A recent judgment from the Court of First Instance sends a reminder to employers that a failure to pay commissions can provide an employee with sufficient grounds to claim constructive dismissal.
Background of the case
The case originated from a dispute between an asset management company and two of its former employees. Under the relevant employment terms, the employees received a fixed monthly payment alongside a share of the company’s revenue generated from client introductions. Notably, the structure allowed for the monthly payments to be offset against the employees’ eventual revenue-sharing entitlements.
The relationship deteriorated when the company, citing concerns over compliance issues, unilaterally elected to suspend the monthly payments and withhold outstanding revenue shares. In response to these actions, one employee terminated the relationship and claimed constructive dismissal.
The Court’s Ruling and Reasoning
It is a well-established principle in employment law that an employer’s failure to pay “wages” constitutes a fundamental breach, entitling the employee to claim constructive dismissal and seek payment in lieu of notice.
In analysing the specific nature of the payments in this case, the Court of First Instance found that the monthly payments fell within the definition of “wages” under the Employment Ordinance, primarily because they were paid on a regular monthly basis. The Court clarified that the existence of an offsetting arrangement against revenue shares did not alter the legal characterisation of these payments. Furthermore, the Court held that since the revenue share was remuneration for the employees’ work, it functioned essentially as a commission and thus fell squarely within the statutory definition of “wages”, which means all remuneration, including commissions, “however designated or calculated, capable of being expressed in terms of money, payable to an employee in respect of work done or to be done under his contract of employment”.
Consequently, the employees in this case were found to have valid grounds for claims of constructive dismissal.
Key Takeaways
The judgment underscores that the definition of “wages” under the Employment Ordinance is broad, encompassing not only basic salary but any sum of money paid to an employee for work performed or to be performed. As commissions are considered “wages” under the Ordinance, employers must remain vigilant; any late payment or withholding of such entitlements could result in significant civil claims for constructive dismissal, as well as potential criminal liability.
