Background

The Claimant was a counter sales/escort of Wing On Travel between April 1997 and February 2003 earning a basic salary of HK$2,000 per month. If the Claimant led tours, after deducting the “head tax” payable to Wing On Travel, she was entitled to the net balance of the service tips paid by patrons. The Claimant’s total income reported to the Inland Revenue Department by Wing On Travel was also inclusive of the tips. The issues in dispute were whether the “tips” received by the Claimant fall within the statutory definition of “wages” and whether they should be taken into account when calculating the holiday pay and annual leave pay.

The Employment Law prior to 13 July 2007

The Employment Ordinance (“Ordinance”) expressly provides that tips are to be treated as wages.

The phrase “tips and service charges”, in relation to wages, is defined as

“sum of money received, directly or indirectly, by an employee in the course of and in connection with his employment which are :-

(a)   paid or derived from payments made by persons other than the employer; and

(b)  recognized by the employer as part of the employee’s wages.”

Section 41 of the Ordinance provides that

“(1)      Holiday pay shall be a sum equivalent to the wages which the employee would have earned on a full working day.

(2)          Notwithstanding subsection (1), where an employee is employed on piece rates or where the daily wages of an employee vary from day to day, the holiday pay shall be a sum equivalent to the average daily wage earned by the employee, and for the purposes of this subsection the average daily wage shall be the average of the daily wages earned by the employee on each day on which he worked during every complete wage period, comprising not less than 28 days and not more than 31 days immediately preceding or expiring on the holiday or first day of the holidays.”

Section 41C of the Ordinance makes similar provisions as Section 41 (with appropriate adaptations but no difference in substance) relating to the rate of annual leave pay.

The Court of Appeal (“CA”)

The CA affirmed the judgment of the Court of First Instance that Wing On Travel did recognize that tips would form part of the tour guide’s wages. Under the contract of employment, it was part of the duties of the Claimant to lead tours and she was not given an option to decline to do so. Tour guides were only paid subsistence level salaries. It was recognized that they would receive tips from tour patrons and that they could not refuse to accept tips. 

Although the amount of tips received per month by the Claimant might vary, depending on a number of factors such as the number of days spent escorting tours, the type of tour, the number of persons joining the tours, these factors did not pose any particular difficulty in the way of calculating daily wages. Given that the duration of the tour and the suggested amount of tips payable by a package tour patrons per day were fixed, the net tips per day could be said to “accrue” on a daily basis and were readily calculable on the same basis.

The Court of Final Appeal (“CFA”)

After losing the appeal at CA, Wing On Travel applied for leave to appeal before CFA and the application was heard on 19 January 2009. The CFA upheld the lower court’s ruling that “tips” received by the Claimant from package tour patrons should be considered as part of her wages. The CFA held that the “tips” were sums of money received directly or indirectly by an employee in the course of and in connection with her employment which were paid or derived from payments made by persons other than the employer. And they were recognized by Wing On Travel as part of the employee’s wages. The CFA also agreed that there had never been any difficulty in calculating the amount of such “tips” accruing in respect of each tour guide. Hence, the CFA dismissed the application for leave to appeal.

Legal Impact

Following the refusal of CFA in granting leave to Wing On Travel to appeal, it is now settled in law that “tips” received by tour guides should be included in the calculation of holiday pay and annual leave pay. However, the dispute between the tour guides and their employers has not ended there. In this case, the Claimant also claimed that “tips” should be included in calculating the rest days.  Wing On Travel had tried to argue before CA that since the Claimant had accepted payment for work done on rest days based on the basic salary throughout her employment and had never raised any objection, it was not open to the Court to re-open the matter. Since the Labour Tribunal’s decision of not including “tips” in the calculation of rest days was based on his error that “tips’ received by the tour guides did not form part of the wages, the matter has been remitted to the Labour Tribunal for assessment of the Claimant’s wages which is still pending for determination. It is noticeable that the number of rest days taken by employees is far more than the holiday and annual leave. If the Labour Tribunal decided that “tips” should be included in the calculation of rest days, it may bring an adverse financial impact to the tour operators in the industry.

Note :  The Ordinance only offers minimum statutory protection to employees. If the total number of annual leave currently enjoyed by an employee is more than the statutory annual leave under Section 41AA(10), the employer may only have to pay the non-statutory annual leave based on the rate of basic salary. Unlike holiday pay and annual leave pay, the Ordinance is completely silent as to whether rest days must be paid and if so, how much should be paid. It is arguable whether an employer has to include “tips” in calculating the rest days.