The case started when 15 former Wing On tour guides made claims in the Labour Tribunal in April 2006 that their tips should be included as their salary for the purpose of claiming holiday pay and overtime compensation.

Lam Pik-shan, one of the tour guides, started working for Wing On in 1997 with a basic monthly salary of HK$1,800. Her salary increased to HK$2,000 when she left in 2003.

The judge who presided over the appeal said on Friday the idea that monthly earnings of a tour guide comprise only the basic salary "is simply absurd and defies belief".

"The reality is that earnings of the tour guides comprised not only the basic salary but also tips earned through performing their duties for the defendant company (Wing On)," the judge said.

He ruled that tips should be included as salary when calculating for holiday pay.

Regretting the verdict, Wing On said it is going to discuss its next move with its lawyers.

It is also going to consult members of the travel industry on contingency plans and a long-term solution.

The travel industry said the verdict will have serious repercussions on the sector.

Travel Industry Council of Hong Kong chief executive Joseph Tung said he is worried that the verdict would become a precedent and change the operation of the whole travel industry.

"If tips are calculated as part of salary according to the verdict, it will increase financial burden of tour operators. Tour operators may eventually have to raise tour fees," he said.

The council is going to work out a strategy with members of the industry, he added.

"After all, it (tips not being considered as part of salary) has been a long-time practice in the industry," said Sunflower Travel Service Limited general manager Alcuin Li.

The Hong Kong Tour Guides General Union welcomed the verdict.

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