Jurisdiction - Hong Kong
News
Hong Kong – Yung Chi Keung v Protection Of Wages On Insolvency Fund Board.

14 May, 2014

 

Legal News & Analysis – Asia Pacific – Hong Kong – Labour & Employment

 

This is a case with respect to the interpretation of the words “the applicant’s entitlement to severance payment” in section 16(2)(f)(i) of the Protection of Wages on Insolvency Ordinance (the “PWIO“).

 

Under the PWIO, the applicant may apply for an ex-gratia payment from the Protection of Wages on insolvency Fund (the “Fund“) as his former employer entered into voluntary liquidation.

 

The relevant sections of the PWIO are set out below:

 

“15(1) ……an applicant to whom:

 

(c) the liability to be paid a severance payment has arisen and the severance payment is unpaid…;
may apply for an ex-gratia payment from the Fund in respect of…the severance payment…”

 

“16(1)…..an employer has failed to pay…severance payment…to an applicant and that:

 

(b) in case of an employer who is a company, a winding-up petition has been presented against the employer,

 

[the Commissioner] may make an ex-gratia payment to the applicant out of the Fund of the amount of the ….severance payment…”

 

“16.2 The Commissioner shall not make any payment under subsection (1):

 

(f) in respect of a severance payment:

 

(i) of an amount exceeding the aggregate of HKD 50,000 and half of that part of the applicant’s entitlement to severance payment in excess of HKD 50,000;”

 

The applicant’s stance is that the phrase “the applicant’s entitlement to severance payment” means the net amount of severance payment payable to him calculated in accordance with section 31(G)(1) of the Employment Ordinance (“EO“) and deducting therefrom all gratuities, retirement scheme benefit or mandatory provident fund scheme benefit as required by section 31I of the EO (the “section 31I benefit“). This net amount is then used to calculate the maximum amount of ex-gratia as provided in section 16(2)(f)(i).

 

The Commissioner however thinks that the phrase “the applicant’s entitlement to severance payment” should mean the amount calculated according to section 31G(1) EO without deducting the section 31I benefit. The deduction of the section 31I benefit is to be made from the maximum amount of ex-gratia payment calculated according to section 16(2)(f)(i).

 

For the current case, the Commissioner calculated that the applicant’s severance payment under section 31G EO is HKD 131,696.54, and the section 31I EO benefit is HKD 106,319.04. According to the Commissioner’s calculation, the maximum amount of ex-gratia payment payable to him under the PWIO should be:

 

HKD 50,000 + (HKD 131,696.54 – HKD 50,000) ÷ 2 = HKD 90,848.27

 

The section 31I benefit of HK$106,319.04 should be deducted from the maximum ex-gratia payment. The net maximum sum of ex-gratia payment payable to the applicant is HKD 90,848.27 – HKD 106,319.04 =
– HKD 15,470.77. Hence no ex-gratia payment is payable to the applicant.

 

Under the applicant’s calculation, the maximum amount of ex-gratia payment should be:

 

HKD 50,000 + (HKD 131,696.54 – HKD 106,319.04 – HKD 50,000) ÷ 2 = HKD 37,688.76

 

The total sum including the section 31I benefit is HKD 37,688.75 + HKD 106,319.04 = HKD 144,007.79.

 

The total sum of HKD 144,007.79 exceeds the severance payment under section 31G at HKD 131,696.54. He should therefore be paid an ex-gratia payment of HKD 25,377.50 only. This sum plus the section 31I benefit of HKD 106,319.04 equals to the section 31G amount of HKD 131,696.54.

 

The Applicant’s Argument

 

The applicant submitted that the unpaid severance payment mentioned in section 15(1) of the PWIO must mean the part of the severance payment that is outstanding after the deduction of the section 31I benefit because if the section 31I benefit should wholly offset the severance payment, then there would be no unpaid severance payment. The applicant also submitted that the unpaid severance payment referred in section 16(1) of the PWIO must be the amount outstanding after the deduction of the section 31I benefit, and the amount of ex-gratia payment must be in respect of the unpaid or outstanding portion of the severance payment.


The Commissioner’s Interpretation


The Commissioner submits that section 16(2)(f)(i) of the PWIO does not talk about the unpaid or outstanding portion of the severance payment but the severance payment entitlement. Hence, it is talking about the amount of severance payment before deduction of the section 31I benefit.


The Commissioner also refers to section 16(2B)(a) of the PWIO which provides that:

 

“16(2B)(a) Where it appears to the Commissioner that:

 

(i) an applicant’s wages have been reduced…; and

 

(ii) before the wage reduction took effect, the employer of the applicant had given an undertaking to the applicant…that if the applicant was dismissed …..after the wage reduction, the severance payment payable to him would be calculated in a manner more favourable to him than that provided for in section 31G EO,

 

then, for the purposes of subsection (2)(f)(i), the applicant’s entitlement to severance payment may…..be calculated:

 

(A) ….in accordance with section 31G of the EO; or

 

(B) in the manner specified in the undertaking, whichever results in a lesser amount.”

 

The Commissioner submits that section 31G EO is expressly adopted as one option for calculating “the applicant’s entitlement to severance payment” in the scenario under section 16(2B). For consistency, “the applicant’s entitlement to severance payment” in section 16(2)(f)(i) should also mean the entitlement calculated according to section 31G EO without any deduction of the section 31I benefit.

The Decision

 

The court considers that in order to understand the meaning of “the applicant’s entitlement to severance payment” in section 16(2)(f)(i) of the PWIO, it is necessary to see how “the employee’s entitlement to severance payment” is defined under the EO.

 

Having analysed section 31G and 31I of the EO, it is clear that the first step to ascertain the amount of severance payment payable to an employee is to calculate the same according to the formula under section 31G. But the actual amount to be paid has to be reduced by the section 31I benefit. The section 31I benefit takes effect as a part-payment of the severance payment entitlement but the original entitlement is the amount calculated under section 31G, not the net sum after deducting the section 31I benefit.

 

The court considers that since both sections 16(2)(f)(i) and (2B) are to provide for the calculation of the ex-gratia payment, the same words should bear the same meaning. “The applicant’s entitlement to severance payment” in section 16(2)(f)(i) of the PWIO should mean the sum calculated according to section 31G EO without any deduction of the section 31I benefit. If the entitlement in section 16(2)(f)(i) should be the net severance payment after deduction of the section 31I benefit, then section 16(2)(f)(i) should have so provided.

 

Therefore, the court accepted the Commissioner’s approach and rejected the applicant’s application.

 

 Deacons

 

For further information, please contact:

 

Elsie Chan, Deacons

elsie.chan@deacons.com.hk

 

Deacons Labour & Employment Practice Profile in Hong Kong

 

Homegrown Labour & Employment Law Firms in Hong Kong 

 

 

Comments are closed.