Year in review
This section discusses some of the more significant cases and developments concerning employment law during the past year.i Restrictive covenants and injunctive reliefs
In the Court of First Instance's decision in Greater China Appraisal Ltd v. Tsang Kang Po, the principles concerning the injunctive reliefs to protect an employer's confidential information were considered. In this case, the employer applied for, inter alia, an interlocutory injunction to restrain three former employees from using confidential information about the employer, and a springboard injunction to ensure that the ex-employees would not get an unfair start in their new competing business with that confidential information.
The employer alleged that the ex-employees diverted a maturing business opportunity with a client to their new competing business and took away confidential documents, namely certain billing records and a company manual, which the employer alleged were used by the ex-employees to give them a head start to their new business. The employer sought to enforce restrictive covenants in the employment contracts relating to confidentiality and non-competition and the confidentiality agreement signed by the ex-employees.
It was held that when enforcing a restrictive covenant, the confidential information that the covenant seeks to protect need only be sufficiently particularised and that the covenant ought to be read with common sense to see whether a person of ordinary honesty and intelligence would recognise such information to be the property of the employer and that he or she is not entitled to do as he or she likes with it. The Court agreed with the employer that the confidential information in question was covered by the confidentiality clause and that the ex-employees were bound by the same. An injunction against the ex-employees to use the confidential information was therefore granted.
As regards the springboard injunction, the Court took the view that it was not warranted as the precise ambit of the confidential information had yet to be clarified and that there was no evidence that the information had been divulged to anyone or in any way misused by the ex-employees. The employer's claim for diverting business opportunities also failed as there was no evidence of solicitation by the ex-employees. 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 issue of solicitation was discussed more extensively in the District Court case of Winta Investment (Hong Kong) Ltd v. Ng Kam Chit, in which the employer company (a manufacturer of edible ice cubes) claimed against an ex-employee (a delivery worker) for breaching a non-solicitation clause that prohibits solicitation of customers of the employer for 10 months after employment ceases. Contracting evidence was adduced by the parties as to whether there was any solicitation by the ex-employee and, following an evaluation of the evidence, it was held that the employer company had failed to prove solicitation. Nonetheless, the Court discussed the principles concerning the enforceability of the solicitation clause.
The Court emphasised that a non-solicitation clause is prima facie unenforceable unless the employer can show that the clause is reasonable with reference to the public interest and the employer's legitimate interest, for example to protect trade secrets and customer connections (to the extent that the employee may have gained influence over customers so that they would be likely to follow the employee to his or her new employment) as such may form part of the employer's property. The protection given to an employer under a non-solicitation clause must not be excessive in terms of duration, scope or geographical restriction. The Court further remarked that there was simply no protectable interest in the form of customer connections built up by the ex-employee in his position as a delivery worker as he was not in a position to gain any meaningful influence over customers.ii Dishonest assistance and procuring breach of employment contract
In South China Media Ltd v. Kwok Yee Ning & Ors, the employer company claimed against an ex-employee for breach of fiduciary duties and for breach of non-solicitation clause by diverting business opportunities to competitors and by using the employer's logo and name without authorisation. More interestingly, though, the employer company joined the ex-employee's husband and his two companies as a co-defendant for dishonest assistance and for procuring the breach of contract.
The ex-employee was the advertising director of the employer company and was subject to a 12-month non-solicitation clause in her employment contract. In deciding whether or not she owed fiduciary duties to the employer, the District Court found her to be a de facto director given the extensive powers she had over the employer's clients and held that she owed fiduciary duties to her employer. The Court was satisfied on evidence that the ex-employee had used the employer's logo and name without consent and diverted maturing business opportunities to the competitor companies controlled by her husband, which amounted to a breach of fiduciary duties of loyalty and good faith and a breach of the non-solicitation clause in her employment contract.
Having established the ex-employee's liability, the Court then considered the employer's claims against the other co-defendants (i.e., the husband and his companies). For dishonest assistance, the Court helpfully summarised the four elements for the imposition of liability for dishonest assistance, namely (1) breach of trust or fiduciary duty by someone other than the defendant, (2) assistance, (3) dishonesty, and (4) resulting loss. The Court held that the co-defendants had dishonestly assisted the breaches by the ex-employee as they ought to have been aware of the ex-employee's position and responsibilities as advertising director and ought to have known that it is unlawful for such a high-level employee to divert business opportunities to a competitor, but they had nonetheless carried out negotiations with the clients and potential clients of the employer company and participated in discussions that resulted in the unauthorised use of the employer's logo. The co-defendants' relationship as husband and wife and the nature and timing of the business set up by the husband were also factors the Court took into account when drawing an adverse inference against the husband for dishonest assistance.
For procuring the breach of contract, the Court was satisfied on evidence that by agreeing to provide their services, the competitor companies had procured the breach of the non-solicitation clause. It was held that the co-defendants had turned a blind eye to the existence of the clause and that they must have realised that their conduct would induce a breach of contract. As a result, the ex-employee, her husband and his companies were found to be jointly liable to compensate for the employer's loss of business opportunities and loss of profits.iii Implied anti-avoidance terms on discretionary bonuses
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 also now judicial support for implying into the contract an anti-avoidance term to the effect that employers cannot dismiss employees to avoid the obligation to make bonus payments.
In the Court of Appeal's decision in Tadjudin Sunny v. Bank of America, National Association, the employee claimed that the termination of her employment was orchestrated by her employer to avoid paying her an annual bonus. In upholding the lower court's decision, 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.
The Court of Appeal made it clear that it was not called upon to decide if an anti-avoidance term should be implied into employment contracts generally, only whether an anti-avoidance term ought to be implied in the particular case, given the facts and circumstances. In doing so, it took into account various factors, including the performance bonus forming a substantial part of the employee's overall remuneration package and that the employer had made it clear to its employees that their performance was key in determining their remuneration. Accordingly, the Court of Appeal held that an implied anti-avoidance term was necessary to give effect to the common, reasonable expectation of the parties that the employer could not exercise the power of termination to avoid the employee being eligible for the performance bonus.
This case also reaffirms that any unqualified power of discretion given to an employer under an employment contract (e.g., in determining discretionary bonuses) should be construed as subject to some implied restrictions and is not completely unfettered, such that it 'can only be exercised in good faith, rationally and for a proper purpose, and not arbitrarily or capriciously or in a manner which is not bona fide'. The Court of Appeal held that the termination in this case could not have been for genuine reasons as the performance evaluation of the employee was not carried out in good faith, and found that the dominant intention in dismissing the employee was to avoid her being eligible for her annual bonus. As such, the employer had breached an implied term of anti-avoidance.iv Conduct of employees outside work
Another decision that touches on an employer's discretion is that of the Court of First Instance in Chok Kin Ming v. Equal Opportunities Commission, in which consideration was given to the question of whether an employer could take into account an employee's activities outside work in exercising its discretion regarding payment of a contract-end gratuity.
Here the employee was claiming for his contract-end gratuity upon termination of his employment. He had been employed as the Chief Equal Opportunities Officer by the Equal Opportunities Commission (EOC) in Hong Kong under a fixed-term contract, pursuant to which he was entitled to the payment of a contract-end gratuity upon satisfactory completion of his employment contract in the opinion of the EOC. The EOC's code of conduct for employees stipulated various obligations, requiring employees, among other things, to avoid any conflict between their personal interests and those of the EOC (including activities outside the EOC in direct opposition to its work), and imposed on them an obligation to make full disclosure to the EOC where conflicts of interests may arise or have arisen.
The employee was a key member of the EOC's task force in carrying out a review on discrimination law in Hong Kong. During the public consultation stage of the review, the employee attended a forum organised by a church in his personal capacity and gave a talk on the discrimination law review, whereby he encouraged the participants to oppose the EOC's proposal to extend certain protections to same-sex relationships. The EOC later terminated his employment and decided not to grant him the gratuity on the basis that he had not satisfactorily completed his contract as his conduct at the forum amounted to a conflict-of-interest situation that he had failed to disclose. The employee maintained that the code of conduct was an encroachment on his freedom of religion and expression.
The employee then made a claim at the Labour Tribunal for his gratuity and was awarded the same. Subsequently, the EOC successfully appealed against the award. In rejecting the employee's claim for the contract-end gratuity, the Court of First Instance held that the EOC was entitled to take into account the employee's actions outside work to determine whether the employee had completed the employment contract satisfactorily. It also noted that it was one thing for an employee to criticise his or her employer during a private dinner with friends, but quite another for him to denigrate the review at a forum and to urge its participants to take a certain stance on the public consultation of the review. This conduct was held to be in direct opposition to the EOC's work, and the Court of First Instance held that the EOC did not act perversely or irrationally in deciding that the employee's conduct at the forum rendered his performance of the employment contract unsatisfactory.v Criminal liability of employer-company directors for late payment of wages
Under the Employment Ordinance, employers who wilfully and without reasonable excuse fail to pay wages on time are liable to a maximum fine of HK$350,000 and three years' imprisonment. Further, any directors, managers, secretaries and similar officers of an employer company may also be criminally liable if they have consented to the late payment or if it is attributable to their neglect.
The case of the director of local broadcaster Asia Television (ATV), who was held criminally liable for 102 counts of late payment of wages to ATV's employees, has attracted much media attention. The director was found guilty and fined a total of HK$150,000 under the Employment Ordinance. Although this was a serious case, the court imposed a relatively lenient penalty in view of the director's conduct. The court took into account the fact that the director had remained in his post and had made efforts to try to secure funding to pay the employees.vi High threshold for summary dismissal
The courts have recently clarified the employer's right to summarily dismiss an employee under Section 9 of the Employment Ordinance. In Cheung Chi Wah Patrick v. Hong Kong Cement Company Limited, 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. To do so requires consideration of the employee's intention to ascertain the employee's reasons for the conduct in question. Therefore, where the employee has acted faithfully and without the intention not to be bound by the employment contract, summary dismissal is not justified and the employer can only terminate the employment contract by giving the necessary notice or paying wages in lieu of notice.
In Cheung Chi Wah Patrick, the employee was the financial controller of the employer company and had 15 years of professional experience in the field. 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. Although the employee did consult the employer's then legal advisers, he misinterpreted the legal advice and applied for the issuance of a number of rights shares that would have the effect of 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.
In upholding the Labour Tribunal's decision in favour of the employee, the Court of First Instance held that, despite the prima facie case shown by the employer to support its decision for summary dismissal, it was not satisfied that this was a case of serious neglect of duty in which the employee's intention need not be considered. Upon consideration of the employee's intention, the Court held that he had acted faithfully and had made an honest mistake. It was not a case of wilful disobedience and did not justify summary dismissal.vii Waiver of right to dismiss summarily
In the case of Ko Hon Yue v. Chiu Pik Yuk, the Court of First Instance emphasised that summary dismissal is a serious step to take against an employee and an employer taking this course is expected to, and should, communicate this intention in clear terms to the employee. Failure to do so may be interpreted as the employer having waived its right to dismiss summarily.
In this case, the plaintiff was employed as a secondary school teacher by the defendants (the school and its management committee). His employment was terminated because of his misconduct and teaching performance. The plaintiff then brought an action against the defendants for wrongful termination.
The defendants argued that the termination was lawful as they had dismissed the plaintiff summarily. The Court of First Instance did find that the plaintiff's conduct and teaching performance fell seriously short of what is reasonably expected of a teacher (e.g., falling substantially behind in teaching progress, failure to adhere to school policies, frequent use of inappropriate language during lessons) and that the manner in which he discharged his teaching duties clearly demonstrated a wilful and habitual neglect and dereliction of duties such as would warrant a summary dismissal. However, it held that the defendants had nonetheless waived the right to summarily dismiss the plaintiff.
The Court of First Instance came to this conclusion on the basis that even though the defendants were aware of their right to summarily dismiss the plaintiff, the termination letter issued to the plaintiff by the defendants nonetheless gave the plaintiff one month's salary in lieu of notice. The right to summarily dismiss was therefore waived by the defendants and they were prevented from relying on their right of summary dismissal to contend that the plaintiff's employment was lawfully terminated.
Another point made by the defendants was that they had lawfully terminated the plaintiff's employment pursuant to the Code of Aid for Secondary Schools (the Code). However, this argument was also rejected by the Court of First Instance. Although the defendants did have good grounds to terminate the plaintiff based on his misconduct, they had failed to terminate the plaintiff in accordance with the procedures prescribed under the Code. Thus, the plaintiff's employment had not been lawfully terminated and he was awarded damages.viii Labour Tribunal's power to order a party to provide security
Pursuant to Section 30(1) of the Labour Tribunal Ordinance (Cap. 25), the Labour Tribunal has the power to order a party to give security for the payment of an award or order that has been or may be made if it considers just and expedient to do so. The Court of First Instance decision in Hon Sau Har v. Lo Woon Bor Henry T/A Henry Lo & Co Solicitors gives some helpful guidance as to how this statutory power should be exercised.
In this case, the employee, who had been employed as a secretary at a law firm for less than two years, was dismissed by her employer. After her dismissal, she commenced proceedings at the Labour Tribunal to claim against her former employer for payment of annual bonus, unused annual leave and termination payment. Before the case went to trial, the employer applied for security to cover its costs. When considering whether or not to grant security, the presiding officer of the Tribunal took the view that the employee's claim did not have strong merits and ordered the claimant to pay into the Tribunal a sum of HK$10,000 as security for the employer's costs (after taking into account the time already spent by the employer in handling the claim and the estimated time yet to be incurred), failing which the employee's claim may be dismissed. The employee failed to make payment by the deadline and her claim was consequently dismissed by the Tribunal. The employee appealed to the Court of First Instance against the Tribunal's decision to order security and to dismiss her claim.
The Court of First Instance affirmed that the Tribunal was entitled to make a preliminary assessment of the merits of the parties' cases to decide whether or not security should be granted. Further, the Court of First Instance agreed with the presiding officer's view that the employee did not have a strong case and that an order of security should be made to protect the employer's costs.
It would seem that the Tribunal is prepared to make an order for security against a party where that party's claim or defence appears to the Tribunal to be weak or groundless. It should also be noted that while, in this case, the employer made an application to the Labour Tribunal for security, the Tribunal has the statutory power to make an order for security on its own motion as well, though the power is only exercised sparingly.ix Employers cannot ask employees to take a pregnancy test
Issues concerning direct sex and pregnancy discrimination involving a foreign domestic helper were discussed in Waliyah v. Yip Hoi Sun Terence. In this case, the District Court reaffirmed that anti-discrimination legislation in Hong Kong is social legislation that should be interpreted purposively and that a generous and liberal interpretation should be adopted.
The employee, an Indonesian domestic helper, was requested by her employer's wife to take a home pregnancy test. The employee did so voluntarily and the result was positive. The employee then asked the employer's wife about having an abortion in Hong Kong and the employer's wife accompanied her to see a doctor, from where she was referred to a government hospital. However, the employee was unable to obtain an abortion and the employer found out about her pregnancy and terminated her employment with one month's notice. He later made the employee move out of the home about one week before expiry of the notice period.
The employee claimed against her employer for damages for discrimination, breach of contract, breach of statutory maternity protection and unlawful dismissal. Although the District Court found that the employee took the pregnancy test voluntarily, as she too was eager to know whether she was pregnant, it held that the act of requesting the employee to take the pregnancy test in a supervised manner and without giving the employee the option not to inform the employer of the result, amounted to direct sex discrimination under the Sex Discrimination Ordinance (Cap. 480) as the act constituted 'less favourable treatment' on the ground of her gender. The District Court emphasised that whether or not a female employee is pregnant is a private matter that her employer does not have the right to know.
This case highlights that an employee's response is not determinative in deciding whether the employer's act is discriminatory. Even though the employee took the pregnancy test voluntarily, the District Court noted that the employee's consent is not determinative as the spirit of the anti-discrimination legislation in Hong Kong calls for a look into the nature of the employer's conduct rather than the employee's response. One relevant factor in this case was that, as the employee was a foreign domestic helper, her consent or compliance could have been the result of her general servile and subservient character or ignorance of her legal rights. This case also confirms that for an act to be discriminatory, the employer does not need to have the subjective intention or motive to discriminate, although that may be relevant to the assessment of damages.
As for the subsequent termination of employment by the employer and making the employee move out one week before expiry of the notice, the District Court held that the employer would not have done so but for the employee's pregnancy. Not only did the act amount to pregnancy discrimination, it also constituted a breach of the implied term of mutual trust and confidence under the employment contract, a breach of the Employment Ordinance regarding pregnancy protection and unlawful dismissal.x Discrimination on the grounds of sexual orientation
Although Hong Kong does not currently have specific legislation against discrimination on the grounds of sexual orientation, there have been significant developments in this area. In Leung Chun Kwong v. Secretary for Civil Service, the issue of whether employment benefits afforded to civil servants could be extended to their same-sex spouses was considered.
The applicant in this case was a Chinese national and a permanent resident of Hong Kong who was employed by the government as a senior immigration officer. As same-sex marriages are not allowed in Hong Kong, the applicant married his same-sex partner in New Zealand in 2014. The applicant launched a judicial review against two decisions by the government: (1) not to extend certain spousal medical and dental benefits for civil servants to same-sex marriage (the Benefits Decision); and (2) that he and his spouse were not entitled to opt for joint assessment of taxes, on the basis that they were not 'married' for the purposes of the Inland Revenue Ordinance (Cap. 88) (the Tax Decision). The Court of First Instance found in favour of the applicant in respect of the Benefits Decision, which was then overturned by the Court of Appeal at the appeal. The applicant's challenge in respect of the Tax Decision was rejected by the Court of First Instance, which was then upheld by the Court of Appeal.
The applicant's challenge was based primarily on constitutional grounds; in particular, that the decisions infringed his right to equality or the right not to be discriminated against. The difference in legal treatment was accordingly based on the applicant's marital status as well as his sexual orientation.
The Court of First Instance held that the differential treatment, which was discriminatory on the ground of a person's sexual orientation, was not justifiable and amounted to indirect discrimination. The Court of First Instance took the view that there was nothing illegal or unlawful for the government to afford the same spousal benefits to same-sex couples who were legally married under foreign law and that denying spousal benefits to such couples did not undermine the integrity of the institution of marriage (as understood in Hong Kong) or the traditional family.
As regards the Tax Decision, the Court of First Instance held that it was a matter of statutory construction of whether the applicant's marriage fell under the definition of 'marriage' under the Inland Revenue Ordinance (Cap 88). The Court of First Instance held that the definition of 'marriage' adopted by the Inland Revenue accorded with the well-established meaning given to it for common law and constitutional purposes (i.e., that marriage was the voluntary union for life of one man and one woman to the exclusion of all others). Therefore, to construe marriage as covering same-sex marriages would be contrary to established law.
When the case came before the Court of Appeal, the Court took the opposing view and held that the differential treatment in the Benefits Decision and the Tax Decision was justified by the need to uphold the status of marriage as understood and accepted in the local context. The Court held that the grant of spousal benefits to same-sex couples would undermine or be perceived to undermine the status of marriage, and that both the law and the community's prevailing views on marriage remain that the only acceptable form of marriage is heterosexual marriage and thus there is an immense public interest to protect the same. Such differential treatment was held to be proportional and rationally connected to the legitimate aim of protecting the traditional concept and institution of marriage. Further appeal of this case to the Court of Final Appeal is currently pending.
In another landmark case – QT v. Director of Immigration – a judicial review challenge was brought by a British national against the Director of Immigration in Hong Kong for unlawful discrimination on the grounds of sexual orientation in administering its dependant visa policy. The applicant's same-sex partner (with whom she entered into a civil partnership in England under the Civil Partnership Act 2004) was offered employment in Hong Kong and was granted an employment visa to work in Hong Kong. The applicant then applied for a dependant visa but her application was refused as she was not considered a spouse under Hong Kong law.
The Court of Final Appeal (the highest court in the Hong Kong court hierarchy) held that there was indirect discrimination by the director in exercising the policy as the differential treatment could not be justified. The Court took the view that such differential treatment was not rationally connected to the legitimate aims of attracting foreign talents to Hong Kong and maintaining strict immigration control and noted that the refusal of dependant visas to same-sex spouses or partners is in fact counter-productive to achieve that aim. As to the second aim of administering immigration control, the Court of Final Appeal noted that same-sex couples are just as conveniently able to produce their civil partnership certificates and would not cause any inconvenience and it was therefore irrational to treat same-sex couples differently on the basis of administrative convenience. This landmark decision of the Court of Final Appeal has led to an official change in Hong Kong's immigration policy in relation to same-sex dependant visas.
It is interesting to note that the Court of Final Appeal has left open the question of whether differential treatment of same-sex couples may be justified if the legitimate aim of the policy is to uphold the traditional concept of heterosexual marriage, and it is anticipated that the Court will soon give its views on this issue in the pending appeal of the Leung Chun Kwong case.
Outlook and conclusions
There have been some progressive changes to enhance protection for employees in Hong Kong during the past year. In addition to the Discrimination Legislation (Miscellaneous Amendments) Bill discussed in Section III, employment legislation was amended to increase statutory paternity leave from three days to five days and to give the Labour Tribunal the power to order compulsory reinstatement of an employee who has been unreasonably dismissed without the consent of the employer. In addition, various employment-related changes were envisioned by the Chief Executive of Hong Kong in her 2018 Policy Address, delivered in October 2018, including the proposed abolition of the right of employers to offset statutory severance payments or long-service payments against employees' benefits under their retirement scheme to improve retirement protection for employees.
Another area of focus may be expected in the area of employment law concerning team moves. Given the highly competitive employment scene in Hong Kong, employees often leave an employer in groups to set up a new business in competition with their former employer. It is also common for a competitor company to hire an entire team from another company for their specialised skills and knowledge in a particular field. Employers have been relying on various means to protect their interests, including reliance on the implied duty of fidelity, and the enforcement of any restrictive covenants and clauses against the misuse of trade secrets provided under employment contracts. It is expected that the relevant law concerning the potential rights and liabilities of employers and employees involved in team moves will continue to develop as, increasingly, employers seek better protection for their businesses.