In a recent significant decision for employers operating commission based or profit share remuneration structures, the Hong Kong Court of First Instance1 has clarified:
- when commission and profit share payments constitute “wages” under the Employment Ordinance;
- how and when employment contracts may be validly varied by conduct; and
- the limits on relying on audits or compliance issues to withhold employee remuneration.
The case arose from a dispute between Caidao Capital Limited, an SFC licensed asset management firm, and two senior investment managers who were employed to build a new wealth management business unit. The case was commenced at the Labour Tribunal and later transferred to the High Court and consolidated. Under the terms of their employment contracts:
- remuneration was solely commission based, structured as a Transaction and Fee Revenue Share (TFRS);
- the original revenue split credited 90% of revenue to the new business unit; and
- either party could terminate the employment contract with six months’ notice.
To provide regular cash flow, the parties later agreed that each executive would receive HK$100,000 per month on account of future TFRS, to be set off against final entitlements. Following regulatory concerns and internal compliance reviews, the employer sought to:
- reduce the revenue split from 90/10 to 80/20 (retrospectively);
- suspend monthly payments; and
- impose a condition that the final TFRS payments must be premised on the satisfactory completion of an audit.
The executives resigned and claimed constructive dismissal and unpaid wages. The employer counterclaimed for repayment of sums already paid.
Key findings
Commission and profit-share are “wages”
The court held that both the monthly payments and the underlying TFRS entitlement fell within the statutory definition of “wages” under the Employment Ordinance, since the definition of “wages” in the Employment Ordinance specifically includes commission and other variable remuneration, regardless of how they are labelled. The absence of a fixed salary does not mean an employee earns no wages and that payments made regularly over a long period, linked to work performed, are likely to be treated as “wages”.
Contract variations can be made by conduct
On the variation of contractual terms, the court found that the parties had validly agreed to reduce the revenue split to 80/20, even though no written document was signed. In reaching its determination, the court relied on evidence such as management meeting minutes which recorded an “agreed action”, subsequent emails acknowledging the revised split and conduct on the part of both the employer and the executives consistent with the new arrangement. Thus, the contract was held to have been varied by conduct.
On the other hand, the employer’s argument that there had been an agreement that the final TFRS payments were conditional upon the satisfactory completion of an audit was rejected. The court found there was no clear and unequivocal agreement. Instead, the evidence by way of correspondence referred only to the timing of payment and there were no references to forfeiture of entitlement, and that commercial common sense weighed heavily against an interpretation that senior executives would agree to forfeit years of earnings.
Even if there had been an agreement that final TFRS payments were conditional upon completion of an audit, the court found that the compliance audit relied upon by the employer was not independent, because senior management actively influenced the scope and content of the report, the draft findings were reviewed and commented on internally, and the audit was prepared with litigation in mind.
Non payment of wages can justify constructive dismissal
Finally, in relation to the suspension of monthly payments, the court agreed that the executives were entitled to treat themselves as constructively dismissed, because suspension of regular payments without contractual justification amounted to a repudiatory breach.
The judgment serves as a cautionary reminder that poorly documented variations, ambiguous conditions and compliance driven payment suspensions can expose employers to litigation risk.
For further information, please contact:
Richard Keady, Partner, Dentons
richard.keady@dentons.com
- Caidao Capital Ltd v Overdijk & Others [2026] HKCFI 1326↩
