1. Lisbeth Enterprises Ltd trading as Philip Wain v Luk See Ming, Mandy

It is established law that neither gratuitous commission nor discretionary commission is to be included in the calculation of holiday pay or annual pay. The Court of Final Appeal held in this case that monthly contractual commissions are not to be included as "wages" as well for the purposes of determining the holiday and annual leave pay sections of the Employment Ordinance ("Ordinance").

In Hong Kong, commissions have for a long time formed part of the remuneration package for many employees. As a result of this case, the Labour Advisory Board has agreed with labour representatives and employer group leaders a proposal to amend the Ordinance. Under this proposal, the law will be amended to state clearly that commissions do form part of wages and must be included in the calculation of holiday pay. The calculation of the relevant statutory benefits will be amended, so that instead of using the daily average amount of commissions earned by an employee in the previous month’s earnings, the daily average wage will be determined by averaging the commissions earned over the previous 12 months.

If this proposal becomes law, it will be more just to those employees whose wages mainly consist of commissions which vary from month to month. However, employers will face an increased cost as a result of this and may be forced to change the employment contracts of some of their employee’s contracts to a self-employed or partnership basis, as they would be unable to predict the amount of wages their employees will earn and therefore be unable to budget with any accuracy for holiday pay.

2. Kao, Lee & Yip v Lau Wing & Tsui Wai Yu

Apart from having to give notice for the relevant period stipulated in one’s employment contract or under the Ordinance, many employers and employees seem to be unaware that a contract of employment may also be terminated by paying wages in lieu of notice. Section 7 of the Ordinance states that …"either party to a contract of employment may at any time terminate the contract without notice by agreeing to pay to the other party a sum equal to the amount of wages which would have accrued to the employee during the period of notice required…".

In this case, both the defendants/employees were employed as solicitors by the plaintiff/employer, which is an established firm of solicitors in Hong Kong. Contractually, these employees were required to give 3 month’s notice to terminate their employment contracts. In August 2005, they gave 3 month’s notice in writing but stated that they would only work for 1 month and pay their employer 2 months’ wages in lieu of the remaining 2 months’ notice. The employer did not accept their notices of termination and refused to accept the payment. The employer was of the view that the words "agreeing to pay to the other party" under Section 7 of the Ordinance meant that there had to be an agreement between the parties in order to terminate the contract by payment of wages in lieu of notice.

The Court held that the employees had validly terminated their employment contracts and mutual agreement was not necessary to terminate the contract by paying wages in lieu of notice under Section 7 of the Ordinance. The words "by agreeing to pay to the other party" meant that the employees were required to state that they would pay to the employer those wages that would otherwise be due by simply "being willing to" as opposed to the phrase "by agreeing with the other party to pay".


If you are uncertain about your rights or obligations under an employment contract or relationship, lawyers in our Employment Department will be happy to assist you with any inquiries you may have regarding employment or data privacy issues in Hong Kong or the PRC. We will keep you informed once the relevant bill in respect of the above proposal has been passed by the Legislative Council.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.