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Legal Update

Court Upholds Labour Tribunal's Finding of Independent Contractor Arrangement

1 November 2017
Mayer Brown JSM Legal Update

In Lee Wai Kei Wicky (李伟基) v. World Family Ltd. (寰宇家庭有限公司) [2017] HKEC 2109 English Judgment, the Court of First Instance dismissed the Plaintiff's appeal against the decision of the Labour Tribunal that the parties' arrangement was one of independent contract.

An employment relationship is more regulated than an independent contract. As such, some see the merits of less regulation and try to structure their engagement as one of independent contract and not employment. Whether an arrangement is an independent contract and not employment is a matter for the courts to assess and the parties' agreement as to the nature of their arrangement will not be determinative.

The Facts

The Plaintiff joined the Defendant Company (the "Company") as an education consultant to promote the sales of English education materials in 1999. Under the “Agency Agreements” which the parties had entered into, the Plaintiff was not characterised as an employee of the Company and thus, was expressly precluded from receiving any benefits provided by the Company to its employees. The Plaintiff enjoyed great freedom at work. Apart from the highly flexible working hours and sales targets, the Plaintiff could also adopt his desired promotion methods.

When the Plaintiff left the Company in 2014, he brought a claim against the Company in the Labour Tribunal claiming that he had been employed by the Company and should be entitled to compensation and various statutory payments as an employee. The Presiding Officer (PO) held that the Plaintiff was not an employee of the Defendant and dismissed his claim. The Plaintiff then appealed to the Court of First Instance on the basis that the PO's decision was irrational and perverse.

The Law

In determining whether the relationship is one of employment, the court would consider all the facts and circmstances and see whether the factors and as a matter of overall impression, an employment relationship existed between the parties.

The Court of First Instance

On appeal, the main challenge launched by the Plaintiff was that the PO had failed to accurately evaluate the various indicia of employment.

First, the Plaintiff argued that the Company had exercised a high degree of control over him. In particular, he was bound to act and observe any directions, rules or regulations that might be advanced by the Company. However, the PO found that the control put in place by the Company was for good commercial reasons, such as that of upholding the image and brand of the Company. Other than that, the Plaintiff enjoyed a high degree of flexibility and freedom in respect of his working hours, methods of promotion and sales target, it cannot therefore be said that the sort of control exercised by the Defendant was that of an employer over an employee. The Judge held that the observations and the conclusion reached by the PO were both correct and reasonable. Thus, he refused to attach different weight to the findings of the PO.

Secondly, the Plaintiff sought to rely on the fact that he was not allowed to recruit his own helpers in attempting to convince the court that he was not an independent contractor of the Company. The PO found that such restriction was imposed merely to enable the Company to coordinate the publication of job advertisements. In any event, the Plaintiff had to shoulder the costs for the job advertisements. The performance of the Plaintiff's helpers would also directly affect his own profits. With these findings in mind, the Judge was satisfied that the PO had duly considered this important factor which indicated that the arrangement between the parties was one of independent contract.

Thirdly, whilst the provision of office space, computer, photocopying and fax machine by the Company might point towards the existence of employment relationship between the parties, the PO held that this was only to provide convenience to the Plaintiff. Moreover, the Plaintiff had to pay for most of the costs in order to execute his job as an education consultant, including but not limited to, secretary salary, gifts for clients and uniforms etc. Again, the indicia pointed away from the existence of an employment relationship between the parties.

Fourthly, as opposed to an employee in an ordinary employment relationship, the Plaintiff had assumed great financial risks as his earning of commission was directly correlated to the efforts he put in. Therefore, in an extreme case, the Plaintiff could end up earning nothing all but still had to pay for the expenses.

Having considered the various indicia, the Judge was satisfied that the conclusion reached by the PO was both correct and reasonable. The Judge therefore upheld the independent contractor arrangement between the parties and dismissed the Plaintiff's appeal.

Takeaways

This is one of few cases (relatively speaking) where a court has upheld an independent contractor arrangement.

A statement in a contract stating that an arrangement is not one of employment of itself will not be determinative of the nature of the relationship. Principals must consider carefully the facts and circumstances around their engagement of an independent contractor and ensure that they point to an independent contract arrangement.

The judgment is available at:
http://legalref.judiciary.hk/doc/judg/word/vetted/other/en/2015/HCLA000035_2015.doc

Authors

  • Hong Tran
    Partner
    T +852 2843 4233

Related People

  • Duncan A. W. Abate
    T +852 2843 2203
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