TADJUDIN SUNNY VS. BANK OF AMERICA, NATIONAL
ASSOCIATION IMPLIED TERM OF ANTI-AVOIDANCE
ISSUES & HONG KONG COURT OF APPEAL'S DECISION
In 2007, the Bank terminated an Analyst in its Distressed Debt Trading Group by payment in lieu of notice, following completion of a Performance Improvement Plan "PIP". She was not awarded any bonus on her departure.
The Analyst's contract stated that she was eligible for a bonus under the Bank's discretionary bonus scheme ("Bonus Scheme") as part of its "pay for performance" culture. It was a condition of any award that she was "employed by the Bank at the time of bonus payment".
The Analyst claimed, amongst other things, that the Bank terminated her employment with intention to avoid her from becoming eligible for an award under the Bonus Scheme and she sought damages for loss of bonus.
Was there an implied term in the contract of employment that the Bank would not terminate in order to avoid the Analyst from becoming eligible for the Bonus Scheme?
The Court found that yes, there was an implied anti-avoidance term.
D id the Bank terminate the Analyst's employment with intention to avoid her from becoming eligible for the Bonus Scheme, and consequently fail to pay to the Analyst the bonus payment due?
Yes, the Bank terminated the employment maliciously with an intention to avoid the Analyst's eligibility for the Bonus Scheme. The Analyst should have been entitled to bonus payment in 2007.
ISSUE 1: The Court found that there was an implied term in the contract of employment that the Bank would not terminate the employment in order to avoid the Analyst's eligibility for bonus, because:
The Bonus Scheme was an incentive to help the Bank compete for business and talent in a highly competitive environment;
The Bank made it clear to its employees (including the Analyst) that it operated a "pay for performance" culture in which an employee's performance was a key consideration in determining his/her remuneration package;
The Analyst's performance bonus for previous years formed an integral part of her remuneration package; and
T he Court found that an anti-avoidance provision was necessary to give effect to the common, reasonable expectation of both the Bank and the Analyst that the Bank could not exercise the power of termination in the employment contract in order to avoid the Analyst being eligible for the Bank's Bonus Scheme.
ISSUE 2: Applying an "objective test of significant improvement", the Court found that the Analyst met the performance standards required for a bonus award in 2007, despite the Bank's PIP process under which it believed the Analyst's attitude and workplace behaviour was not acceptable. The Bank, and her supervisor, were found to have brought about her termination and barred her from being considered for bonus in 2007.
The Court found that the supervisor's actions could be attributed to the Bank because of the following:
The supervisor was an agent expressly authorised to act on behalf of the Bank in terminating the Analyst; and
Senior management of the Bank were influenced by the supervisor so that the intention to terminate the Analyst should also be attributed to the directing mind and will of the Bank.
This decision is a note of caution to employers who offer bonuses, even discretionary bonuses, as a large proportion of the remuneration package.
Discretionary bonuses may be subject to implied anti-avoidance provisions if this is necessary to give effect to the reasonable expectations of the parties and what a reasonable person would understand the contract to mean. Avoidance of bonus payment by way of a pre-mature termination of the employment may be a breach of contract.
E mployers may not be able to absolve themselves from liabilities stemming from decisions made by managers or senior officers on their behalf.
T his case is also a timely reminder of the need to exercise caution when using PIP review schemes which may not justify termination in and of themselves. As the court may possibly substitute its own view of an employee's performance or improvement of performance over that of the line manager, employers should make sure that such processes receive review and objective oversight if they ultimately lead to performance based terminations.
Result: In relation to her claim for loss of bonus in 2007, the Bank was found liable to pay a sum of HK$3,900,000 (equivalent to US$500,000) as damages.
Julia Gorham Head of Employment Asia Hong Kong T +852 2103 0818 firstname.lastname@example.org
Anita Lam Of Counsel, Solicitor Advocate Hong Kong T +852 2103 0650 email@example.com
David Smail Registered Foreign Lawyer Hong Kong T +852 2103 0468 firstname.lastname@example.org
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