A study of the conflict resolution mechanisms for labour

Title disputes in Hong Kong

Author(s) Lo, Suet-ching, Sharon.; .

Lo, S. S. []. (2001). A study of the conflict resolution

mechanisms for labour disputes in Hong Kong. (Thesis).
Citation University of Hong Kong, Pokfulam, Hong Kong SAR. Retrieved
from http://dx.doi.org/10.5353/th_b3196660

Issued Date 2001

URL http://hdl.handle.net/10722/30089

The author retains all proprietary rights, (such as patent rights)

Rights and the right to use in future works.
A Study of the Conflict Resolution Mechanisms for Labour

Disputes in Hong Kong

by

LO Suet-ching

Submitted in Partial Fulfilment

of

the Requirements for

the Degree ofMaster ofPublic Administration

June 2001
f

Acknowledgement

I would like to express my deepest gratitude to my supervisor. Dr Danny

Lam, for his patience and continuous guidance to me in completing this dissertation.
Dr Lam not only enlightens my thought and analysis in the dissertation but also
enriches my academic knowledge in the field of public administration. I firmly
believe that the dissertation would not be accomplished without his valuable
guidance.

I would also like to thank my family for their support and consideration to
me in completing this course, without exerting on me pressure of any sort. Last but
not the least, I would like to thank my group mates in this Master degree, whose
contributions to academic discussions, spiritual support and friendship enabled me to
enjoy 2 years' meaningful University life.

LO Suet-ching
June 2001
 ONTEN$
Chapter 1. Introduction 2
Introduction 2
Definition of Labour Disputes 3
Individual Disputes 4
Collective Disputes 4
Rights or Leggi Disputes 4
Interests or Economio Disputes 5
Conflicts Resolution Mechanisms for Settling Labour Disputes 6
Conflicts Resolution Mechanisms for Labour Disputes in Hong Kong S
Conciliation 9
Mediation lo
Arbliation lo
Boardofinquiry lo
Cooling-off il
Litigation ofAdjudication Il
Framework of Study - The Rational Choice Approach of Jnsttutional 13
Analysis
Studying Conflict Resolution Mechanisms for Labour Disputes in the j5
Framework o'the Rational Choice Approach oflnstittitional Analysis
Research Questions 16
Objectives and Significance ofthe Study 17
Methodology 19
Organizaton ofthe Study 20

Chapter 2 Nature and Characteristics of Labour Disputes in Hong 1

Kong - A Diagnosis of The Problem

Introduction 21
How does a Labour Dispute Occur? 21
Scenario i 22
Scenaro2 23
Scenario 3 24
Scenario4 25
Labour Disputes as Social Interactions between Actors 25
Why is the Equilibrium Upset? 27
Cbaracterstcs of Labour Disputes - with Special Reference to the 33
Situation in Hong Kong
Asynmetry oulnterest 34
Unstable Balance ofPower I Power Distribution in Labour Relations 35
InformationAsymmetry 41
Opportunity Cost and Transaction Cost .3
Efforts Required in Monitoring and Enforcing an Agreement to a Labour 44
Dispute
Necessity for Maintaining Harmonious Relationship 46
Conclusion 53
Chapter 3 Conciliation and Adjudication: Conflict Resolution 54
Mechanisms in Hong Kong - Solutions to Problems
Introduction 54
Conciliation and Adjudication of Hong Kong 55
Institutional Arrangements of Concilaton and Adjudicaton in Hong 58
Kong
Boundary Rules ss
Position Rules 61
Scope Rules 63
AuthorityRules 67
Aggregationkules 70
Information Rules 71
PayoffRules 74
Conclusions 77

Chapter 4 Tackling Labour Disputes through Conciliation and 78

Adjudication - Matching Solutions to Problems
Introduction 78
Tackling Asymmetrical Interests - Realigning Actors' Incentives 79
Monetary or Material Interest 80
Status or Authrity Interest 90
Manipulating and Balancing the Power Relatanshp 92
Autonomy in Adopting a Certain Sirategy 94
Capacity in Empowering the Weak Party 95
Mmnmizing Information Asymmetry i 00

Mnimizing Opportunity Cost and Transaction Cost for Settlement and i 02

Incurring Higher Costs for further Pursuing the Dispute

Ensuring Enforcement ofthe Settlement -- An Incomplete Coniract 105
Maintaining Harmonious RelationshIp for Futhre Cooperation 108
Applying Conflict Resolution Mechanisms to Labour Disputes - 109
Matchng Solutions to Problems
Conclusion 118

Chapter 5 Case Studies on the Resolution ofLabour Disputes through 119

Conciliation and Adjudication in Hong Kong
Introduction 119
Measuring the Effectiveness ofConflict Resoluton Mechanisms 119
Case Studies ofLabour Disputes 121
Case One Proper Match of Conciliation to Problems
: 122
Background 122
Discussions 124
Case Two Mismatch of Concilation to Problems
: i 32

Bakgromd 132
Discussions i 35
Case Three Proper Match ofAdjudication to Problems
:
139
Background 139
Discussons i 41

Case Four Mismatch ofAdjudication to Problems

: 143
 Background 143
Discussions 145
Revelations on the Four Cases 147
Conclusion 149

Chapter 6 An Iva1uation of the Conflict Resolution Mechanisms in 151

Hong Kong - the Way Forward
Introduction 151
Strengths of Conciliation and Adjudication in the Conflict Resolution of 152
Labour Disputes n Hong Kong
Weaknesses and Criticisms of Coneilaton and Adjudication. n I-long 155
Kong
Recommendations on Enhancing the Conflict Resolution Mechanisms in 161
Hong Kong
Strengthening Prosecution Power of the Labour Department I 61
Establishing Arbitration Mechanisms in the Labour Department I 63
Minimizing the Time and Cost in Adjudication i 64
Bypassing Conciliation in LRS and Proceeding to Adjudication to Avoid i 66
Unnecessary Diminishing of Statutory Rights in Compromise or Unnecessary
Delay
Limitations ofthe Study 167
Conclusion 169

Bibliography

Appendices
Appendix 1 Number of Strikes and Number of Working Days Lost per 1 000 Wage
lEarners and Salaried Employees from 1995 to 1999
Number of Strikes and Number ofWorkers Involved from 1995 to 1999

Appendix 2 Waiting Time from Filing a Case to First Hearing in the Labour Tribunal

Appendix 3 Labour Disputes Handled by LRS of the Labour Department in 1998 and
i 999

Appendix 4 Statistics on the Number of Cases Filed, Review Cases and Appeal Cases
in the Labour Tribunal from 1995 to 2000

Appendix 5 Cases Handled in the Labour Tribunal in 1998, 1999 and 2000
 Fk!ures and Table
Figures
Figure 1 Dispute Resolution Contnuum
Figure 2 A Typical Model for Prisoners' Dilemma 30
Figure 3 Continuum for External Enforcement required in Handling the 3 80
Categories ofMonetary/Material Interest in a Labour Dispute
Figure 4 Time taken from Appontment to Delivery of Judgment in Labour 159
Tribunal from 1998 to 2000

Tables
Table i A Summary of the Characteristics of Labour Disputes and their 48-51
Possible Solutions
Table 2 A Summary of the Characteristics of Labour Disputes and the i i 3 -117
Strategies and Features of Conciliation and Adjudication
Table 3 A Summary on the Results ofthe Four Cases 148
A Study of the Conflict Resolution Mechanisms for

Labour Disputes in Hong Kong

Chapter 1
Introduction

Introduction

Amicable labour relations between employers and employees are vital

to social harmony, stability and prosperity. Nevertheless, human relations are

the result of interactions among dfferent actors in a society who may have their

own interests and conflict is Inevitable. Labour relatons are no exceptions, as

employers and employees may have intrinsically different or even conflicting

interests whch give rise to labour disputes. In Hong Kong, the state of labour

relations is generally regarded as harmonious, reflected by the small number of

working days lost due to strikes. During 1995-1999. the average number of

working days lost each year due to industrial conflicts per 1OOO wage earners

and salaried employees is only 0.44, which is among the lowest in the world

(Appendix l).1 However, the occurrence of trade disputes and employment

claims, which account for the majority of labour disputes in Hong Kong. should

not be overlooked. As harmonious labour relations are beneficial to society as a

whole, the government is eager to resolve the labour disputes effectively to

prevent further acceleration of the conflict in the public interest. This thesis

I
Commissioner for Labour (2000), Report ofthe Commissonerfor Labour 1999, Hong
Kong: The Government Printer, p.43.

2
would study how the conflict resolution mechanisms provided by the

Government effectively resolve the labour disputes and reach amicable

settlement between employers and employees in the private sector In Hong Kong.

In this introductoiy chapter, the definitions of labour disputes and

conflict resolution mechanisms, especially those in force in Hong Kong, would

first be discussed. As the effectiveness of different conflict resolution

mechanisms in Hong Kong would be studied with reference to the Rational

Choice Approach of Institutional Analysis, a brief illustration of the framework

would also be conducted. Aller the basic concepts are illuminated, the research

questions, objectives and significance of the study would then be highlighted,

followed by the explanation on research methodology as well as the organization

ofthe study.

Definition of Labour Disputes

Labour disputes generally refers to the disputes between employers and

employees connected with the employment or non-employment, or the terms of

employment, or the conditions of or affecting employment of any person.

Different countries would have different definitions of labour disputes with

reference to the relevant legislation under different jurisdictions. Generally,

3
according to the International Labour Office's classification, the distinction

between different types of labour disputes could be made on the basis of the

number of persons (that is, individual versus collective) as well as the nature of

the issues involved (that is, rights versus interests).2 The basc differences of

these disputes are:

Individual Disputes -a dispute involves a single worker or a number of workers

in their individual capacities or in relation to their individual contracts of

employment.

Colleclive Disputes -a dispute involves a nunber of workers collectively. In

such case, a dispute breaks out if the common interest is at stake and the

settlement of which would have effects or implications on the collective interest

or the legal status ofthe different members ofthe group.

Rights or Legal Diputec -a dispute arises from the application or interpretation

of an existing law or collective agreement.

2
International Labour Office (1980), Concliation and Arbitration procedures in
Labour DLrputes: A Comparative Study, Geneva: International Labour Office, p.5.
3
Givry, Jean.de (1978), 'Prevention and Settlement of Labour Disputes Other Than
Conflicts of Rights" in Otto Kahn-Freund (ed.) (1978) International Encyclopedia of
Comparative Volume 15, Labour Law Tubingen: J.C.B. Mohr (Paul Siebeck),
Laws
Interests or Economic Disputes -a dispute arises from the failure of collective

bargaining, that s, when the parties' negotiations for the conclusion, renewal,

revision or exenson of a collective agreement end in deadlock. For instance, it

may relate to the adjustment of conflicting interests with regard to the

determination ofwages and working conditions.

In Hong Kong, the conflicts between employers and employees in the

private sector are officially distinguished into two categories, namely claims and

trade disputes, based on the difference in the number of workers involved in the

conflict. Claims are those conflicts involving fewer than 20 workers whereas

those involving more than 20 are tenned as trade disputes.

However, this study does not aim at accounting for a detailed

classification of different types of disputes as mere classfications do not tell us

how a labour dispute is and could be solved. It s the generic characteristics

constituting a labour dispute that would have implications on the types of conflict

resolution mechanisms to be adopted in order to achieve the best result. Before

further analyzing this issue in great details, we should first have a general idea of

p.5.
ii
the conflict resolution mechansms for labour disputes at hand and how they

work.

Conflict Resolution Mechanisms for Settling Labour Disputes

Tradtionally. there are various types of conflict resolution mechanisms

as suggested in the literature in resolving disputes. The following continuum

shows the different methods for resolving disputes in terms of the degree of

involvement by the parties concerned:

Decision left Decision by Decision by Decision by

to chance the parties higher authority force

Avoidance---Negotiation---Concilhation---Mediaton---Arbitratiou---Litigation

Figure 1 : Dispute Resolution Continuum

(A modified figure based on Smith, C.R. (1998), Mediation: The Process and the
Issues, Canada: Industrial Relations Centre, Queen's University, p.1.)

Avoidance of conflict uses the least coercive power and only the

disputants are involved. In the context of labour disputes, the employee. for

instance, may choose avoidance as his strategy by just leaving the job and

forfeiting his right to claim any entitled compensation from employers simply

because he does not want to waste time to get involved in the resolution of the

dispute.

6
 Negotiation involves the communication between the disputants in

order to reach a mutually agreeable setUement. Both employer and employee

might just resolve the disputes themselves through negotaton bargaining and

cornpromse without resorting to third party intervention.

Conciliation and mediation are procedures whereby a third party

provides assistance to the parties in the course of negotiations, or when

negotiations have reached an impasse, with a view to helping them to reach an

agreement. The main difference between them is that in conciliation, the third

party brings the parties together, encourages them to discuss their differences and

assists them in developng their own proposed solutions whereas in mediation,

the third party is more active in assisting the parties to fmd acceptable solution

and even submit his own proposals for settlement to the parties.4 In labour

disputes, such distinction is blurred and very often the concepts of conciliation

and mediation can be adopted interchangeably.

Arbitration is a sironger form of conlict resolution mechanism in

which the third party acts as a neutral arbitrator, hears the arguments of the

7
disputants and makes a decision by which the disputants agree to be bound.5

Negotiation, concliation, mediation and arbitration are generally

termed as alternative dispute resolution (ADR) mechanisms.

Litigation, or adjudication, is the last resort to resolve a conflict. In

labour disputes. if no settlement could be reached by using the means mentioned

above, one ofthe parties could refer their disputes to courts for adjudication.

When third party, usually the government, does get involved in conflict

resolution of labour disputes, it usually takes the form of conciliation, mediation,

arbitration or litigation.

Conflict Resolution Mechanisms for Labour Disputes in Hong Kong

In Hong Kong, the conflict resolution mechanisms are laid down in the

Labour Relations Ordinance (Cap.55), the Labour Tribunal Ordinance (Cap. 25)

and the Minor Employment Claims Adjudication Board Ordinance (Cap. 453)6

4
International Labour Office, op.eit., p.15.
5
Stift, Allan J. (1998), Alternative Dispute Resolution for Organizations: How to
Design a Systemfor ConflictResolution, Canada: Wiley, p.131.
6
see Labour Relations Ordinance, Revised 1998 edition, issue 15, Hong Kong: The
Government Printer, Laboiu Thbunal Ordinance, Revised 1999 edition, Issue 19, Hong

g
 The Labour Relations Ordinance stipulates a series of conflict

resolution mechanisms for settling trade disputes, namely conei1iation mediation,

arbitration, board of inquity and cooling-off period.

Conciliation

There are two levels of conciliation, that is, ordinary conciliation and

specal concliation. When a labour dispute exists or s expected, the

Conunissoner for Labour may inquire into the causes and circumstances of the

dispute, take expedient steps to assist the disputants to reach a settlement, and

authorize a conciliation officer to conduct conciliation. If no settlement could

be reached, the conciliation officer would report to the Commissioner for Labour,

who would then decide whether a special conciliation officer should be appointed

to conduct the special conciliation. If special concilation fails, the

Commissioner for Labour would report to the Chief Executive in Council, which

would consider three other alternatives, namely arbitration. board of inquiiy or

any other action as the circumstances ofthe dispute may warrant.

Kong: The Government Printer, and Minor Employment Claims Adjudication Board
Ordinance, Revised i 999 edition, Issue 20, Hong Kong: The Government Printer.
Mediation

The Commissioner for Labour could also choose to appoint a mediator

or a board of mediation to mediate the dispute, no matter whether conciliation

has been attempted.

Arbitration

Upon the consent of the disputants, the Chief Executive in Council

could appoint an arbitration tribunal with one or three arbitrators to settle the

dispute. Arbitration would be conducted in private, and the tribunal could

require any person to give evidence, but the evidence so given is inadmissible in

any civ! or criminal proceedings by or against bim. After the tribunal hears all

the evidence, it would make an award which is to be honoured by the disputants.

Board of Inquiry

Besides arbitration, the ChiefExecutive in Council could also appoint a

board of inquhy consisting of one or more members to inquire into the causes

and circumstances of the dispute and report its fmdngs to the Chief Executive n

Councl. The hearing could be conducted in public or private. Like arbitration,

it can require any person to give evidence but the evidence so given is

inadmissible in any civil or criminal proceedings by or against him.

lo
Cooling-off

When the nature or scale of the c.3ispute is likely to cause an

interruption in the supply of goods or in the provision of services which would be

seriously injurious to the economy of Hong Kong, or affect the livelihood of a

substantial number of persons, or creating a serious risk of public disorder and

internal security, the Chief Executive in Council could order a cooling-off period

of 30 days, which could be extended to not exceeding 60 days. During the

period, no industrial action is allowed.

Notwithstanding the establishment of various mechanisms in the

Labour Relations Ordinance mentioned above, only conciliation is practcally

adopted in Hong Kong in resolving labour disputes. The Labour Relations

Service (LRS) of the Labour Department is responsible for assisting employers

and employees in the non-governmental sector in resolving their labour disputes

through the provision of free conciliation service.

Litigation or Adjudication

The Labour Tribunal Ordinance and the Minor Employment Claims

Adjudication Board Ordinance lay down the mechanism of litigation for

11
resolving labour disputes in Hong Kong.

When the parties of a dispute arising out of the breach of terms of a

contract of employment fails to reach a settlement through voluntary conciliation,

the aggrieved disputants could, depending on the amount of claims and the

number ofclaimants involved, refer the dispute to the Minor Employment Claims

Adjudication Board or the Labour Tribunal. The former deals with claims

nvolving not more than 10 claimants with an amount not exceeding $8OOO per

claimant. Those claims exceeding the above would be heard by the latter. The

defeated party in the court ruling could either ask for review in the respective

trbunal or board, or even appeal to the High Court should he be dissatisfied wth

the ruling.

Although the mechanisms of conciliation, mediation, arbitration and

ltigation stipulated in the Ordinances all fit n the continuum in Fgure 1 , only

conciliation and litigation are commonly adopted in resolving labour disputes in

Hong Kong. As such, this study would mainly base on these two mechanisms

of third party intervention in resolving labour disputes in Hong Kong.

12
 With the problems labour disputes, and solutions - conflict

resolutions mechanisms, at hand, the next step is to identify a framework of

analysis for studyng how they related to each other.

Framework of Study - The Rational Choice Approach of Institutional

Analysis

I_n the domain of policy design and analysis, one of the most influential

approach of study is the Rational Choice Approach of Institutional Analysis.

This approach advocates the study of policy through analyzing human behaviour

and the resulting interactions as well as how the institutions, or rules, govern the

behaviour and interactions. The framework of study in this thesis mainly

derives from those arguments as put forward by Ostrom.7

7
Reference is mainly drawn from the articles of Ostrom, Elinor (1 986), "An Agenda for
the Study of Institutions" in Public Choice 48(1 ): 3-25; Ostrom, Elinor (1992), "Policy
Analysis of Collective Acton and Self-Governance" in Advances in Policy Studies

since 1950, ed. William N Dunn and Rita Mae Kelly, New Brunswick, NJ: Transaction
Publishers; Ostrom, Elinor (1999), "Institutional Rational Choice: An Assessment of the
Institutional Analyss and Development Framework" in Theores ofthe Policy Process,

ed. Paul A Sabatier, Boulder, CO: Westview Press, p.35-71; and Ostrom, Elinor and
Lan)', Kiser (l982) " The Three Worlds of Acton: A Metatheoretical Synthesis of
Institutional Approaches." in Strategies ofFolitical Inquiry, ed. Ostrom, Elinor, Beverly
Hills, CA: Sage, p.179-222.

13
 The basc assumptions in the Rational Choice Approach of Institutional

Analysis are:

(a) Human beings are self-interested, boundedly rational and opportunstc

utility maximizers. An individual conducts cost-benefit calculation

on the basis of his knowledge and adopts a particular course of action

that suits his best interest -an option that produces the greatest utility

to hni;

(b) Policy problems are the results of social interactions among actors in

the pursuance of their own self-interests. VThile pursuing self-

interests, individuals would find it inevitable that they are in conflict

with one another, especially when the utilities they pursue are

distributive in nature, that is, one's gains are the othe?s losses. It is

possible that an individual values more his self-interest than collective

interest and as a result, individually rational sfrategies lead to

collectively irrational outcome8;

(c) Human behaviour is rule-governed. In making decisions, an

individual would be influenced by the institutions in force, or to use

Ostrom's terminology, rules-in-use. The rules expand or constrain an

14
 indvidual' s behaviour n ternis of boundary, scope, position, authority,

information, aggregation (decision making mechanism) and payoff;

(d) Institutions could be changed and manipulated. Since policy

problems are the aggregate results of social interactions of actors and

actors' behaviour is governed by institutions which are manipulabl;

solutions to policy problems could be generated by structuring and

manipulating the rules which in turn influence individuals' behaviour

and address and resolve the problems effectively.

Studying Conflict Resolution Mechanisms for Labour JJispWes in the

Framework ofthe Rafional Choice Approach oflnstitutionalAnalysis

The application of the Rational Choice Approach of Institutional

Analysis is useful in analyzing the nature and charaeterises of labour disputes as

well as the effectiveness of conflict resolution mechanisms in resolving them.

Labour relations are one of the types of human relations and labour disputes

could be conceptualized as the problematic phenomenon as a Tesult of

interactions between actors, that is, the employers and the employees. in the

course of their purposive actions for utility maximization. One of the actors,

either the employer or the employee, in order to maximize his individual utility

s
Ostrom, Elinor (1992), op.cit., p.89.

15
after a calculation of' his costs and benefits, would break the equilibrium and

trigger off another set of individual utility maximizing action of the other actor.

When such individual utility maximizing actions aggregate, the collective utility,

or Pareto optimality, is upset. As labour disputes are characterzed by different

behaviour of actors who are influenced by different variables, if we have a better

understanding of the actors' behaviour which could be constrained by rules, we

would be able to design and choose a particular conflict resolution mechanism

whose institutions are capable of influencing and altering actors behaviour,

whIch in turn resolving the disputes effectively.

Research Questions

This thesis is an attempt to apply the Rational Choice Approach of

Institutional Analysis in studying the effectiveness of the conflict resolution

mechanisms in resolving labour disputes in Hong Kong. Therefore the research

aims at addressing the questions of:

(a) Whal the generic dimensions of labour disputes are and bow different

variables embraced in these dimensions constitute different

characteristics ofdifferent labour disputes;

16
 (b) What the institutional arrangements of the conflict resolution

mechanisms under study - conciliation and adjudication -are and how

they approach and deal with the labour disputes at hand;

(e) I-low to make a proper matching of solutions to problems, that is,

matching the suitable conflict resolution mechanisms to particular

types of labour disputes so as to enhance the effectiveness of conflict

resolution.

Objectives and Significance of the Study

The essence of Institutional Analysis is the conceptualization of polcy

problem as the aggregation of social interactions among different social actors,

who, influenced by the attributes of the physical world, attributes of the

community and rules in use, make certain decisions which affect the aggregate

social outcome9; and by understanding the generic elements in a policy problem,

solutions could be generated by manipulating the rules in use so as to change

individuals' decisions. Labour dispute is a typical demonstration of how the

aggregation of individual choices could result in a collective problem.

This study aims at identifying the characteristics of labour disputes in

9
Ostrom Elinor (l999) op. cit., p.35-71.

17
the Hong Kong context from the perspective of RationaE Choice Institutional

Analysis. While the genetic dimensions of Labour disputes in Hong Kong

wou!d be examined, the variables in these dimensions would not be ignored as

they illustrate the different natures of different types of disputes. With such

analysis, the study sheds some light on the possible solutions that could be

formulated to address these characteristics and resolve the problem.

Besides, the conflict resolution mechanisms under study would also be

analyzed in the light of the Institutional Analysis and Development Framework.

With the analysis of the dimensions of the policy problem - labour disputes, the

study would examine how these two different mecbanisms address the generic

elements of labour disputes and lead to the effective resolution of the conflict.

A matching of solution to problem would be made possible if the problem and

solution could be broken down into their smallest components.

While a matching of solution to problem with different types of

eonlict resolution mechanisms suggests which mechanism is most suitable for a

particular type of labour dispute, suggestions could also be made to review and

refine the existing mechanisms to enhance their effectiveness in dealing with

different labour disputes under the existing institutional anangements.

18
Methodology

The theoretical framework of this study mainly derives from the

Rational Choice Approach of nsttuonal Analysis. As suche literature review

on Institutional Analysis would be conducted in the course of illustration.

esides, primaxy sources of official documents, reports, secondary sources of

commentaries in the area of labour relations as well as newspaper cuttings would

be consulted where appropriate. Interviews with parties having been involved

in a number of labour disputes would also be conducted to gather information for

case studies so as to further substantiate my argument in the study.

Organization oftbe Study

This study consists of 6 chapters. Chapter 1 is an introductory chapter.

outlining the scope and focus of the study the basic concepts of labour disputes,

conflict resolution mechanisms, framework and objectives of the study,

methodology adopted and the orgaiization of the study. Chapter 2 would

examine the nature and characteristics of labour disputes in Hong Kong. As a

process of diagnosing the problem, the labour disputes would be profiled in such

a way that they offer some bints to us on wbt kinds of conflict resolution

mechanisms could best match with them and arrive at the best results. Chapter

19
3 would make an illustraton on the two conflict resolution mechanisms under

study - conciliation and adjudication in the Hong Kong context. The different

institutional arrangements in these Iwo mechanisms provide different solutions to

tackle the problem. that is, the labour dsputes, as diagnosed in Chapter 2.

Chapter 4 links up both Chapters 2 and 3 In that with diagnosis of problems and

possible solutions at hand, a matching of suitable solutions to problems would be

made possible to bring about effective resolution of the disputes. Chapter 5

would be case studies on how the two mechanisms function and how they

succeed or fail in resolving labour disputes with reference to real life cases.

Finally, Chapter 6 would conclude the study with an evaluation on the

mechathsms with reference to the case studies in Chapter 5 as well as a

discussion on the possible recommendations to improve the effectiveness of

these two mechanisms and the whole system of conflict resolution for labour

dIsputes in Hong Kong.

20
Chapter 2
Nature and Characteristics of Labour Disputes in long Kong -A Diagnosis
of the Problem

Introduction

In Chapter 1 a brief and general introduction of the definitions and

concepts of labour disputes between employers and employees was outlined. lin

this following chapter the nature and characteristics of labour disputes would be

further explored. In the first part, there will be an analysis of how the

occurrence of a labour dispute takes place from a Rational Choice perspective.

The analysis would be illustrated with reference to four hypothetical scenarios of

labour disputes commonly found in Hong Kong. In the second part, the nature

and characteristics of labour disputes in Hong Kong would be further analyzed.

While the generic elements of labour disputes are highlighted, they are also

subject to certain variables which result in multifarious varieties of labour

disputes in Hong Kong.

How Does a Labour Dispute Occur?

In the Rational Choice Approach of Institutional Analiysis', social

i
Ostrom, Elmnor (1999), "Institutional Rational Choice: An Assessment of the

!.nsttutonal Analysis and Development Framework" in Theories ofthe Policy Fmce&c,

21
phenomena are simply outcomes of aggregation of many people's decisons

which lead to their social interaetions. In the context of labour disputes, the

major actors involved in the social interactions are the employer or ernploye?s

representatives. or to use a more generalized term, the management, and the

employees. In order to make generalizations on the labour disputes hi Hong

Kong, four hypothetical scenarios of labour disputes would be discussed as

examples for illustration.2 Although every labour dspute has its own

background and circumstances, these scenarios capture the special features which

are commonly found in the labour disputes in Hong Kong.

Scenario i

Mr A, the employer of a company, employed Mr B as a clerk after a

selection interview for several potential canddates as Mr A assumed that Mr B

was the most suitable candidate with the desired quality and capability for

performing thejob. However, after a certain period of employment, Mr A found

that the perfonnance of Mr B was far from satisfactory despite several warnings.

ed. Paul A Sabatier, Boulder, CO: Westview Press, p.35-'ll.

2
These scenarios, though hypothetical, are written on the basis of the writer' s previous
experience as a conciliation officer for labour disputes.
Eventually, Mi A could not but summarily dismiss Mr B.3 Mr B considered

that his performance was not poor enough to justify summaiy dismissal and thus

claimed termination compensation from the company.

Scenario 2

Mr C was the manager of a restaurant and wa responsible for staff

recruitment and employment related matters. lt was the restaurant s policy that

staff would only be entitled to two holidays per month and the holidays untaken

were to be compensated by payment in lieu and had already been incorporated

into the monthly salary as stated in the employment contraet. When the board

of directors of the restaurant decided to cease business and retxench the

employees, they paid the employees severance payment, wages in lieu of notice

and pro rata end of year bonus according to the Employment Ordinance.

However, the employees were dissatisfied with the payment and requested

compensation for the holidays untaken. The management rejected their request,

on the ground that the arrangement was the company's policy, the employees bad

3
summary dismissal is the type of dismissal exercised under S.9 of the Employment

Ordinance (Cap 57). An employer could lawfully dismiss an employee without any
termination compensation if the employee fails to obey to the lawful and reasonable
order; or is fraudulent or dishonest; or is habitually negiectl of his duties; or
misconducts himself.

23
signed the agreement in the contract that the imtaken holidays had already been

'paid' and never had they voiced out any disagreement for that. For the

employees, while some admitted that they knew the policy but dared not voice

out their grievances for fear of dismissal, sonic even denied having been

explained the policy, let alone agreed to the arrangement. The two parties failed

to reach consensus and a dispute resulted.

&enario 3

Company ID was an electronic company specialized in semiconductor

manufacturing. As the rnarginl profit was diminishing, Company D decided to

transfer part of the production line to mainland China to niininze the cost. For

the employees in Hong Kong, the company offered them two options: either to

accept a 20% reduction of monthly salary or to be reirenched with the termination

compensation as stipulated in the Employment Ordinance. The affected

employees, being desperate and having sought the advice and assistance of a

trade union, sparked off a dispute with the company, requesting a withdrawal of

the company's decision or if impossible. at least a better compensation for the

retrenched workers.
Scenario 4

Company E was a public utility service provider with over 1,000

employees in the territory. The employees of the company had formed a trade

union which was recognized by the company. During the exercise of annual pay

review this year, the company proposed to ofler a 2% pay rise to its employees.

Yet, the trade union opposed the proposal, suggesting that as the company's

profit had a I 0% increase, the employees should also be entitled to a i 0% pay

rise or they would stage ndustral action. Both parties reached an impasse in

their negotiation and a dispute was about to break out.

The above four scenarios cover the whole range of disputes from

individual (scenarios i and 2) to collective (scenarios 3 and 4) and from rights

(scenarios i and 2) to interest (scenarios 3 and 4).

Labour Disputes as Social Interactions between Actors

As we have seen above, the labour disputes would not take place if

there is no interaction between the actors. The management and the employees,

the actors in the labour relations context, are interdependent of each other, who

establish their relationship and set the scene for interaction by entering into the

25
eniploynient contract -a kind of social contract based on voluntary exchange.

Once the exchange relationshp is established, both parties wouJd have further

interactions in their pursuance of utilities. They also have the expectation that

cooperation from the other side is coming so as to maintain the equilbrium.

The management pays the employees salary in order to buy the service of the

employees while the employees sell their labour to earn a living. The

relationshp between the management and the employees is held in the

equilibrium and the social interactions between them are supposed to be mutually

beneficial. At this very moment, ndvidual' s optimality coincides with

collective optimality and harmonious relationship is expected. As in Scenario I,

Mr A is looking for a suitable employee and Mr B is looking for a prospective

employer and voluntary exchange is expected and likely to take place. As long

as both parties are willing to cooperate and capable of cooperation, there would

be no conflict and the equilibrium is maintained.

Cooperation in labour relations could be of two levels. First, the

actors cooperate to have interactions. The formation of employment

relationship signifies the cooperation between the employer and the empioyee to

interact with each other. Second, once the employment relationship is

26
established, the actors are considered as cooperative if they perform their roles in

an employment relationship as expected, which is essential to sustaning the

employment relationship. While failure to cooperate in the first level results in

the non-existence of employment relationship, failure to cooperate in the second

level would unavoidably upset the equilibrium of employment relationship and

results in labour disputes. Therefore, in studying labour disputes, the failure of

cooperation refers to the failure of sustaining hannonious relationship between

the employer and the employee.

Why the Equilibrium Upset?

The equilibrium, or the Pareto optimality, is upset when the expectation

of cooperation is not actualized because the parties fail to adhere themselves to

cooperation with each other. The failure to maintain cooperation can be

attributed to two factors: the first is incapability of cooperation and the second is

unwillingness to cooperate. These two factors, sometimes alone but sometimes

together, could bring about the failure of cooperation eventually.

Jneapablty of Cooperation

It is a general truth that if the actors are incapable of cooperating, then

27
no cooperation would take place. In the context of employment relations, one

would say that if either one of the parties are incapable of cooperating, no

contractual relationship between them could be formed at the very beginning.

Nevertheless, given that individuals are bouncily rational, plagued by cognitive

limitations and infonnational asymmetries. Although every actor would

legitimately expect the cooperation of the other actor is coming, neither of them

could guarantee that both of them could fulfill the level of cooperation the other

party expected. Just like Scenario i , Mr B was not as competent as what Mr A

expected, which may be the result of adverse selection -Mr A assumed Mr B

was the best candidate because Mr B could hide away adverse information about

himself; or the result of moral hazard -Mr B once secured employment, did not

work as expected because the coniractual relationship was formed and Mr A's

transaction cost might increase in breaking the contract. Company E in

Scenario 4 also failed to fulfill the level of cooperation expected by the

employees in. the sense that it did not increase the pay to the level expected by

employees in terms of the value of their work. Therefore, the incapability of

cooperation, or to be more precise, the incapability of fulfilling the expected level

of cooperation of the other party, would end up in failure of cooperation which

upsets the equilibrium in the social interaction.

28
Unwillingness to Cooperation

Initially, the actors involved in a social interaction are willing to

cooperate with each other as long as both of them expect the other sde would

cooperate and that cooperation would bring mutual benefit to them, just in the

case of Prisoners Dilemma in which the two prisoners would be jailed for the

least period oftme ifthey cooperate not to confess. However, there are chances

that the actors do not want to cooperate in some instances.

(c) Self-Interest Precedes Collective Interest

As individuals are rational, self-interested utility maximizers, or in

Hardin's terminology - narrowly rational4, it is not surprising to find that when

one discovers the utilities he gains are greater in non-cooperation than that in

cooperation, one would no longer be wlling to cooperate with the other as self-

interest is more important than collective interest to him. Just like the

Piisoners' Dilemma in Figure 2, the one chooses the 'defect' strategy would be

jailed for the least period while the other chooses the 'cooperate' strategy would

4
Hardin. Russell (1982), Collective Action, Baltimore: Resources for the Future by the
Johns Hopkins University Press, p.9.

29
suffer. When both assume that the other is rational and would choose defect!

as the dominant strategy, in order to protect one's self-interest both would

choose 'defect' which result in a Nash equilibrium. Individuals tend to concern

more wth safeguarding their self-interest first even though collective interest is

prejudiced.5 Therefore, in order to maximize its marginal profit, Company D

unilaterally broke the equilibrium by retrenching employees or reducing their

salaries in order to cut costs.

B
Confess (Defect) Not Confess (Cooperate)

Confess
A(Defect) 10, 10 1,25
Not Confess
(Cooperate) 25, 1 3, 3
Figure 2: A Typical Model for Prisoners' Dilemma
(Numbers in the boxes denote the number ofyears to be jailed)

Side by side with the self-interest desire is the opportunistic behavour

of the rational actor. Information asymmetries are commonplace in the social

contract between actors. As such, human bengs have the tendency to be

opportunistic, that is, they are subject to being cheated by others and would also

be tempted to cheat others when there is such an opportunity. Opportuiism can

s
Eatwell, John (et al. eds.) (1987), The New Paigrave: A Dictiona.y of Economics,

London: Macmillan.

30
be in the form of pre-contractual opportunism and post-contractual opportunism.

While the former usually refers to adverse selection, the latter is usually meant as

moral hazard. The situation in Scenario 2 can be used to explain possible

opportunistic bebaviour of the management and the employees. For the

management, they were well aware of the statutory requirements of giving paid

holidays to the employees, but they made use of the employees' ignorance to

deprive them of the right so as to minimize the costs. The employees could also

be spoken of having opportunistic behaviour in the sense that they appeared to

abide by the contract, but later on, reneged the agreement when chances came.

() The Necessi1' to Maintain Cooperation Vanishes

When one actor finds that cooperation with the other would not bring

further benefits to him, or that there is no need to maintain a cooperative

relationship, he would be unwilling to cooperate with the other actor any longei.

In Scenario 2, the employees, having been dismissed, realized that there was no

longer any need to cooperate since the contractual relationship had been broken.

Therefore, despite the fact that some ofthem would be happy wth the company's

6
Lane, Jan-Erik (2000), New Public Management, Routledge, London and New York,
p.187.

31
policy as long as they remain in the employ, the equilibrium was vulnerable even

though there was prior consensus agreed upon. Dispute s likely to occur once

the necessity to maintain a cooperative relationship vanishes and it is not

surprising that figures on the labour disputes handled by the Labour Department

revealed that the major proportion of them were involved in contract

termination]

As a rational actor who is opportunistic and self-interested utility

maximizer, in his nteraction with other actors, he would first evaluate bis own

situation based on the irformation available, make the best use of his knowledge

and information, and then adopt the appropriate courses of action, or strategies,

so to speak, according to his own preferences to get the most satisfying result.

In the labour relations context, when one of the actors realizes that in order to

maximize his self-interest, he would be tempted to adopt the courses of action

that might break the previous cooperative relationship and spark off a series of

actions and interactions which lead to the outbreak of a labour dispute.

7
Commissioner for Labour (2000), Report of the Commiicioner for Labour 1999,

Hong Kong, Government Printer, p.76-77.

32
Characteristics of Labour Disputes - with Special Reference to the Situation
in Hong Kong

In the previous section, we have analyzed how a labour dispute occurs

as a result of hunian interactions. In this part of the chapter, the nature and

characteristics of labour disputes would be further explored. These generc

elements are indeed the problems that need to be tackled by the conflict

resolution mechanisms ifthe labour disputes are to be resolved,

Labour disputes could be characterized with asymmetry of interest

between dfferent actors, unstable balance of power in labour relations,

information asymmetry, opportunity cost and transaction cost involved, efforts

requested in monitoring and enforcing an agreement, and the necessity for

maintaining hannonious relationship. Although we would say that these

characteristics are the common characteristics of a labour dispute, these

characteristics would, subject to dIfferent situations or variables, have different

effects and implications which might require different conflict resolution

mechanisms to tackle them effectively. Only when we have a better

understanding of different variables in these dimensions can we match the

suitable conflict resolution mechanism to a particular dispute and attain desirable

outcome.

33
Asymmetry of Interest

n most of the cases of labour disputes, the conflicts are distributive in

nature, that is, one party's gains are the other partys losses. Therefore, the first

and foremost characteristic of a labour dispute is the presence of different self-

interests of the actors one another. n order to alvance one's self-interests,

usually unavoidably at the expense of the other, one wouid adopt the course of

action that brings about a labour dispute.

There are certain sets of interests in terms ofthe asymmetrical interests

ofdifferent actors in a labour dispute:

Materal or Moneta,y Interest

The ultimate goals of the employer and employee engaged in an

employment relation are basically distinct, though the cooperation of the other is

essential in bringing out such goal. To the employer, profit making is the

motive for them to start the business. To facilitate profit making, he would

employ suitable employees as one of the tools to run the business and make

profits. To the employee, when be decided to work for an employer, what he

34
has in mnd is to earn a living, and thus his ultimate goal is to ensure job security

with a salary that enables him to sustain his livings. The goals of profit making

and job security are not intrinsically contradictory, but when one of the parties

decides to advance his self-interest in order to make larger gains, the goals

conflict with one another. Such conflict is most apparent when the employer

increases his marginal profits by minimizing the cost through cutting wages and

benefits or even retrenching employees; which in turn endangers the job security

or benefits ofthe employees.

In Hong Kong, most of the labour disputes over monetary or material

interests arise out of the disputes over the rights under the Employment

Ordinance (BO).8 Generally speaking, when the disputes are related to

monetary interests under EO, they can be categorized into 3 types:

L One of the parties does not understand the EQ requirements and as a

result, the claimant might make an ungrounded claim or the defendant

might fail to compensate a legitimate claim owing to misunderstandings

s
According to official figures, the LRS handled 290 labour dsputes and 3l89O claims,
which mainly arose from alleged breaehes of contractual employment terms or statutory
provisions. See Report of the Commissioner for Labour 1999, Hong Kong. the
Government Printer, p.74.
 of the statutory requirements; -- aproblem of ignorance;

II. Both parties have a certain degree of understanding of the rights and

obligations under the statutory requirements but with different

interpretations or understandings. Since the correct interpretation of

the statutory requirements is not so crystal clear, the parties have a good

reason to insist on the interpretation of their own being the legitimate

one; -- aproblem of uncertainty;

m. One or both parties understand the statutory requirements clearly, but

subject to delaying purposes, the defendant intentionally makes use of

the institutions to delay and even default a legitimate payment to the

claimant; or the claimant intentionally lengthens the time required to

settle the dispute in order to get compromising benefits from the

defendant; -- aproblem ofuncertainty and opportunism.

In the discussion later, they would be referred to as categories (a), (b) and (c)

disputes.

Interest Arising out ofStatus or Authority

Sometimes, the conflict of interest does not merely involve monetary

interest but also the desire for status or authority. Such kind of interest conflict

36
is usually found when one party has the desire to dominate the other in his

pursuance and advancement of his own interest. For instance, the employer

might impose on the employees regulations on top of the statutory requirements

in order to monitor the performance of the employees and establish an

authoritative command relationship over them as in a Weberan hierarchical

organization. In such case, the employer would expect that the employees

would conform to his requirements. On the other hand, conflict also arises

when the employees, usually in the form of trade union, try to advance their

status in relation to the employer in order to get a better say in the bargaining of

employment terms and conditions but is made difficult with the unwillingness of

the employer to recognize and cooperate with them.

The struggle between control arid autonomy in an employment

relationship represents another set of interest conflicts that could be found in the

Hong Kong context. Although such kind of conflicts could take place in any

kinds of employment relationship, no matter it s small company with no trade

union or large establishment with or without trade union, such conflicts are more

commonly found if the establishment is of relatively larger size and 'with large

number of employees who are trade union members or under the influence of

37
trade unions.

Unstable Balance ofPower/Power Digtrbution in Labour Relations

Traditionally, it is widely assumed that the balance of power in labour

relations is usually tilted towards the employ&s side. In Hong Kong, with the

absence of statutory collective bargaining framework and requirements as well as

weak trade unionism, such assumption seems to be appealing. Yeti this might

not always be the true picture. The assumption could be strongly argued if the

employer-employee relationsbip is the kind of relationship between master and

slave in which the master has complete power over the slave and the slave has

nothing to bargain with him. In reality, the power relationship between

employer and employee is not so biased in favour of only one side. In fact,

power relationship is not so stable and is subject to change as a result of several

variables. The following variables play some roles in strengthening one party's

power and in the meantime, weakening the power of the other:

Actor Participation

Although it is generally regarded that employer tends to be more

powerful in a labour dispute, the power ofthe employees could be strengthened if

38
they have stronger solidarity to counter against the employer. Besides, even

with the absence of collective bargaining, the existence of trade union in a labour

dispute, though could not revert the tilted balance of power in complete favour of

the employees, sometimes does exert certain constraints on the employer and

enhance the strength of the employees.

Financial Resources

If an individual has more resources, thereby making him less dependent

on the bargaining outcome, he will generally be more patient in the bargaining

process. Extensive bargaining is time-consunig, but a patient bargainer is less

concerned about the timing of the outcome. This patience translates into a

bargaining advantage? Stronger financial resources would enable the party to

stand longer in a labour dispute. It is generally assumed that the employer is

relatively stronger in terms of financial resources in most cases. flowever in

some occasions when the trade union is financially sound with a handsome

income from a large number of membership fees, its influence in the

development of a labour dispute should not be neglected.

9
znigit Jack (1992), institutions coidSocial Conflict, New York, Cambridge University
Press, p.135.

39
Knowledge of the Rules

In the absence of collective bargaining, legal enactment has become

increasingly important as a means of regulating industrial terms and conditions.10

As there is no labour court in Hong Kong for adjudicating disputes of collective

interest in nature and the main legislation governing the labour relations is the

Employment Ordinance (Cap.57), if the actor has a better knowledge and

understanding of the Ordinance over the other, he could be in a better positon in

protecting his self-interest as well as manipulating the 'rules' in his favoui

Public Opinion or Public Pressure

In Hong Kong, with the doctrine of positive non-interventionism and

'voluntarism in free market, labour dispute s generally regarded as prvate deals

and provded that both parties could eventually resolve the conflict, the public

would remain indifferent and do not play a significant role. Yet, if industrial

action involved in the labour dispute is so large in scale that public attention is

attracted and even public interest is concerned, the actors who are able to adopt

10
England, Joe (1989), Industrial Relations and Law in Hong Kong, 2 edition, Hong
Kong: Oxford University Press, p.228.

40
strategies of gaithng public sympathy to exert pressure on the other would gain an

upper hand in the dispute by forcng the other side to compromise upon public

opinion or public pressure.

Different structures of power distribution would have different

implications on the ways in which the disputes could be best resolved If one

party is dominantly stronger than the other, the role played by the third party in

resolving the dispute could either strengthen the weaker party to combat the

effect of the stronger party in order to force some sorts of compromse; or on the

contrary, further strengthen the stronger party to let the weaker side lose so as to

make the dispute die down. If both parties are similar in power strength, the

third party could either strengthen one side to let it win, or remain aloofto let the

conflict goes on until both ofthem are so exhausted that they go for compromise.

What strategies to be adopted depends on factors such as justice, efficiency and

public interest.

Information Asymmehy

As we have seen in the previous section, information asymmetry is one

of the factors that brings about the breakdown of cooperation and results in a

41
labour dispute. The party, who felt being cheated owing to the fact that the

other party hided away important informaton, would burst into frustration and

spark off a dispute. Fightng in a dispute is like fighting in a battle, the party

who is in command of much more infonnation about the other tends to have a

better chance to win or gain higher payoff. In their strategie calculation of costs

and benefits involved in taking a particular course of action, they also take into

consideration the course of action that is most likely to be taken by the other side

in their own perception. However, human beings are not omniscient and are

subject to be cheated by the others. Therefore, sometimes one actor would find

that the action taken by the other side is out of his expectation. For instance,

during negotiation, the management might assume that the offer made to the

employees would be considered generous and accepted because he assumed that

the employees did not have the strength to bargain further. Yet, the employees,

though also considered that the offer s acceptable, might still go on the

bargaining for they believed that the bottom line ofthe management had yet been

reached.

As information asymmetry is commonplace in a labour dispute, the

dispute could have a better chance for more effective resolution if the mechanIsm

42
adopted could facilitate the flow of information among the actors so that they

would make a better calculation of others courses of action and adjust their own

strategies aceordinly.

Opportunity Cost and Transaction Cost

As human beings are rational self-interest maximizers, they would

make a strategic calculation of the costs and benefits nvolved before taldng a

particular course of action. In the context of labour disputes, the opportunity

cost and transaction cost involved axe the costs that the actors are more concerned

about.

Opportunfty Cost

As the supply of labour and the supply of job opportunity are not

inexhaustible, they impose constraints on the actors' choces of actions in their

interactions with one another. In choosing a particular course of action in a

labour dispute, the actors would evaluate the opportunity cost involved and

decide whether they should adopt a particular strategy. For instance, the

employer would consider whether the opportunity cost of finding replacements

for employees in conflict is larger than giving the concession to the employees;

43
whereas the employees would also consider whether the opportunity cost of

finding another job is larger than less favourable terms of employment such as

salary reduction.

Transaction Cost

Generally speaking, actors would adopt a particular strategy provided

that it could minimize the cost most. Among the costs, the transaciion cost

involved in negotiating an agreement in a labour dispute is crucial to the

settlement of the dispute. Transaction cost is the cost required for negotiating

and bargaining between the parties in a coniractuai relationship. It would also

involve the cost in enforcing the agreement reached. Given high labour

mobility in a free market in Hong Kong, whether to pursue in a dispute or not

depends very much on the transaction costs involved in the negotiation.

Efforts Required in Monitoring and Enforcing an Agreement to a Labour

Dispute
To bring together the parties in dispute for negotiation and reach

agreement is one thing, but to ensure the agreement to be honoured by the parties

is another. It is to no avail if the settlement of a labour dispute is reached today

but the parties fail to honour it tomorrow asid break into dispute again. Usually,

44
when the agreement is a one-off agreement, it is relatvely easy to be enforced as

no further comniitnent from the parties is required. However, some agreements

of labour disputes are more complicated in the sense that the resolution of labour

disputes is a developing process with different agreements at different stages, the

successful enforcement of the agreement at one stage is crucial to the progress

into the next stage; or that the enforcement of the agreement is to be achieved in

different phases, such as compensation payment made by instalments, and

therefore monitoring of the agreement Is necessary. For instance, if a strike did

break out in Scenario 4, it is expected that the resolution of the dispute would be

in a developing process in which the parties concerned should first be able to

come together again for negotiation, then the trade imon agreed to suspend

industrial action while the management agreed not to take disciplinary action

against the employees participating industrial actions; and lastly negotiation into

the substances of the dispute could take place. If the management reneged the

agreement and fired any one of the trade union representative, the dispute would

possibly break out again. Another example is an employer agreed to make

compensation payment to the employee by instalments because of his financial

difficulties. LI the employer failed to honour any one instalment owing to cash

flow problem the dispute is prone to take place again.

45
Necessity for Maintaining Harmonious Relationship

Intellectuals in the Conflict Resolution Discipline always advocate

settlement capable of bringing win-win ituai1 In labour disputes, wh.ethr

such principle could be applied depends very much on the necessity for

maintaining harmonious relationship between the partic. Cooperation is

difficult to sustain when the game is not repeated.12 If the actors perceive that

the need for maintaining relationship with one another is weak, they vDu1d e

more persistent in advancing their gains at the expense of the others. Such

phenomenon is quite common in Hong Kong since most employers would choose

dismissal in most of the industrial conflicts as their major strategy, ami

reinstatement or re-engagement, though provided for in the law'3, are ot

welcomed by most employers and employees. Therefore, the parties tend o

adopt settlement proposal that could offer them the largest payoff once and for a11

11
Fisher, Roger and Ury, William (1991), Getting to Yes: Negotiating Agreenzeizt
without Giving in, New York, Penguin.

12
North, Douglass C (1990), Institutions, Instihitionci Change and Economk
Peiformance, New York, Caznbrdge University Press, p.12.

'3
Reinstatement or re-engagement of a dismissed employee could be ordered by t&
Presiding Officer ofthe Labour Tribunal subject to the mutual consent ofthe employa
and the employee according to the Employment Ordinance.
However, if there is a necessity to maintain harmonious relationship for further

cooperation and even further negotiation, such as the management arid dade

union discussing about the annual salary review as in Scenario 4, the parties

would adjust their stand and behave quite differently in order to achieve a win-

win situation for advantages in future.

A smumarized table portraying how the variables condtion a labour

dispute and what possible solutions aire required is constructed as follows:

47
 Table 1: A Summary on the Characteristics of Labour Disputes arid their Possible Solutions

Dimensions Variables Characteristics Examples I _Solutions offered by Third Party Intervention

tnterest Monetary misunderstanding of statutory Employer misconceived that part time Explanation of the statutory requirements by an
LcynIme(?y Category (a) requirements employees are not entitled to statutory authoritative third party
benefits

Monetary Different interpretations of Employer and employee disagreed on Enabling the parties to realize and compare the
Category (b) statutory requirements whether certahi misbehaviour ofthe opportunity cost and transaction cost involved in
employee justified summary dismissal settlement and ftirther pursuit so that the parties
would make a decision offering them the best
payoff

Monetary Opportunistic behaviour to gain Employer reached settlement agreement Restructuring the payoff by reinforcing the
Category (e) advantages by prolonging the with the employee but later made punishment for opportunistic behaviour
dispute pretext to delay the execution of the
agreement

Status Both parties would struggle not Trade union fought for recognition by Fostering favourable environment for the party
only for immediate interest but the management through industrial fighting for status to take part in the dispute so that
also institutional changes that action in order to attain bargaining the institutional changes would enable both parties
foster their future gains status vis--vis the management to deal with future disputes on their own
Dimensions Variables Characteristics Examp Solutions offered by Third Party Intervention
Power 4ctor The inclusion or exclusion of The management chose to negotiate Relaxing the boundary rules to enable participation
'elatwnship participation certain actors would strengthen with individual employees and refused of legitimate actors
(empowering or weaken the power of one to have dialogue with the trade union
,ne of the party
,ary)
Financial More fmancial resources permit Employer exhausted the employees' Providing means to end up the dispute as soon as
resources longer endurance in a dispute resources by delaying negotiation so as possible so as to prevent the weak party from being
and strengthen bargaining to gain favourable terms in the final exhausted of resources
power settlement

Knowledge oj Better knowledge ofrules Employees, in their course of Explainixig or enabling the explanation ofrules to
the rules enables the party to manipulate advocating interest ri a dispute, must the parties which allow them to make better
them to advocate his interest know what are the legitimate claims and calculation oftheir payoff
what are the allowable actions in law

Public Public opinion sympathetic to Public sympathy with employees who Enabling the publicizing of the facts in a dispute
opinion one party would exert pressure are unreasonably dismissed would press through means such as mass media to the public
on the other party for the employer to compromise or else its
compromise reputation would be damaged
Dimensions Variables Characteristics Examples Solutions offered by Third Party Intervention
rnformaon Obstrucfion in Both parties are not aware of Both the employer and employee did not Realizing the bottom lines ofboth parties and
Lsymmetiy the flow o) the bottom lines ofeach other want to further proceed the case, but facilitating settlement by enabling them to realize
information during negotiation superficially, both took a hard line fri their respective strengths aiid weaknesses and the
order to press as many concessions from possible options that bring mutual interests to them
the other as possible

9pporiunity Opportunity The highest valued option Employer refused to pay a compromise Producing settlement options that would minimize
ost and cost foregone when making a payment to the employee might end up the opportunity cost
ransadllon certain decision paying even more to the employee
x,st Enabling the parties realize and compare the
opportunity cost and make decision offering them
the best payoff

Thansaction Cost required for negotiating Both parties refused to reach Producing seUlement options that would minimize
Cost and bargaining an agreement compromise on their own might end up the transaction cost
and cost involved in enforcing getting the same result after much time
the agreement and cost spent Enabling the parties realize and compare the
traxisaction cost and make decision offering them
the best payoff
Dimensions Variables Characteristics Examples Solutions offered by Third Party Intervention
klonitoring One off Enforcement is immediate and Both parties reached agreement and the Enabling that the agreement is reached by mutual
md agreement no further commitment is employer paid the compensation to the consent to enhance the chance for both parties'
nforcing an required employee soon after the meeting in one honouring it
igreement instalment only
Enabling that immediate sanction could be imposed
upon reneging

Long term Enforcement depends on The management and trade union Ensuring that the agreement is made by mutual
non-spec/c credible commitment from the developed a communicative channel to consent and that cooperation would bring self and
parties in ongoing relationship tackle matters concerning employees' mutual interest to them
benefits in future

Long term Enforcement depends on Employer agreed to pay compensation Ensuring that the agreement is enforceable and
specflc credible commitment from the to the employee in several instalments exercising sanction to impose punishment on
parties with ex ante sanction reneging
specified
 Dimensions Variables ]
Characteristics Examples Solutions offered by Third Party Intervention
IIaintaining Nofitrther Both parties would struggle for Employee claimed all kinds of Encouraging the parties to consider how the
thrmonious cooperation as much benefit as possible compensation from the employer even settlement proposal would bring selfinterest to
elationsiup even at the other's expenses though he realized that there were themselves respectively
insufficient grounds

Needfurther Both parties would have long The management and trade union Fostering mutual trust between both parties and
cooperation term interests to consider such developed a communicative channel to eliminate the bitter feelings during negotiation
that they would make tackle matters concerning employees'
compromise in the negotiation benefits in future
UT
so as to maintain cooperative
relationship in future
Conclusion

As we have seen in the above discussion, labour disputes are the

resulted social interactions between employers and employees in their rational

pursuance of self-interest. Labour disputes are characterized with the

asymmetry of interest, unstable balance of power between employers and

employees in labour relations, information asymmetry, considerable opportunity

cost and iiansaction cost, difficulties in monitoring and enforcing the agreement

to a labour dispute as well as the necessity for maintaining harmonious

relationship. Although these are the generic elements of labour disputes, they

are influenced by variables and would result in various outcomes, which in turn

have implications for the effectiveness of different conflict resolution

mechanisms.

In the next chapter, the two conflict resolution mechanisms for labour

disputes commonly adopted in Hong Kong, conciliation. and. adjudication, would

be analyzed. Only when we understand how the institutional arrangements of

these two mechanisms are constructed could we match them appropriately to the

problems.

53
Chapter 3
Conciliation and Adjudication: Conflict Resolution Mechanisms in Hong
Kong - Solutions to Problems

Introduction

hi the previous chapter, the nature and characteristics of labour disputes

were analyzed in the lght of a set of generic elements as well as the variables

consttutng the different appearances of labour disputes. The objective of this

study is to examine the conflict resolution mechanisms institutionalized in the

context of Hong Kong and their respective strengths in addressing the distinctive

characteristic elements of labour dsputes in Hong Kong; and through such an

analysis, the matching of 'solutions' generated by these mechanisms to the

'prob1ems resuited from the labour dsputes are made possible. Before a

matching could be done, it is essential for us to examine what the possible

solutions are at hand. In this chapter, a brief introduction of the two conflict

mechanisms commonly adopted in Hong Kong - conciliation and adjudication -

would be given. The discussion would be made in a comparative approach so

as to highlight the distinctive features and institutional arrangements, which shed

light on the matching of solutions to problems in the next chapter.

54
Conciliation and Adjudication in Hong Kong

As mentioned in Chapter 1, concliation and adjudcation are the two

conflict resolution mechanisms commonly adopted in resolving labour disputes

in Hong Kong. These two mechanisms are insttutionalized with the legai

founthtions of the Labour Relations Ordinance (Cap.55), the Labour Tribunal

Ordinance (Cap.25) and the Minor Employment Claims Adjudication Board

Ordinance (Cap.453). The main organs performing the functions of the

mechanisms are the Labour Relations Service (LRS) of the Labour Department

the Labour Tribunal (LT) and the Employment Claims Adjudication Board

(IvCAB).

Conciliation service is offered by the LRS of the Labour Department to

the employers and employees of the private sector to resolve their labour disputes.

For disputes that could not be successfully resolved, or for whatever reasons

conciliation is unlikely to result in a settlement, or conciliation may prejudice the

interest of the parties involved,, the disputes could be referred to the Labour

Tribunal or the Minor Employment Claims Adjudication Board pursuant to the

Labour Tribunal Ordinance and the Minor Employment Claims Adjudication

55
 The LRS of the Labour Department aims at providing free conciiatiom

service to assist the employers and employees in the non-government sector in

resolving their labour disputes. The service s provided with a view to offering

the parties concerned an informal, simple and time saving channel for resolving

their labour disputes.

The labour courts are the organzations where the labour disputes are

resolved through adjudication means. both courts aims at providing a quiel

simple and inexpensve means to settle the monetary disputes between employers

and employees.

Conciliation service in LRS is provided for by at least one conciliation

officer, dependent on the complexty of the case, who are at the rank of Assistant

Labour Officer or above. The conciliation officers are subject to rotation of

postings, the majority of whom would assume the posts of conciliation officers

for two to four years.

In labour courts, the proceedings would be heard and determined by

56
one Adjudcation Officer of the MECAB or one Presiding Officer of the LT

sitting alone. Whle the Presiding Officers are permanent magistrates, the

Adjudication Officers are Senior Labour Officers of the Labour Department who

are subject to posting arrangements.

Nevertheless, although there are different posting arrangements in these

two mechanisms, those who assume the roles of conciliator and adjudicator are,

at least, specIalists in labour matters. The well-recognized expertise in labour

matters would undoubtedly enhance the credibility of the conciliator or

adjudicator in handing labour disputes.

In order to have a more systematic analysis of these two conflict

resolution mechanisms, the features of conciliation offered by the LRS of the

Labour Department, and adjudication provided by the Labour Tribunal and the

Minor Employment Claims Adjudication Board, would be discussed in a

comparative perspective. For the sake of convenience, the Labour Tribunal and

the Minor Employment Claims Adjudication Board would be generalized as

labour courts in the context ofthis study.

57
Institutional Arrangements of Conciliation and Adjudication in Hong Kong

The rules in institutiona! analysis are shred understandings smong

those involved that refer to enforced prescriptions about what actions are required,

prohibted or permitted.' Rules can be formal or informal. While formal rules

refer to rules that are prescribed as statutes and regulations, informal rules are

norms and common understandings shared by the community. According to

Ostrom2, there are seven types of rules. These rules also apply to the

mechanisms of conciliation and adjudication and have their roles to play in the

resolution of a labour dispute.

Boundary Rules

Boundary rules specify how participants are chosen to hold these

positions and how participants leave these positions. The boundary niles in

labour relations determine who are the legitimate players in a particular dispute.

The rules could be set veiy rigidly by only permitting the involved individuals to

i
Osirom, Elinor (1999), "Institutional RatIonal Choice: An Assessment of the
Institutional Analysis and Development Framework" in Theories afilie Policy Process1

ed. Paul A Sabatier, Boulder, CO: Westview Press, p.50.

2
Ostrom, Elinor (1986), "An Agenda for the Study of Institutions" in Public Choice

48(1): 3-25.

sg
participate, or flexibly by allowing concerned but not directly involved parties to

take part in a labour dispute. The boundary rules in conciliation are relatively

looser than those in adjudication in terms of the participation of the third party -

the conciliator and the adjudicator, and the participation of other interested

parties.

Parties Involved

The parties involved in labour disputes, that is, the management and

the employees, are without doubt allowed to take part in the two conflict

resolution mechanisms. However, the right to participate is relatively restricted

in the labour courts than in LRS. Whereas office-bearers of a registered trade

union or employer association who is authorized in writing by a party to appear

as his representative are granted a right of audience subject to the permission of

the courts, and legal representation is strictly prohibited, no such rules are

stipulated in the conciliation mechanism, provided that the parties in question

raise no obj ection to the presence of other persons from the other side to take part

in conciliation. Only the parties involved are allowed to participate into the

adjudication process whereas in conciliation, although the major actors are still

the claimants and defendants, other actors such as trade unions, concerned

59
counterparts of the major actors the mass media and the public, might play a role

and exert influence on the outcomes of the disputes.

Procedures for Participating in the Mechanisms

If any person involved in a labour dispute requires conciliation, he may

approach the branch office in his workplace and lodge a claim. A conciliation

meeting would then be arranged and the other party would be invited to attend

the meeting at the scheduled time. Besides, the Commissioner for Labour, by

virtue of the Labour Relations Ordinance, could take the initiative and authorize

a conciliation officer to intervene into a labour dispute and conduct conciliation

whenever necessary. subject to the consent ofthe disputants.3

If conciliation fails, or for whatever reasons, conciliation is

iniplausible4, the claimant can file claim at the registrars of the LT or MECAB.

3
See S.(3) ofthe Labour Relations Ordinance.
4
NormaI1y the labour courts would only accept claims which could not be settled after
conciliation. In some occasions, the courts would agree to hear a claim if the
authorized officer, who are either the conciliation officer in LRS or the Tribunal Officer
of the LT, opines that conciliation is unlikely to result In a settlenient being reached, or
that conciliation may prejudice the interest of the claimant(s) or defendant(s). See
Labour Tribuno] (Forms) Rules (Cap.25 sub.leg.C):Fonn 7.

60
A hearing date would then be fxed and the notice would be served to both the

clamant and the defendant.

The concliator can take the initiative to enter into a labour dispute

subject to the consent of both parties, but the adjudicator could only adopt a

passive role since he could not enter the scene until one party file claim there.

Venue

The relative flexiblity of boundary rules in conciliation can also be

reflected in the venues where conflict resolution could take place. While most

conciliation meetings are conducted in the offices of the LRS, they are sometimes

arranged in other venues, such as the workplace involved, in case of time

expediency as in time of strike. however, if the claim is ace1erated to the

adjudicatIon level, it would only be dealt with in the court room environment

Position Rules

Position rules specify a set ofpostions and how many participants hold

each position. In labour disputes, while the employees and the management

assume conflicthg roles owing to their competition for their own interests, the

61
conciliator and the adjudicator assume different roles in a labour dispute as well.

Role of the Thrd Party

The conciliation officer of LRS, as a conciliator, acts as a neutral

intermediary who assists the disputants to seek a settlement accepted by both

partes and prevent the issue from deteriorating. To assist the parties to move

towards agreement, the conciliator may assume different subroles as catalyst,

educator, translator, resource person, analyzer, focuser, refiner, transformer,

moderator, packager, 'atmosphere setter' , conductor, bearer of bad news from one

party to the other, scapegoat and communication link. Yet, he does not have

the right to adjudicate. Even though in some cases he bas every reason to

believe that a certain agreement is beneficial to both parties, be could only advise

on the parties to take a certain course of action by providing them information on

the possible increased costs or losses inflicted upon them ifthey reised to accept

the agreement.

The Presiding Officer of LT or Adjudication Officer of MECAB

5
Heron, Robert and Vandenabeele, Caroline (1997), Effective Conciliation: A Praccal

Guide, Bangkok. International Labour Office, p.26-28.

62
assumes the role of an adjudicator who hears the claims of both parties and

makes a ruling. The adjudicator adopts the inquisitorial approach in conducting

the hearing. He carries out investigation and makes judgment on his own. The

award is made in such a way that he thinks fit, and he need not bother whether

the parties are pleased with the ruling as the award is imposed upon the parties

rather than a setdement that is accepted by the parties concerned.

Therefore, the conciliator mainly performs the role of facilitating

settlement reached by mutual consent whereas the adjudicator is an external

enforcer who determine what the outcome of the interaction should be. The

coercive power that an adjudicator can exert on the parties is stronger.

Scope Rules

Scope rules specify the set of outcomes that may be affected and the

external inducements andior costs assigned to each of these outcomes.

Conciliation embraces a wider scope than adjudication in terms of the

jurisdiction arid possible results reached.

63
Scope ofActivities / Jurisdiction

The 11 LRS brauch offices in the territory advise employers and

employees on all aspects of labour relations, including their rights and

obligations under the Employment Ordinance; conciliate in labour disputes and

assist the parties involved to come to amicable terms of settlement; and

adminster the Employment Ordinance and investigate complaints about non-

compliance with its provisions.6 In other words, the LBS would through

concliatory and facilitatory means, take part in resolving all sorts of labour

disputes between employers and employees in the private sector.

The LT and MECAB hear cases related to breaches of the terms of a

confract of employment, or a contract of apprenticeship under the provisions of

the Employment Ordinance (Cap.57) and the Apprenticeship Ordinance (Cap.47).

They also deal with breaches ofthe terms ofan overseas contract of employment

performed outside Hong Kong under the Contracts for Employment Outside

Hong Kong Ordinance (Cap.78). Besides, the LT and MECAB have divison of

6
Labour Department (1999), The Labour Department Offers You its Services,
Government Printer, Hong Kong.

64
labour in teims of the amount of claims and the number of claimants.7 Like

other judicial institutions, the two courts have clearly delineated jurisdiction,

excluding claims in respect of a cause of action found in tort, whether arising

from a breach of contract or a breach of duty imposed by a rule of common law

or by any enactment.8 Moreover, the Tribunal does not deal with the bargaining

of the terms of employment contract and has no power to interfere in negotiations

on wages or conditions of service. Resolving conflicts for trade disputes

involving industrial action is also outside the jurisdiction of the Tribunal.9 If

parties in such circumstances intend to proceed the case through adjudication

means, they have to do so through civil proceedings in the District Court or the

High Court.

Whereas the conciliation service offered by LRS covers all kinds of

7
Schedule of the Minor Employment Claims Adjudication Borrd Orelincowe prescribes
that MECAB shall have jurisdiction on claIms made by not more than 1 0 claimants for a
sum of money not exceeding $8,000 per claimant and Schedule of Labour Thibunal

Oiriinance stipulates that LT would hear labour claims other than those heard by
kiIz(sII
g
See Section 5(3) ofthe Minor Employment Claims Adjudication Board Ordinance and
Schedule 1(3) ofthe Labour Tribunal Ordinance.
9
Tse, Sau Kuen (1992), Labow Polcy and the Protection ofthe Legal Entitlements of

Private Sector Employees, MPA Dissertation, Hong Kong: the University ofHong Kong,
p.39.
labour disputes in the private sector, the adjudication courts are more restrictive

in their jurisdiction.

Possible Results Reached

li s intended that conciliation results n either successful or

unsuccessful resolution of labour disputes. If conciliation is succesaflul,

settlement agreement would be reached and signed by the parties concerned and

no further litigation is needed ifboth parties could honour the agreement. Ifit is

unsuccessful, the dispute would normally accelerate to the adjudication level in

which one ofthe parties files claim at the LT or MECAB forjurisdiction.

The adjudicators ofthe labour courts would make an order or award for

the claim to conclude the case. The order or award is made not necessarily with

the consent of the parties. The making of the award, too, may not be the end of

the stoiy J-f one of the parties is not satisfied with the award, he may apply for

review by the saine courts, or to appeal to higher courts, that is, the Appeal Court

and in some cases, even to the Court ofFinal Appeal.

In conclusion, the division of labour in adjudication in terms of

66
jurisdiction is more systematic and strictly adhered to. Conciliation1
on the

other hand, can be called for whenever there are disputes between employers and

emp1oyees The parties may have disputes over different issues, and if the

issues could be dealt with in the same arena, there is a higher possibility of

generating a wider range of possible solutions or gives-and-takes in the

bargainng process. No further litigation is needed if settlement could be

reached and honoured. For adjudication, conclusion in one court might not be

the end of the stoiy It might be subject to review or appeal in higher courts, or

when some of the issues in dispute are outside the jurisdiction of the labour

courts1 further litigation in other courts are inevitable in order to resolve the

disputes completely.

Authority Rules

Authority rules specf the set of actions assigned to a position at a

particular node. The rules enable employers and employees as well as the third

party to take certain actions in a labour dspute. In labour relations, the

authority rules mainly derive from the legal enactments as laid down in the

relevant ordinances governing the rights and obligations of the employers and

67
employees. For instance, the Employment Ordinance stipulates the rights of the

employees to participate in trade union activIties, and anti-union discrimination

by the employers is sanctioned. The authority rules in conciliation and

adjudication mainly function on such statutory basis. However, levels of

intervention permitted to be taken by the conciliator and the adjudicator are

different.

Voluntary or Compulsory

The conciliation service is entirely voluntary for both parties and the

conciliation officer cannot force any parties or representatives to attend the

meeting. Although in some eases when public interest is concerned and the

Labour Department intends to take a proactive approach by stepping in the labour

disputes, it could not take any action unless the parties concerned are willing to

come together to the negotiation table. For instance, during the Cathay Pacific

pilot disputes in mid-November to December 2000, when the pilots collectively

took sick leave as a result of the disagreement between the pilots and the

management over roster arrangements, the Labour Department could only

express concern and show its readiness for conciliation to the parties. It was

only on 11.12.2000 when the management approached the Department for

68
conciliation, together with the trade union's request for intervention, that the

green light for the Department's concilaton was

The labour courts, on the other hand, impose certain pressure on the

parties concerned to attend the hearing in the compulsory sense. If the

claimants or defendants are absent in the hearing, ruling could be ordered ex

partite in favour of the other side.

Since these two mechanisms differ in the requirements of the presence

of the parties involved, these would induce the parties to adopt different

strategies in their handling ofthe disputes.

Enforcement ofthe Agreement/Award

In terms of the enforcement of agreement, conciliation rely more on the

informal rules than adjudication. The memorandum of settlement signed by the

parties in conciliation is not legally binding but a 'gentlemen's agreement', and

the enforcement ofwhich is dependent on the good faith ofthe parties concerned.

lo
See "Labour Department Concerned wth Cathays Industrial Dispute"

' *'
inHongKongCom,nercialDaily(12.12.2000).

69
If one of the parties repudiates the agreement, the case could be heard in the

courts, be t in the MECAB, the LT, the District Court or in the Court of First

Instance for breach of agreement.

Unlike the agreement made in conciliation, the award or order made in

the labour courts are legally binding and enforceable in law. If one of the

parties fails to honour the award, the other party could apply for bailiff at the

District Court to enforce the award on his behalf, or to apply a winding up

petition at the High Court if he has good reasons to believe that the failure to

honor the award was due to financial problems. Fonnal sanctions such as

imposition of costs could be found in labour courts but in conciliation, only

informal sanctions such as public pressure could be manipulated.

Aggregation Rules

Aggregation rules specify the decision function to be used at a particular

node to map actions into intermediate or final outcomes. These rules can decide

on how the labour dispute should be resolved.

70
Principles for Decision Making in Conflict Reolut!on

As we have seen above, the conciliator resolves labour disputes by

assuming a facilitatoiy role in order to encourage the disputants to reach amicable

settlement that is mutually agreeable while the adjudicator acts as an inquisitorial

judge and mpose the ruling on the parties concerned. Therefore, in conciliation,

decision making is by mutual negotiation and consent. In adjudication, it is by

order from court or other higher authority.

Information Rules

Information rules authorize channels of communication among

participants n positions and specify the language and form in which

communication will take place. These rules are crucial in a labour dispute in

the sense that if the rules encourage an efficient flow of information among the

parties, there is a higher chance of resolving the labour dispute as when actors

have sufficient information of one another, they are more likely to cooperate. In

labour relations, the parties break into disputes because of information

asymmetry and mutual distrust is commonplace which blocks effective flow of

information. To cope with the problem of information asymmetry, conciliation

and adjudication adopt different approaches.

71
Confidentiality

The principle of 'confidentiality of information' is strictly adhered to

by the conciliator, that is, the conciliator should observe secrecy with regard to

confidential information given by the parties during conciliation proceedings.

Titis principle aims at protecting the interests of persons giving confidential

information and protecting the integrity of the conciliation process itself, thus

enhancing its eci1 From time to time, conciliation. officers of the

LRS are summoned to give evidence on the information during condilation at the

labour courts upon the request of the parties. The officers concerned could

claim public interest immunity to be exempted from giving evidence in courts,

and the Labour Relations Ordinance also emphasizes the importance of

confidentiality by qualifying It as a kind ofprivileged communications.12

11
International Labour Office (1980), Conciliation and Arbitration procedures in

Labour Disputes: A Comparative Shidy, Geneva: JntemationalLabour Office, p.118.

12
Section 9 of the Labow Relations Ordinance stipulates that anything communicated
to a concliation officer or special conciliation officer in connexion with the
performance of his functions under thIs Ordinance shall not be admissible in evdence in
any proceedings before an arbitration tribunal or board or inquiry, except with the
consent of the person who communicated it to the conciliation officer or special
conciliation officer.

72
 The general rule in judicial proceedings is public trial and full

publcty.13 The hearings in the labour courts are conducted in public. That

means, members of the public could attend the hearing as they wish. Besides,

both the FO or AO has the right to summon witnesses and order the provision of

evidence to the court in order to facilitate him to make a ruling.

Therefore, conciliation copes with the problem in information flow by

first gaining trust from both parties and second by the principle of confidentiality.

The parties are more willing to communicate their information to the conciliator

who is entrusted with the task of facilitating information flow between the parties.

Adjudication influences the information flow through imposing statutory rules

(such as taking oath before giving statements and power of requesting parties to

give evidence) on the parties to order them to reveal any nforniation as he might

require in order to let him decde on how the outcome oftheir interactions should

be.

13
Clark, David and McCoy, Gerard (l993) Hong Kong Administrative Law (2

Edition), Butterworths, Hong Kong, p.241.

73
Payoff Raies

Payoff rules prescribe how benefits and costs arc to be distributed to

participants in positions. Such rules guide the actors in their cost-benefit

calculation, therefore, they are the critical rules that fmally direct the actor&

choice of actions.

Time Involved

According to the performance pledge m&le by the Labour

Department!4. a conciliation meeting would be fixed in four to five weeks after

the claim is filed. How long conciliation takes in resolving the dispute,

however, depends on whether further conciliation meetings are required, and

whether the settlement spans a certain period oftime to be enforced.

It usually takes a claimant about two weeks to file the claim at the LT

or MECAB. After the claim is filed, the hearing would normally be scheduled

not later than 30 days from the date when the claim was filed (Appendix 2).

Since claimants in the labour courts have usually gone through the time required

for conciliation before they ifie claim at the courts and that the hearings are

4
Labour Department Website (2OOl) http://www.info.gov.hk/labour.

74
subject to adjournment for legalistic or practicable reasons15, the date when the

judgment made might be several months after the labour dispute took place.

Expenses

Conciliation servIce is provided free of charge by the LRS.

Conciliation would not incur any costs on any of the parties concerned. The

costs that need to be born by the parties are the time required to attend the

meeting. as well as any compensation to be made according to the settlement

reached by mutual consent.

To file claim at the labour courts, the claimant is required to pay a

smaLl amount of filing fees varying with the amount claimed. The adjudicator

may also order any party to pay costs to the other party if he thinks fit but since

no legal representation is involved, the amount of costs incurred is relatively

small when comparing with courts of higher level. Nevertheless, if appeal of

the claim is flied, that is, the claim s accelerated to courts of higher level, the

costs involved would increase substantially.

is
The major reasons for adjournment are: absence of one party but the evidence and
statement produced by the party present cannot suffice making ajudgement, the need to
bring i.n further witnesses or evdnce and so on.

75
Formally

Both mechanisms aim at providing quick. informal and nexpensive

means to resolve labour disputes. Generally speaking, conciliation procedures

are flexible and the concliaton officer can hold the meeting in any way as he

thinks appropriate upon contingencies of the ercumstances. For MECAB and

LT, the informality of proceedings is made possible by the absence of legal

representation, non-application of the rule of evidence and the fact that the

hearing s usually conducted in Cantonese. The intention of the legislature is

that the proceedings in the LT should be as informal as possible so that all the

parties should feel at ease.16

The time and. expenses involved in conciliation and adjudication in

settling the disputes are the primary costs that the disputants would take into

account. Other costs such as opportunity cost and transaction cost involved,

though relatively difficult to measure, would also be considered. The possible

outcomes of conciliation and adjudication, be it costs or benefits, would shape

16
Simm, Clement (1990), The Labour Tribunal n Hong Kong. Hong Kong Baptist
College, Hong Kong, p. lO.

76
the strategies adopted by the parties as well.

Conclusion

In this ehpter, the features of the two major conflict resolution

mechanisms are discussed and analyzed. As we have seen, their respective

features constitute the major institutional rules of these two mechanisms whch

would affect the disputants' decisions on their strategies and shape the possible

outcomes of the labour disputes. In the next chapter, we would examine how

the different institutions in these two mechanisms function and resolve the labour

disputes by addressing the dimensions ofthe problem as diagnosed in Chapter 2.

77
Chapter 4
Tackling Labour Disputes through Conciliation and Adjudication -
Matching Solutions to Problems

Introduction

In Chapter 2, the nature and characteristics of labour disputes, that is,

the dimensions of the problem, were discussed. In Chapter 3, the features of

conciliation and adjudication and their resulting institutional arrangements,

which provde the possible solutions, were analyzed. In order to effectively

tackle the problems, that Is, the labour disputes, different conflIct resolution

mechanisms generated should be able to match the dIstinctive features of

different labour disputes. In this Chapter, attempts would be made to analyze

how conciliation and adjudication resolve labour disputes by addressing the

dimensons as highlghted in Chapter 2. Only by realizng how these two

mechanisms function can we make better matching of suitable solutions to

problems.

Generally speaking, as labour disputes are sparked off as a result of

human interactions, in order to resolve the disputes effectively, the conflict

resolution mechanisms so designed thould be able to address the key issues In

human interactions such as incentive, opportunism, power relationship,

78
nformation asyimnetiy and contract enforcement. These variables are

themselves all interrelated.

Tackling Asymmetrical Interests - Realigning Actors' Incentives

Most social outcomes are the product of conflict among actors with

competing interests.1 Individuals act in pursuit of various goals and interests

and choose their actions in order to satisfy those interests most efficiently.2

Since parties are brought into a labour dispute because they have competing

interests, what drive them to take a certain course of action in the course of

dispute resolution rests on how the institutions structure their incentives through

influencing their payoff.

For all kinds of interests relating to labour disputes, what the actors

concern are of course the payoff gained and lost after the disputes. To handle

asymmetry of interest effectively. the conflict resoluton mechanisms should be

able to address the issue of payoff effectively. Since different labour disputes

I
Knight, Jack (1992), Institutions and Social Conflicts
New York, Cambridge
University Press, p.14.

2
Jack, op.cit., p.16.

'79
have different types of interests as the crux of the problem, the conflict resolution

mechanisms embrace different institutions which affect the ways in which the

disputes are to be handled.

Mon elary or Material Interist

In Chapter 2, we have come up with a scheme of monetary or material

interest into 3 categories. The three categories could be conceptualized in a

continuum by the extent of level of extern1 enforcement to be imposed upon

them.

Level of external enforcement required

Category (a) Category (b) Category

(c)
Ignorance uncertainty uncertainty
+ opportunism

Figure 3 : Continuum for External Enforcement required in Handling the 3

Categories of Monetary/Material Interest in a Labour Dispute

Assume that human beings are free from opportunism and have good

faith in their interactions with one another, self-enforcing contract could be

ensured. Therefore. in handling category (a) disputes, the conflict resolution

mechanisms would be most effective in resolving the dispute ifit could inform or

go
educate the ignorant party efficiently and effectively. No forceful external

enforcement is necessary.

However, if bounded rationality in the form of uncertainty exists as in

category (b) disputes, the mechanism required should be not only capable of

educating the parties efficiently but also realigning the incentive of the parties

through modifying the payoff in pursuing the dispute. The mechanism would

work best if it makes both parties aware that the chance to win is not certain and

therefore they would prefer a proposal that results in less loss and some gain.

If not only uncertainty exists but opportunism also prevails to such an

extent that the parties make use of the institutions to gain benefits at the expense

of the other as in category (c) disputes, the institutions should be siructured in

such a way that punishment could be imposed on the opportunistic party

substantially and effectively.

To address the above problems, the issues that can be manipulated by

the mechanisms are (i) the money to be spent and could be gained; (ii) risks of

suffering from possible losses and (iiI) the time required in resolving the disputes

81
by the mechanisms.

Category (a) disputes

In handling category (a) disputes, what the ignorant party needs is an

educator to educate him on the statutory requirements. Eoth the concliator and

the adjudicator could assume the role of educator. The Labour Department s

the organization responsible for adniinistering ordinances relating to employment

matters and thus conciliators from the Department are legitimate in educating the

disputants on such statutory matters. The legitimacy of adjudicators in labour

courts need not be questioned as well since they are supposed to be the final

interpreters of the law. Yet, the costs involved in bringing these two types of

educators to the scene differ.

As we have seen in the previous Chapter, the role of conciliator is not

only a neutral intermediary but also an educator who educates both sides on each

other's position and on the reality ofthe world in which it operates.3 During the

course of conciliation., the conciliator could freely change his role from a

j
Heron, Robert and Vandenabeele, Caroline (1997), Effective Concthatzon: A Practica!

Guide, Bangkok. International Labour Office, p.26.

82
mediator to an educator to educate the ignorant party of the statutory

requirements and induce him to comply wth the requirements so as to round up

the dispute. If the ignorant party Is aware that even though the case is to be

accelerated to the adjudcation level, he would still have to make the

compensation or withdraw the claim, the earlier the educator educates thu. the

less the unnecessary costs spent and additional risks of losses suffered. The

adjudicator could also be the educator in a labour court during bis adjudication.

However as parties have to go through conciliation before adjudication, and if

the conciliator could assume the role of educator effectively, there is no point in

wasting the court proceedings to educate the party concerned.

The procedures leadIng to conciliation could also ensure that the

ignorant party be educated quickly. After the aggrieved party has filed claim at

the LRS, the office would invite the other party to attend the conciliation meeting.

Since the procedures in conciliation are relatively informal and flexible, such as

the absence of parties is allowed because of the voluntary nature, telephone

conciliation is possible. In such case, the parties could resolve their disputes

onee the ignorant party s educated about the statutory requirements which might

be only a few days after the claim is ified.. But in adjudication, only the

83
presiding officer or adjudication officer could play the role of educating the

parties on the statutory requirements. Yet, to be given the chance to be educated

by the adjudicator, one has to go through a series of procedures, including filing

claims, call-over hearings and so on. The time required s more than enough to

merely inform the ignorant party ofthe statutory requirements.

Category (b) disputes

To handle category (b) disputes effectively, the conflict resolution

mechanisms must be able to educate the parties of the statutory requirements but

also the possible costs and risks involved. Only by making the parties aware of

the possible additional costs arid risks resulted in proceeding the dispute further

could they consider that early settlement is to be preferred.

Conciliation is welcomed as an effective conflict resolution mechanism

in resolving category (b) disputes since it is capable of making the parties more

certain of the possible gains and losses in pursuing a labour dispute and

preventing further unforeseeable risks and losses during the pursuit. The

conciliator can be a fcilitator to assist the disputants to come up with certain

proposals for resolving the disputes. For instance, in Scenario i of Chapter 2,

84
both Mr A and Mr B were not sure whether summary dismissal is justified.

They might, facilitated by the conciliator, come up with a proposal which might

be a sum of compensation fewer than the amount as stipulated statutorily. The

parties agree to make a compromise n their settlement because the result of the

dispute is more certain than if it is further pursued in the courts where the

defendant might pay much more than the settlement or the claimant might

receive much fewer or even nothing, let alone the time involved and csts

imposed by the court ruling. In evaluating one's payoff, no wonder one would

agree to have ' discount' in the settlement agreement than to further pursue the

case in court to expose oneself to a risky outcome if they believe that the

discounted settlement is better off than the net benefits obtained after

adjudication.

Moreover, the memorandum ofsettlement could only be signed by both

parties when there is mutual consent rather than an external imposition. Even

though it is a discount payment, the parties could be assured ofthe outcome. As

mentioned above, an agreement can be seIf-enforcng since both parties bave

good faith in maintaining it. If the claim is to be pursued in adjudication, the

uncertainty offirthering the claim in the LT or MECAB might be increased since

85
the ruling is imposed externally rather than agreed mutually. If one of the

parties s aggrieved with the ruling, he could apply for review, or even appeal

whch involves tremendous litigation costs for bringing legal representation.

The advantage of saving costs in labour courts because of no legal representation

would be in vain. The risks of suffering from possble losses would be thus

increased in adjudication.

Categoiy (e) dLsputes

In category (c) disputes, one of the parties makes use of the time

involved in handling the dispute to advance his benefits. For instance, an

employer has dismissed an employee under the pretext of Iris committing serious

mistakes. He might well be aware that the mistakes did not justify summaiy

dismissal, but he just refused to make any termination compensation to the

employee concerned under the assumption that (i) the employee might not bother

to spend time in going through the processes to pursue his claim because he

might be discouraged by the time and cost involved; (ii) even if the employee

pursues the claim, he would have to go through the conflict resolution

mechanisms which would surely cost him time and expenses. Even if the

compesaon is made to the employee nally, it is not in proportion to the time

g6
and cost spent, and the employee would just 'win a battle but lose the war'

because an employee has to find alternative employment and pursung his claim

would pose him difficulties whereas the employer would have more financal

resources to be engaged in the long battle. Since the opportunistic party adopts

such course of action under the assumption that he has nothing to lose but with a

chance of having much to gain, a conflict resolution mechanism could effectively

deter the prolongation of a dispute if it could realign the incentive of the

opportunistic party by imposing heavy punishment on him.

The effectiveness of conciliation then comes hito question. One must

be reminded of the role of the conciliator is to mediate but not to adjudicate.

Even though he has every reason to believe that one party is opportunistic in a

labour dispute, just like the employer in the previous example, he could not order

the employer to pay compensation for he does not have the legal foundation to do

so. The conciliator could only advise on the party about the possible

punishment. but not impose on him the punishment. If the opportunistic party

intends to cheat, such advice does not have any influence upon his decision.

Two possible alternatives of modifying the payoff rules could then be

87
considered by LRS as a means to realign the incentive of the opportunistic party

through altering the payoff. One is to make use of the department's weapon of

prosecution authority to prosecute unscrupulous employer who makes use of

conciliation as a delaying tactic (employer could be absent from the conciliation

meeting or request to postpone the meetings again and again so as to waste the

time of the employee) . Since contravention of the HO is a criminal offence and

themaxmumpenalty couldbe afine of$lOO,000 and 1 year's imprisonment4, an

effective prosecution strategy could complement conciliation as an effective

means of resolving labour disputes by punishing fraudulent employers with

heavier costs inflicted upon them. Yet, prosecution could not serve as a

deterrent to opportunistic employee because prosecution relating to EO could

only be taken against employer but not employees. Only if the employee was

discovered to give false statement would he be subject to prosecution.5

Another alternative s to shorten the path for conflict resolution when

4
see S.63 to S.65 ofthe Employment Ordinance.

5
For instance, a construction worker was convicted of making false statement in the
Labour Tribunal on 23.2.2000. He claimed 2 months' wages from the employer at the

Tribunal, but was later discovered that lie had been away from Hong Kong one day

1uring the two months' period. See "Worker Lied to Claim Wages Facing
Impri'(At) inXin Bao (24.2.2000).

88
there are sgns of manipulatng conciliation, that is, passing the dispute

straightaway to adjudication where payoff could be manipulated by incurring

costs on the opportunistic party. As the conciliator is not an adjudicator with

the authority to impose costs on the opportunistic party, why not f&i1itate the

resolution of dispute by transferring it to the adjudicator with such authority?

By virtue of the Ordinances6, the adjudicator could incur heavy costs on the

opportunistic party, which would bopeftilly deter him from adopting delaying

tactics.

Conciliation, given its voluntary nature, is an effective and economic

means for resolving categories (a) and (b) disputes if the parties concerned are

willing to cooperate voluntarily. Yet, it is just because of such voluntary feature

that conciliation cannot force the parties to cooperate if one of the parties is

intentionally uncooperative as in category (c) disputes. As such, sanctions from

6
There are clauses under the Labour Tribunal Ordinance and Minor Employment
Claims Adjudication Board Ordinance on award of costs. The courts may award to a
party costs and expenses in attending the hearings, which may include any reasonable
expenses necessarily incurred and any loss of salary or wages suffered by that party.
The conits may also dismiss claims which are considered to be frivolous or vexations on

such terms as to payment of costs as the courts may think fit. See S28, S29 of Labow
lHbunal Ordinance and S27 and S28 ofMinor Employment Claims Adjudication Board

89
adjudication seem to be a more viable option.

Status or Authority Interest

Comparing with the disputes involving monetary interest, the incentive

of the parties in labour disputes concerning status or authority interest is forward

looking and of a longer term. Although during the course of disputes, monetary

benefit is one of the issues to be negotiated, instead of thsputing over the rights

under statutory requirements, the emphasis is on the structuring of the institutions

governing their relations to make them favourable to their own. The parties are

not on one shot interaction but repeated rounds of interaction. The parties might

be willing to sacrifice the present monetary or material interests in order to get

further gains in future interactions.

Take Scenario 4 in chapter 2 as an example. What the frade union

concerned most is not the 10% increase in salary, but the recognition of Irade

union's role as the consulted body over the terms and agreements in ftiture

bargaining. While pursuing a larger increase in the salary, they are advocating

changes in the institutional arrangements in order to gain favourable outcomes

'which could not be obtained at present As we can see that such kind of labour

IJ
disputes is of relational contracts rather than spot on contracts, the conflict

resolution mechanisms, in order to resolve the disputes effectively and prevent

frequent outbreak of disputes in future, must be able to facilitate credible

commitment from both parties in maintaining their ongoing cooperative

relationship.

The parties involved in a labour dispute of status or authority intelest

would usually be engaged in a bilateral deal without external forces initially as

they are struggling against each other in order to modify the mies to their favour.

However, when one ofthe parties discover that the circumstances are not in their

favour, they might look outside for assistance.

Conciliation by the LRS is usually the preferred option. This might

be owing to the following reasons. Although conciliation emphasizes voluntaiy

participation it does not preclude the freedom of intervention whenever needs

arise. Provided that both parties agreed to the intervention, the conciliator could

step in the labour dispute immediately. 1f the party brings the dispute to

ajudication, as the labour courts in Hong Kong do not have jurisdiction over the

bargaining of terms of contract which implies the institutions governing mutual

91
relationship, the party has to bring it to the District Court or High Court, the

proeedures are far more eomplcated and time consumng. The party would be

exhausted before any material gains could be achieved from the dispute.

Secondly, conciliation is more flexible in its adoption. lt can take place

anywhere. The conciliator could be free to intervene into a strike and start

conciliation on the spot. Courts could never enjoy such flexibility and could not

intervene even if strike breaks out which causes substantial inconvenience to the

community. Thirdly. the settlement to be reached in such disputes concerns

more about institutions governing future relationship than immediate gains in a

legally bound docmnent. Since conciliation could facilitate future favourable

relationships among one another the settlement in conciliation is much more

valuable than an award in the court.

As credible commitment could be expected if both parties tend to have

further interactions, external forceful enforcement might not be necessary or

desirable in handling this kind of disputes.

Manipulating and Balancing the Power Relationship

Power can be defined in such a way that A has power over B to the
extent that he can get B to do something that B would not otherwise do.7 To

exercise power over someone or some group is to affect by some means the

alternatives available to that person or group, that is, power relates to the ability

to affect one' s feasible set.5 Labour disputes are the results generated from the

unstable balance of power between employer and employee. Traditionally, the

employers are regarded as more powerful in terms of financial resources when

compared wth the employees who are assumed to be in an inferior position.

Yet, the infroduction of the state can alter the relative bargaining power among

different groups in a society.9 As thscussed in Chapter 2 there are three major

strategies that could be adopted by the third party, namely strengthening the weak

to combat the strong, strengthening the strong to defeat the weak or remaining

aloof to let the dispute dIe down of exhaustion. To be an effective conflIct

resolution mechanism as far as the manipulation of balance of power s

concerned, the mechanism should be (a) free to choose whether to adopt a certain

strategy; (b) able to empower the party in terms of actor participation, resources,

knowledge ofthe rules and public pressure.

7
Dahl, Robert A, "The concept of power" in Behavioral Scence, San Diego, Calif.,Vol

2, 1957, p.202-203.
g
Knight, Jack, op.cit., p.41.

Q
Knight, Jack, op.cit., p.192.

93
Autonomy in Adopting a Certain Stralegy

Concillation, in adopting strategy to manipulate the balance of power,

possesses much autonomy which labour courts do not enjoy. The

Commissioner for Labour could authorize a conciliation officer to intervene into

a labour dispute and conduct conciliation whenever necessary. Such

intervention could be made intentionally out of the consideration of justice,

efficency and public interest. Usually, the conciliator's intervention under the

consideration of public interest implies the strategy of empowering the weak

(usually the employees), for strengthening the strong (employer) is not preferred

because it is not socially acceptable. Even though the intervention is subject to

the consent of both parties in view of the voluntary nature of conciliation, and it

is common that the stronger party might not welcome third party intervention at

the very beginning, as the dispute drags on for a longer tizne and becomes

stalemate, the stronger party could not but accept government intervention by

means of conciliation which is a less forceful and imposing form of intervention.

However, in adjudication, no intentional intervention of empowering one party is

possible, since adjudication could only be triggered off when one party takes the

initiative to file claim and start litigation. Moreover, it is sometimes subject to

94
be utilized by the stranger party in advancing their gains at the expense of the

weak power in terms of the time and resources required.

Capacity in Empowering the Weak Party

Assuming that in labour relations, employers are in a stronger position

whereas employees are the weaker group. State intervention can improve the

relative bargaining postion of those disfavoured by the status quo, by serving as

a coalition partner in a bargaining game vis-i-vis those favoured by the rules.'

Therefore, when third party intervention is introduced, it is capable of

empowering the weak party. Conciliation is the arena where the institutional

arrangements can facilitate the conciliator to be comparatively more capable of

empowering the weak party -the employees than adjudication in ternis of actors

participation, resources, knowledge of the rules and publie pressure. Its

assistance helps increasing the power of the weaker party to force compromise

from the stronger party.

Actor Participation

The boundaiy mies in conciliation are looser than those in adjudication.

lo
Knght Jack, op.cit., p.192.

95
Conciliation allows the participation of any one, no matter whether the person is

directly involved in the dispute. Even when a labour dispute involves only one

employee, other employees who sense that stronger solidarity is necessary in

combating against the employer, could be allowed to play a role in the resolution

of dispute through conciliation. They could rally support to the employee

concerned by means of industrial acton to exert pressure on the employer for

compromise. They would be, however, denied access to take part in

adjudcation. The role played by trade union representative in strengthening

employers' power shouki not be neglected as well. Although the majority of

employees in Hong Kong are not trade union members and formalized trade

unionIsm is uncommon in most of the companies, when the employees encounter

disputes with their employer, they would resort to other trade unions, like the

Hong Kong Federation of Trade Unions, the Hong Kong Confederation of Trade

Unions, for assstance. With their participation, the employees could have

backup support in their pursuit of interest in the labour disputes. Such trade

union representatives, subject to both parties' consent, are allowed to take part in

conciliatIon. The trade unions assist the employees in terms of their organizing

power, financial resources and knowledge of the Ordinances. The employei

though do not welcome the participation of trade unions, would agree to their

96
participation for fear that anti-trade union discrmination would be instituted

against them.1' It is also common that with the trade unions' assistance, the

labour disputes could come to an amicable settlement. However, in labour

courts, their ixiiluence is greatly diminished as what they could do is only to

represent the employees to give statement by virtue of their right to audience.'2

Therefore, the arena of adjudication restricts the trade unions opportunity in the

manipulation ofthe bargaining.

Resources

In view ofthe relative weak position ofemployees in. labour disputes as

far as fmancial resources are concemed their disadvantages could be minimized

if the conflict resolution mechanism riles out the possibility of prolonged

bargaining or unnecessary time consuming procedures.

The procedures iii conciliation are relatively flexible and simple and

the time required for settling a dispute can be possible so soon as aier the dispute

i
I
See Part iVA 'Protection against Anti-Union Discrimination and Part VIA
'Employment Protection' ofthe Employment Ordiiwince.

12
See Labour Tribunal Ordinance and Minor Employment Claims Adjudication Board

97
breaks out. Even though sometimes the employer might use delaying tactics to

weaken the bargaining power of the employees, the conciliator could, once

notices such tendency, adopt other strategies to exert iiifluence or even pressure

on the employer to deter him from extending the bargaining unjustifiably. Even

if the conciliator sees that conciliatIon could not help resolve the dispute, he

could have way out by advising the party to file claim at the labour courts to

avoid unnecessary delay in settling the dispute. However, in the labour courts,

the procedures themselves are relatively time consuming because of the necessity

of going through certain legal procedures. Besides, it opens the way for further

delay in the settlement if the party files an appeal to the High Court against the

order. There is no easy way out for shortening the time required in handling the

dispute, and thus the resources ofthe weaker party are bound to be exhausted.

Knowledge ofrhe Rules

While the employer could rely on personnel or legal experts in the

company for understanding the rules in the EO and possibility of manipulating

the rules by the employer exists, the employees could only turn to other party for

help. As we have seen, trade unions are in a better position to play a role in

conciliation. Since trade unions are more acquainted with the rules, they could

98
manipulate them in the employees' favour. One obvous example s the

organization of strikes. With the assistance of trade unions, the strikes could be

organized in such a way that the industrial action would not contravene statutory

provisions but could meanwhle strengthen the employees in their bargaining

against the management.

Public Pressure

Conciliation is the arena where public opinion is easily manipulated to

exert pressure on the employer to make necessary compromise. This is

commonly noticed in the government's handling of labour dsputes involving

public utilities. For instance, ifworkers ofpublic utilities go on a strike because

the management refuses to negotiate with them and the strike poses

inconvenience to the public, public pressure would drive the conciliator to exert

pressure on the management in order to bring them to the negotiation table or

else public interest would be affected and the company's reputation be damaged.

However, in labour courts, public pressure has no role to play since adj udicators

are expected to make judgment independently without being subject to external

influence of any sort.

99
 As we can see from the above, conciliation is the scene where greater

flexibility is possible in strengthening one party. Yet, in adjudication, as judicial

independence and equality is valued by the society and the adjudicator is

expected to make judgment impartially based on the law without being subject to

any external influence. Although the principle of fairness in process s upheld.,

the weak party in a labour dispute would unfortunately be subject to further

weakening.

Minimizing Information Asymmetry

Jnformation given by the parties on the surface might not be entirely

the true information. Surface information is given sometimes with the intention

of hiding the underlying information that is cmcial in the parties' strategies of

action. To effectively tackle the problem of information asymmetiy, the

information rules of the mechanism should be able to facilitate the flow of

underlying nformation.

During bargaining in a labour dispute, the parties, in order to protect

their self interests, would not disclose information about their strengths,

wealdnesses and bottom lines to each other. Therefore, during bargaining, they

I 00
would base on the presumed actions of the other party and act. Yet, such

presumptions are not always reliable. Conciliation helps facilitate the parties to

reveal the true information to the conciliator by virtue of the principle of

confidentiality Based on the neutral status as government officer and with the

trust from both parties, the partes could reveal their information to the

conciliator to obtain his assistance but without disclosing it to the rival party.

Provided that the principle of confidentiality is strictly adhered to and trust on the

concliator s forthcoming from the parties, the concilator becomes 'omniscient'

in the interaction and gains the a4vantage of having much information in his

handling of the dispute. He could then advise on both parties properly on what

action they should take and facilitate the communication between both parties

that they would not communicate otherwise.

For the labour courts, openness rather than secrecy is the norm of

bearing. Even though during adjudication the aijudicator, before fonnal

hearing, would ask ifthe parties would agree to have concessons by asking them

the terms of settlement they would agree to, such question is made in the

presence of both parties. The parties would normally demand more than what

they in reality are willing to accept as their bottom line proposals. Such open

101
envIronment therefore might not be so effective in assisting the parties to reveal

the true information, which reduces the effectiveness of adjudication in resolving

the disputes because it takes longer time for both parties to explore and

understand the information possessed by the other party

Minimizing Opportunity Cost and Transaction Cost for Settlement and

Incurring ifigher Costs for further Pursuing the Dispute

Opportunity cost and Iransadion cost are interrelated in handling

labour disputes. The parties would make strategic calculation on the possible

payoff on the basis of whether the opportunity cost and transaction cost could be

minimized in settlement and the costs would be increased if they pursue further

the dispute.

When one needs to take a particular action, what he has to choose from

among a number of options the most preferred one which in his mind brings him

the greatest utility. When one has decided to adopt a particular option, be bas to

bear the opportunity cost in sacrificing the other options. In labour disputes, it

is quite usual that when some sort of compromise proposal is drawn up during

condiiation. the parties would have a greater tendency to accept it rather than

exposing oneself to the risky result of pursuing the case further to adjudication.

102
This is because when one gives up the compromise which brings him a portion of

the utilities he originally demands, he has to bear the risk that he might receive

fewer or even no utilities at all. Therefore, the disputants would normally

choose an option with less opportunity cost, that is, compromising themselves

through negotiation and conciliation. Unless no compromise could be reached

during conciliation, for instance, the defendant declines to make any

compensation, or the claimant refuses to cut down his claim, then the parties

couki not but pursue further in adjudication in order to have an opportunity to

'get something' then to 'give up and receive nothing'.

In economics, the Coase Theorem proposes that allocation is most

efficient to all parties through private coniract if transaction cost is zero.

However, if transaction cost involved in negotiating the contract is so hIgh that it

offsets or even exceeds the benefits gained in the transaction, the contract is not

preferred and transaction is unlikely to take place.'3 In analyzing labour

disputes, the essence of the theorem could also apply in the sense that if the

transaction costs in pursuing the dispute further are so high that the final benefits

13
For arguments constituting the Coase Theorem, see Cease , Ronald H (1988), The
Frm, the Market and the Law, Chicago, University of Chicago Press.

103
obtained are balanced off, the parties would not further the claim and accept the

compromise. Conciliation can be more readily in confrol of the transaction

costs involved in achieving settlement of the disputes.

Conciliation makes the parties aware of the transaction costs involved

in pursung a dispute. Conciliation is usually the preferred option for settling

disputes because the costs involved are always predictable, such as the time

required for attending conciliation meeting as well as the amount in dispute. No

punishment need to be considered in the payoff. What the employee needs to

consider is how many days he needs to take leave from his new employer for

attending the conciliation meeting, and what the employer needs to calculate is

the time needed for a representative assigned to attend the meeting and the

amount of compensation claimed against him. Therefore, rather than exposed

to higher uncertainty of high transaction costs in pursuing the disputes through

adjudication means, the parties would be more ready to consder the settlement

proposal, which might be a discounted amount of what the parties originally

expect. Since transaction cost is inevitable in all human interactions, the

quicker the transaction is achieved, the less the uncertainty and the transaction

cost involved. Therefore, the success of conciliation in minimizing transaction

104
cost lies on the fact that the adjudication mechanism as the alternative to

conciliation tends to incur higher transaction cost to the parties invo'ved.

Ensuring Enforcement of the Settlement - An Incomplete Contract

The settlement reached to resolve a labour dispute is similar to a form

of contract. Contract has two main types, that is, one off spot on contract and

continuous contract. To ensure that the settlement could be enforced. the

mechanisms should be capable ofensuring credible commitment from the parties.

Such credible commitment is even more crucial in enforcing continuous type

settlement. Commitment could be established by ongoing relationships or

ensured by subjecting the parties to court action.'4 Different aggregation rules

and authority rules in conciliation and adjudication have different implications on

their effectiveness in enforcing the contract.

In monitoring and enforcing one off settlement, both conciliation and

adjudication could do it effectively provided that the settlement agreement s

quickly reached and the enforcement is made within a short period of time.

14
Hardin, Russell (1982), Collective Action, Baltimore: Resources for the Future by the
Johns Hopkins University Press, p.207.

i 05
Adjudication can have the extra advantage of its legal binding nature in which if

one party fails to honour the agreement, immediate remedial action,, which might

be punishment in payoff, could be tiiggered off almost instantly. Therefore,

although both conciliation and adjudication could enforce such one off contract,

conciliation can be effective if mutual commitment is not a problem, and

adjudication is much preferred if opportunism of either party is likely to occur.

However, for settlement requiring longei time in its monitoring and

enforcement, the issue is more complicated. The effectiveness of enforcement

would be determined by the specificity of the contract -- the settlement

agreement.

Conciliation could be an effective means in ensuring credible

commitment of the parties if mutual trust is obtained throughout the course of

reaching the agreement since it cultivates such kind of commilment. However,

mutual trust is assumed rather than guaranteed in reaching the agreement. If the

enforcement of an agreement is dependant on mutual agreement, once

commitment vanishes, for instanee, the cooperative harmonious relationship

breaks down. one of the party might renege because of the low cost of reneging.

106
As the settlement so reached is not legally binding, reneging the settlement might

cause no harm to the reneging party. if no punishment is incuffed for reneging,

the settlement is subject to repudiation. Only if the parties have the necessity to

maintain further cooperative relatonship would they be ready to contribute

credible commitment to the settlement agreement. Self enforcement poses no

problem only when it is in the interests of the parties to live up to the

agre'5

Adjudication can also be effective in forcing credible commitment of

the pailles if heavy punishment s to be imposed on the reneging party provided

that the contract is specific enough. Contract execution problems would be

minimized if ex ante planning of punishment for defection could be specified as

court adjuilication is assumed to be efficacious.'6 Although third party

enforcement could never be ideal and perfect, a coercve third party is essentaJ as

we could not endure anarchy.'7 For instance, a settlement which specifies the

'5
North, Douglass C (1990). Institutions, InstiMional Change and Economic

Performance, New York, Cambridge University Press, p. 33.

16
Williamson, Oliver E (1985), The Economic institutions of Capitalism, New York,

Free Press, p.31.

17
North, Douglass C (1990), op.ct, p.35.

107
date for payment by installment would be more enforceable than ii' it is a

'gentleman agreement' reached during conciliation because once the party

defaults one of the installments, lmmediate acton (such as incurring interests,

applying for bailiff) could be made to safeguard the interests ofthe other party.

Maintaining Harmonious Relationship for Future Cooperation

Closely related to the enforcement of the incomplete contract of

settlement is the need to maintain harmonious relationship for fture cooperation.

Normally, if both parties need not maintain future cooperative relations, that is,

the transaction is once and for all, the parties would tend to favour a win-lose

strategy in that they would tiy to extract as much advantage from the other as

possible. In such case, the parties might not be so easily satisfied with the

discounted settlement proposal as drawn up during conciliation. Therefore,

provided that the parties have undergone costs-benefits analysis on their payoff

and have reason to believe that they would gain more by insisting on their cause,

they would not hesitate to proceed the case to adjudication.

But if the parties foresee that future cooperaion is inevitable, though

not necessarily desirable, they would contemplate strategies that bring about win-

log
win situation in which each party could have at least part of their interests

satisfied so that ill feelings could be eased and future negotIations are possible.

Adjudication is the place where the end result does not naturaliy pave the way for

future interactions between the parties. The award made is designed as a one-

time end product and no further interaction is expected. The adjudicator would

make judgment based on the merits of every individunl case. Conciliation, on

the other hand, aims at promoting future harmonious relationship between the

parties. From the preventive perspective, the maintenance of harmonious

relationship between the parties could prevent future disputes to a certain extent.

Even if it is perceived that future disputes are possible, though not inevItable, the

parties would build up their consensus on the basis of the institutions worked out

in previous rounds of disputes. Since there would be repeated interactions

between the parties, the approach of conciliation which emphasizes on settlement

by mutual consent could have a better chance of maintaining haimonious

relationship between the parties in future interactions.

Applying Conflict Resolution Mechanisms to Labour Disputes - Matching

Solutions to Problems

As we have seen in the above discussion, conciliation and adjudication

can be adopted to handle labour disputes in l-long Kong, but the slrengths and

109
weaknesses of these two mechanisms are different n terms of their effectiveness

in tackling asymmetrical interests, manipulatng and balancing power

relationshp, minimizing information asymmetty, manipulating opportunity cost

and transaction cost as well as ensuring enforcement of settlement and

maintaining harmonious mutual relationshp. Different features in these

dimensions call for different conflIct handling mechanisms.

Jn tackling asymmetry of monetaay interest, the crucial issue is whether

the conflict resolution mechanisms can realign the incentive of the parties

concerned and minimize their opportunistic behavour through the manipulation

of payoff rules. Conciliation is effective in handling disputes when there are

ignorance and uncertainties, provided that the parties are willing to cooperate.

Yet adjudication would be required if opportunism is prevalent to the extent that

the opportunistic party takes advantages at the expense of the other since heavier

punishment is necessary in altering the payoff of those who are more

opportunistic. When conflict of interest arises in the authority and status

between the panics, conciliation is usually the preferred option since it is

comparatively flexible and emphasizes the cultivation of institutions for

governing future relationship. which is relatively difficult to find in external

I 10
forceful ntervention of adjudication.

Flexibility in conciliation also offers the conciliator greater autonomy

in manipulating the power relationship in the process of conulct resolution. The

loose boundaiy rules enable parties other tlmn the stakeholders to take part in the

labour disputes, which have implications in the empowering of the weaker party

in terms of fmancial resources, knowledge of the rules and public sympathy.

Adjudication, on the other hand, emphasizes more on guaranteeirg established

formal rules and procedures.

The flow of information, especially the hidden information, is greatly

faciltated in conciliation than in adjudication since the information rules of

confidentiality are valued in conciliation which, provided that trust from the

parties could be ensured, enable the conciliator to have conirol over the flow of

information between the parties. Such principle of confidentiality could not be

applied to in adjudication as extensively as in concliation, otherwise the

impartiality ofthe adjudicator might be compromised.

Conciliation would be considered effective in bringing about settlement

111
of labour disputes as it could structure the payoff rules and manpulate the

opportunity cost and transaction cost in settlement or furtheT pursuit of the

dispute because t s less costly than adjudication in terms of time and expenses.

It is sometimes just the expensiveness' of pursuing the dispute to adjudication

which contributes to the parties willingness to have compromise in settlement

drawn up during concliation.

The different aggregation mies, mutual consent in conciliation and

external imposition in adjudication, function differently in contract enforcement

For long terni contract agreement in conciliation would be self-enforceable if it

is to the parties interest to adhere to the agreement. But if opportunism could

bring benefits to one party, award made in adjudication, which could be specific

in penalty clauses for reneging by virtue of the coercive power entrusted by the

authority rules , is much preferred.

In order to have a clearer picture of the relative effectiveness of these

two mechathsms, Table i of Chapter 2 is revised below to summarize the

respective sategies or features of solutions offered by conciliation and

adjudication:

112
 Table 2: A Summary on the Characteristics of Labour Disputes and the Strategies and Features of Conciliation and Adjudicatioii

Dimensions Variables Characteristics Solutions offered by Third Party StratcgieIFeatures of Strategies/Features of

Intervention Conciliation Adjudication
nEeresI Monetary misunderstanding of Explanation of the statutory Efficient and economic educator Education is costlywith the
rsymmetry Category (a) statutoiy requirements requirements by an authoritative involvement of court
third party proceedings
Vonetary Different Enabling the parties to realize and Fostering more certain result to Result of adjudication is less
Catego,y (b) interpretations of compare the opportunity cost and the disputants with better payoff certain and out ofthe parties'
statutory requirements transaction cost involved in than risky pursuance ofdispute control
settlement and further pursuit so
that the parties would make a
decision offering them the best
payoff
Monefaiy Opportunistic Restructuring the payoffby Incapable ofpunishing External enforcement and
Category (c) behaviour to gain reinforcing the punishment for opportunistic behaviour imposition ofptmishment is
advantages by opportunistic behaviour possible to deter opportunistic
Drolonging the dispute behaviour
Status Both parties would Fostering favourable environment Capable of cultivating future Concerned more with one-off
struggle not only for for the party fighting for status to relationship udgement
imniediate interest but take part m the dispute so that the
also institutional institutional changes would enable
changes that foster their both parties to deal with fttture
future gains disutes on their own
Dimensions Variables Characteristics Solutions offered by Third Party Strategies/Features of Strategies/Features of
--------- Intervention Conciliation Adjudication
rower 4ctor The inclusion or Re'axing the boundary rules to Influential parties, such as trade Only stakeholders are given a
e!a1ionsh4i ,articipation exclusion of certain enable participation of legitimate tmions, mass media, public are legitimate role to play
(empowering actors would strengthen actors offered an influential role to
me of (he or weaken the power of play
,arty) one party
Financial More financial Providing means to end up the More efficient in rounding up Court procedures and possible
resource. resources permit longer dispute as soon as possible so as to the dispute owing to informal appeals and reviews drain out
endurance in a dispute prevent the weak party from being and flexible procedures resources more quickly
and strengthen exhausted of resources
bargaining power
Knowledge o Better knowledge of xp1aining or enabling the Enabling trade union Trade union influence is
the rules rules enables the party explanation of rules to the parties participation which helps relatively restricted
to manipulate them to which allow them to make better manipulating the rules for the
advocate his interest calculation of their payoff employees
Public Public opinion Enabling the publicizing oftbe Public opinion can exert Adjudicator is assumed to be
opinion sympathetic to one facts in a dispute through means pressure on the disputants impartial and free from external
party would exert such as mass media to the public pressure
pressure on the other
party for compromise
Dimensions Variables Characteristics Solutions offered by Third Party Strategies/Features of Strategies/Features of
Intervention Conciliation Adjudication
rnformaon Obstruction in Both parties are not Realizing the bottom lines of both Confidentiality helps facilitating Publieness is far more important
zcymmetry the flow j aware of the bottom parties and facilitating settlement the flow of bidden information than confidentiality to guarantee
information lines of each other by enabling them to realize their impartiality
during negotiation . respective strengths and
weaknesses and the possible
options that bring mutual interests
to them
j;j;;unij Opportunity Thehighest valued Producing settlement options that Compromise proposal saves the Opportunity cost would be
rost and cost option foregone when would minimize the opportunity parties opportunity cost higher than compromise if the
transaction making a certain cost ruling is not in one's favour
rost decision Enabling the parties realize and
compare the opportunity cost and
make decision offering them the
bestpayoff
Transaction Cost required for Producing settlement options that Transaction cost involved 3 Higher uncertainty of high
cost negotiating and would minimize the transaction more predictable transaction cost
bargaining an cost
agreement and cost Enabling the parties realize and
involved in enforcing compare the transaction cost and
the agreement make decision offering them the
bestpayoff
 Dimensions Variables Characteristics So1utons offered by Third Party Strategies/Features of StrategiesI1eatures of
- Intervention Concifiation Adjudication
'vionitoring One off Enforcement is Enabling that the agreement is Preferred when credible Preferred when immediate
tnd agreement immediate and no reached by mutual consent to commitment is expected punishment is possible in case
nforcing an further commitment is enhance the chance for both of reneging
igreement required parties' honouring it
Enabling that inimediate sanction
-___________ ___________________ could be imposed upon reneging
Long term Enforcement depends Ensuring that the agreement is Fostering long term hannonious Nb means to govern long term
non-specfc on credible made by mutual consent and that relationship to self-enforcing the non-specific agreement
commitment from the cooperation would bring selfand agreement
parties in ongoing mutual interest to them
- relationship
Long terni Enforcement depends Ensuring that the agreement is Uncertainty in enforcing the Sanction, in the form of cost or
specj/c on credible enforceable and exercising agreement effectively winding-up petition, is possible
commitment from the sanction to impose punishment ori to punish reneging
parties with ex ante reneging
sanctionspecified
Wainlaining Nofurther Both parties would Encouraging the parties to May not satisfy the actor with More likely to result in
iarmonious cooperation struggle for as much consider how the settlement compromise proposal zero-sum gain for one party
re/aIionship benefit as possible even proposal would bring self interest
at the other's expenses to themselves respectively
Dimensions Variables Characteristics Solutions offered by Third Party Strategies/Features of Strategies/Features of
- Needfurther
-
Both parties would
- Intervention
Fostering mutual trust between
Conciliation
Mutual trust can be cultivated
Adjudication
Dispute is resolved by external
cooperation have long term both parfies and eliminate the for future cooperation as the imposition ofruling rather than
interests to consider, bitter feelings during negotiation dispute is resolved by mutual mutual consent, with no means
such that they would consent to foster future cooperation
make compromise in
the negotiation so as to
maintain cooperative
relationship in future

signifies the preferred mechanism

 In general, the essence of conciliation is that while imposing a certain

degree of third party intervention on the disputants, it plays a facilitatory role in

assisting the bilateral interaction between the partes to lead them back to

cooperation. . Concliation is relatively effective n the majority of labour

disputes because it is more flexible and informal in the sense that it is free from

cumbersome court procedures, and it emphasizes mutual consent and fiztu.re

harmonious relationship. Yet. it s its lack of legal binding effect and the

emphasis on voluntarism and mutual consent that it fails to tackle well thse

dsputes in which external forceful enforcement is called for. When the

imposition of external forces is necessary adjudication does play a sgnficant

role in handling labour disputes with its legal binding effect and ability to make

costly punishment for those who fail to comply with the statutory requirements or

settlement agreement.

Conclusion

Labour dsputes, like all other human interactions, are

multi-dimensonal. Subj ect to different variables, different conflict resolution

mechanisms have different degrees of effectiveness and produce different

outcomes of the disputes. In this chapter, we have analyzed how concliation

and adjudication tackle the issues of incentive, opportunism, power relationship,

information asymmetry and contract enforcement. In order to substantiate the

analysis, empirical evidence would be put forward in the next chapter with case

studies on how conciliation and adjudication handle labour disputes in Hong

Kong.

118
Chapter 5
Case Studies on the Resolution of Labour Disputes through Conciliation and
Adjudication in Hong Kong

Introduction

After studying the problems of labour disputes and the possible

soluoiis generated from the conflict resolution mechanisms in previous chapters,

we have come up with an analysis of the effectiveness of concilation and

adjudication in their handling of labour disputes. Conciliation is generally

regarded as a more effective conflict resolution mechanism in handling the

majority of cases given that its institutional arrangements are better construed to

tackle the issues of incentive problem, power relationship, information

asymmetty, opportunity COSt and transaction cost as well as the maintenance of

future cooperative relationship. Nevertheless, its effectiveness is greatly

diminished in some occasions when people are highly opportunistic and the

dispute requires coercive power to enforce the settlement. In order to

demonstrate how effective these two mechanisms in handling different types of

labour disputes, four real life labour disputes are chosen for illustration in this

Chapter.

Measuring the Effectiveness of Coiiflict Resolution Mechanisms

As the objective of the study is to examine the effectiveness of the

respective conlict resolution mechanisms, it is essential to deine what we meant

by effectiveness and how effectiveness is to be measured. However, the

definition of effectiveness would make no sense if we lack an understanding of

the sequence in the application of these two mechanisms.

I 19
 As we have seen in Chapter 3, adjudication would be, under normal

situations, triggered off afier conciliation have been undergone and was

unsuccessful in resolving the dispute. In other words, if the dispute could be

ended by conciliation without it proceeding to adjudication, conciliation could be

regarded as successful. Ifnot, when it is necessaiy to proceed to adjudications it

could be regarded as unsuccessful. Such arrangement implies that in

adjudication, the dispute must end up there. As such, to compare the success

and effectiveness ofboth mechanisms, we should not arbitrarily conclude that the

mechanism is successful only by looking at whether the labour dispute ends up

there, especially for cases end up in adjudication, we should also consider the

differences between the two mechanisms in terms of the time and cost involved

in resolving the disputes. Therefore, to comment whether a mechanism is

successful or effective, we should decide whether the results attained by the

conflict resolution mechanisms could satisfy the following criteria:

(a) Tme and cost involved in resolving the dispute -If a dispute can be

resolved by both conciliation and adjudication, the mechanism is

considered more successful and effective if less time and cost is

involved in resolving the dispute;

(b) Enforcemenl ofthe settlement agreement -A contract is meaningless

unless t is enforceable. The mechanism is considered successful and

effective if the settlement agreement so reached is enforceable, or more

precisely, could be enforced less costly;

(c) Satisfaction ofparties ' interests - This last criteria is most complicate&.
As we understand that employers and employees may bave competing

120
 interests, it is difficult to reach a solution that cater for the maximum of

their respective self-interests. Therefore, a mechanism can be

regarded as successul if it is capable of satIsfying all or part of the

parties' interests to a larger extent than other mechanisms.

To be considered as successful or effective, the mechanism matched to the labour

dispute should be able to salisfy all of the above criteria.

Case Studies of Labour Disputes

In order to study the effectiveness of conciliation and adjudication, four

real life labour disputes are chosen for illustration. Owing to limited resources,

the study is not to conduct a large scale quantitative research to examine the

effectiveness with a large sample of labour dIsputes took place in Hong Kong

within a specified period. Rather, four representative cases are selected in order

to validate my observations and arguments as discussed in the preceding chapters.

The success and failure of conciliation and adjudication depends very much on

the nature of the disputes, for instance, whether opportunism is a crucial

determinant factor ofthe dispute, or whether external coercive power is necessaiy

in contract enforcement. The first two cases demonstrate how conciliation can

be effective or ineffective in resolving disputes with different characteristics.

The last two cases, on the other hand, each by coniparng how the same dispute

or similar disputes is/are resolved through conciliation and adjudication

respectively, illustrate that adjudication, subject to different characteristics of the

disputes, could be better or worse than conciliation in conflict resolution.

121
 The details of these cases are gathered from a wide range of sources

including newspaper cuttings, court judgements and interviews of the parties

concerned. In order to protect the prvacy of the parties concerned,, their

identities would not be disclosed and the names would remain anonymous.

Case One: Proper Match of Conciliation to Problems

Background

On the i 5th of October, Company X, a telecommunication company.

announced its plan to cut down 40% of the basic wages of employees in the

paging section in order to cut the operational cost. The affected employees were

required to reply whether they accepted the reduction which would be effective in

November. For those who opposed to the reduction would be dismissed by the

company with termination compensation according to the Employment

Ordinance.

Being frustrated, some ofthe employees turned to a Trade Union in the

industry for assistance.1 Representatives from the Trade Union approached the

management of the company in order to convey the employees' discontent to

them and propose to bave dialogue and negotiation between the two parties.

Nevertheless, the company did not make any response to their request. As a

result, the Trade Union organized a press conference on the 24th of October in

order to make use of mass media to exert pressure on the management so as to

i
There is no recognized fraIe union in the concerned company. As such, the
employees sought help from an outside trade union which is specialized in handling
disputes in the industry.

122
start off the negotiation.

On the 26th of October, 41 employees who disagreed to the reduction

were dismissed, 30 of whom have participated in the press conference on the 24th,

were dismissed with immediate effect. Outraged, the employees, led by Trade

Union representatives and some Legeo members, demonstrated and petitioned to

the Labour Department on the 27th of October and requested the Department's

intervention into the dspute. The Trade Union criticized the company for its

anti-union discrimination on the ground that the dismissal took place on the 26th

of October, 2 days after the press conference instead of the original schedule of

the I of November. Nevertheless, the management refuted the allegation and

said that they did not know which employees were trade union members and the

employees were dismssed not because of their participation in trade union

activities but because of their refusal to wage reduction. Both parties reached

an impasse.

Right at this moment, the Labour Department intervened by calling for

both parties to take part in the conciliation meeting which was held on the 28th of

October. In the first meeting, tension between both parties was apparent and

they stood firm on their demand. The employees put forward two proposals -

either they were reinstated with the same terms and benefits (that is, the decison
5th
on wage reduction on the i of October was voided), or they were first

terminated with statutory compensation together with some ex gratia payment

and then re-engaged with a wage reduction of no more than 10%. The

maragement ruled out the first proposal but promised to consider the second one.

123
Although no agreement could be reached in the first concliation meeting, both

parties did make their stand clear to each other which paved the way for further

negotiation.

4th
On the of October the second conciliation meeting was held. The

management rejected the second proposal of reinstatement as well, but they put

forward new proposals, such as arranging retrainng courses to help employees

find newjobs. At this stage, facilitated by the conciliator, both parties explored

different proposals acceptable to both parties. Eventually, afier several rounds

of conciliation meetings, both parties came to a final settlement by mid-

November in which the termination of the employees was upheld, but with a full

statutory compensation as well as an ex gratia payment of $g,000 to $9,000,

which is a substitute for the pro rata end of year payment which the employees

demanded.

Discussions

The above labour dispute could be successfully resolved through

conciliation because the prerequisite conditions for effective conciliation were

present. Let us explore these conditions accordingly.

Asymmetry of interest

The asymmetty of interest in the dispute was two-fold: both monetary

and status interest could be found. For the dismissed employees, they were

fighting for monetary interest as a result of the management' s decision on wage

reduction. According to the Employment Ordinance, the employer could not

124
unilaterally vary the employment terms without the employees' consent, and if

the employees disagreed to the variation, the employer's action may constitute an

act of termination and is liable to pay all statutory termination compensation to

the employees. In other words, the employees do not have a great chance to win

if the employer did everything according to the law. Yet, the management in

this case might also find themselves in trouble after they initiated the dismissal

on the 26th of October. Although it is controversial whether the management

26th
chose to dismiss them on the a retaliation for the trade union's press

conference, in view of the closeness of the cintes of the press conference and the

dismissal, piime facie ease for anti-union discrimination could be established

which might be ruled as an unreasonable and unlawful dismissal. Since there

were great doubts on both parties' success in winning the case, the labour dispute

belongs to type (b) monetary interest - both parties were not entirely confident in

winning the case and therefore, it paved the way for some sort of comproniise

agreement instead of a bet on the court case when both parties took into

consideration the possible risks in proceeding the case to adjudication.

There s another implicit asymmetry of interest in terms of the

relatonshp between the Trade Union and the management. Since the Trade

Union was specialized in the telecommunication industiy but was not a

recognized company-based trade union, it was eager to establish communicative

channel with the management of the company and perform a consultative role in

any major decisions made by the company affecting the employees. The

purpose of establishing such communicative channel is to fight for a larger say in

protecting or enhancing the employees' benefits as well as to enhance its

125
influence or build up its reputation in the industry so that they would have greater

bargaining power in their further negotiation with the company or even other

companes in the industry. Therefore, the Trade Union took the initiative in the

labour dispute upon receiving employees' complaint and approach the

management for negotiation. When the management refused to acknowledge

the role and partcpation of the Traie Union by its refusa! to negotiate and

dismissal of employees immediately after the press conference, the Trade Union

took more radical strategies, such as demonstration and petition, in order to 'act

out' their presence and influence. As the Trade Union wanted to stage in

possible labour disputes of the company in future, they would be more ready to

build up a dialogue channel then only win a single case but lose future

participation opportunities because of the unwelcoming attitude of the

management. Therefore, conciliation is the suitable arena for the Trade Union

to exert its influence and status in the labour dispute.

Power Manipulation

No doubt one would find that the management of the company was at

the upper hand at the veiy beginning when they announced the wage reduction.

Although the substantial wage reduction was difficult to accept from the

employees' point of view, the proposal by the company was made in accordance

with the law and did not contravene the Employment Ordinance. As the

employees were frustrated and aware of their weaknesses, they turned to the

Tr&le Union for assistance in order to strength themselves in their sfruggie

against the company. The Trade Union's role in the dispute was (a) to approach

the management for negotiation (though the request for dialogue was turned

126
dowi) on behalf of the employees with the Union's comparatively stronger

organizing ability; (b) to convene a press conference in order to exert pressure on

the management with the help of mass media and public opinon; (c) to organize

demonstration after the compan.ys dismissal of employees so as to further catch

the attention of the public to the incident; (d) to exert pressure on the Labour

Department with the request for prosecuting the company for anti-union

discrimination in the hope of the Department's imposing pressure on the

management for negotiatIon and compromse in turn; and (e) to assist the

employees in planning their strategy during the negotiation with the management.

Consequently, the power relationship between the management and the

employees was more or less balanced which made the management more ready to

consider compromise proposal with the employees in order to avoid further

pursuit ofthe dispute.

Informaton Asymme#y

Information asymmetry played a significant role in this labour dispute

and the conciliator's facilitation ofthe flow ofinformation was the key to success.

Both parties took a hard line in presenting their stand and request in order to

make the other side believe that substantial compromise would not be

forthcoming. Since both parties could not get correct information from one

another openly because ofmutual hostility, it seems that no compromise could be

easily made at the outset. Conciliation contrbuted to the resolution of the

dispute through (a) making both parties aware oftheir respective sets of preferred

options; (b) encouraging the parties to focus on interests instead ofpositions; and

(e) facilitating both parties to realize the congruence oftheir mutual interests.

127
 The conciliator portrayed to the parties, during separate sessions of the

conciliation meeting, the picture of a set of preferred options from their stands

respectvely:

Employer Employees

Most Least
All employees accept the wage Dismissal with no additional
preferred reduction compensation after strenuous preferred
effort
4.4
'1'
Dismissing employees refusing
the reduction with statutoiy Dismissal with statntory
compensation and replacing compensation and some
them with new employees at addtions.l compensation
lower wages level
4, 't'
Reinstatement with no wage Re-engagement with statutory
reduction compensation and minor wage
reduction
4, 't'
Least Reinstatement with no wage
Reinstatement with no wage Most
preferred reduction, together with
reduction preferred
penalty on unlawful dismissal

To the employer, the most preferred option was that all employees

accepted the wage reduction while reinstatement with no wage reduction was the

worst situation as the company's policy ended up with a total failure and might

be subject to further penalty for unlawful and unreasonable dismissal. For the

employees, on the contrary, reinstatement with no reduction was the most

preferred option and dismissal with no additional compensation was the worst

even though they have spent so much time and efforts. When both parties

voiced out their most preferred options, compromise seemed to be impossible.

By making both parties aware of their respective sets of preferred options, the

conciliator could learn from the respective parties what their 'best alternative to a

12$
negotiated agreement', or 'BATNA2 were. For the employer, the dismissal

must be upheld and other matters could be negotiable. For the employees, after

knowing that the demand for reinstatement or re-engagement was unlikely. they

would modify their sirategies to gain better compensation when dismissal was

inevitable. It was this piece of important information obtained by the

conciliator by virtue ofthe confidentiality principle that drove the parues to focus

on the most plausible direction in their negotiation.

Havng been aware of the preferred sets of options, the parties were

encouraged to focus on their respective interests instead of positions. Instead of

arguing who was right and who was wrong, the parties were encouraged to focus

on what options could be adopted in order to achieve their primary interest, that

is, employer employing staff with the reduced wages whereas employees gettng

some protection or compensation after losing their job. Therefore, both parties

then put up suggestions for resolving the disputes by making offers to each other

without sacrificing their most concerned interest. As a result, the parties could

come up with proposals such as refraining programmes for the dismissed

employees or the offer of ex gratia payment to employees in addition to the

statutory compensation. Through conciliation, the conciliator could enhance the

flow of information between the parties which in turn facilitated both parties to

realize the congmence of their mutual interests that contributed to the final

settlement of the dispute.

2
Fisher, Roger and Ury, William (1991), Getting to Yes: Negotiating Agreenient
without Giving rn, New York, Penguin.

129
Opportunity Cost and Transaction Cost

When we consider the opportunity cost and transaction cost involved in

this dispute, we would fmd that conciliation was undoubtedly the prefened

option for resolving the dispute by minimizing these costs of both parties. The

management preferred to have compromise proposal because if no agreement

could be made during conciliation, the case would be pursued to the Labour

Tribunal and there was a risk of having the worst situation to them, that is,

reinstatement with penalty for unlawful and unreasonable dismissal. The

employees also preferred to have settlement reached through conciliation because

if unlawful and unreasonable dismissal could not be established, they could only

get the statutory compensation as firstly promised by the management at the

beginning even after sirenuous effort. They have no statutory ground for getting

any additional compensation. Therefore, although the settlement finally reached

was not the best opton of either party, when taking into consideration the

opportunity cost in further pursuit, it is no wonder that the parties were bound to

consider the compronse proposal.

Besides opportunity cost, the parties, after considering the transaction

cost involved, would also prefer early settlement of the dispute during the

conciliation stage. As we have seen, the conciliator faclitated the parties in the

information flow between themselves which reduees the information cost

involved in resolving the dispute. The final settlement, which was acceptable to

both parties, was brought about with mutual understanding and the satisfaction of

both parties' interest, and could be considered as the optimal option. for both

130
parties. If the case was to be pursued further, even though there might be a

possibilty that sinilar terms of agreement could be reached at the last minute

before the ruling was made, it would only be considered as a Nash equilibrium in

view ofthe additional time and cost involved n bringing about the same terms of

final settlement.

Enforcement ofthe Agyeenent

Since during the course of negotiation,, both parties learnt that the

dismissal was irreversible, the agreement to be reached would be a one-off

agreement. Although agreement in conciliation is liable to reneging by either

party because of its low costs it is apparent that the possbility of reneging by

ether party of this dispute was slim because there was no foreseeable gain in

reneging. Since the primary concern of both parties was to end the dispute as

early as possible, if one of them reneged, more time and cost would be involved

in settling the dispute which would not be in either party's advantage. Secondly,

as the agreement was reached by mutual consent and not imposed by the

conciliator, there was no need to have external enforcement. Since self-

enforcement was less costly than external enforcement, the parties saw no reason

for bringing it to be enforced by any external force.

Maintainng Harmonous Relationshipfor Future Cooperattn

It might appear that there was no need to maintain harmonious

relationship between the management and the dismissed employees. But we

should not gnore that the ways in which the dispute was resolved would have

implications on the future relalionship between the maxagement and the

131
remaining employees as well as between the management and the Trade Union.

One of the reasons that brought about the aggravation of the dispute was the lack

of communication mechanism between the management and the employees or

their representatives, the Trade Union. Based on the experience of this dispute,

the institutional arrangements were modified with the comniunicative channel

between the management and the Trade Union was established. Such channel

helped maintain and fathlitate the harmonious relationship between the

management and the Trade Union in the managemenf s future decision affecting

empIoyees benefits. Two years after the dispute, the management has another

retrenchment exercise as a result of the transfer of the local paging servIce to the

mainland. This time, the management infonned the Trade Union of their

decision in advance and adopted a more liberal approach for negotiating the

termination compensation of the retrenched employees. As a result, the

retTenehifient exercise was completed smoothly without resorting to any third

party intervention.

We can see that as opportunism did not play an important role in this

dispute in view ofthe high opportunity cost incurred for pursuing the case further,

there was no need to resort to coercive power to enforce the settlement.

Therefore, conciliation was applied with its advantages developed to the full.

Case Two: Mismatch of Conciliation to Problems

Background

Two truck drivers, having been owned several months' wages by the

employer, filed claim at the LBS of the Labour Department in late July 1 996 for

132
constructive dismissal by the company.3 They claimed wages in arrears, wages

in lieu of notice (WILON), annual leave pay, double pay and severance paynient

from the employer.

A conciliation meeting was arranged on 23.8.1996. There was no

dispute over the amount of wages owed nor the employer-employee relationship

between the claimants (Cs) and the defendant (D). D explained that the delay in

payment was due to financial difficulties which Cs were Mly aware of. During

the conciliation meeting, both parties expressed their willingness to continue

their cooperative relationship which they thought would be beneficial to each

other. Alter a lengthy negotiation, both parties came up with a proposal that 1)

would terminate the employment contract and pay by 24 monthly nstalments to

Cs wages in arrears, pro rata annual leave pay and double pay, as well as

severance payment, which amounted to around $227,000 and 196,000

respectively. Cs would also forfeit their claim for WILON as a gesture of

goodwill to the employer. Both parties would then start another type of

cooperative relationship - contracting relationship in which Cs worked for D as

profit sharing contractors. D iried hard to explore possible settlement terms and

were unwilling to proceed the ease to court. He explained to the conciliator in

private that he feared the court would force him to make early payment to Cs

which would aggravate bis financial difficulties. Before the parties confirmed

3
According to SIOA of the Employment Ordinance (revIsed 27.6. 1 997), a coniract is
deemed constructively terminated by the employer if wages were not paid even when
they became due for more than one month. The employer was liable to pay
termination compensation to the employee as if he has dismissed the employee. When
this labour dispute took place, this amendment has yet come into effect. Nevertheless,
the claimants could still file such claim as the action of the employer could be deemed

I 33
any agreement, the conciliator reminded Cs of the risks if D delayed or defaulted

payment, which meant that they had to spend far more time in getting their

compensation paid. Yet, Cs were unwilling to pursue the claim to the Labour

Tribunal at this stage because of their more than 20 years' cooperation with D

and they also believed that as they would continue to work for D, they could be

more assured that payment would be made in due course. As a result, Cs and I)

entered into the agreement voluntarily and both parties assumed that the labour

dispute was ended there.

Unfortunately, when this incomplete contract was being enforced,

problems arose. D was able to clear the first few instalments to Cs, though with
7th
some delay every time. In the instalment in April 1997, Cs were dissatisfied

with the delay and discussed with D on the matter. Both parties then. ended up

in a quarrel and the dispute broke out again.

Another conciliation meeting was arranged again, but this time filled

up with more bitter feelings and distrust. Cs adjusted their demand by

requesting earlier clearance of payment, or they agreed to accept 70% of the

outstanding amount in one instaiment within 2 weeks' time. D counter-

proposed that they could only make an immediate discount payment of $50,000

and $30,000 to Cs respectively, which Cs defintely objected. Moreover, D

could not commit the schedule as agreed in the settlement. In despair, Cs

decided to refer the ease to Labour Tribunal for adjudication.

constructive dismissal axcording to Common Law principle.

134
 In the hearing at the Labour Tribunal, I) repudiated the settlement as

agreed during concilation. On the one hand D alleged that it was Cs who

terminated the contract by refusing to work according to his instruction in July

1996. On the other hand, he alleged that he was misled into signing the

settlement during the conciliation meeting and be would counter-claim from Cs

the overpaid amount as per the agreement Tn view ofthe complicated nature of

the dispute, the Presiding Officer of the Labour Tribunal declined jurisdiction

and decided to transfer the case to the High Court.

The claim was filed at the High Court on the 15.12.1997. The case

was eventually heard in the High Court in mid December 1 998 and on the

15.12.1998, the Judge made the ruling in favour of Cs. On top ofthe amount as

stated in the settlement, D was required to pay interest to Cs as well. At first, D

still failed to honour the court ruling by making no effort to clear any of the

payment to Cs. It was only until Cs. represented by the Legal Aid Department,

filed a winding up petition to D that D began to make efforts to clear payment to

Cs.

Discussions

The advantages of conciliation were not applicable to this dispute.

While the necesswy conditions calling for conciliation, such as necessity to

mathpulate power relationship and niiniming information asymmetry, were not

dominant, the opportunity cost and transaction cost involved in the dispute.

especially the enforcement cost, were higher in conciliation than adjudication.

135
In fact, the settlement made in conciliation seemed to be the culprit for the

prolongation of the final settlement of the dispute.

Asymmety of Interest

The dispute involved the asymmetry of' monetary interest. There was

no dispute over the amount. What in issue was how the payment was to be

cleared. The Cs were in a passive role as the settlement ofthe dispute depended

on D's clearance of payment. D was prone to be opportunistic if' there was no

sanction for defection and it was only Cs to suffer if D defected. During

conciliation, D revealed that he had financial diffieultes. He did not deny his

liability and promised that he would follow the payment schedule. However,

how far he should be trusted was another question. As we have seen in Chapter

2, labour disputes are the result of the failure of cooperation, which could be the

actors unwillingness to cooperate. or his inabilty to cooperate. The

aggravation of the dispute after conciliation was thus attributed to lYs inability to

cooperate. Therefore, effective enforcement of any agreement reached was the

key to successful resolution of the dispute. This would be further elaborated in

the section of enforcement of settlement below.

Power Relationship

The need for conciliation was not so strong as far as the manipulation

of power relationship was concerned. As D was a small company with only a

few employees, the need for empowerment was insignificant. The power of Cs,

if strengthened, did not make any significant impact on D's ability to commit the

agreement.

136
lnformaron Asymmetry

Conciliation is recommended if there is obstruction in the flow of

infonnation during negotiation. Since both parties were well acquainted with

each other, the power was known to each other and the amount involved was not

disputed, information asymmetiy did not play an important role in the negotiation

between both parties during conciliation. The only piece of information which

Cs lacked was the credibility of D in honouring the agreement, which was a

matter of contract enforcement.

Opportunity Cost and Transaction Cost

Conciliation is generally more effective in minimizing opportunity cost

and transaction cost than adjudication in negotiating a contract, but if the dispute

involves enforcement of the contract, there might be a different picture. Since

there was no dispute over the amount, the transaction cost involved was not the

cost for negotiation but the cost for enforcement the settlement, especially when

there was reneging in one party.

Enforcement of Settlement

As discussed in previous chapters, when there is a need to enforce a

specfic long term contract, external enforcement with legal sanction is required.

As the memorandum of settlement was a gentlemens agreement and was not

legally binding, nothing except mere persuasion for honouring the agreement can

be done ifpayment was delayed or even defaulted.

137
 Assume that no agreement was reached during conciliation in LRS and

the case was proceeded to the Labour Tribunal for adjudication, much time could

be saved. First, since it was almost inevitable to resort to adjudication in view

ofthe nature ofihe dispute, the filing ofclaim at the Labour Tribunal could only

be initiated with several months delay after it was found that the agreement in

concilation was reneged. Second, the eson for transferring the case to the

High Court was the complicated nature of repudiation of the settlement contract.

If no such agreement was reached in conciliation and award was made in the

Labour Tribunal, although it also took some time for enforcement, the action to

be taken when payment was defaulted was different. In the Labour Tribunal, as

the award was imposed without necessarily concerning the wiflingness of the

parties, reneging by D would not affect the merits and integrity of the award and

Cs could take the legal step such as calling for bailiff, filing winding-up petition

immediately. There was low possibility for the case to be transferred to the

High Court in view of the non-disputable amount claimed. Therefore, should

there be no agreement reached in concliation, the enforcement would be even

more effective.

Harmonious Relationship

Concilation was at first impressing in this dispute because both parties

did not want to proceed to adjudication and they decided to continue their

cooperation in other form. However, such harmonious relationship was fragile

because the relationship depends not only on the willingness of both parties to

maintain but also on their ability to maintain. en D's financial difficulties

138
did not improve and Cs were suspicious of his sincerity, quarrel over the payment

date made the harmonious relationship break down. Even though a conciliation

agreement aims at facilitating harmonious relationship between the parties,

whether it is successful is also affected by the abiLity ofcoopeiation by the parties

concerned.

Therefore, although conciliation is usually considered as the preferred

conflict resolution mechanism in resolving labour disputes, we must be also

aware that when favourable conditions for applying the advantages of

conciliation are absent, the use of conclation would not only fail but even make

the matter worse.

Case Three: Proper Match ofAdjudication to Problems

Background

i 2 contracted workers in a construction company were owned wages

for a period of 4-6 months. They endured the situation since they did not want

to terminate the relationship with the employer for fear that they would lose their

jobs. Subsequently, as they were in great financial difficulties, they filed claim

at the LRS respectively for ass&tance in late September and early October.

A number of conciliation meetings were arranged for each individual

case since the claimants filed claim separately at different time. During the

meetings, D revealed that he was in financial difficulties because the principal

contractor failed to effect payment to him owing to some disputes between them

over the contract. However, D bas tried to squeeze money from his own pocket

139
from the profits gained in other construction projects to clear partial paymetit to

Cs. He also said that he had explained the situation to Cs and he did not

disputed the amount of wages owed. Cs raised no dispute over D's allegation,

and they believed that D had tried his best to clear the wages and the fact that

they filed claim at the LR.S because they hoped that some sort of guarantee in

payment coi.d be made. Therefore, agreements were made in which D agreed

to clear the wages to Cs by half-monthly instalments, the total number and

amount of which vared according to the amount owed to each C, and the

outstanding payment would be cleared by December.

However, despite the agreement, D failed to clear the first instalment to

all ofthe Cs. At this moment, different Cs took different actions. While some

of them still had faith in D's sincerity and chose to wait because they did not

want to terminate the contract with D, three of them decided to proceed to the

Labour Tribunal in order to safeguard their rights, even though they realized that

their action would result in the tennination of the employment contract.

As a result, those who filed claim at the Labour Tribimal found that

they had made a correct decision. During the hearing which was scheduled in

late November, as D had no disputes over the items claimed, the Presiding

Officer ordered hirn to clear the total amount claimed in two instalments by end

of December, as agreed in the settlement during conciliation, otherwise interests

would be incurred counling from the date when payment was due. As D was

aware that if he failed to honour the LT award, be would be subject to winding-

up petition filed by these 3 Cs, he cleared the amount to these 3 Cs according to

140
the LT award at the expense of other Cs who were more 'patient' by not

proceeding the case further. Thus. for those who adhered to the conciliation

agreement, they had to wait for the final clearance oftheir claim by end of March

next year. just because D could oily have enough money to pay those at LT and

no additional money was available to clear the payment to them.

Discussions

The different fates of Cs best demonstrated that adjudication could

bring about a more effective resolution of the labour dispute than conciliation

when there was opportunism in one of the parties which requested more coercive

enforcement ofthe contract or agreement reached during their negotiation.

Asymmetry of Interest

The dispute did not involve any asymmetry of interest in terms of status

or authority between the parties. It only involved a dispute over the monetary

interest in which the amount was not disputed and the mein issue to be tackled

was the payment date for clearing the outstanding amount. Iii this case, what

the Cs wanted to obtain through resorting third party intervention was some sort

of guarantee for enforcing the promise of payment made by D. However, as we

could see during the dispute, D had been fully aware of his own financial

difficulties and he could see that he was unable to entertain all sorts of debts due

to hm1 be it to the employees or to other business partners. He would just pay

those debts which were to be cleared most urgently, and it was no wonder that he

would use delaying tactics in those claims which were not so urgently pressed.

Therefore, in this dispute, the issue of enforcement should be the most important

141
element in determining which mechanism would be more effective.

Opportunity Cost and Transaction Cost

At first, it seemed that the opportunity cost was higher if Cs proceeded

the dispute to the Labour Tribunal because if such action was taken, the

relationship between Cs and D might end here and Cs had to calculate the

opportunity cost involved in finding another job. However, this might not be

the case because Cs might face another type of opportunity cost if they waited

and did not proceed to the court, that is, they might face the possibility that D

was unable to clear wages to them even though they continued to work for him,

which meant that Cs would end up working hard for D for several months

without getting any wages. Therefore, in evaluating the situation, it might be

wise to proceed to adjudication to avoid the worst situation to come.

As for transaction cost, it appeared that the cost involved was similar

for conciliation and adjudication in the aspect of negotiation of the agreement

since there was no dispute over the amount owed. When both opportunity Cost

and transaction cost involved in conciliation was no less than that in adjudication,

the critical point to consider the effectiveness of the mechanism was its enforcing

ability.

Enforcement of Seulement

When one of the parties was prone to be opportunistic, sanction power

from the third party in punishing reneging behaviour would be more effective in

enforcing the contract. From the dispute, we had come across two sets of

142
agreement, one in the form of settlement reached by mutual consent in

conciliation and one in the form of award made by the Presiding Officer during

adjudication at the Labour Tribunal. Both agreements specified that payment

should be cleared by the end of December, but only the LT award succeeded in

ensuring the payment on time. Therefore, in making a choice to pay, D would

calculate the possible negative payoff involved in not adhering to the agreement.

It was the award made in adjudication that could be more effective in ensuring

the parties to honour the agreement by virtue of its comparatively powerful

sanction than that of conciliation.

The fact that 3 of the Cs spent less time in getting back their

outstanding wages demonstrated that when one party was opportunistic, and legal

sanction was necessary to safeguard the rights of the honest party, adjudication,

in view of its legal binding power, would be a more effective enforcing agent for

a the settlement of a labour dispute.

Case Four: Mismatch of Adjudication to Problems

Background

Two salesmen Cl and CZ were summarily dismissed by a trading

company in early March. The reason for dismissal, as stated in the termination

letter, was that they were late for work persistently despite warnings from their

supervisors. They were dissatisfied with the termination and decided to file

claim at the LRS for termination compensation.

143
 10th
Prior to the conciliation meeting which was scheduled on the of

April, Cl phoned the conciliator and alleged that since he knew the company

would oily use delaying tactics in evading the staintory obligations, be did not

want to waste time in conciliation and requested to proceed his claim directly to

the Labour Tribunal. Therefore, only Cl and a representative from the company

attended the concliation meeting.

During the conciliation meeting, both parties put forward ther

arguments accordingly. Cl alleged that the lateness was acquiesced by the

supervisor as only verbal warnings were given and the supervisor had never told

him that further lateness for work would result in summaty dismissal. The

company representative said that the company had given many chances for him.

but no improvement was made. The conciliator explained the relevant

provisions concerning the dispute in issue, drew their attention to the fact that

both parties had some grounds for their stand and explored possible compromise

options for them. Since both parties were aware ofthe possible opportunity cost

and transaction cost involving in furthering the cases they came to a settlement

agreement in which the company paid an amount equal to one month's salary to

cl as an ex gratia payment. The payment was made immediately after the

conciliation meeting. The company representative also said that if C2 accepted

the one month's salary as the full and final settlement, the company agreed to do

As for C2, though he uMerstood that settlement had been reached

between Cl and the company, he still refused to accept such settlement since he

144
believed that the company paid the sum to Cl just because it wanted to evade

statutory responsibilities to pay full compensation to the employees. He then

filed claim at the Labour Tribunal and the first hearing was sche&iled in late

April. Since C2 Insisted on the full payment of his claim, the hearing was

adjourned for several times for both parties to bring in evidence to substantiate

their claim. It was only until in mid-December when C2 was weaiy of the

hearings that he aceptth the one month's salaiy as the final settlement

Discussions

The same result attained by both claimants, but with different length of

time required to achieve, demonstrated that the applcation of' adj udication would

not be a good choice if there was no need to use it to deter opportunistic

behaviour and to enforce a specific long term contract.

ymmet,y ofinterest

C2 resorted to adjudication because he was of the opinion that the

company was only making use of conciliation as means to minimize the amount

it was obliged to pay according to the law. He refused to utilize the opportunity

for conciliation to understand that both parties had some ground on their stand

and he believed that he was entirely correct in his assumptions. The fact that C2

misunderstood the dispute as to the type (e) monetary dispute for type (b)

monetary dispute ma& him resort to adjudication which resulted in more

expensive cost to him.

145
Opponunity Cost and Transaction Cost

As there was dispute over the eligibility for termination compensation

of both c1aimnts, conciliation provided an arena for inaldng a more accurate

calculation of the opportunity cost and transaction cost involved. The

coricilator was able to explain to both parties the pros and cons of pursuing the

case further and the company and Cl could therefore reach a compromise ou

their own. Although C2 could 6nally get the sanie amount as Cl as the final

settlement, he had to spend much more time to attain it. The higher transactiOn

cost involved for both C2 and the company illustrated that &ljudication was not a

wise option in this dispute.

Enforcement ofthe Settlement

We have mentioned that only if one of the parties has the tendency to

renege the agreement should we recommend adjudication as the effective

enforcer of a settlement agreement. In this case, as no one would benefit from

reneging the agreement (the payment was made right after the conciliation

meeting) and there was no need to monitor the performance of the settlement

agreement for a span of time, there was no justifiable reason for adopting

adjudication, a more costly enforcer in governing this on spot agreement.

As the prerequsites for applying adjudication for effective outcome,

such as the need to deter opportunistic behaviour with external coercive sanction

power, were absent, the use of adjudication as the conflict resolution mechanism

would only mean higher cost to not only the claimant but also the defendant

concerned.

146
Revelations on the Four Cases

In order to highlight how conciliation and adjudication are effective in

resolving labour disputes under different conditions, a summarized table of the

above four cases is constructed as follows:

147
Table 3 : A Suimnary on the Results ofthe Four Cases

Dimensions Variables Case I Case JI Case Ill Case IV

(a) (b) (a) (b)
CON CON ADJ CON AUJ CON
InteresE Mo,zetay
asymmehy Categpy (a)
Moneta,y + -:r- +
Category (b)
Monetaiy + + --

Categoiy (e)
Status +

Power Aetorparticipation +
relationship
( empowering one Financial resources +
ofihe party)
Knowledge ofthe rules +

Public opinion +

Information Obsiruction in the flow q, +

asymmetry information
Opportunity cost Opportunity cost + + +
and transaction
cost Transaction cost + + +

Monitoring and One offagreement (C: + + +

enforcing an R: reneging)
commitment1

agreement (C) (C)

Long term non-specflc +

Long term spec(/c + + +

Maintaining Nofurther cooperation

harnwnious_______________________
relationship Needfnrther cooperation +

Satisfaction of Criteria
Cost Minimized " X V' X X
4greement Enforceable ' v v '

Interests Servedfor Both Parties ' " X X y'

CON - Conciliation; ADJ - Adjudication

Favourable conditions for adopting the mechanism
+ Presence of coaditions in the dispute
+ Denoting that the proper mechanism is &!opted

148
 As we can see from the above four cases, conciliation would be more

successful and effective if opportunism is not the dominant condition and that

there is no need to enforce a long term specific settlement agreement, since time

and cost can be minimized with the flexibility and voluntarism of its approach of

conflict resolution. The emphasis of mutual consent and mutual benefit is

crucial in enforcing the agreement reached and satisfying the interests of both

parties. Case I and Case IV (b) demonstrates the strength of conciliation and

Case iV (a) even helps contrast the advantages of conciliation over adjudication

when favourable conditions for conciliation are present.

On the contrary, if opportunism is prevalent and external enforcement

of long term specific settlement agreement is called for, adjudication would be

far more effective than conciliation in resolving the dsputes as far as the criteria

of success are concerned. 1f the favourable conditions for adjudication are

present but conciliation is resorted to as in Case JI and Case ifi (b), much time

and cost is wasted and ended up with an unenforceable settlement agreement

which in turn deprives at least one of the partiese interest. The success of

employees in Case ifi (a) in recovering their monetary claims earlier than their

counterparts in Case III (b) best illustrates that conciliation is not always the

panacea and adjudication still has a significant role to play in certan

circumstances.

Conclusion

The analysis of the above four cases is an attempt to illustrate how

different matching of solutions to problems, that is. applying conciliation and

149
adjudication to labour disputes with different characteristics, could result in quite

different outcomes. Even when the disputes could be resolved in the end, the

time and cost involved, the effectiveness of the settlement enforcement and the

degree of satisfaction of both parties' interests are so different that in order to

resolve the dsputes effectively, we have to first understand the nature and

characteristics of the dispute at hand before we resort to which kind of

mechanisms available. In the next concluding chapter, we would make a final

evaluation on the effectiveness of the conflict resolution system in Hong Kong

and discuss some ofthe possible recommendations on its improvements.

ISO
Chapter 6
An Evaluation of the Conflict Resolution Mechanisms hi Hong Kong - the
Way Forward

Introduction

In this study. attempts have been made to understand the nature and

characteristics of labo'ir disputes and the effectiveness of conflict resolution

mechanisms from a Rational Choice Approach of Institutional Analysis.

Labour disputes are analyzed as collective problems from the social interactions

between employers and employees during the course of maximizing their utilities.

Like many other social Interactions, labour disputes are multi-dimensional.

Different dimensons would play difterent roles in shaping the resulting disputes,

calling for different solutions in order to achieve effective outcomes. In the

previous chapters, we bave seen how conciliation and adjudication resolve labour

disputes by tackling issues such as incentives, power relationship, information

asymme-y, transaction cost and enforcement of settlement. To round up the

evaluation in this concluding chapter, in addition to recapping the respective

sliengths of these two mechanisms in handling labour disputes, the respective

weaknesses of the mechanisms arid some possible suggestions to improve them

would also be discussed.

151
Strengths of Conciliation and Adjudication in the Conflict Resolution of
Labour Disputes in Hong Kong

Conciliation succeeds in resolving labour disputes with fewer time than

adjudication because t concerns about the disputants incentives of maximizing

their payoff through minimizing the opportunity cost and transaction cost for

settlement in relation to further pursuit. Just like the dispute in Case i in the

prevous chapter, even though there were great disagreements between the

management and the employees, the conciliator was able to utilize the interest-

maximizing incentives of the disputants by enabling them to realize the

opportunity cost and transaction cost involved in further aggravation of the

dIspute. No wonder that it took only about one montlfs time for an amicable

settlement of the dispute. Also in Case 4, the different outcomes of two

claimants in their pursuit of termnation compensation -- getting the same

amount of compensation in about one month' s time through conciliation and nine

and a half months' time through adjudication, also demonstrated that in view of

the comparatively higher opportunity cost and transaction cost involved in

adjudication, conciliation is the preferred mechanism.

Conciliation is more efficient in the settlement of disputes also because

it gives greater flexibility for power manipulation. With few restrictions in

i 52
actor participation, conciliation allowed empowerment of the employees through

a number of channels including trade union participation and public pressure as

iii Case i , forcing the management could not but consider resolving the dispute

through negotiation and communication. If no empowerment of the employees

was rnzde possible, it was doubtful whether the dispute could be swiftly settled

without unnecessary dragng on.

If there is necessity to maintain harmonious relationship for future

cooperation, conciliation is usually resorted to as it emphasizes that agreement

should be made by mutual consent rather than through external coercive

enforcement. In one-off conhract or agreement, the parties concerned might not

need to have further interaction with each other, and they would not concern very

much about future harmonious reiationship. But if both parties understand that

they would be engaged in future interactions, provided that adherence to the

settlement which is reached by mutual agreement would bring them self interests,

they would be willing to honour the settlement in order to safeguard future

interest. As ill feelings were wiped away and new institutions built up,

cooperative relationship was fostered between the management and the trade

union in Case I through the settlement ofthe dispute in conciliation.

153
 However, adjudication also bas its role to play in the resolution of

labour disputes. Normally, the opportunity cost and transaction cost are

relatively higher in adjudication because the time and cost for reaching final

settlement are much more than that in conciliation. But it is just because of the

higher cost involved in applying adjudication to tackle a dispute that it helps

deter further deterioration ofthe dispute and exert pressure on the parties in their

calculation ofcosts and benefits in adopting aparticular course ofaction, whether

to proceed or to compromise. Therefore, the success of conciliation in more

efficient resolution of labour disputes should also attributed to the deterrent effect

of adjudication.

Besides, conciliation is not a panacea to all types of disputes. When

opportunistic behaviour is lable to take place, just like the defendant in Case 2

who repudiated the settlement in order to evade responsibilities, adjudication

would be a more effective means to achieve final resolution of the dispute

because ofthe legal binding effect ofany agreement reached in adjudication.

Adjudication would also be a better option when the settlement of tb

I 54
dispute requires long term enforcement and when specific penalty clauses could

be made ex ante. As repudiation of award made in labour courts would result in

some sort of 'punishment, such as interest incurred for late payment, and

immedate enforcement like winding up petition, reneging is less likely to take

place in adjudication than in conciliation, just like the defendant in Case 3 who

honoured the award in the Labour Tribunal much more than the settlement

agreement reached during conclation.

As we can see, conciliation and adjudication have their respective

strengths in one type or another. They function complementaiy to each other in

handling labour disputes in Hong Kong.

Weaknesses and Criticisms of Conciliation and Adjudication in Hong Kong

It is said that public policy is the attempt to solve existing problems

and the study of public administration aims at exploring ways to mprove the

policies in order to solve the problems. As mentioned in Chapter 1 , the labour

relations in Hong Kong is generally regarded as harmonious with most of the

labour dIsputes are effectively resolved in one way or the other. However, no

single mechanism could be regarded as perfect in handling all kinds of labour

155
disputes. As we have seen in this study, both conciliation arid adjudication are

subject to certain weaknesses. Therefore, it is not surprising that there has been

voices iii society urging for improving the conflict resolution mechanisms for

labour disputes in Hong Kong.

Conciliation is successful in resolving labour disputes 'ithout further

acceleration of the conflict since it is the arena where the parties would reach

compromise. However, some frade unionists complained that such compromise

proposal in conciliation, which meant that employees would receive payment less

than the statutory requirements, were accepted by employees only because they

could not afford the time and cost in further pursuing the claim.' They

critcized that such compromise fails to protect the statutory rights of employees

when they are in disputes with their employers.

The fact that the conciliator has no adjudicating power and the

memorandum of settlement in conciliation is not legally binding weakens the

I
Mr Lee Kwok-keung. Chairman of the Hong Kong Trades Union Council, made his
argument in an article on Ming Fao on 31.1.2000 in respond to a reply made by Mr
Mathew Cheung, the then Commissioner for Labour, in the Senior Officials' Mailbox
Column (i t1 ) in the newspaper on 28.1.2000.

156
effectiveness of conciliation in handlng labour disputes where opportunistic

behaviour in at least one of the parties is prevalent. Sometimes, employers

would intentionally refuse to make statutory compensation to employees during

conciliation in order to prolong the time required for resolvng the dispute which

in turn weakens the bargaining power of the employees because of their

comparatively weaker power and their concern on opportunity cost and

transaction cost. The conciliator could not adjudicate and conclude that

payment must be made innnediately, since the employers could dispute

employees claim and the conciliator could not impose bis own judgment on the

parties. There might be occasions that since the memorandum of settlement is a

'gentlemens agreement', upon repudiation by one of the parties, immediate

sanction could not be triggered off in conciliation. What the aggrieved party

could do is to proceed the case to adjudication. This would just delay the final

settlement ofthe dispute.

Adjudication is also subject to certain criticisms. The objective of

establishing LT and MECAB as inferior courts is to provide quick, iMonnal and

inexpensive method of adjudicating certain types of dispute between employees

157
and employers, with a minimum of formality.2 However, whether the labour

courts could achieve this objectve is sometimes questioned. For instance, a

Review of the Labour Tribunal was conducted by the Judiciary in 1995 because,

as stated in the Report, 'after nearly 20 years ofoperation, it had become evident

that the Labour Tribunal lmd found it difficult to provide the simple and quick

justice that it was conceived to provide' The situation was that the Tribunal

had a 6 months' backlog of cases waiting between attempted conciliation in the

Labour Department arid appearance before a Presiding Officer.4 The Review

therefore made a number of recommendations to streamline the procedures and

operation of the Tribunal and some improvements had been made. Owing to

the economic downturn in Hong Kong, the Labour Tribunal experienced ari

upshot ofcases flIed from 9,476 in 1998 to 11,594 in 1999 (See Appendix 4).

As a result, night hearing was introduced n April 1999 to accelerate the

clearance of backlog. According to figures provided by the Judiciary, the

2
Shum. Clement (1990), The Labour Tribunal in Hong Kong, Hong Kong Baptist
College, Hong Kong, p.1 and Labour Department (2000), A Simple Guide to Minor
Employment Clams Adjudication Board, The Government Printer, Hong Kon& p.1.

The Judiciary Administrator's Office (1995), Paperfor the Legislative Council Prnel
on Administration ofJwtice and Legal Services Meeting on 4 May 1995: Findings and
Recommendations of The Judiciaiy c Review of the Labour Tribunal, Hong Kong, the
Judiciary Adminisirator's Office, p.2.

4
The Judiciary Administrator's Office (1995). op.cit., p.2.

158
average time taken from appointment to judgment is about 3 to 4 months. (Figure

4). Together with the time spent in conciliation (usually about I to 2 months

after the occurrence of the dispute), it takes about half year to reach the final

settlement. The time consuming procedures in LT would, according to trade

unionists, deter the employees from fighting for their legitimate rights and

benefits.

Year Trial Cases Time Taken from Appointment

to Delivery of Judgment
1998 4118 91 days
1999 4213 108 days
2000 2694 1 14 days

Figure 4: Time taken from Appointment to Delivery of Judgment in Labour

Tribunal from 1998 to 2000.
(Source: Examination of draft Estimates of Expenditure 2001-02, Controlling
Officer Reply To &itten/Supplementary Question, Bureau No. JAOO8, Question
No.0870.)

Another criticism on the Labour Tribunal is that, with the large number

of cases to be handled, in order to clear the backlog and shorten the time for ii-ial,

the Presiding Officers would actively 'persuade' both parties to compromise and

settle before the opening of the trial. The Presiding Officers would list out to

the employees the costs in furthering the thai, the possibility ofpaying cost when

losing the trial and so on. Under such pressure, the employees are in effect

i 59
 'forced' to reach compromise with the employer.5 According to figures

provided by the Judicazy, the percentages of cases proceeding to trial from 998

to 2000 are 43.5%, 36.3% and 28% respectively. Those cases that were

finalized without going out to trial were manly settled by both parties or

withdrawn by the claimant. For instance, in i 998, the total number of cases

filed is 9,476, 4,003 ofwhich were settled and 1,355 were withdrawn, accountng

for 56.5% of the total (Appendix 5). Critics commented that the Labour

Tribunal has in effect overlapped the conciliatory role of LRS of the Labour

Department.

Finally, the sequence in applying conciliation and adjudication is also

under attack. Since conciliation is not suitable for some types of cases, but

conciliation is still the necessary step before proceeding to adjudication under the

existing system for conflict resolution of labour disputes, it would just waste

much time and increase the transaction cost by the parties. As a result, there

have been suggestions that the whole system should be revamped such that there

is no need to waste time in conciliation when it is unlikely to resolve the dispute.

s
Mr Leung Fu-wali. Chairman of the Hong Kong Federation of Trade Unions Rights
and Benefits Committee, made this comment on 7.2.2000 to criticize the ineffectiveness
of resolution of labour thsputes in Hong Kong.

I 60
Recommendations on Enhancing the Conflict Resolution Mechanisms in
Hong Kong

In respond to the criticisms on the wealmesses on the existing system

of conlct resolution mechanisms in Hong Kong, several recommendations have

been put forward with a view to improving the stuation and enhancing the

effectiveness ofthe mechanisms in resolving labour disputes.

Strengthening Prosecution Power ofthe Labour Department

It is suggested that the Labour Department should take out prosecution

against unscrupulous employers more vigorously in order to deter them from

utilizing conciliation as delaying tactics for evading their statutoiy obligations.

With a higher chance ofmposing punishment on the employers for their delaying

behaviour, the employers would be less prone to evade their responsbilties by

making use of concliation.

It is true to say that since one of the reasons for the weakness of

conciliation is that it is less powerful in imposing punsbment on opportunistic

behaviour owing to its voluntary nature, and by strengthening its prosecution. the

payofi for unreasonably delaying settlement in conciliation would be restructured

161
to the employer's disadvantages

which poses a deterrent effect for opportunistic

behaviour. However, the use of prosecution in minimizing opportunism to

enhance the effectiveness of conciliation has its limitations. Firstly, as

mentioned in Chapter 4, prosecution taken by the Labour Department is mainly

against the employers for punishing their opportunistic behaviour in delaying

settlement, but not against the employees for their opportunistic behaviour in

making unreasonable claims. Secondly, there would be difficulties for the

conciliator in initiating prosecution vigorously because of the conflict in roles.

The conciliator's concern is to help both parties reach amicable settlement but the

prosecutor's aim is to initte punishment for violating the statutory provisions.

For serious breaches, it is in the public's interest to take out prosecution against

the employer even though settlement has been reached.6 But if employers in all

cases are subject to prosecution even though there might be real dIsputes over the

facts which make the employer withhold any payment for the time being, it

would result in a dysfunctional effect and weaken the conciiato?s capacity to do

6
According to the Secretary for EducatIon and Manpower's reply to L.egco Question
No6 asked by Hon. Leung Fu-wah in the Legco Meeting on 21.2.2001, In 1999 and

2000, the Labour Department had taken out prosecution against eniployers in 64 cases
that had gone through conciliation process, 11 of which had even been successfully

settled by conciliation. (Source: Website of the Educaton and Manpower Bureau, Hong

Kong Government, htp://wwwinfo;gov.hkJemb

162
 its job of conciliation. Therefore, while we are thinking of vigorous prosecution

to step up resolution of labour disputes, It is worth our while to tackle the issue of

possible conflict ofroles ofthe Labour Department as conciliator and prosecutor.

EstablishingArbifratiwi Mechanism in the Labour Department

To tackle the issue of the lack of adjudcating power of conciliation in

the Labour Department and the enormous time required in processing cases in the

Labour Tribunal, some suggested that the Labour Department could set up an

Arbitration Section to assume the role of arbitrator in disputes which are less

complicated in nature.

In fact, arbtration s not infrequently adopted in other countries as one

of the major mechanisms in resolving labour disputes7, and it is also stipulated in

the Labour Relations Ordiince, though it has not yet been applied so far. The

arbitrator could make legally binding award which complements the conciliatory

ftmction of the Labour Department and at the same times the number of cases

required to be handled by the Labour Tribunal could be reduced, thus minimizing

i International Labour Office (1

980), Conciliation andArbitral*rn procedures in Labo zu

Disputes: A Comparative Study, Geneva International Labour Office.

163
the waiting time required in adjudication. Arbiiration provides a means in

between these two mechanisms. It requires voluntary participation, but once

award is made it is legally binding and enforceable. For cases that point of law

is not a major concern, arbitration is a viable suggestion for resolving labour

disputes more effectively than conciliation and adjudication. in some occasions.

Although no single mechanism is good for all problems, the viability of

arbiliation is worth further exploration.

Minimizing Ehe Time and Cost in Adjudication

Like adjudicating mechanisms in other areas all over the world, the

Labour Tribunal, as a adjudicating court,, is criticized for the enormous time and

cost involved in processing a dispute. In order to clear the backlog, the

Presiding Officers were criticized to have strongiy urged the parties to reach

settlement themselves. Although we have repeatedly emphasized that

compromise would save much transaction cost, it is not advisable for the labour

courts to indulge theniselves heavily into reaching settlement in the forni of

compromise and sacrifice their adjudicating functions. Even if we do not

preclude any possibility of last minute compromise, the primary role of the

I 64
adjudicator should be adjudication rather than conciliation, and conciliation

should be conducted by the conciliator and not the adjudicator as far as possible.

Another major means to shorten the time for adjudication is the

iniroduction of night hearing in the Labour TribUnal in April i 999. According

to information provided by the Labour Tribunal Registry, night hearings could be

arranged for cases falling within the following categories: siniple cases with no

complexity on facts; no huge bundles of documents for examination; not too

many witnesses are involved; no large group case, that is, case involving less

than S claimants and/or 5 defendants; not a claim for damages or re-

engagementlreinstatenient order; and no interpreter required. The party can

apply for night hearing with preliminary reason unless opposed by the other party

with jurisdiction; or the Presiding Officers in day courts may exercse their

discretion as to whether a case shall be fixed for night court hearings. As at

December 1 999, with the infroduction of nght hearing. the backlog of cases

waiting for call-over hearings was substantially reduced from i ,600 to 56O.

histead of persuading compromise during adjudication, it is more advisable to

8
See "LT Increases to 12 Courts Next Yea?' (t*i- 12e) in Hong
Kong Economics Daily (18.12.1999).

165
economize the time involved through redeploying more resources to handle the

hearings through means such as night hearing.

Bypassing Conciliation in LRS and Proceeding o Adjudication to Avoid

Unnecessary Diminishing ofStatutory Rights in Compromise or Unnecessary
Delay

In the previous section, it is mentioned that some hade unions

criticized compromise in conciliation results in employees receiving far less than

the statutory benefits It must be pointed out that conciliation only provdes an

arena for negotiation and every settlement reached should be with mutual consent.

It is up to the parties themselves whether to accept any form of compromise after

their own cost benefit calculation. It should also be pointed out that in some

cases, conciliation facilitates compromise in which the employees could get some

ex gratia benefits from the employer, just like the ex gratia payment in Case i.

Provided that every agreement in conciliation is reached voluntarily by the

dsputants, conciliation should not be attacked by such unjustifiable criticisms

with their merits ignored.

As for the revamp of the whole system of conflict resolution for labour

disputes to enable claimants to bypass conciliation and file claims directly at the

i 66
labour courts, it should also be hnd1ed with cauton. We admit that there are

cases unsuitable for concilation such as those in Case 2 and Case 3, the existing

arrangements do allow such bypassing provided that the authorized officer has

good reason to beleve that conciliation is unlikely to reach settlement or

conciliation would prejudice the right of either party, as mentioned in Chapter 3.

Provided that there is such arrangement, though not frequently applied., it is not

necessary to revamp the whole system, as we are aware that conciliation is

preferred iii the majority of cases with less opportuthty cost and transaction cost

involved and better cooperative relationship in future. The issue in concern is

whether the parties would be award and able to decide that conciliation is

preferably skipped.

Limitations ofthe Study

As the study is based on an institutional analysis, the variable of actors

is assumed to be constant and the analysis is concentrated on how the

institutional arrangements siructure human behaviours and result in different

degrees of effectiveness of different conflict resolution mechanisms. The

quality of the third party. that is, the conciliator and the adjudicator, might

i 67
consttute a determining factor in affecting the effectiveness of the mechanism

concerned. How the quality and behaviour of' the Third party inluence the

efihetiveness of the conflict resolution mechanisms would be a worthwhile

research for further studies.

Besides, parallel pair of cases for contras'ting the effectiveness of

conciliation and adjudication is difficult if not impossible to find, since the

success of conciliation makes it unable to have the same case be handled by

adjudication to test its effectiveness and vice versa. As conl3ol experiment is

impossible, there might be some reservations on the independence ofvarables in

different cases.

Fna1Iy with limited resources it is impracticable to obtain a large

sample for analysis, but only a number of representative cases were selected to

faiitate the lluslraton. If resources permit it is worthwhile to conduct a

research in future by gathering a large sample within a specific period and

examine whether the pattern of effectiveness of the mechanisms could fit my

analysis and argument.

i 68
Conclusion

Conflict is inevitable in human interactions. To handle labour

dsputes, the institutions of the conuliet resolution mechanisms should be able to

tackle effectively the issues of incentives, power relationship, information

asymmey, opportunity cost and transaction cost, contract enforcement as well as

maintenance of cooperative relationship. Given that different variables would

have dominant effect in different disputes. different mechanisms are called for in

order to resolve the disputes effectively. WEile some may require conciliation

to facilitate mutual trust and voluntary agreement, some may require

adjudication's coercive power to punish opportunistic behaviour and enforce

specific contract The existing mechanisms of conciliation and adjudication are,

in fact, complementary to each other in tackling labour disputes in Hong Kong.

Given the low occurrence of disastrous labour disputes, these two mechanisms

work together, could be regarded as effective in deterring aggravation of labour

disputes and maintaining the harmonious industrial relations in Hong Kong.

Nevertheless, nothing is perfect and conlict resolution mechanisms in Hong

Kong are no exception. By poInting out the respective strengths and

weaknesses ofthese two mechanisms, it is the writer's wish that this study would

stimulate the interest ofpolicy makers or public policy analysts in. designing ways

i 69
to improve and enhance the effectiveness of the conflict resolution mechanisms

in Hong Kong for the years to come.

170
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 Appendix J

Number of Strikes and Number of Working Days Lost per 1000

Wage Earners and Salaried Employees from 1995 to 1999
18 0.99 1

17
16 o.9

14 -
- O8

_/\
- 0.7
12
- 0.6
10 9
8
0.5
0.47

:
i 0.37 0.4

0.3
0.28
4
0.2

2 0:1

0L_____ - L __ I I

O
1995 1996 1997 1998 1999

Wo. of sfrikes -4--- Nc. of working days lost

Number of Strikes and Number of Workers Involved

from 1995 to 1999
I 800 18

I 600 16

1400 14
.

1200 12

i 1000 il
800 8
.

!o &o BZo
400 4
:

200 2

O O
1995 1996 1997 1998 1999

Year

- No. of workers involved -4- No of strikes

Source : Report ofthe Commisioner for Labour 1999

 Appendix 2

Waiting Time from Filing a Case to First Hearing

in the Labour Tribunal

25

24

c22

2O
r--i
19 L --- _ '
199S 1999 2000 2001(Apr)
1995 996 1997

Year

Source : Registrar ofthe Labour Tribunal

 Appendix 3

Labour Disputes Handled by LRS of the Labour Department in 1998

and 1999

70%

60%

50%

40%

30%

2O%

10%

0%
settled referred to referred to referred to others
LT ECAB LAD
D 1998
Case Result 1999

1998 1999
settled 18447 18481
referred to LT 8898 10535
referred to MECAB 2631 2561
referred to LAD 565 602
others O
No. of cases filed 30541 32180

Source : ReportoftheCommissionerforLabour 1998-1999

 Appendix 4

Statistics on the Number of Cases Filed, Review Cases

and Appeal Cases
in the Labour Tribunal from 1995 to 2000

No. olCases /1
11594

12000
9176 %1 i

10000

000

X)i

2000

1995 1996 1997

1
Filed E:. Reviewed
199e 1999

Appealed
L
2000
Year

Source : Registrar of the Labour Tribunal

 Appendix 5

Cases Handled in the Labour Tribunal in 1998

10%

14%

HeardIAwird

Sffled

D W1idwn
42% thsmssed
Other

Cases Handled in the Labour Tribunal in 1999

I 1-1erd/Awrd

47.9%
Wthbwii
I
Dimis
Others
 Cases Handled by the Labour Tribunal in 2000

T 5%

U Setdd

Dwjthcfrawn

Disrmd

Source Registrar of the Labour Tribuna'

1F .,

(1?
. R -