Member Article

In Hong Kong, it is quite common for employers to grant commission or allowance in addition to basic salary to the employees as part of the remuneration package. Under the EO, eligible employees are entitled to holiday and annual leave pay in respect of holiday or annual leave taken by the employees. There is a question as to whether commission is to be included in “wages” for the purpose of calculating the holiday and annual leave pay to the employees. In the Court of Appeal case of Laing Agnes and Others v Lisbeth Enterprises Limited trading as Phillip Wain International (“Phillip Wain”) CACV 204/2004, the Court of Appeal has to decide whether commission payments should be used in the calculation of the wages which are required to be paid in respect of holiday and annual leave pay under the provisions of the EO. The claimant in this case was employed by Phillip Wain, a beauty and health club in Hong Kong as a consultant. Her main role was to recommend courses of treatment and exercise packages to new and existing members of the club. Under her employment contract with Phillip Wain, it provided that she was entitled to receive a gross salary of HK$5,600 per month and in addition she was also entitled to commission on sales made by her provided payment was made by the customer in accordance with the scale set out in her employment contract. The reality of the situation was that the remuneration was mainly made up by the commission (over 90%) over the years of employment with Phillip Wain and gross salary was only an insignificant part. According to the EO, holiday and annual leave pay shall be a sum equivalent to the wages which the employee would have earned on a full working day and in case the daily wages vary from day to day, the pay shall be a sum equivalent to the average daily wages for the preceding wage period. The definition of wages under section 2 of the EO includes commission. Judges Anthony Rogers and Doreen Le Pichon found that based on the construction of the EO, commission should be used in the calculation of the wages in respect of holiday and annual leave pay. In this case, the commission payments would vary and Phillip Wain should use the formula to calculate average daily wages for the case of varying daily wages in respect of the amount of pay. However, the dissenting judge William Stone took a contrary view and found that the only monies which could be said with certainly that the employee would have earned was that represented by the gross salary and the sections in the EO on holiday and annual leave pay had no application in terms of fluctuating commission payments. Leave of appeal to the Court of Final Appeal has been granted to Phillip Wain with hearing fixed on 20 February 2006 as the Court was of the view that this case has major implications on many businesses in Hong Kong, in particular those which pay a high amount of varying commission to their employees.