Member Article

In order for an employee to be entitled to the statutory benefits endowed under the Employment Ordinance (the "EO"), in most of the situations, he has to be under a continuous employment with their employer for a certain minimum period. As a result, what constitutes a continuous employment and what breaks its continuity are important to both employers and employees. In a recent Court of Appeal case, Lui Lim Ka & others v. Nice Creation Development Limited (CACV205/2003), the Court considered these issues. This case demonstrated that employees who are under successive contracts with breaks of more than one week in between may not be under a continuous employment with their employers unless there is a covering global contract. The employer was completely entitled to make such arrangement for the purpose of breaking the continuity of employment of the employees and take advantage of what he is entitled to do under Schedule 1 to the EO. Background The defendant operated a seafood restaurant and the claimants were its employees working as waitresses and captain at the restaurant. The claimants had been employed by the defendant restaurant since 1996 under three 18-month contracts. The claimants' employments were terminated by the defendant on 15 March 2001 by serving on them one-month's notice. The reason for the termination was reduction of operation scale of the defendant restaurant. The appeal concerned the payment of severance payment under section 31B of the EO, which for the purpose of the appeal, depends on whether the claimants had been "employed under a continuous contract for a period of not less than 24 months ending with the date of termination of employment". The appeal only concerns the 2nd and the 3rd claimants. The Court of First Instance and the Court of Appeal considered the matter on the basis that there was indeed a break of two weeks. The Court of First Instance held that even if there was an absence from work by the claimants for two weeks, their continuity of the employment was preserved by law as the facts showed that there was a global contract covering the 2nd and the 3rd contracts. However, the Court of Appeal unanimously overturned the earlier decision of the Court of First Instance and held that on the basis that there was indeed a break of two weeks, it would effectively break the continuity of the employment and accordingly, the claimants had not been employed for a continuous period of not less than 24 months at the date of termination of employment and were not entitled to severance payment. The case was remitted back to the Tribunal for decision on the factual matters. Continuity of Employment According to Schedule 1 to the EO, generally speaking, a person who has worked for a minimum of 18 hours per week for four continuous weeks will be regarded as having been employed on a continuous contract. A break of working less than 18 hours within one week is sufficient to break the continuity of employment for the purpose of Schedule 1. However, paragraph 3(2) of Schedule 1 to the EO provides that if in any hour the employee is, for the whole or part of the hour absent from work in circumstances such that, by law, he is regarded as continuing in the employment of his employer for any purpose, then that hour shall count as an hour in which he has worked. Court of First Instance In the Court of First Instance, the judge considered that the inescapable conclusion on the evidence before the Labour Tribunal was that there was at least a tacit understanding between the claimants and the defendant that the claimants would be re-engaged after the expiry of their second contracts and considered that this amounted to a global contract situation. As a result, by law, the claimants were regarded as continuing in the employment of his employer even if there was a 2-week break in between the 2nd and the 3rd contracts. Insofar as the defendant could show that there was an agreement to break the continuity of the contract, such agreement would be contrary to the EO and void under section 70 as it was aimed to extinguish the right of the claimants to severance or long service payments. The judge further commented that the arrangement of successive contracts was a scheme to avoid liabilities for payment and the break was artificial and if the law was otherwise, the employer could easily escape liabilities to payment by offering to re-engage an employee after a short break. Court of Appeal The Court of Appeal after considering the relevant case authorities held that there was no global contract in the present case. The concept of a global contract might become relevant in cases where the evidence disclosed what on the fact of them was a series of contracts for services entered between the same parties and covering a substantial period of time. On the particular facts of such a case it might be open to infer from the parties' conduct the existence of a continuing overriding arrangement which governed the whole of their relationship and itself amounted to a contract of employment. Such a contract was refereed to as a "global" or "umbrella" contract. The Court considered that to constitute a global contract, there had to be the irreducible minimum of mutual obligation between the parties otherwise there would be no contractual link between the individual engagements with the result that there would be no global contract. The case authorities relied on by the Court also showed that no global contract could exist in the absence of mutual obligations subsisting over the entire duration of the relevant period and mutuality of obligation was essential to the issue of whether there was a global contract. Examples of mutual obligations include, obligations to provide and perform work, or an obligation by one party to accept and do work if offered and an obligation on the other party to pay a retainer during such periods as work was not offered. There must be something said or done by the employer such as to justify the conclusion that the parties regarded the employment relationship as continuing despite the termination of the contract. Mere high expectation of re-employment on the part of the employee, even when shared by the employer, was not sufficient to create a global contract. Considering the evidence in this case, the Court of Appeal was of the view that there was no inescapable inference that there was a global contract. The Court of Appeal considered that it was quite obvious from the evidence that the defendant had adopted the practice of entering into employment contract of 18 months only with its employees with the view to avoid liability to pay e.g. severance payment. The Court was concerned with the legal rights of the parties and not with the morality of such a practice. The defendant was acting perfectly within its legal right not to employ a worker for a continuous period of 24 months. There was nothing unreal about the break and it was designed to break the continuity of the employment and the employer was entitled to arrange its affairs to take advantage of the provisions of Schedule 1 to the EO. The Court of Appeal was of the view that entering into successive contracts with appropriate breaks so that they did not constitute a continuous contract was NOT covered by section 70 of the EO as the employer was only dong what it was entitled to do under the EO. The Court of Appeal allowed the appeal and remitted the case to Labour Tribunal for decision on whether the claimants did work for the defendant during the alleged break of two weeks.