Sunny Tadjudin v. Bank of America, National Association, CFI, HCA322/2008
The claim by Sunny Tadjudin against her former employer, Bank of America, National Association, has been in the headlines periodically for the last seven years, not least because of the magnitude of the amounts claimed . The most recent hearing in this lengthy litigation took place in the Court of First Instance in early 2014 and the 141-page judgment was issued late last year. It was a bitter-sweet decision for both sides, but it heralded an important change to the employment law on the scope of implied anti-avoidance provisions.
Mr Justice To, sitting in the Court of First Instance (“CFI”), found that an implied term of anti-avoidance in relation to bonuses can exist in a contract of employment and did exist in Ms Tajudin's contract. The decision has the effect of preventing employers from engaging in conduct designed to evade the operation of an express term in the contract, which would otherwise confer a certain or conditional benefit on the employee. The CFI held that Bank of America, National Association (“Bank”) was in breach of this implied term when it terminated the employment of Ms Tadjudin (“Tadjudin”), preventing her being eligible for a bonus for 2007 under the Bank’s performance incentive programme.
The Bank argued that the implied term of anti-avoidance was inconsistent with (i) the express termination provision in the employment contract; (ii) the employer’s statutory right to terminate on notice (Employment Ordinance ("EO") sections 6 and 7); and (iii) the specifically enacted comprehensive employment protection under the EO (Part VIA); and the court should not seek to impinge on a specifically legislated area. The CFI disagreed and held that, given the terms of the particular remuneration package, the Bank’s commitment to pay for performance and the lack of business efficacy without the implied term, there was no inconsistency between the implied term and the express or statutory right to terminate. The CFI went on to say it found no inconsistency between the implied term and the legislation, which provided only very narrow protection for employees, and that it could not have been the legislature’s intention for the statutory remedies under the EO to be exhaustive. There was a need for judicial creativity to develop the common law by implying a suitable term into the contract of employment to maintain a fair balance between the interests of the employer and employee.
Tadjudin was employed at Vice President level in the Bank’s Distress Debt Trading Group (“ISSG”) on 5 June 2000. Tadjudin's employment contract provided that she was eligible for a bonus under the Bank’s performance incentive programme, subject to her being employed by the Bank at the time of payment. There was also an express term in the employment contract allowing either party to terminate the employment on one month’s notice (or make a payment in lieu).
A major part of Tadjudin's remuneration package comprised of a performance bonus and equity which were rewards for performance, a principle to which the Bank expressly committed in its performance incentive programme literature. For a performing employee, the performance bonus was a very substantial part of the remuneration package.
Tadjudin was a profitable member of her team but started to experience difficulties from 2005 onwards, in particular with the Head of the Desk for ISSG, John Liptak. The conflict between Liptak and Tadjudin centred around her perception that he was trying to take away her client contacts and the deals that she had initiated. Tadjudin also did not accept Liptak’s authority as Head of Desk and over 2005 and 2006 there were repeated clashes between them. It was alleged that Tadjudin behaved unprofessionally and was often confrontational and paranoid. Senior managers informally counselled Tadjudin about her behaviour, which led to an improvement in early 2007. Liptak continued to be unhappy with Tadjudin and engineered her dismissal by issuing a formal warning on 29 June 2007 and placing her on a performance improvement plan (“PIP”). The PIP process was conducted in bad faith with the intention to fail Tadjudin in spite of her broadly having met the goals set for her. The CFI reached this conclusion in part from an email exchange between HR and Liptak in which he was asked whether he would be happy to help Tadjudin in the long run if she achieved the objectives of the PIP. He responded “I think we would all be happier if she left, so if you have any ideas to make this work to that end let us know.” On 28 August 2007, Tadjudin was issued with a written notice to terminate her employment and was given one month of salary in lieu of notice. Tadjudin received no payment, pro rated or otherwise, in respect of her bonus for 2007 given that she was not employed at the time of payment.
Tadjudin brought claims for the following:
- Damages for wrongful termination of employment by the Bank with the intention of depriving her of the performance bonus for 2007; and
- Damages for perverse, irrational and mala fide evaluations for her performance bonuses for 2005, 2006 and 2007.
The first claim was significant as it was based upon a novel argument that an implied term existed at common law that the Bank should not exercise its right to terminate Tadjudin's employment by giving one month’s notice or by paying one month’s salary in lieu of notice, in order to avoid her being eligible for the performance incentive programme (“implied term of anti-avoidance”). Initially the Bank had succeeded in an interlocutory application to have this claim struck out for being legally unsustainable but on appeal the Court of Appeal (“CA”) had allowed the claim to proceed on the basis that "justice and fair play" requires the development of the common law when the legislation is inadequate to meet the requirements of justice.
Tadjudin brought the second claim because she became aware during the course of these and other proceedings, that her bonuses for 2005 and 2006, although substantial, were lower than those awarded to Liptak, even though she had generated significantly higher profits than him. The bonuses were awarded based on various factors including employee performance ratings as assessed by a performance evaluation process. Tadjudin claimed that these evaluations were perverse, irrational and mala fide resulting in her being awarded lower bonuses than she believed she was entitled to.
Tadjudin also issued proceedings in the District Court for sex discrimination under the Sex Discrimination Ordinance. Those proceedings were stayed pending the outcome of the High Court claim.
Decision of CFI
The CFI held that there was an implied duty of anti-avoidance of which the Bank was in breach when it dismissed Tadjudin in order to avoid paying her 2007 bonus.
The CFI held that there was no evidence that Tadjudin received perverse, irrational and mala fide evaluations for her performance bonuses for 2005 and 2006, therefore these elements of her claim failed.
Tadjudin was awarded HK$3,900,000 (US$500,000) as damages for the loss of her 2007 bonus and the Bank was ordered to pay 85% of Tadjudin’s legal costs.
1. The implied term of anti-avoidance was implied into Tadjudin’s contract of employment.
(a) Incompatibility with express term in employment contract
The CFI held that the implied term of anti-avoidance was not incompatible with the express terms of the employment contract. It was found to be reasonable, equitable and necessary to give the employment contract business efficacy.
(b) Incompatibility with statutory right to terminate (sections 6 and 7 of the EO)
The CFI took the view that the rights given by sections 6 and 7 of the EO are not mandatory but permissive. The EO does not require every contract of employment to be terminated by notice or payment in lieu and it also does not keep a contract alive that has not been terminated in accordance with sections 6 or 7. Therefore the CFI concluded that the statutory right to termination by notice can be taken away by express or implied contractual terms and was not incompatible with the implied term of anti-avoidance.
(c) Implied duty excluded by the protection under Part VIA of the EO
The CFI held that it could not have been the legislature’s intention for the statutory remedy under Part VIA to be exhaustive, or for the courts to be prohibited from developing the common law in the area of employment protection. The Bank had relied upon English case law in support of its argument that the judiciary has no right to say that the legislature has not gone sufficiently far to provide employment protection and to substitute its own views. The CFI rejected this argument stating that the position in England was very different from Hong Kong due to the extensive statutory protection against unfair dismissal there. It took the view that in Hong Kong the “legislature had not really balanced all or most of the interests of the employer and the employee when enacting Part VIA” of the EO. Therefore “there is no reason why in the near absence of statutory employment protection, the development of the common law should not be allowed to take its course.”
2. The Bank had dismissed Tadjudin in breach of this term in order to avoid payment of her 2007 bonus.
If the implied term of anti-avoidance was found to exist, the Bank’s case was that Tadjudin had been dismissed by reason of her conduct. The Bank argued that Tadjudin's conduct triggered the PIP process and her dismissal was due to her failing to meet the goals under it. The CFI rejected this and found that Liptak had initiated the PIP process as a vendetta based on Tadjudin’s behaviour in 2005 and 2006. The CFI held that the PIP process had been conducted in bad faith with the intention to terminate Tadjudin’s employment and ensure the smooth transfer of her accounts. The CFI found that Liptak intended all the foreseeable consequences that the termination would bring, including depriving her of her eligibility to be considered for a bonus. Liptak's intentions were attributed to the Bank.
3. The performance bonuses awarded for 2005 and 2006 were not irrational and therefore Tadjudin failed in this aspect of her claim.
The CFI held that there was no evidence that Tadjudin received an irrationally low bonus compared with other members of ISSG, therefore her bonus claims for 2005 and 2006 failed.
Take away points:
1. Express exclusion of the implied term?
An implied term of anti-avoidance exists at common law and may be implied into a contract of employment. Implied terms can be overridden by express contractual provisions, so employers wishing to avoid this term must take steps to exclude it by express provision. This will be more straight forward in new contracts than in existing ones, as existing contracts can only be varied by agreement and an amendment of this nature may well undermine the confidence of employees. Ultimately a costs/benefit analysis taking into account any potential adverse consequences to reputation and the impact on employee relations, will determine whether this is a realistic option for employers.
2. Evidence to prove reason for dismissal and operating a fair process
Employers should consider objectively whether there is sufficient evidence to demonstrate a genuine and fair reason for dismissing an employee who is accruing or has accrued a benefit, which will be lost as a result of the termination.
In this case, the CFI inferred that one of the dominant motives for termination was to deprive Tadjudin of her 2007 bonus. The CFI was convinced that Liptak’s pursuit of the PIP was driven by malice and his intentions were imputed to the Bank. This highlights the importance of objectivity and independence in the review process as the employer will ultimately be liable when a malicious agenda is pursued by an employee.
3. Judicial gauntlet?
The CFI’s views on the inadequacy of the statutory regime in providing adequate protection for employees against ‘unfair’ treatment and the need for the court to exercise judicial creativity to develop the law as a result, appears to throw down a metaphorical gauntlet to the legislature to update the employment protection provided by the EO. There are rumours of an appeal of this ruling by both parties, which, if pursued, will afford the higher courts the opportunity to consider the issue further.