In the recent Hong Kong case of Zhang Qiang v Cisco Systems (HK) Ltd (HCA 1497/2010)  HKCFI 694, the Court of First Instance upheld the binding nature of a repatriation agreement which meant a particularly uncooperative employee was not entitled to receive significant sums in connection with his repatriation back to Hong Kong. It also upheld the employer’s decision to summarily dismiss the employee, as well as its counterclaim for the relocation allowance which it had already paid. The decision serves as a reminder to clearly set out the preconditions when negotiating an employee repatriation or relocation package in order to avoid any disputes.
The plaintiff (Zhang), a former employee of the defendant (Cisco HK), joined Cisco HK in 2000. He was assigned to work in Beijing in 2002.
In February 2005, Zhang was told that his international assignment was nearing completion and he would be repatriated to Hong Kong effective 1 May.
This was followed by a long and protracted negotiation process during which Zhang alleged that Cisco HK had made various errors regarding incorrect grading, salary, job title and unpaid compensation while he was in Beijing from 2002 to 2005. Zhang requested that these items be factored in to his repatriation package.
The parties finally reached an agreement in 2006 which was recorded in a without prejudice letter, release agreement and deed of release. Zhang had also previously signed a Relocation Acknowledgement Clause which provided that (among other things) all relocation payments made to Zhang prior to his completing 1 year of employment in the new assignment were in the nature of an advance and that Zhang would not have earned those payments until he had completed 1 year of employment in the new assignment.
Cisco HK subsequently discovered a typographical error in the without prejudice letter whereby the Notional ESPP Gain was wrongly stated as “HK64,4910.46” when the actual offer should have been “HK64,491.46” (i.e. the comma was in the wrong place). Upon noticing the error, Cisco HK attempted provide Zhang with an updated letter which contained the revised terms but he never signed it.
Zhang began to claim that Cisco HK was in breach of the Settlement Agreement by failing to pay sums that were now due. He first brought claims in Beijing against Cisco’s China entity but these were dismissed on the basis the China entity was not his employer.
Cisco HK then made a number of repeated requests for Zhang to relocate back to Hong Kong immediately, failing which he would be considered as being in breach of his employment contract.
Zhang finally relocated to Hong Kong in 2009. However, he only reported to the Hong Kong office on 3 occasions and had failed to show up at the office or attend various virtual meetings (which were only necessary because he had taken up temporary accommodation in Shenzhen rather than in Hong Kong as directed). Zhang subsequently claimed to have been on sick leave and that he had lost all access to Cisco HK’s network.
Cisco HK ultimately dismissed Zhang summarily on grounds of misconduct for (among other things) wilful disobedience of lawful and reasonable instructions, his failure to communicate with Cisco HK while he was in Hong Kong, and his absence from work without authorization or reasonable explanation.
Zhang brought claims against Cisco HK for certain sums payable under the “Settlement Agreement” and the “Repatriation Agreement” totalling approximately HK4,5 million and RMB500,000. He also claimed damages for wrongful termination of his employment and certain Occupational Retirement Schemes Ordinance payments which had been withheld. Cisco HK denied liability and counterclaimed against Zhang for the expenses and allowances had been paid to him on the condition he repatriate to Hong Kong which had failed to materialize and which were therefore unjustly retained, as well as for the return of certain properties.
The Court held in favour of Cisco HK, with all of Zhang’s clams being dismissed. Cisco HK’s counterclaim was also allowed in respect of repayment of the relocation allowance and various tax payments.
The key planks of the parties’ disputes and their important takeaway points are set out below.
Mistake in Contract
Issue: Whether the typographical error in the Settlement Agreement rendered it invalid.
Findings: The Court reiterated that in the context of unilateral mistake, a party cannot enforce a contract on terms which he knew or should have known did not reflect the other party's intentions. The test is an objective one and the contract will not be concluded unless the parties are agreed as to its material terms. In light of all the contemporaneous correspondence and witness evidence, the Court found that Zhang was aware of the misplaced comma and he must have known that the position of the comma was an important issue. In particular, when reading the agreement alongside the previous correspondence between Zhang and Cisco HK, the Court found that there was no reason for Zhang to simply accept the offer without seeking clarification and to assume the offer contained Cisco HK’s real intention. As a result, there was never a binding contract at all between the parties (an outcome which the Court preferred over holding that the apparent contract was void).
Key Takeaway Points:
- The commercial terms in a repatriation/ relocation agreement should always be carefully checked to ensure there are no errors. The sums payable are often large and can lead to significant exposure in the event of any dispute.
- In the event of any typographical errors, employers should make appropriate clarifications/ rectifications in writing to the employee as soon as possible. Clear written communications are crucial in order to avoid confusion and serve as a contemporaneous record of any notifications or clarifications made.
Repatriation Agreement and Relocation Acknowledgment Clause
Issue: Whether or not Zhang actually relocated to Hong Kong pursuant to the terms of the Repatriation Agreement. If so, whether Zhang was entitled to any outstanding amounts allegedly payable pursuant to the Repatriation Agreement; if not, whether Cisco HK was entitled to repayment of the relocation allowance it had paid to Zhang.
Findings: The Court dismissed Zhang’s claim. First, it recognized the validity of the Relocation Acknowledgment Clause which made it an express condition of the relocation package that Zhang actually relocate to Hong Kong. Second, even though Zhang technically failed to plead that he had actually repatriated to Hong Kong, the Court noted that even if he had it would have ruled on the evidence that he had clearly not repatriated at any time before his employment was terminated. The Court noted that Zhang had signed the Relocation Acknowledgement Clause, that he was well aware of the preconditions of the allowance and that he could therefore not “earn” those repatriation benefits until he had completed 1 year of employment in his new assignment (which he had not done). Therefore, Zhang’s claims based on the Repatriation Agreement were dismissed.
To the contrary, it held that Cisco HK was entitled to repayment of the relocation allowance of approximately HK250,000 which was paid to Zhang in 2006. Given that this was made on the condition of his relocating to Hong Kong and this did not actually occur, the Court held that he had been unjustly enriched and there was a failure of consideration which meant it should be repaid.
Key Takeaway Points:
- Employers should clearly indicate the preconditions of the employee receiving any relocation/ repatriation allowance or benefits in the applicable agreement. Relocation entitlements and allowances should be strictly observed. It is extremely important to stipulate whether the benefits will be provided on an accountable basis upon actual expenses having been incurred or some kind of non-accountable basis i.e. with a fixed lump sum. It is advisable for employers to expressly state any financial limits.
- Employers should make provision for what happens if the employee does not actually repatriate, particularly where this is due to the employee being uncooperative or refusing to comply with requests from management. It is telling that witnesses for Cisco HK said they “never discussed what would happen if Zhang was to stay in Beijing as [they] did not expect that. The salary was based on the assumption that everything would work out and Zhang would move to Hong Kong”.
- The offer should be expressed to be time limited and automatically withdrawn should the relocation not take place by a particular date.
Issue: Whether Zhang's employment with Cisco HK was wrongfully terminated.
Findings: The Court found no reasonable excuse for Zhang’s absence or for him not to comply with Cisco HK’s instructions, and concluded that the summary dismissal by Cisco HK was not wrongful. The Court added that Zhang’s explanations were simply unbelievable as he did nothing for an entire month, knowing that he was absent from work, and was expected to contact his direct manager and provide medical certificates.
Key Takeaway Points:
- The Court reiterated that even if certain conduct has been tolerated in the past, this will not necessarily preclude an employer from summarily dismissing an employee who persists in certain conduct.
- The employee's failure to report back to the workplace on the agreed date, without contacting the employer to seek leave because of their injuries and being completely inaccessible, can be held to justify summary dismissal.
- In failing to obey prima facie lawful and reasonable instructions of the employer, the employee bears the burden of establishing a reasonable excuse and in adducing satisfactory evidence in support of his stance.