The Cabin Crew Case - A Victory for Common Sense

Summary

Over two years after the introduction of the Employment (Amendment) Ordinance ("EAO") employers and employees are still locked in battle over the calculation of statutory holiday pay and annual leave pay under the statutory regime that existed prior to the EAO. In the latest round, the Court of First Instance has held that certain allowances provided by Cathay Pacific Airways Limited to its cabin crew were not required to be included in the calculation of statutory holiday pay and annual leave pay for periods prior to June 2007.

Full Update

Background

The claimants are all Cathay Pacific Airways Limited ("CPA") cabin crew. They alleged that there were "shortfalls" in the amounts CPA had paid them in respect of statutory holiday pay ("SHP") and annual leave pay ("ALP") under sections 41 and 41C the Employment Ordinance ("EO") as those sections stood prior to July 2007. In particular, SHP and ALP should, they allege, have included the following allowances:

• Line Duty Allowance ("LDA") – which is a rate paid for each hour spent on flying duty; it is not part of basic salary and is not paid for any other duty or non-flying activities.
• Ground Duty Allowance ("GDA") – which is similar to LDA except that GDA is paid in respect of time spent undertaking ground duties as opposed to flying duties.
• Duty Free Sales Commission ("DFSC") – which is paid based on the inflight duty free sales achieved during a flight.
• Outport Allowance ("OA") – which is an allowance calculated by reference to a formula agreed with the Flight Attendants’ Union, which takes account of the actual cost of meals and expenses (eg taxis and laundry) likely to be incurred at the relevant crew hotel in each layover port.
  
  

Labour Tribunal decision

In the Labour Tribunal, the Presiding Officer held that:

1. LDA, GDA and DFSC should have been included in the calculation of SHP and ALP,
2. OA was not "wages" and therefore did not need to be included in calculating SHP and ALP as it fell within the express exception in the definition of "wages" in section 2 of the EO which excludes "a sum payable to the employee to defray special expenses incurred by him by the nature of his employment",
3. the statutory formula for ALP under the EO should be applied to both statutory annual leave as well as the annual leave CPA granted to a cabin crew in excess of the statutory minimum (i.e. contractual annual leave), and
4. one of the claimants, C3, was an hourly paid crew member and was not paid any SHP on a statutory holiday when she should have been.
   

Court of First Instance

CPA appealed against the Presiding Officer's finding in 1, 3 and 4 while the cabin crew appealed against the Presiding Officer's findings in 2.

1. LDA, GDA and DFSC

Sections 41 and 41C are each separated into two subsections. Subsection (1) requires payment of SHP and ALP equal to an amount of the “wages the employee would have earned” on a working day. Subsection (2) only applies where the employee is on “piece rates” or the “daily wages” of an employee vary from day to day. In such circumstances subsection (2) sets out a formula for determining the amount of SHP and ALP due. The Court of Final Appeal held in the Lisbeth Enterprises Ltd v. Mandy Luk (2006) that before wages can be "daily wages" they must "at least accrue and be calculated on a daily basis".

In relation to LDA and GDA, Stone J (who was hearing the appeal in the CFI) held that these items were not "daily wages". Stone J said that the Presiding Officer appeared to have confused the concept of "daily calculability" with that of "daily accrual"; holding that the potential for calculation on a daily basis is not to be regarded as synonymous with "daily accrual".

Stone J held "for the purposes of ss.41(2) and 41C(2) the references to 'wages which vary from day to day' or to 'daily wages' do not encompass anything beyond basic salary, and if this be correct the term does not extend to allowances such as LDA (or GDA)". Stone J said "'calculability' is not indicative of status" and "it strikes me as tolerably clear that the terms 'daily wages' as used in the 'old' statutory terminology means precisely that, and connotes a form of employment patently different from monthly wages".

In relation to DFSC, Stone J did not consider there was daily accrual of DFSC in the sense of the earning of "daily wages" or "daily wages that vary from day to day".

Stone J said: "Ms Ho was a monthly salaried employee of CPA, and the sale of duty free products on such flights upon which she was rostered and on these occasions on which she was assigned this task did not occur on a daily basis; thus, whilst her monthly salary may (or on occasion perhaps may not) have included an element of DFSC, I fail to understand why this fact enables advantage to be taken of the statutory provisions within the 'old' ss. 41(2) and 41C(2), thereby enabling inclusion of the elements of DFSC (or of GDA) in terms of computation of holiday and annual pay as premised by those sections".

Stone J did not see why remuneration when handling duty free sales was "piece rates".

2. OA

The Claimant's appeal on OA was dismissed. The Presiding Officer's finding that OA fell within the exception in s.2 to the definition of "wages" in the EO was upheld.

3. Contractual vs. statutory annual leave

Stone J found that the provisions of the EO relating to annual leave and annual leave pay are applicable only to statutory annual leave and these provisions do not apply to contractual annual leave granted in excess of statutory requirement, which will be "governed by the express or implied terms of the particular employee's employment contract, and in respect of such the provisions of the Ordinance have no application".

4. Hourly paid crew

Stone J found that the Presiding Officer failed to appreciate that C3 "received a monthly salary which was calculated with reference to a specific formula which assumed a minimum guaranteed number of flying hours each month, and also embodied certain 'credits' by reason of other work-related duties, and thus that this represented no more than a computing formula for the calculation of C3's monthly salary". Stone J found that the Presiding Officer was incorrect when deciding that C3 did not receive any "statutory holiday [pay] at all on the basis that she is 'hourly paid'".

Conclusion

The key issues for employers are:

• the clarification that allowances which are not "daily" allowances do not fall within "wages" for the purposes of the "old" statutory provision, and
• the distinction between statutory and contractual annual leave.

Both these points are good news for employers. However, the cabin crew are seeking to appeal the decision. As such this is unlikely to be the end of the road.

For inquiries related to this Client Alert, please contact:

Duncan Abate (duncan.abate@mayerbrown.com)

Hong Tran (hong.tran@mayerbrown.com)

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