Technological progress together with the changes in business environment have led to a shift in the demand of different types of work, and have contributed to an increased use of on-demand contingent workers, casual workers, piece-rated workers and workers with no base salary.

Can employers assume that the wages and commissions for piece-rated workers and workers with no base salary would adequately cover holiday pay? The answer is no.

According to two recent Hong Kong court cases, making such an assumption and having poorly drafted contracts can backfire on the employers!

Different Employment Models

With changes in the work demand, different types of employment models are used to meet the business needs. These include contingent work and casual work, which may not be dissimilar to the work arrangements under a zero-hour contract in the UK.

  • Some workers are employed on terms that they are only paid for the hours worked and the employer has no obligation to provide any work.
  • Others are employed without any base salary but share a percentage of the revenue generated for the company.

Notwithstanding these different employment models, employees in Hong Kong are entitled to statutory benefits and protections, such as paid statutory holidays and annual leave, sickness allowance, maternity/paternity leave pay, severance pay or long service pay, if they are “continuously employed” and they meet the required length of service to enjoy the entitlements.

An employee is deemed to be "continuously employed" if s/he has been employed for a minimum period of 4 consecutive weeks for at least 18 hours each week.

Recent Holiday Pay Cases

1.  HKSAR -v- Physical Health Centre Hong Kong Ltd ("Physical" case) (August 2015)

This case was concerned with non-payment of holiday pay to an employee who had no base salary.

Physical, a fitness & beauty centre, was prosecuted by the government for not paying statutory holiday pay to one of its masseuses. This masseuse employee had no base salary. She was remunerated for the hours worked in the form of commissions and would receive a sum of HKD10,000 as her minimum commissions for each month.

The dispute was about whether the minimum commissions were inclusive of statutory holiday pay.

The employee claimed that the company failed to pay her any statutory holiday pay. On days that she did not work (including her statutory holidays), she received no payment whatsoever from the company. The company disagreed and argued that her minimum commissions were inclusive of her holiday pay.

The company was convicted by the court for contravening the Employment Ordinance by not paying the employee's holiday pay. Being dissatisfied with the result, the company sought to appeal against its criminal convictions.

High Court's ruling:

The High Court upheld the company's criminal convictions and dismissed its appeal.

  • The judge noted that the employee was only paid for the days she worked, and the contract did not expressly provide that the minimum commissions were to cover statutory holiday pay.
  • As such, there was no basis for the company to contend that it had fulfilled its obligations under the Employment Ordinance and had discharged its payment obligations to the employee.

The company was fined for 6 counts of offence in this case.

2.  Li Kam Chuen -v- Fan Keung Kee Transport Company Ltd (the “Fan Keung Kee” case)  (June 2015)

The Fan Keung Kee case was concerned with an employee (a claimant) who sued his employer for shortfall in holiday pay. 

The employee in this case was a truck driver. He had no base salary, but shared a percentage of the revenue he generated for his employer as his wages. If his work attendance rate was 100% but his wages for the month was less than HK$8,000, the Company would top up his wages to HK$8,000 by paying him a discretionary allowance.

The dispute was about how the employee's holiday pay should be calculated.

The company argued that the employee was a monthly-rated employee and as such, his holiday pay should be his wages for the month divided by 30 days. However, the employee said that he was a piece-rated employee, and was only paid for the days he generated revenue for the company. As such, his holiday pay should be his wages divided by only those days that he worked, and in calculating his holiday pay the company should disregard the period when he was not paid any wages.

The Labour Tribunal found in favour of the employee, and the company sought permission to appeal to the High Court.

High Court's ruling:

The High Court refused to grant permission to the company to appeal.

  • The High Court noted that the "top up" allowance was not the employee's wages for the month, but was a purely discretionary payment.
  • As the employee was only paid for the days that he generated revenue, all those remaining days that he was not paid any wages should be disregarded when calculating his statutory holiday pay and statutory annual leave pay.

Takeaway Points

Employers should not assume that wages and commission payable to employees are paid for all days of the month, including statutory holidays and statutory annual leave. If there is any ambiguity in the contract, this will be construed against the employer!

It will also be interesting to see whether Hong Kong courts will, in due course, follow a recent landmark case decided by the European Court of Justice which held that journeys made by workers without fixed or habitual place of work between their homes and first and last customer of the day constitute working time. If so, this will have significant implications for employers in Hong Kong.