.

37.  Exception (d) can be compared with another exception, exception (c)(c), which reads:

“any travelling allowance payable to the employee to defray actual expenses incurred by him by the nature of his employment” (emphasis added)

38.  Exception (d) refers to special expenses and not actual expenses.  No point was taken that any of the OA could not be regarded as special for the purpose of exception (d).  Exception (c)(c) was introduced by amendment in 1997, whereas exception (d) could be traced to the Employers and Servants Ordinance, Cap. 57 of 1902, where the language of the exemption was:

“… any sum paid to a servant to cover any special expenses falling upon him by nature of his employment.”

39.  Mr Ho submitted that the difference between exception (d) and the wording of the exception in Cap. 57 of 1902 is significant.  With respect, I do not agree. 

40.  Mr Ho submitted exception (d) does not apply because a crew member might skip lunch and save the expense.  To that extent, the crew member would have had an accretion to his income.  But, even if expenses are required to be accounted for in the sense that receipts should be produced, that would not necessarily deprive a crew member of any element of gain or profit.  For example, he could sell the meal that he/she did not consume.  Mr Ho does not contend that a crew member be required to prove that not only had he/she paid for a meal, he/she had consumed it. 

41.  Mr Ho also submitted that the entire OA should count as wages, even if they had actually been spent as intended because OA was not an accountable reimbursement.  Or when it is possible that some of it might not have been spent.  I do not agree.  I believe O’Brien provides an example of a legislation which excluded non accountable expenses from the calculation of wages.  That approach was probably based on the common sense view that most such expenses would have been incurred and that it would benefit nobody to insist on strict proof of every expenditure.  I can see no reason in principle why a similar approach should not be adopted in Hong Kong.  Of course the issue here is whether that is the effect of the language used in exception (d).  I believe so.  I bear in mind the importance of common sense when dealing with employment legislation.  I believe any contrary interpretation will lead to unnecessary burden on employer/employee.  In this respect, I respectfully agree with the approach of Deputy Judge A To (as he then was) in Star Express Ltd. v. Cheng Tak and Others, HCLA 86/1998 (unreported, 11 May 1999), where he excluded non accountable parking fees for “parking tourist couches in metered parking spaces” where “no receipt need be produced and indeed no receipt could be available” from the calculation, inter alia, of holiday and annual leave pay.

Ms Ho’s holiday pay

42.  I turn to consider Ms Jenny Ho’s claim in relation to whether or not she had been given any holiday pay.  Her wages were calculated on the number of flying hours she was able to achieve on a monthly basis.  As the Deputy Presiding Officer has pointed out in para. 113, she was generally “rostered to not less than the value of 70 hours of flying duties each month. …” .  Thus, in some months she would achieve more than 70 hours of flying duties. 

43.  The following paragraphs of the decision of the Deputy Presiding Officer concerned Ms Ho:

“Ho Kit Man Jenny (‘Jenny’)

18. By a letter of appointment, dated 19th January 2005, Jenny joined Cathay Pacific as a Flight Attendant of the Inflight Services Department and she remains in the same position to date. She is required to perform duties in air and on ground as Cathay Pacific directs.

19. Cathay Pacific pays Jenny Minimum Guaranteed Flying Pay (‘MGFP’) at the value of 70 Block Hours (see explanation below) i.e. 70 hours X HK$146.4 per hour = HK$10,248 per month.

……

112. Unlike to the other two Claimants who are monthly paid crew, Jenny's wages are calculated on the numbers of flying hours she is able to achieve on a monthly basis. Her salary structure is not governed by the Master Pay Scale like the monthly paid crew members do. She does not enjoy the benefit of automatic annual increment along the Master Pay Scale.

113. Generally, Jenny is rostered to not less than the value of 70 hours of flying duties each month. If she wants to earn more, she may swap flights with colleagues to fly more, thus earning the extra flying hours which are all calculated on the basis of HK$146.4 per hour. In practice, Jenny swapped flights with colleagues to fly less, thus receiving only the MGFP in many months.

114. Her wages are linked to performance of flying duties, Work Credits and Leave Credits. Therefore, Jenny contends that Cathay Pacific has not paid her any SHP at all.

115. Cathay Pacific contends that according to Clause 3.1 of the COS 2003, Jenny receives a monthly salary that is, rather than a specified amount in her contract, calculated with reference to MGFP that is paid regardless of the work or duty she may or may not have undertaken or been assigned to her during the month; that MGFP is payable due to time on duty as well as time not on duty in the same way as a worker is paid a basic monthly salary but may also be entitled to monthly overtime if she works extra hours in that month.

116. Clause 3.1 of the COS 2003 provides that Jenny will receive salaries calculated on a monthly basis. Having salaries calculated on a monthly basis does not mean that she is monthly salaried. Employees employed at piece rate or hourly rate may receive salaries calculated on a monthly basis. In my view, the payment structure of Jenny plainly shows that she is an hourly paid employee.

117. Cathay Pacific pays Jenny MGFP at the value of 70 Block Hours, as it assumes that a cabin crew works 85 credit hours (inclusive of Block Hours flown) and 25.5 ground duty hours each month. It demonstrates that the MGFP relates to crew members’ flying duties rather than the Days Without Duties.

118. For example, when an hourly paid cabin crew performs more than 70 flying hours in a month, she is paid by the actual flying hours plus any credits earned. It means that she will not reap any benefit from the MGFP, notwithstanding that Cathay Pacific may well provide her with Days Without Duties in that month.

119. An hourly paid cabin crew is not paid for those Days Without Duties that coincide with the statutory holidays. In other words, in a month if there is a statutory holiday, she is still paid 70 flying hours plus the extra flying hours she has performed (if any) without any SHP. In my view, the corollary is that she does not receive any SHP.

120. One can deduce from Jenny’s salary structure that she does not receive any payment for the Days Without Duties. In so far as Cathay Pacific uses Days Without Duties to discharge its obligation to provide Jenny with statutory holidays under the EO, Jenny does not receive any SHP.”

44.  There was some confusion because Ms Ho was said to have been employed on an hourly basis.  It is obvious that she was not.  I am not surprised that the learned judge took the view that she was employed from month to month.  She was employed on a monthly basis with a guaranteed minimum monthly pay. 

45.  Mr Ambrose Ho’s submission, as more fully explained by him in the course of his submission, is that although Ms Ho was given her rest days and her holidays, she was not paid for them, in the sense that she was only paid for the hours which she had actually worked during the relevant wage period. Thus, for example, if she had worked 140 hours during a relevant wage period, she would be paid for the hours actually worked.  On holiday, she would not have to work, but she was not paid for them.  She claimed to be entitled to holiday pay based on 140 hours worked during the relevant complete wage period.  The same argument might apply to rest days but no claim is made in respect of them.

46.  With respect to Stone J, he properly pointed out that the applicable:

“96. … payment mechanism is little different from that of an office worker remunerated monthly on the basis, say, of a 40 hour week, but who would receive overtime pay in relation to hours worked in excess of the stipulated number of hours underpinning the basic salary.”

47.  I agree, and in that respect, the minimum guaranteed hour of 70 hours is perhaps no different from a basic 40-hour week.  However, overtime time should be included in the relevant calculation if it is of “a constant character”, and the other conditions of section 2(2) are satisfied.

48.  I have the advantage of reading the judgment of Le Pichon JA on the subject of the statutory holiday pay of Ms Ho.  With respect, I agree with her observations.

Statutory and contractual annual leave

49.  This concerned the calculation of the amount payable in respect of the annual leave entitlement of the Claimants.  As Mr Burns pointed out, the maximum period of annual leave provided for under the Employment Ordinance is 14 days.  Here, the Claimants were entitled to substantially longer annual leave.

50.  However, there is nothing in any of the contractual documents to suggest that holiday pay might vary depending on whether it is part of the statutory 14 days or the longer contractual leave. 

51.  Stone J agreed with Mr Burns that:

“106. … the entitlement of a cabin attendant to contractual annual leave in excess of the period of statutory annual leave to which such attendant may be entitled is governed by the express or implied terms of the particular employee’s employment contract, and in respect of such the provisions of the Ordinance have no application.”

52.  But as Mr Ho pointed out:

“… no formula was given by Stone J as to how the contractual ALP should be calculated.”

53.  I agree with Stone J that this is really a matter of construction.  In my view, when the contract does not provide to the contrary, the parties must be taken to have intended that the employee would be paid at the same rate for the entitled annual leave. 

Section 40

54.  This is submission as it appeared in Mr Burns’ skeleton submission:

“39. It is submitted that, by virtue of the provisions of Section 40 of the EO, to the extent that any Claimant worked on a statutory holiday, the wages earned by her in respect of that statutory holiday (on which she worked) constituted her full entitlement under the EO in respect of that statutory holiday on the basis that she would have received the amount she ‘would have earned’ on the statutory holiday pursuant to Old s. 41(1). In other words, the contention is that to the extent that the claimants worked on a statutory holiday, the wage paid to them in relation to that day (which they worked) fully satisfied their entitlement under the EO in respect of that statutory holiday.”

55.  This was rejected by Stone J in the following terms:

“98. I reject this argument, which during the hearing took me some time properly to grasp; in fact, during dialogue with the Bench Mr Burns was minded to accept that perhaps this was not his best point. It seems to me that to say, in effect, that because the employee in fact worked on the day designated as a statutory holiday that she thus has enjoyed that holiday is an unsound proposition and, if indeed I properly have understood the point, I am surprised that this argument was seen fit to be made.”

56.  With respect, I agree with Stone J.

57.  For the above reasons, I would (1) allow the appeal as regards line duty allowance, ground duty allowance and duty free sales commission; (2) remit to the tribunal for determination the question whether the second of the conditions in section 2(2) of the Ordinance is satisfied in respect of any of the statutory holidays of Ms Ho and, if so, to calculate such statutory holiday pay by taking into account the overtime worked during the immediately preceding relevant wage period; (3) dismiss the appeal as regards outport allowance.

58.  The parties are directed to submit agreed draft minutes of order for approval.

59.  I would also order nisi that CPA pay to the claimants 60% of their costs of the appeal.

Hon Le Pichon JA:

60.  I agree with the judgment of Tang Ag CJHC.  On the subject of the statutory holiday pay of Ms Ho, I wish to add the following observations.

61.  I agree with the analysis that Ms Ho was employed on a monthly basis with a guaranteed minimum monthly pay.  To the extent that if, in any month, she worked for more than 70 flying hours, her basic salary would correspondingly increase to reflect the additional hours worked.  In substance, that increase is analogous to overtime worked during that month.

62.  Section 2 of the Ordinance provides:

“ (2) No account of overtime pay shall be taken in calculating the wages of an employee for the purpose of‒

…

(e) any holiday pay under Part VIII; …

unless the overtime pay is of a constant character or the monthly average of the overtime pay over a period of 12 months (or if not applicable, such shorter period of employment) immediately preceding the respective dates specified in [subsection] (2A) … is equivalent to or exceeds 20% of his average monthly wages during the same period.

(2A) In the calculation of the monthly average of the overtime pay under subsection (2), the date specified for the purpose of that subsection is‒

…

(e) in relation to any holiday pay under Part VIII, the first day of the holiday;

…”

63.  For overtime to be taken into account in calculating holiday pay one of the two stipulated conditions must be satisfied.  The phrase “of a constant character”, being the first of the alternative conditions, would appear to connote a state of affairs that is unvarying or unchanging.  The alternative condition requires that in the 12 months immediately preceding the holiday, on average, the overtime worked must have increased the employee’s wages for that same period by at least 20%.

64.  The tribunal’s reasons as to Ms Ho’s earnings are brief and appear in §113 of the Reasons:

“113. Generally, Jenny is rostered to not less than the value of 70 hours of flying duties each month. If she wants to earn more, she may swap flights with colleagues to fly more, thus earning the extra flying hours which are all calculated on the basis of HK$146.4 per hour. In practice, Jenny swapped flights with colleagues to fly less, thus receiving only the MGPF in many months.”

65.  Ms Ho joined CPA on 19 January 2005.  By the time the trial commenced in December 2008, she had been working for approximately 47 months.  While the tribunal’s findings set out above left open the possibility that in some months she may have earned more than the guaranteed minimum, the fact that “in many months” she effectively received no overtime pay, the pattern of overtime pay plainly lacks the quality of ‘constancy’ required to satisfy the first of the alternative conditions.

66.  As to whether the second of the alternative conditions is satisfied in respect of any 12-month period immediately preceding a holiday, the tenor of §113 suggests not but, in my view, there are insufficient findings for a definitive view to be taken by this court.  In those circumstances, there is no alternative but to remit that question to the tribunal for determination.  Unless the tribunal were to find that this condition is satisfied in relation to any 12-month period immediately preceding a holiday, no question would arise of taking overtime pay into account in calculating Ms Ho’s wages for the purpose of the holiday pay in question.

Hon Cheung JA:

67.  I agree with the judgments of Tang Ag CJHC and Le Pichon JA.

68.  It is a matter of commercial reality that many employers in Hong Kong often do not and do not wish to remunerate their employees solely in the form of ‘wages’ in the sense of a fixed regular payment described as wages or salary.  Instead, payment made to the employees is often expressed in the form of allowance, bonus or commission.  There are numerous reasons for such an approach.  At one end of the spectrum, because the calculation of an employee’s benefits both during the currency and at the end of the contract of employment is based on the amount of the wages, an employer may be concerned that if the remuneration is solely in the form of ‘wages’ it may result in a higher payment to the employee.  Hence an employer may consider that a payment of allowance may not be regarded as ‘wages’ for the purpose of the calculation.  At the other end, to divide the remuneration by reference to wages and allowance may confer advantage for the employee in respect of certain benefits.  Between these two extremes, it may be that due to the financial structure of the employer, there is no room to increase the wages level but the employer is able to enhance the remuneration to the employee by way of allowance.

69.  It is not necessary to go behind the reasons for such a practice.  However, the Employment Ordinance, as a piece of social legislation enacted for the protection of the labour force, has clearly mandated by section 2 that, subject to the specified exceptions, wages shall mean all remunerations and allowances payable to an employee in respect of work done or to be done under his contract of employment.  This is to avoid the employees, particularly those without bargaining power, from being unfairly deprived of their benefits.

70.  Looking at the matter objective, the Line Duty Allowance, Ground Duty Allowance and Duty Free Sales Commission are clearly payment to the CPA employees in respect of work done or to be done under their contracts of employment.  They are not allowance of a gratuitous nature nor paid at the discretion of CPA.  They are part and parcel of the employees’ remuneration when they perform their contractual duties.  They do not fall within any of the exceptions enumerated under section 2. 

71.  By their nature, these allowances are not fixed regular monthly wages but are paid from time to time when the employees took up duties that gave them such allowances. Applying the authorities of Lisbeth Enterprises Ltd and Lam Pik Shan they also come within the meaning of ‘daily wages’ for the purpose of sections 41 and 41C because they are accrued and can be calculated on a daily basis although the employees may not necessarily be entitled to them every day.  Thus the fact that there are gaps in between the days when, on the other hand, the employees are entitled to the benefits upon taking up the duties and, on the other hand, when they do not, does not change the nature of the payment.  In other words, the ‘intermittent blocks of time’ that exist between the duties cannot defeat the ‘daily accrual and calculable’ nature of these allowances.

72.  In respect of the Duty Free Allowance I do not think the fact that an employee may only be asked at random to be responsible for the sale of duty free items would defeat the claim.  If she is assigned the task, she would have earned it.  Since the sales on each flight can be added up at the end of a flight that ends on a day, then clearly it can be said that it accrued and is calculable daily. 

73.  By contrast, the outport allowance, while, on its face also comes within the meaning of wages under the statue, is clearly caught by the exception of ‘special expenses’.  The words must be given their ordinary meaning.  I do not think it helps to analyse the words in the exception such as ‘defray’, ‘incurred’ or ‘special’ in microscopic terms.  The payment of the outport allowance is to cover the genuine pre-estimated expenses that the employees are likely to incur when they take up the outport duties. They are really not remunerations for performing their duties.

Hon Tang Ag CJHC:

74.  The Court (1)  allows the appeal as regards line duty allowance, ground duty allowance and duty free sales commission; (2) remits to the tribunal for determination the question whether the second of the conditions in section 2(2) of the Ordinance is satisfied in respect of any of the statutory holidays of Ms Ho and, if so, to calculate such statutory holiday pay by taking into account the overtime worked during the immediately preceding relevant wage period; (3) dismisses the appeal as regards outport allowance.  The parties are directed to submit agreed draft minutes of order for approval.  Costs order nisi that CPA pays to the claimants 60% of their costs of the appeal as well as 60% of the costs in the Court of First Instance.