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Contract

Article contributed by Minter Ellison

Look further than contract for full employment terms

by Winnie Ng, consultant, and Carmen Cheng, associate, Employment Practice Minter Ellison

Retired female cabin attendants who worked for Cathay Pacific Airways for 10 years or more and are 40 or older are eligible for travel under the company's retiree concessionary travel benefit (RTB). This perk came under scrutiny in the case of Ms Chong against the airline. The former cabin attendant started working for Cathay in 1979 and the company terminated her employment in 1993, offering her a month's wages in lieu of notice. On reaching the age of 42 in 1998, Ms Chong applied to receive the RTB benefit.

The airline initially approved Ms Chong's application and sent her the discounted air tickets and an RTB card. Shortly afterwards, however, Cathay wrote to her, informing her that the card had been issued by mistake and that the RTB had been withdrawn. Cathay's argument was two-fold. Firstly, it claimed that the RTB was not a contractual employee benefit. Secondly, it contended that Ms Chong was not strictly a "retired" employee and that she was therefore not entitled to the benefit.

Contractual entitlement

The first contested issue was whether the RTB formed part of the employment contract between the parties. When Ms Chong was first employed, she received an offer letter and a document detailing her conditions of service. Neither of these documents mentioned the RTB entitlement, but shortly after she started working, she was given a staff benefits handbook and a passenger tariff manual, which did contain provisions relating to the RTB.

Cathay argued that Ms Chong's employment contract consisted only of the offer letter and the conditions of service document and denied that the staff benefits handbook and passenger tariff manual (the handbook) formed part of it.

The High Court commented that it is common for employment terms to be stipulated in sources outside of the contract, such as company handbooks. A UK court previously held that, even where a company handbook was stated to be for information purposes only, it did not preclude a policy contained in the handbook from becoming a contractual entitlement.

In Ms Chong's case, the High Court concluded that the provisions in the handbook relating to the RTB were intended to have a contractual effect. This was based on the fact that the RTB had been followed consistently for a long time and had been communicated to Ms Chong and other Cathay staff in circumstances that supported an inference that the parties intended to be bound by it. The court said the fact that the handbook was given to Ms Chong after the commencement of her employment was irrelevant, as the RTB nevertheless became part of her employment contract when she was notified of the concessionary travel benefit policy.

No distinction

The second issue that the court looked at was whether Ms Chong was a "retired" employee within the meaning of the RTB provisions.

Ms Chong contended that there was a distinction between employees who were summarily dismissed without notice due to misconduct, and staff who were not summarily dismissed. Only those that were summarily dismissed were not entitled to the RTB.

Cathay claimed that the RTB was only available to qualifying employees who retired or resigned and that staff that had been dismissed, whether by way of summary dismissal or not, did not qualify.

The High Court found in favour of Ms Chong, stating that Cathay could not produce any documents explicitly recording that the RTB was only available to employees that had not been dismissed. Also, a member of Cathay's personnel department had testified that the department did not have to verify whether an applicant was retired, terminated or had been summarily dismissed when considering an RTB application.

The court ruled that the RTB formed part of Ms Chong's employment contract and that she was entitled to the benefit since she had not been summarily dismissed by the airline.

Q & A on contractual terms
Q1 Do company policies always form part of employment contracts?
A1 Ideally, an employment contract should refer to the company handbook in order to render its terms binding. However, a company policy that is not included in an employment contract may also mature into a contractual right if it has been applied consistently to all employees over a long period of time. For example, an office memorandum regarding year-end bonuses may become a contractual right if the bonuses have been distributed consistently without exception for a substantial period of time and drawn to employees' attention in ways supporting the inference that the employers intended to become contractually bound by it.

Q2 If an employer expressly says that the company handbook is not part of an employment contract, are the terms in the handbook not binding?
A2 Merely labelling a company handbook as not part of an employment contract does not rule out the binding effect of its terms. Employers that do not want the terms in the company handbook to become contractual should, for example, clearly evidence the discretionary nature of the benefits meant to be applied at the sole discretion of the employer. They should also explicitly identify the classes of employees that are entitled to the benefits.

The opinions expressed in this article are those of the contributor

Taken from Career Times 11 June 2010, B10

(Last review date: 23 August 2013)


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