Introduction
In Hong Kong, all eligible employees are entitled to holiday pay. Under section 40 of the Employment Ordinance (Cap. 57) (the “Ordinance”), an employee is eligible for statutory holiday pay once the contract is deemed a continuous contract. As provided in section 3 and the First Schedule of the Ordinance, once the employee has worked at least 18 hours per week, for up to four weeks, it is considered as a continuous contract. 

In HKSAR v Physical Health Centre Hong Kong Limited HCMA 54/2015, the court had to determine whether an employee, who had no base salary, was entitled to statutory holiday pay under the Ordinance.

Background
The Defendant is a company that operates a chain of fitness and beauty centres. It was prosecuted for not paying statutory holiday pay to Ms. Sheung, one of its masseuse employees. Ms. Sheung had been working for them as a masseuse under a continuous contract for a period of 15 years between 14 September 1998 and 31 October 2013. Under Ms. Sheung’s employment contract, she had no base salary. Instead, she was paid a monthly commission for her massage services, and would receive around HK$10,000 as her minimum commissions for each month, subject to deductions for any absences due to lateness or sick leave. Also, Ms. Sheung will get various bonuses such as attendance bonus, awards and year-end bonus based on her performance at work. 

The Defendant was convicted at the Magistrates Court for not paying Ms. Sheung her holiday pay pursuant to section 40 of the Employment Ordinance. The Defendant appealed against the convictions.

Dispute

Issue
The issue in this case was whether Ms. Sheung’s minimum commissions were inclusive of statutory holiday pay.

Arguments
Ms. Sheung claimed that the Defendant failed to pay any of her statutory holiday pay. 

However, the Defendant claimed it had a common understanding with Ms. Sheung that the commission included the statutory holiday pay, and that the Defendant did not have to make any extra payment for the statutory holiday pay. As such, under the legal principle of estoppel by convention, Ms. Sheung is disentitled to claim for the past statutory holiday pay from the Defendant.

Decision
At appeal, the court found that based on the payment calculation records for the three months relevant to the appeal, it is clear that the Defendant was only concerned about Ms. Sheung’s work hours and her performance in selling products when the Defendant was calculating Ms. Sheung’s monthly commission payments. While the calculation of bonus is not in dispute, the court focused on the calculation of the commission payments, which was calculated entirely based on her work hours and the number of clients she had. The Defendant had never considered paying statutory holiday pay to Ms. Sheung. Therefore, the commission payments did not include payments for statutory holiday pay.

On the Defendant’s grounds of estoppel by convention, the court found that denying an employee’s statutory rights by estoppel is invalid. This is because pursuant to section 70 of the Ordinance, at any time during the period of employment, an employer cannot evade their liabilities under the law and cannot provide employee entitlements below the statutory requirements. In this matter, the Defendant is liable to pay Ms. Sheung her statutory holiday pay.

Moreover, the court found that in any event, based on the documentary evidence showing how the Defendant had calculated Ms. Sheung’s commissions, the Defendant had not explained to Ms. Sheung, and so she could not have agreed to, the minimum commission payments being inclusive of any the statutory holiday pay.

As such, the court upheld the conviction and dismissed the Defendant’s appeal and the Defendant was fined for the offence.

Conclusion
The court has made a clear stand that an employee’s entitlements to their benefits under the Employment Ordinance cannot be neglected, or side-stepped. The Ordinance itself was enacted to safeguard the interests of employees. If such arguments in equity, as those presented by the Defendant, were accepted, there would be serious ramifications that would affect all employees in Hong Kong. Employers are reminded to be careful not to freely ignore the protections that are in place for the welfare of employees in the workplace. More importantly, there should be mutual understanding between the employer and employee before entering into a contractual relationship.