All questions

Year in review

This section discusses some of the more significant cases and developments concerning employment law in recent years.

i Jurisdiction of the Labour Tribunal and its discretion to transfer

Although the Labour Tribunal offers employers and employees the means for a speedy and informal resolution of their dispute in a cost-efficient manner, its jurisdiction is only limited to monetary claims for breach of employment contracts or for non-compliance with the Employment Ordinance. Issues relating to the jurisdiction of the Labour Tribunal often arise, especially where it involves mixed claims or counterclaims.

In Woo Kwok Ping v. Incorporated Management Committee of Tsuen Wan Trade Association Primary School (No 2),11 the employee (a school principal) brought a claim in the High Court against the employer (the management committee of a primary school) for wrongful dismissal, claiming that the employer failed to comply with statutory provisions under the Education Ordinance (Cap 279) concerning the termination procedures of school principals. The employment contract in this case specifically incorporated a reference to the Education Ordinance and its subsidiary regulations. The employee thus claimed for a breach of employment contract in her original writ filed at the High Court. A jurisdiction issue then arose as to whether the employee's claims were really a simple breach of the employment contract, or were, in essence, founded in tort. The latter case would bring her claims outside the Labour Tribunal's jurisdiction. The Court held that the proper approach is to look at the substance of the claims and also consider whether any other claims brought by the claimant are merely for 'window dressing', such that the real claim left is one that falls within the jurisdiction of the Labour Tribunal. The Court held that an indispensable part of the employee's case turned on whether the employer was in breach of the statutory provisions concerning the termination of a school principal, which, in essence, is a claim for breach of statutory duty founded in tort regardless of the fact that such statutory duty was specifically incorporated in the employment contract. On this basis, it was held that the claim fell outside the Labour Tribunal's jurisdiction.

By contrast, in Xinhua News Media Limited & Anor v. Chan Chun Wo & Anor,12 the District Court found that the employers' claims for recovery of alleged overpayment of wages and reimbursements fell within the exclusive jurisdiction of the Labour Tribunal. The District Court condemned the employers for abuse of process, saying that 'the whole exercise of putting forward such additional allegations does raise some suspicion that it was for “window-dressing” to justify initiating a claim [at the District Court] in order to frustrate the proceedings at the Labour Tribunal', which were commenced by the employees against them for arrears of wages and other payments. The employers' claims at the District Court were accordingly struck out.

Cases involving various mixed claims may not be as clear cut. In Lee Yiu Hong v. Well-in Hotel Supplies Company Limited,13 the employer sought leave to appeal against a Labour Tribunal judgment in favour of its former employee on unpaid commission. The employer argued that the Labour Tribunal erred in law by failing to discharge its statutory duty to investigate and take into account its complaints against the former employee's breaches or misconduct, which the employer argued would have allowed it to use the defence of set-off to extinguish or reduce the unpaid commission payable to the former employee. Upon a closer examination of the employer's claims of breaches or misconduct by the former employee, which included failure to return important documents of the employer, misuse of the employer's confidential information and disruption of the employer's business, it was held that these claims were either grounded in tort or were mixed claims grounded in both tort and contract, thus bringing them outside the jurisdiction of the Labour Tribunal. The court referred to the Schedule of the Labour Tribunal Ordinance, which expressly provides that all claims in tort and all mixed claims in both contract and tort are excluded from the jurisdiction of the Labour Tribunal. Accordingly, the Labour Tribunal was not at fault for not investigating or taking into account these alleged breaches by the employee, and the employer's application for leave to appeal was dismissed.

The Labour Tribunal's jurisdiction may be subject to territorial restrictions. In Ma Ngai Cheung v. Cobow Contracting & Engineering Company Limited,14 the defendant's (the purported Hong Kong employer) attempt to strike out the plaintiff's (the employee) claims at the District Court on the ground that the claims should be within the exclusive jurisdiction of the Labour Tribunal was unsuccessful. The defendant denied the existence of the employment relationship by contending that the employment was between the plaintiff and another mainland China company. It was not disputed by the parties that the plaintiff mainly performed his duties in mainland China. The Court held that, in determining whether there was an employment relationship between the plaintiff and defendant, it would likely involve conflict-of-laws elements and difficult points of law because of the out-of-jurisdiction performance. As a matter of policy, such issues should be kept away from the Labour Tribunal and be dealt with by the court where parties will have the benefit of legal representation. The court, therefore, refused to strike out the employee's claims.

The Labour Tribunal has the discretion to transfer the claim to other courts.15 In the case of Kuok Chung Fai & Anor v. EBP Global Limited & Anor,16 the employer company appealed against the Labour Tribunal's decision not to transfer the employee's claims to another court. The employee's claims included arrears of wages and end-of-year payments, while the employer counterclaimed against the employee for breach of fiduciary duties and employment duties for alleged misappropriation and sought injunctive and other relief. The Labour Tribunal declined jurisdiction to adjudicate the employer's counterclaims as they were founded in tort and other areas of law. As regards the employee's claims, the Labour Tribunal held that they fell within the Labour Tribunal's jurisdiction. Further, the Labour Tribunal took the view that the employee's claims were straightforward and did not involve any complex issues of fact or law and refused to exercise its discretion to transfer the claims to another court.

The employer's appeal was dismissed on the grounds that the Labour Tribunal's refusal to exercise its discretion to transfer the claim was not plainly wrong or wrong in principle and did not result in injustice. The court affirmed that the Labour Tribunal's discretion is wide and unfettered and the decision as to whether to exercise this discretion is ultimately a case management decision, which an appellate court will be reluctant to interfere with.

ii Termination before reporting for duty

The Court of Appeal overturned a lower court's judgment and affirmed the Labour Tribunal's decision in Law Ting Pong Secondary School v. Chen Wai Wah17 to order an employee (a teacher) to make a payment in lieu of three months' notice to his employer (the school) for terminating his employment contract, even though he was not due to report for work. This case demonstrates the potential problems when the employment relationship is governed by various documents with differing terms and conditions, which may lead to disputes about the parties' true intention.

In this case, there were three documents in question, namely the offer of appointment, the conditions of service and the letter of acceptance. The conditions of service and the letter of acceptance were both signed by the employee on 17 July 2017, but these documents contained seemingly contradictory terms regarding the employment commencement date. The former specified the period of employment would commence on 1 September 2017, whereas the latter provided that the 'conditions of the new contract will come into immediate effect'. The documents provided that either party may terminate the contract by giving three months' notice or payment in lieu. On 22 August 2017, the employee informed the employer that he would not report for work on 1 September 2017 as he decided to stay on with his existing employer. No payment in lieu of the notice period was made.

The main issue was whether the employment relationship had commenced, such that the employee would be required to give three months' notice or make payment in lieu for termination. The Labour Tribunal took the view that there was consensus between the parties that the requirement to give three months' notice for termination came into immediate effect and started on 1 September 2017 (the day he was required to report for work) and, consequently, ordered the employee to make the payment in lieu of notice. The Court of Appeal agreed and held that upon proper construction of these documents against the factual circumstances and background, any reasonable person being presented with these documents would understand that the termination provision (i.e., to give three months' notice or payment in lieu) would take effect immediately. Therefore, the employee was required to make payment in lieu of notice to the employer. This Court of Appeal judgment overturned a previous judgment by the Court of First Instance whereby the judge took the view that the letter of acceptance, which specified that the contract would come into immediate effect, did not form part of the employment contract and the employee did not need to give notice or make a payment in lieu.

iii Restrictive covenants and injunctive relief

Cases relating to enforcement of restrictive covenants are highly fact-sensitive and the court is entitled to take into account all facts and circumstances in balancing the interests of the parties.

The case of AB Club Limited and Others v. Chan Yin Ki Cubie and Others18 acts as a useful reminder that any delay without adequate reasons by the employer in applying for a springboard injunction may result in refusal of such application. In this case, the employers commenced action and applied for interim injunctive relief against a group of former employees who were involved in setting up a competing business carrying out the business of marketing and selling overseas properties to buyers in Hong Kong. The interim injunctive relief sought included: (1) a springboard injunction to restrain the former employees from carrying on the competing business for six months from date of termination of their employment; and (2) an injunction to restrain solicitation of the employers' clients and employees for a one-year period. The latter non-solicitation injunction application was based on a corresponding contractual term in the employment contracts that restrict solicitation for one year. The court granted the non-solicitation injunction on the grounds that there appears to be a good arguable case for the alleged breaches of such contractual term and the court sees very little prejudice to hold the former employees to their contractual obligations.

As for the springboard injunction application, it was refused by the court on the grounds that there had been a delay of three weeks that the employers failed to adequately explain. The court goes further to note that a period of two weeks would be sufficient to refuse such springboard injunction. In refusing the application, the court also took into account that damages are not necessarily difficult to assess in this case.

In BFAM Partners (Hong Kong) Limited v. Gareth John Mills & Anor,19 the court enforced a six-month post-termination non-competition covenant in the employment contract against an ex-employee. The ex-employee joined a competitor company immediately after the notice period of his employment contract has ended despite the six-month post-termination restriction. The court accepted that the employer has a legitimate interest to protect its confidential information and trade secrets through this non-competition covenant. The employer identified several systems, platforms and tools that the ex-employee had access to and was materially involved in developing during his employment. The court was satisfied that the employer has adduced sufficient evidence identifying the confidential information that the ex-employee was privy to and accessed during his employment. Even though the ex-employee has physically handed over confidential information at the end of his employment, the court recognised that there may still be confidential information retained by the ex-employee in his memory (whether consciously or not) that would justify the enforcement of the non-competition covenant.

iv Joint employment by parent and subsidiary company

It is very common for corporate groups to have one company within the group named as the employer under the written employment contracts with its employees working for the group and for such employer company to pay the salary and other payments for its employees.

However, this does not prevent another company within the group from being a joint employer of such employees and be held jointly responsible for the employees' entitlements. In the case of Yung Wai Tak Abraham William v. Natural Daily (NZ) Holdings Ltd,20 the written employment contract was between the employee and a wholly owned subsidiary of a listed company. Even though the wholly owned subsidiary was the named employer under the contract and was the entity paying for the employee's salary and making contributions to the employee's mandatory provident fund, the court was prepared to look beyond that by adopting an 'overall impression' approach to assess whether the listed parent company should also be seen as an employer at the same time and be held liable for the unpaid salary and other payments.

In this case, the undisputed facts were that most of the employee's job duties concern the affairs of the listed parent company as he was the company secretary and a member of the management committee of the listed parent company. The court also considered the recruitment process (e.g., the job advertisement was published in the name of the parent company and interview conducted by the parent company) and the parent company's subsequent conduct (e.g., it was the one issuing notice regarding salary adjustment for the employee). Further, the evidence showed that the subsidiary employer company merely acted as a 'treasury centre' of the entire group and had no actual business. It would receive funds from the parent company or other companies within the group and paid for the group's expenses, including, but not limited to, advertising fees, operational expenses, legal expenses and the salary of the group's employees. The court also rejected the argument that the employee was only assigned or outsourced to the parent company.

The court held that the written employment contract signed with the subsidiary company does not preclude the possibility that he was at the same time an employee of the parent company. Based on the facts, the overall impression was that the subsidiary and parent company were both employers and so both were liable for the unpaid salary and other payments.

v Employers' implied duty of good faith

Apart from some long-recognised implied terms in employment contracts (such as an employer's implied duty to provide a safe working environment and that of mutual trust and confidence), there is judicial support for having an implied anti-avoidance term in the contract to the effect that employers cannot dismiss employees to avoid the obligation to make bonus payments and the power to terminate or demote an employee should be exercised in good faith.

In the landmark Court of Appeal decision in Tadjudin Sunny v. Bank of America, National Association,21 the Court of Appeal affirmed that the employer was in breach of an implied anti-avoidance term in the employment contract by dismissing the employee to avoid paying her the discretionary annual performance bonus. It was held that the termination could not have been for genuine reasons as the performance evaluation of the employee was not carried out in good faith. Thus, it was found that the dominant intention in dismissing the employee was to avoid her being eligible for her annual bonus.

An employer's implied duty of good faith was further considered by the Court of Appeal in FWD Life Insurance Co (Bermuda) Ltd v. Poon Cindy.22 In this case, an insurance agent's employment was terminated by the employer insurance company after around six months of employment. Various sums had been paid to the employee, including a lump-sum signing fee, monthly special bonus and performance bonus. There was a term under the employment contract that provided that the employee would have to repay the employer the signing fee and monthly special bonus if the employment was terminated within 30 months of the starting date, and repayment of the performance bonus if the employment was terminated within 12 months. After terminating the employment, the insurance company claimed against its ex-employee for the repayment of these sums.

The Court of Appeal accepted the trial judge's finding that the real reason the employee was terminated by the employer was her refusal to accept a demotion and it upheld the trial judge's rejection of the employer's contention that the termination was owing to the employee's failure to meet her performance target. It was argued on appeal by the employee as a counterclaim that the employer had breached its implied duty to exercise its power of termination and power of demotion in good faith and rationally. As this implied-term argument had not been raised in the lower court, the Court of Appeal remitted the case back to it.

The Tadjudin Sunny case was recently discussed in the case of Lam Siu Wai v. Equal Opportunities Commission.23 In this case, an employer terminated the employment of its employee by making payment in lieu of the notice period, in accordance with the employment contract and the Employment Ordinance. All relevant benefits and allowance were also duly paid by the employer upon termination. The employee challenged the termination, contending that the employer was subject to the duty of mutual trust and confidence implied by common law, in that the employer should have provided a valid reason for terminating her employment. She claimed that no valid reason for termination was provided and claimed for damages for the alleged wrongful termination. The Labour Tribunal awarded the employee damages but this decision was overturned by the court on appeal.

The court held that the termination was lawful and agreed with the employer that the employee's claim did not fall within the scope of the unreasonable dismissal claims under Part VIA of the Employment Ordinance, namely that the employee was not dismissed because the employer intended to extinguish or reduce any of her right, benefit or protection. Therefore, the employer had no obligation to provide any valid reason for the termination and it was entitled to terminate the employment without cause in accordance with the terms of the employment contract, which it did. In distinguishing this case from Tadjudin Sunny, the court remarked that the issue in Tadjudin Sunny was 'narrow and specific' to the facts and circumstances of that case, namely that there was an implied term not to terminate the employment to avoid the employee from being eligible for certain performance incentive programmes. The judge in this case took the view that it does not go so far to imply a duty of good faith on the part of the employer in terminating the employment without cause, otherwise that would have a far-reaching effect as the reason for termination may then be subject to scrutiny by the Labour Tribunal, the litigation would be more complex, costs may increase significantly and the proceedings may be delayed. However, the judge remarked that the door for further development in common law on the employer's implied duty of good faith was left ajar by the Court of Appeal in Tadjudin Sunny.

vi Employers not entitled to make deductions from payments due to employees

In the case of Xu Yi Jun v. GF Capital (Hong Kong) Ltd,24 the Court of Appeal clarified that the fact an employer has pending claims against an employee for negligent work or other misconduct does not allow the employer to withhold any wages or payments due to the employee for setting off with the employer's claims.

In this case, the employee's employment contract provided that the employee would be entitled to a guaranteed bonus for the calendar year ending 31 December 2016, which was payable by 31 March 2017. It also provided that any outstanding payments for the guaranteed bonus would be forfeited if the employee voluntarily terminated the employment or if the employee was found guilty of any gross misconduct before 31 March 2017.

While an investigation into the alleged gross misconduct of the employee was ongoing prior to the due date, there was no finding before the due date and the investigation report that identified certain failings of the employee was only available and provided to the employee sometime in May 2017. The employer did not make payment of the bonus by the due date, claiming that payment would only be made pending the investigation result, and the employee claimed for the bonus payment.

The Court held that the natural and ordinary meaning of the guaranteed bonus clause is clear – namely, that it is necessary for there to be a finding of gross misconduct before the due date – and rejected the employer's contention that this finding could be made before or after the due date so long as the gross misconduct occurred before the due date.

Further, the Court also clarified that it is not permissible for the employer to set off against the bonus based on the employee's alleged breaches for poor performance of work as that is prohibited under Section 32(1) of the Employment Ordinance, which provides that: 'No deductions shall be made by an employee from the wages of his employee or from any other sum due to the employee otherwise than in accordance with this Ordinance'. The Court was satisfied that the guaranteed bonus would be a 'sum due to the employee' and granted its judgment in favour of the employee.

vii 'Standby duty' time cannot be counted as rest days

In Breton Jean v. HK Bellawings Jet Limited,25 the court ruled that the days on which the employee (a business jet pilot) was on standby duty cannot be considered 'rest days' and so the employee was entitled to payments for his unpaid rest days. The Employment Ordinance provides that an employee is entitled to not less than one rest day in every period of seven days. Further, a rest day is defined as a continuous period of not less than 24 hours during which an employee is entitled to abstain from working.26

In this case, the employee was summarily dismissed and he claimed against the employer for, inter alia, his unpaid rest days. He relied on the guideline published by the Hong Kong Civil Aviation Department, which provides that a day off means periods free of all duties and available for leisure and relaxation, which the court accepted as available background information for interpreting his employment contract. The court accepted the employee's claim that he was never given a rest day during his employment as he was either on flight duty or on standby duty (during which he was required to be accessible on his work phone). The employer's counterargument that there was an alleged unwritten understanding that the days on which the employee pilot was not flying amounted to rest days was rejected. It was found that the time in which the employee was on standby duty could not be counted as rest days because if the employee was truly on a rest day, he should be entitled to abstain from working. The court therefore allowed the employee's claim for unpaid rest days. An appeal by the employer against this decision is currently pending.

viii High threshold for summary dismissal

In Cheung Chi Wah Patrick v. Hong Kong Cement Company Limited,27 the Court of First Instance held that unless it is a case of serious neglect of duty or breach of confidence or incompetence, an employer can only summarily dismiss an employee if the employee manifested an intention not to be bound by the employment contract.

In this case, the employee was the financial controller of the employer company and it was his duty to assist the parent company of his employer, a listed company in Hong Kong, in relation to its issuance of rights shares. The employee misinterpreted the legal advice and applied for the issuance of a number of rights shares causing the public holding of the parent company to fall below 25 per cent, which would be a violation of the Hong Kong Listing Rules. Subsequently, this matter was rectified by the parent company, which sold extra shares to maintain the 25 per cent public holding. The employee was summarily dismissed and he claimed against the employer for his wages in lieu of notice and end-of-year payment. The Court held that the summary dismissal was not justified as the employee acted faithfully and it was not a case of wilful disobedience.

In Sarniti v. Lee Suk Ling,28 the District Court held that the employee's habitual neglect and failure to perform her basic duties justified summary dismissal. This case concerned a dispute between a domestic helper and her employer and was originally commenced as a discrimination claim. The employee claimed that she had been unlawfully dismissed on account of her pregnancy and the dismissal amounted to discrimination. Conversely, the employer claimed that the employee's pregnancy was irrelevant to her dismissal as the employer was unaware it and that the dismissal was due to the employee's repeated disregard for basic instructions, her failure to properly perform her duties and her unsatisfactory attitude. The Court accepted the employer's claim.

In Cosme De Net Company Limited v. Lam Kin Ming,29 the court upheld the employer's decision to summarily dismiss an employee who was in breach of his employment and fiduciary duties by being secretly involved in a competing business for selling cosmetic products online without his employer's consent and by infringing the employer's intellectual property rights. The employee's counterclaim for wrongful dismissal was dismissed. Evidence was adduced by the employer showing the employee's connection and involvement in setting up and running the competing business. The court granted injunctions against the employee and his servants and agents from using the employer's intellectual property and ordering the employee to return and destroy all copies of the intellectual property.

ix Settlement agreement void for reducing an employee's compensation

In Leung Siu Kam v. 梁國強 and Employees' Compensation Assistance Fund Board,30 a settlement agreement reached between an employer and an employee for compensation for a work injury sustained by the employee was held to be null and void because the compensation sum agreed under the settlement agreement turned out to be less than the minimum statutory compensation payable to the employee.

This protection for employees is enshrined under Section 31(1) of the Employees Compensation Ordinance (Cap 282) (ECO), which provides that any agreement that relinquishes any right of an employee to compensation for personal injury shall be null and void if it purports to remove or reduce the employer's liability under the ECO.

This case was an application by the employee to seek further compensation under certain provisions of the ECO. The employer did not enter any appearance in the proceedings but, prior to the hearing, he referred the employee's legal representatives to the settlement agreement saying that a full and final settlement had been reached by the parties. The Employees' Compensation Assistance Fund Board joined as a party to assist the court. It argued that, by reason of the settlement agreement, no further compensation should be payable. This was rejected by the court. Based on the relevant medical evidence, the court considered that the potential minimum compensation would be HK$70,933, which was more than the agreed settlement sum of HK$59,980 provided under the settlement agreement. The settlement agreement is consequently null and void pursuant to Section 31(1) of the ECO. The court went on to assess the quantum of the compensation payable to the employee and ordered a further sum of HK$74,793 be paid to the employee, which was in addition to the sum already paid under the settlement agreement.

Outlook and conclusions

The past year was an extremely challenging one for Hong Kong as the pandemic continued to place unprecedented pressure on businesses and the labour market in general. This has recently led to some legislative changes that aim to strike a balance between implementing anti-pandemic measures to protect public health and preserving employees' statutory rights and benefits,31 including: introducing statutory provisions to regard a day on which an employee is subject to any statutory mandatory restriction on movement as a sickness day; providing sickness allowance for affected employees under certain circumstances; and stipulating that it is not a valid reason to dismiss an employee or vary the terms of the employment contract on the ground that the employee being an affected employee.

There was an increase in the number of applications by litigants to transfer proceedings from the Labour Tribunal to the courts, leading to more cases exploring the interplay between the various forums, including the Labour Tribunal, arbitral tribunals and the courts, and their respective functions. We also continue to see development and growth in the body of case law, with the courts clarifying the scope of employers' implied duties and granting appropriate relief by striking a careful balance between the protection of employees' rights and the protection of employers' business interests.