Variable pay exposed: HK court treats revenue share as wages

Variable remuneration structures are common in Hong Kong, particularly in senior executive roles. Revenue share, commission only and advance on commission models are often viewed by employers as flexible commercial arrangements. In Caidao Capital v Overdijk & Ors [2026] HKCFI 1326, the Hong Kong Court of First Instance confirmed that such arrangements can still fall squarely within “wages” under the Employment Ordinance (“EO”). The employer’s failure to pay those sums was therefore a repudiatory breach, entitling the employees to treat themselves as constructively dismissed.

Background of the case

The plaintiff Company recruited two senior hires to establish a new business line. Rather than a fixed salary, the two defendant employees were remunerated under a revenue share arrangement whereby 90% of revenue from clients solely introduced by them was allocated to the Company, with the remaining net profit split equally between the two employees and paid quarterly.

To manage cash flow, the parties agreed that, from April 2015, the two employees would receive a monthly payment of HK$100,000 on account of future revenue share.

In early 2016, following a compliance review, the Company proposed revising the revenue split from 90/10 to 80/20. Management meeting minutes circulated in April 2016 recorded that the revised split would apply retrospectively from 1 January 2016. The employees disputed that any such agreement had been reached and subsequently resigned.

During the notice period, the Company withheld the monthly payments and sought to impose new compliance related conditions on payment of the revenue share. One employee elected to buy out the balance of his notice period and sought to set off the payment in lieu of notice against unpaid revenue share. The other contended that the failure to pay the monthly sum constituted a repudiatory breach, entitling him to treat himself as constructively dismissed.

The Company contended that the monthly payments were merely advances against future revenue share and did not constitute “wages” under the EO (such that the employee had no right to terminate by payment in lieu). It also argued that final revenue share entitlements were conditional on satisfactory completion of compliance audits and that any non payment did not constitute a repudiatory breach.

The employees counterclaimed for unpaid revenue share and wages in lieu of notice.

Findings of the High Court

The Court largely rejected the Company’s arguments.

First, the Court held that the monthly payments were intended to continue for the duration of employment unless varied by agreement. The Company remained contractually obliged to calculate and pay revenue share in accordance with the agreed formula, with the monthly sums to be set off against final entitlements.

Second, the Court found that the revenue split had been validly varied from 90/10 to 80/20 with effect from 1 January 2016. Contemporaneous management meeting minutes and subsequent emails demonstrated a binding variation by conduct, notwithstanding the employees’ later objections.

However, the Court also rejected the Company’s argument that revenue share payments were conditional on satisfactory compliance audits. There was no binding agreement imposing such a condition, and in any event the alleged condition lacked certainty as to scope, standards and consequences.

Crucially, the Court held that both the revenue share and the monthly payments constituted “wages” under the EO. The statutory definition of wages is broad and expressly includes commission. In substance, the revenue share formed the core remuneration for the employees’ work and was analogous to commission-based pay. The scheme was not genuinely discretionary as the contracts contained clear principles and formulas, and payment was not dependent on the Company’s unilateral determination.

As a result, the Company’s failure to pay the monthly payment during the notice period and the accrued revenue share amounted to a repudiatory breach. One employee was entitled to treat himself as constructively dismissed, while the other was entitled to terminate by paying (or agreeing to pay) wages in lieu of notice.

Takeaway for employers

• Commission and revenue share are “wages”. The Court confirmed that commission, revenue share and profit share arrangements will commonly fall within the EO definition of wages, particularly where they are formula-driven and form the employee’s primary remuneration. Monthly draws against commission may also constitute wages. A number of statutory benefits under the EO, such as holiday pay, are calculated with reference to an employee’s wages, employers should therefore be cautious not to mischaracterise the payment items.
• Withholding variable pay carries serious legal risk: Suspending or withholding agreed or accrued incentive payments without clear contractual authority risks a repudiatory breach. Disputes over compliance, performance or entitlement do not automatically justify non-payment and may expose employers to constructive dismissal claims and compromise the enforceability of post termination restraints.
• Contract variations require clarity: While variation may be inferred from conduct, it is important to maintain clear, comprehensive documentation when remuneration terms change. Variations should ideally be expressly recorded in writing and signed.

The judgment can be found here.