Under S.41D of the Employment Ordinance, on cessation of employment an employer is required to pay to the employee compensation in lieu of accrued annual leave.

Leung Hung Cheung v Cheung Chung Wai (trading as 'Home Kitchen')

  • Court of First Instance – HCLA No. 34 of 2008 (on appeal from LBTC No. 799 / 2008)
  • Judgment of the Court of First Instance (to DHCJ) dated 20th January 2010

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The appellant (Leung) was formerly employed by the Respondent (Home Kitchen) as a cook. On 5th January 2008, Leung quarrelled with his colleagues and was dismissed by Home Kitchen. On 7th January 2008, Home Kitchen paid Leung's wages as a result of the termination and gave him HK$5,250, being an "additional sum of half month's wages".

Subsequently, Leung filed a claim with the Labour Tribunal claiming, inter alia, wages in lieu of notice, severance payment and paid annual leave.

The presiding officer rejected all the claims mounted by Leung and Leung applied to the Court of First Instance (CFI) for leave to appeal. The CFI granted leave to Leung to appeal only in respect of his claim for paid annual leave and dismissed the application for leave to appeal in respect of other claims because the appeal against those claims was solely against findings of facts.

Leung claimed that he had not been given any paid annual leave for two years, which Home Kitchen did not dispute. Home Kitchen merely disagreed that they had to pay to Leung any compensation for paid annual leave because they were justified in dismissing Leung summarily.


After examining the relevant legislation, including S.41A and 41AA of the Employment Ordinance (the Ordinance), To J concluded that "an employee who is employed during the leave year not only can earn the wages to which he is entitled, but is also entitled to paid annual leave. At the expiration of the leave year, this right becomes the accrued annual leave with pay which the employee has earned. The employer shall grant and pay the employee the accrued leave and pay within 12 months beginning immediately after the expiration of the leave year".

To J went on and confirmed that, pursuant to S.41D of the Ordinance, on cessation of employment, an employer is still required to pay to the employee compensation in lieu of the accrued annual leave.

S.41D of the Ordinance provides:

"(1) Where –

(a) an employee ceases to be employed; and

(b) annual leave is due to him, 

the person by whom he was formerly employed, shall, as soon as practicable and in any case not later than 7 days after such cesser, pay to him in respect of the annual leave compensation equal in amount to the annual leave pay he would have received had the leave so due been granted immediately after such cesser.

(2) Where –

(a) an employee ceases to be employed;

(b) the cesser occurs otherwise than on the expiration of a leave year of the employee;

(c) his contract of employment terminates or is terminated otherwise than under section 9 for any reason whatsoever (including his resignation); and

(d) the termination occurs at least 3 months after the appropriate day,

he shall, as soon as practicable and in any case not later than 7 days after termination, be paid by the person by whom he was formerly employed, in addition to any sum due under subsection (1), a sum equal in amount to that which bears to the notional leave pay the same proportion as the number of days in the final employment period bears to 365."

To J ruled that S.41D(1) and 41D(2) are not mutually exclusive, but apply simultaneously.

S.41D(1) is applicable to "paid annual leave due to an employee on the expiration of his leave year" and S.41D(2) is applicable to "paid annual leave to which an employee is entitled before the expiration of his leave year".

To J concluded that even if an employee is dismissed under S.9 of the Ordinance, his entitlement to compensation in respect of his paid annual leave which has accrued on the expiration of a leave year but which has not been granted will not be affected. The employee will only lose the paid annual leave to which he would otherwise be entitled in respect of the leave year in which he is dismissed.

To J remarked that an interpretation that S.41D(2) overrides S.41D(1), which would result in a deprivation of compensation in respect of the accrued paid annual leave, would have to be supported by express provisions in section 41D to that effect. Since there is no such express provision in S.41D, it would be against common sense and contrary to the legislative intent to interpret S.41D(2) as overriding S.41D(1).

Applying the law to the facts, the Judge concluded that since Leung has never been granted any paid annual leave since his employment from 5th November 2005 until he was dismissed on 8th January 2008, Leung should be entitled to paid annual leave for the leave year of 5th November 2005 to 4th November 2006 and 5th November 2006 to 4th November 2007. Leung did not claim compensation for paid annual leave in respect of the period between 5th November 2007 and 8th January 2008.

In conclusion, To J allowed Leung's appeal in respect of the claim for paid annual leave and set aside the order made by the presiding officer dismissing this item of claim. However, the Judge did not give judgment in favour of Leung for HK$5,293.14, being the amount of paid annual leave claimed by Leung because there was a dispute as to whether the sum of HK$5,250, being "additional sum of half month's wages" paid by Home Kitchen to Leung was the agreed compensation for the paid annual leave claimed by Leung. To J therefore remitted this issue to be heard by the presiding officer.


It would be tempting to see this case as likely to be one limited to its own facts. However, it demonstrates a number of points of principle, as follows:

  • The Courts are prepared to remedy long-running inequities between employer and employee, when appropriate facts come before them. One can discern as much 'policy' consideration as 'common sense' in To J's interpretation in the less than coherent wording of the two limbs of Section 41D. Employers need to be ready to check employees' holiday entitlements not just for the final (usually broken) period, but also (where employers have not permitted holidays to be taken, or otherwise paid for accrued holiday entitlement) in previous periods.
  • When 'rounding up' final payments – usually in the hope of buying some goodwill, or perhaps owing to some uncertainty as to whether a legally adequate final payment has been made, employers should not label the additional payment in a way which could be construed as connoting an 'ex gratia' payment. The 'extra' payment should be labelled as expunging the employer's final liabilities for terminal payments. It is also a good idea to ask the employee to sign an acknowledgement that he/she has no further claims against the employer, although this cannot be insisted upon.
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