The Labour Tribunal is designed to be an informal and inexpensive means of resolving employment disputes. While it does have exclusive jurisdiction to hear certain types of low value employment claims (monetary claims under the employment contract or statute that exceed HKD8,000), it does not have jurisdiction to hear more complex claims – for example, actions founded in tort or where the employee is seeking injunctive relief.

A key question for employers defending more complex claims is whether they should apply to have the claim transferred out of the Labour Tribunal for adjudication before a higher court. This can have various tactical advantages. For example, unlike the Labour Tribunal the parties generally need to be legally represented in the civil courts and the employee may not have the financial resources to continue their claim. It can be helpful from a practical perspective to avoid the need for the employer to have someone appropriate attend hearings and speak on behalf of the employer. It may also be important for the employer to obtain a judgment that is potentially less susceptible to appeal – for example, if the outcome has precedent value for similar claims from other employees.

The Labour Tribunal has in the past been receptive to these types of application and has generally upheld the principle that it was not designed to hear complex claims. However, the recent judgment in Kouk Chung Fai v EBP Global Ltd [2020] HKCFI 370 has put this into question and suggests the Labour Tribunal may now be applying greater scrutiny to applications for a transfer.

The Labour Tribunal

The underlying dispute involved two former employees (Employees) who brought claims in the Labour Tribunal against two defendant companies (Employers) for various items including arrears of wages and end of year payments (Unpaid Entitlements). During the proceedings, the Employers raised various counterclaims (Counterclaims) relating to misappropriation of company funds and breaches of fiduciary / employment duties and applied to transfer proceedings out of the Labour Tribunal to the District Court.

The claims for the Unpaid Entitlements were generally within the jurisdiction of the Labour Tribunal. However, the Counterclaims involving breaches of fiduciary and other employment duties were not.

The Presiding Officer in the Labour Tribunal (PO) rejected the Employers’ request to transfer. The PO explained that while it was accepted that the Counterclaims (founded in tort and other areas of law) were outside the Labour Tribunal’s jurisdiction, the Employees’ claims for the Unpaid Entitlements were straightforward and did not involve complex issues of fact or law, and fit squarely within the jurisdiction of the Labour Tribunal. The PO thus declined jurisdiction to adjudicate the Counterclaims but asserted it was still entitled to hear the Employees’ claims for the Unpaid Entitlements.

The PO noted that it was possible there would be two separate sets of proceedings (a set of proceedings in the Labour Tribunal and another set in another court for the Counterclaims) but that it was unlikely that there would be a risk of two inconsistent judgments since the factual circumstances and issues between the claims for the Unpaid Entitlements and the Counterclaims were not in common. The Employers then sought leave to appeal against the Labour Tribunal’s refusal which was granted.

The Appeal

Five grounds were originally specified in the appeal notice, but the only ground advanced on appeal was that the PO failed to give due regard or weight to the complexity and gravity of the factual and legal issues in the dispute (Sole Ground). The other four grounds essentially argued that the PO erred in law by failing to recognise the Employers had a defence of set-off available to them (since they were alleging in the Counterclaims that the Employees had misappropriated company funds) and by not transferring all the proceedings, the Tribunal would have either had to hear the same issues of the Counterclaims (in respect of which the Labour Tribunal had no jurisdiction) or the Employers would have suffered injustice by not being able to advance the subject matter of the Counterclaims in their defence against the Employees’ claims.

Only the Sole Ground was advanced on appeal because the other four grounds were premised on having an arguable defence of set-off. It is not uncommon for employers in employment-related disputes to argue that employees owe them money for damage caused to the business or have misappropriated funds or otherwise caused damage by breaching their legal duties. Employers will then seek to withhold or deduct payments due to employees and claim a defence of set-off. The Employers tried to advance a similar argument but this type of defence was recently rejected by the Court of Appeal (Xu Yi Jun v GF Capital [2020] HKCA 663). When presented with the judgment in GF Capital, the Employers conceded that set-off was no defence against the Employers’ liability to pay the Unpaid Entitlements and abandoned their reliance on all four of these grounds. The key principles of GF Capital together with some takeaways for Employers are highlighted in our earlier article here.

The Sole Ground also failed on appeal because the judge essentially found that the case was not at all as complicated (whether factually or legally) as pleaded by the Employers. For the claim to arrears of wages, the judge held this was a simple issue of whether the wages were paid and if not, what was the outstanding amount. This was a simple factual matter which could largely be decided by looking at the relevant bank statements. Furthermore, the other issues of whether the Employees were employed by the Employers during specified periods and the validity of the Employees’ contracts could not be regarded as too complex for the Labour Tribunal. The judge also held that the fact there were voluminous documents could not be relied on by the Employers because the only reason there were voluminous documents was due to the issues raised by the Counterclaims.

Key Takeaways for Employers

  • The Labour Tribunal has traditionally been receptive to requests from employers to transfer claims to the civil courts, and has often been reluctant to adjudicate claims involving complex issues of fact or law. Traditionally the bar for what is a “complex” claim has been relatively low. This decision may suggest that the Labour Tribunal (and the CFI on appeal) are applying greater scrutiny to requests to transfer and these will not be accepted as easily going forwards.
  • The Labour Tribunal and the CFI placed emphasis on the fact that the issues between the claims for the Unpaid Entitlements and the Counterclaims were not in common. Where employers are making requests to transfer, they should carefully consider whether the issues in dispute between the two sets of claims are the same or similar, and why it would not be possible or in the interests of justice for there to be parallel sets of proceedings covering the same issues.
  • Employers should exercise caution before withholding or making any deductions from sums that may have already become due to an employee. Generally, even if an employer has a strong claim against an employee for negligence, breach of legal duties or otherwise, an employer should not assert a defence of set-off in respect of claims for unpaid sums due to an employee unless permitted by an exception under section 32 of the Employment Ordinance. The safest practice for employers is to first pay the applicable sum due to the employee and then bring legal proceedings against the employee for damages. While this is more time-consuming, it important to comply with section 32 as a breach may lead to criminal liability.