SZE CHI SING t/a KWUN TONG ST. AGNES ENGLISH KINDERGARTEN v. CHAN LOK MEI and Others

IN THE SUPREME COURT OF HONG KONG

MINOR EMPLOYMENT CLAIMS
APPEAL NO. 9 OF 1995

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J U D G M E N T

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Leong, J.:

1. This is an appeal against the decision and award made by the Adjudicating Officer in the Minor Employment Claims Adjudicating Board (MECAB).

2. The Appellant, Sze Chi Sing, operated a kindergarten. The three Respondents, Chan Lok Mei (R1), Lo Wai Chu (R2) and Lam Yin Hung (R3), were teachers employed by the Appellant. Their contracts of employment are in writing and their conditions of service are the same. Although the commencements of their employment are different, R1 from 15th August 1994, R2 from 10th August 1994 and R3 from 9th August 1994, they were all employed until the end of the school term in July 1995. Thus, these are fixed-term contracts of employment. The relevant clauses in these contracts are Clause 2 and Clause 3 and they are as follows:

"Clause 2 - Employment will be terminated upon the expiry of the contract; if the employment contract is renewed, the school will issue another employment contract.

Clause 3 - New teachers will be paid wages from the date of commencement of employment. If a teacher intends to terminate the employment, he should pay one month's wages in lieu of notice as compensation for the loss suffered by the school due to unforeseen and sudden resignation. And if the school terminates the contract without reason, the school should also pay one month's wages in lieu of notice to the teacher."

3. The Respondents commenced work in the school from the dates in their contracts and they worked until 7th July 1995, when, without prior notice, all three Respondents were told to leave the school. Their employments were terminated. They were paid wages up to 7th July 1995. No other payments were made to them by the school.

4. The Respondents claimed they were entitled to one month's wages in lieu of notice in accordance with Clause 3 of the contract and pro rata annual leave pay under subsection 41D(2) of the Employment Ordinance since they had worked for the Appellant for more than three months. They claimed that the end of the school term was after 7th July 1995 so that termination of their employment was during the term of contract. Thus Clause 3 applied.

5. The Appellant claimed that the employment of the Respondents was for a fixed term which expired on 7th July 1995 and for a fixed-term contract of employment, it terminated on its expiry and no prior notice was required. On the claim for pro rata annual leave pay, the school holidays were more than the number of days of statutory annual leave and the Respondents were given more leave than the statutory requirement.

6. The Adjudicating Officer found as a fact that the school term ended on 7th July 1995 and the Respondents were aware of this date as the end of the school term since the date was specified in the school calendar and the minutes of the school meeting. He also found that their employment contracts expired on 7th July 1995.

7. The Adjudicating Officer based on Clause 3 and the admission of the Appellant that the school usually informed teachers of renewal of contract one month in advance, found that the contract was a fixed-term contract with a notice period of one month. The Adjudicating Officer relied on sections 5 and 6 of the Employment Ordinance and found that the Respondents were entitled to one month notice of termination. He found that the 2nd Respondent had been given prior notice but the 1st and 3rd Respondents had not, and he proceeded to award them each a sum of $4,000 being one month's wages in lieu of notice. The 2nd Respondent's claim for wages in lieu of notice was dismissed. The Adjudicating Officer relied on section 41D of the Employment Ordinance to award to the Respondents pro rata annual leave pay.

8. Mr. Shum for the Appellant relied on two grounds to appeal against the decision of the Adjudicating Officer:

9. He submitted that these contracts being fixed-term contracts, automatically came to an end at the end of the term. The contracts automatically terminated by effluxion of time. There was no statutory provision requiring prior notice. He relied on Langton v. Carleton (1874) 9 LR 57 where it was held that a 12-month fixed-term contract which provided for three months notice of termination came to an end at the end of 12 months and the three-month notice was only necessary if the contract was extended beyond 12 months. He submitted that sections 5 and 6 of the Employment Ordinance had no application since these contracts, though continuous contracts, are contracts in writing signed by the parties and not for manual work, and there were express provisions as to the manner of termination during the period of contract. As regards the award of annual leave pay, he submitted that the Adjudicating Officer was wrong in his interpretation of subsection 41D(2) (c) of the Employment Ordinance. He referred to section 41AA of that Ordinance which provided for granting of annual leave to employees. This section he submitted provided that an employee would not be entitled to annual leave before he completed 12 months service. He submitted that subsection 41D(2) only provided for payment of annual leave pay which was in addition to the amount under section 41AA. In other words, he submitted that an employee must have completed 12 months service before the employer was required to give him any annual leave.

10. The Respondents acted in person and they made no submissions.

11. These contracts are no doubt employment contracts for a fixed term, the duration being the school year. They would come to an end by effluxion of time at the end of the school year. Clause 2 of these contracts expressly provided that the Respondents would ceased to be employed at the end of the school year. The school year ended on 7th July 1995 and their contracts terminated on that day. The Appellant was under no obligation to give prior notice of termination. All three Respondents knew from the commencement of their service for how long they would be employed. Clause 3 provided for the giving of notice or wages in lieu of notice by either side if the Respondents wished to leave the school or the school wished to dismiss the Respondents during the term of the school year. Clause 3 did not give the Respondents a right to a month notice prior to the expiry of their fixed term of employment. The school's practice of renewing their contracts prior to expiry of their current contracts or giving prior notice to that effect does not make it a term of the contract that they would be entitled to such notice.

12. Sections 5 and 6 of the Employment Ordinance do not apply. The Adjudicating Officer of the Board was incorrect in concluding that the 1st and 3rd Respondents were entitled to one month's notice or payment in lieu of it.

13. The relevant provisions in the present case in respect of annual leave are subsections (1) and (2) of section 41AA and section 41D of the Employment Ordinance. Subsections 41AA(1) and (2) are as follows:

"S.41AA

(1) Subject to this Part, every employee who has been in employment under a continuous contract for not less than 12 months shall, in respect of each leave year, be entitled to paid leave (in this Part referred to as "annual leave") calculated in accordance with subsection (2).

(2) Where an employee has been in employment under a continuous contract for a period specified in column (1) of the Table of this section, the amount of annual leave to which he shall be entitled in respect of any leave year in that period shall be the number of days specified in column (2) of such Table in respect of the period."

14. Section 41D is as follows:

"S.41D(1) Where -

(a) an employee ceases to be employed; and

(b) annual leave is due to him,

the person by whom he was formerly employed shall, as soon as practicable and in any case not later than 7 days after such cesser, pay to him in respect of the annual leave compensation equal in amount to the annual leave pay he would have received had the leave so due been granted immediately after such cesser.

(2) Where -

(a) an employee ceases to be employed;

(b) the cesser occurs otherwise than on the expiration of a leave year of the employee;

(c) his contract of employment terminates or is terminated other than under section 9 for any reason whatsoever (including his resignation); and

(d) the termination occurs at least 3 months after the appropriate date,

he shall, as soon as practicable and in any case not later than 7 days after the termination, be paid by the person by whom he was formerly employed, in addition to any sum due under subsection (1), a sum equal in amount to that which bears to the notional leave pay the same proportion as the number of days in the final employment period bears to 365."

15. Section 41AA prescribes the rate of annual leave which an employee would be entitled and this rate increases with his years of service but in any case, for the first year of his employment, he would be entitled to at least 7 days annual leave with pay.

16. Section 41D provides for payment in lieu of annual leave to employees whose employment terminates during a leave year and the payment will be on a pro rata basis. Subsection 41D(2)(d) requires that the termination should be at least three months after the appropriate date. "Appropriate date" is defined in section 41A and paragraph (b)(ii) thereof states that "where there is no leave year, the day on which the employment commenced."

17. Thus, the law certainly contemplates payment on a pro rata basis in lieu of annual leave to an employee whose employment is terminated after he has served for less than one year but more than three months. It may be necessary that an employee must have served 12 months before he is entitled to take annual leave during his employment. However, if his employment ceased during a leave year, he is entitled to payment in lieu for the leave which he could take had he continued his employment. Section 41AA does not operate to make 12 months service as a condition in any case before the employer is required to pay for annual leave. If this was the intention of the Legislature, it would defeat the purpose of the legislation since the Ordinance is stated in the preamble as "to provide for the protection of the wages of employees, to regulate general conditions of employment ..."

18. The Respondents had worked for the whole school year, though not a full calendar year. They should be entitled, on cessation of their employment, to payment in lieu of their annual leave on a pro rata basis. The fact that there were school holidays is not relevant in the present case because the Appellant had not acted in accordance with subsection 41AA(4) to give notice to the Respondents as to what period the Appellant regarded as the Respondents' annual leave. If the Appellant intended to treat the school holidays as their annual leave, the Appellant should have given the appropriate notice. The Adjudication Officer was correct in awarding to the Respondents annual leave pay as claimed.

19. The appeal is allowed to the extent that the awards to the 1st and 3rd Respondents on wages in lieu of notice are set aside.

20. $8,000 of the sum which has been deposited with the Board by the Appellant should be returned to the Appellant. The balance being the amounts representing the annual leave pay of the Respondents shall be paid out to the Respondents. I make no order as to costs.

(A. Leong)

Judge of the High Court