Testing the waters: Are Team-Based Commissions and Bonuses Deductible from Employees’ Statutory Entitlements?

18 April 2019

Pioneering a new path, this recent novel decision in Mak Wai Man & Ors v. Richfield Realty Limited [2019] HKDC 358 applied sections 35(4), 41(6) and 41C (6) of the Employment Ordinance for the first time since their enactment.

The Decision

The Court held that Team-Based Commission/Bonus paid already covered statutory entitlements of holiday pay, sickness allowance and annual leave and should accordingly be deducted.

This was the re-trial of the 4 Plaintiffs’ claim against the Defendant for shortfalls of their statutory entitlements.

The Labour Tribunal’s Decision

On 29 July 2015, the Labour Tribunal granted an award for each of the Plaintiffs on the basis that the commission earned by them in addition to their monthly salary did not include payment in respect of the statutory entitlements and the same could not be reduced by any part of the commission.

The Defendants successfully appealed against the award pursuant to the judgment dated 23 June 2016 in HCLA 28-31/2015. The award was set aside and the matter was remitted to the Labour Tribunal for determination of the issue as to-

“whether, having regard to the legislative intent of sections 35(4), 41(6) and 41C(6) of the Employment Ordinance (the “Deduction Sub-sections”), the statutory entitlements payable to the Plaintiffs should be reduced by such payment of the team-based commission and team leader bonus under the Deduction Sub-sections”.

The Rationale

The Labour Tribunal transferred the remitted case to the District Court for re-trial. After re-trial, the Court dismissed the Plaintiffs’ claim and held that:-

1. Adopting the purposive approach in statutory interpretation, the phrase “any other reasons” under the Deduction Sub-sections should not be interpreted narrowly and should not be confined to the genus of agreements. Those “reasons” must be consistent with the policy objective of the legislation, namely, to avoid any double payment being made by the employer.

2. The team-based commission and the team leader bonus were sums paid for every day of the month, including non-working days i.e. days on which the Plaintiffs were on leave. Though not expressly stipulated by agreement, such payments were taken to have included the Plaintiffs’ statutory entitlements.

3. The team-based commission and the team leader bonus therefore fell under the limb of “any other reasons” within the Deduction Sub-sections and should be deducted when calculating the statutory entitlements to avoid double payment.

Actionable Takeaways

 This decision has clarified the law in respect of bonuses and commissions in the context of employees’ statutory entitlements and double payments.

 It is wise however for employers to provide transparent and unequivocal directives in relation to calculation mechanisms and the need to guide employees through the appropriate laws in order to reduce the possibility of a conflict between the employer and employee.

Connie Lee and Vincent Chiu appeared for the Defendants at the re-trial in [2019] HKDC 358. Please click here to read the full judgment which will be reported shortly in Hong Kong Cases.

Connie and Vincent (led by Anson Wong S.C.) also appeared before the Court of First Instance in HCLA 28-31/2015. Please click here to read the judgment which provides an overview of the legislative history and intent behind the Deduction Sub-sections in detail.

  

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