Deacons
  July 19, 2005 - Hong Kong

Hong Kong: Breach of Employment Contract

In Hong Kong, it is common practice that there is a written employment contract between the employer and the employee which sets out the terms and conditions of an employment. The following case indicates that unless clearly provided in the employment contract, an employer cannot unilaterally vary the terms of the employment contract and such variation may be a breach of contract and the employer could be liable for damages. In Lajom & Others v Cathay Pacific Airways Ltd HCA 6733/1999 and 3377/2003, the Court ruled that the employer Cathay Pacific (“Cathay”) was in breach of contract by unilaterally denying the employees automatic advancement by one grade every year and reducing the salary payable for a given grade. In this case, there were three plaintiffs and they sued Cathay on their own behalf and also on behalf of cabin crew employed under the Conditions of Service (“COS”) 1986, 1993 and 1995. The plaintiffs were employed by Cathay as flight attendants in 1989, 1993 and 1996 and they were under COS 1986, 1993 and 1995 respectively. Since their employment commenced until 1998, the flight attendants on these specified COS were automatically entitled to an annual pay increment until they had reached the ceiling grade of a salary scale attached to their employment contracts. In December 1998, due to the severe economic downturn, Cathay announced that it was not realistically possible to pay salary and rank allowance increases for 1999 and it offered three options for the cabin crew to choose. Option 1 was 1999 salary increases in return for productivity undertaking; Option 2 was voluntary redundancy scheme and Option 3 was no increase in productivity and salary frozen at 1998 levels. In a subsequent letter to flight attendants, Cathay made it clear that there would be no automatic advancement of one point up the salary scale upon completion of a year’s service. Those who chose none of the three options would be deemed to have elected Option 3. The plaintiffs rejected all options and Cathay treated them as having chosen Option 3. The plaintiffs all asserted an entitlement under their respective COS to an annual increment up the 1998 salary scale on completion of a year’s service. Cathay denied that the plaintiffs were entitled to an automatic increment. It also asserted a contractual right unilaterally to vary any agreed salary scale, so long as the change did not result in a flight attendant receiving less pay than he received immediately prior to the change. Based on its construction of the plaintiffs’ employment contracts, the Court ruled that the plaintiffs' contracts provided for automatic advancement at the end of each year of service. Such conclusion was an inevitable consequence of the inclusion of specific salary scales with the COS 1986, 1993 or 1995 sent to the plaintiffs. The Court found the salary scales to be legally operative as they expressed themselves to be effective from a particular date and both COS 1993 and 1995 had provided that salaries were paid monthly in arrears in accordance with a relevant published salary scale. Cathay argued that the salary scale was merely an expectation. The Court did not accept this argument. If there was an ambiguity as to whether the inclusion of a salary scale with the COS was intended to be a mere expectation or a binding commitment, such inclusion must be construed contra proferentem against Cathay, the author of the standard terms (including attached salary scale) found in the COS. The Court said that it was possible for an employer and employee to agree that the employer had a unilateral right to reduce the employee's salary. But in the absence of clear words to that effect, the Court would not read a contract as granting the right to reduce pay at the employer's discretion. The amounts corresponding to any grade of the 1998 salary scale were ruled to be binding on Cathay and they could not be reduced except with an employee’s consent. As a result of Cathay reducing the salary payable for a given grade, the plaintiffs had received less than they ought to have been paid upon moving up an applicable salary scale and therefore Cathay was in breach of contract. After the High Court ruling in March 2005, Cathay decided not to appeal the court decision and will give the unpaid wages to about 3,300 flight attendants and make appropriate salary adjustments. Cathay declined to comment on how much this will cost, but union representatives estimated that the unpaid wages could reach HK$2.8 billion.