Last week, the Court of Final Appeal handed down its decision in two long-running disputes between Cathay Pacific Airways and its employees.

The Becky Kwan case involved flight attendants who were claiming for certain allowances and commissions to be included in the calculation of wages for the purposes of holiday and annual leave pay. The case also considered the rate of pay for excess annual leave, i.e. contractual leave in excess of statutory annual leave entitlements.

The other case, the famous “49ers” case, involved former pilots (who originally were 49 in number but by the final stage numbered only 18) whose employment was terminated in relation to industrial action taken in 2001. The issues in this appeal were whether they were terminated for valid reason in breach of the Employment Ordinance, whether they were wrongfully dismissed in breach of their employment contracts, and the quantum of an award for defamation.

Points for Consideration

  • Variable allowances and commission that are contractual should be included in the definition of "wages" when calculating the average daily rate for the purpose of annual leave and holiday pay. While the current Employment Ordinance was amended in 2007 to make this clear, this judgment clarifies the position for employees whose employment contracts were signed before 2007.
  • If an employee is granted annual leave entitlements in excess of the statutory requirement, a different rate of annual leave pay may apply to the excess annual leave, so long as his/her employment contract provides for this. On this point and all others, care should be taken to ensure that an employment contract is drafted to reflect the intention of the parties.
  • The terms of an employment contract will be considered in their entirety. For example, if a contract provides for disciplinary and grievance procedures, an employer cannot choose to invoke a clause of the contract to dismiss an employee by giving notice or by payment in lieu without first going through the prescribed disciplinary and grievance procedure. Cathay's attempt to circumvent provisions to undermine employees' rights was rejected by the Court.
  • When considering whether an employee has been dismissed for disciplinary reasons, the Court will look at "substance over form". In this case, nothing was actually said at the time of the dismissal, nor did any documents exist to indicate that the dismissal was for disciplinary reasons. Nevertheless, the Court found that Cathay's conduct in making various internal and external announcements on the matter constituted sufficient evidence that the employees were dismissed for disciplinary reasons.