Court Decision Clarifies Annual Leave and Holiday Pay Obligations
The Court of Appeal has ruled in favour of Cathay Pacific Airways in relation to claims brought by three flight attendants for shortfalls in the amounts of statutory holiday pay and annual leave pay. It is important to note that the legislative provisions applicable to this case are those prior to changes introduced by the Employment (Amendment) Ordinance 2007. The case therefore was concerned with the old sections 41(1) and 41(2) and 41C(1) and 41C(2) of the Employment Ordinance (“EO“). Both of those sections required payment by reference to wages which the employee would have earned.
Labour Tribunal
In the Labour Tribunal, the flight attendants argued that Cathay had failed to include ground duty allowance (“GDA“), line duty allowance (“LDA“), duty free sales commission (“DFSC“) and outport allowance in the calculation of statutory holiday pay and annual leave pay. The Tribunal held that the outport allowance did not constitute “wages” under section 2 of the EO because it fell within the exception in subparagraph (d) being “a sum payable to the employee to defray special expenses incurred by him by the nature of his employment”. It held, however that LDA and GDA (essentially sums referable to time spent undertaking flying or ground duties, as applicable), should be included in the calculation of statutory holiday pay and statutory annual leave pay.
The Tribunal referred to the Court of Appeal judgment of the Hon. Le Pichon JA in Lam Pik Shan v. Hong Kong Wing On Travel Services Ltd., CACV 394 of 2007 which stated that the real question is “whether a workable mode of calculation exists for working out...and whether it can be said to accrue daily“. The Tribunal held that because the LDA and GDA were calculable daily, they could be said to accrue daily and therefore fell within sections 41(1) and 41C(2). It held further that the DFSC should also be included in the calculation of statutory holiday pay and statutory annual leave pay because there was no difficulty in calculating the amount of DFSC made to the employee on any given day and therefore it could be said to accrue daily.
Court of Appeal
The Court of Appeal upheld the Labour Tribunal’s finding that the outport allowance did not form part of the employees’ “wages”. However, it found that it could not be properly said that either LDA or GDA accrued on a daily basis and therefore there was no basis for including either within the calculations of statutory holiday pay or annual leave pay pursuant to the ‘old’ sections 41(2) and 41C(2). In the court’s view, calculation on a daily basis is not to be regarded as synonymous with “daily accrual”. The Court examined the case of Lisbeth Enterprises Ltd. v. Mandy Luk (2006) 9 HKFAR 131 which noted that statutory holiday pay and annual leave pay “formed a context which required that the word “wages” should be read as excluding commission, save possibly for commission accruing and calculated on a daily basis.” In Lisbeth, the commissions were held not be included in the calculation of holiday pay and annual leave pay since the claimant’s commission accrued and was calculated on a monthly basis. The case of Lam Pik Shan v. Hong Kong Wing On Travel Services Ltd. was distinguished on its facts as, in that case, tips received by a travel escort obviously accrued on a daily basis and were readily calculable on a daily basis. The Hon. Judge Stone in the Cathay case held that neither the LDA nor the GDA could be said to accrue on a daily basis. In relation to DFSC, the Court did not consider that there was a daily accrual in the sense of “daily wages” or “daily wages which vary from day to day”, as required by the old sections 41(2) and 41C(2). As such, the DFSC should not be included in the calculation for annual leave and holiday pay and this part of Cathay’s appeal was also allowed.
Comment
This case is relevant for employers who have ongoing disputes concerning certain forms of variable pay and whether they should be included in statutory payments before 13 July 2007. Note that this case is not concerned with the Employment Ordinance as it now stands. Since 13 July 2007, statutory holiday pay, annual leave pay, sickness allowance, maternity pay and payment in lieu of notice must be calculated by reference to an employee’s average wages in the 12 calendar months immediately preceding the relevant date. All commissions (whether they accrue on a daily or monthly basis) must be taken into account when calculating an employee’s statutory payments.
Source: Baker & McKenzie
Paul Arkwright
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