The Implied Obligations

One of the reasons employment law can sometimes be tricky is that the rights and obligations of the parties to an employment relationship can come from many different sources. Key among these are statutory obligations and the parties’ responsibilities under the express terms of the contract of employment.

Due to the special nature of an employment relationship, however, there are also a number of general terms that are implied in all employment contracts in Hong Kong.  Terms can be implied where it is reasonable and equitable to the parties to do so; it is necessary to give business efficacy to the contract; it is so obvious that it “goes without saying”; and the term does not contradict an express term of the contract.

In Hong Kong, there are some well-established terms that are implied in all contracts, which employers should be aware of.

The Employee’s Duties

Employers will be pleased to hear this is not a one-way street – employees have many duties that form implied terms of their contracts of employment.

Employees owe a duty of fidelity and good faith to their employer. For example, an employee is generally prohibited from trying to persuade customers or clients to take their business to a competitor and from generally bad-mouthing their employers.

Employees also have a duty to obey lawful and reasonable orders from their employer. If they fail to do so, this can be considered misconduct and may be a breach of the terms of their contract.

Employees are barred from disclosing confidential information belonging to the employer under their implied terms. This is often an express term of most contracts of employment.

Finally, employees also have to exercise reasonable skill and competence in carrying out their work.

The Employer’s Duties

Employers have a duty to provide employees with work. This may seem like common sense, but in practice, this can mean that putting employees on a period of “garden leave”, or suspending an employee, may be a breach of the employee’s contract, unless there is an express term or a statutory right of the employer to the contrary. Employers must also ensure they provide a safe working environment and compensate employees if they suffer work-related injuries.

The Issue of Trust

There is an implied term of mutual trust and confidence in all employment contracts in Hong Kong. This imposes mutual obligations on both the employer and the employee not to behave in a manner calculated and likely to destroy or damage the relationship of trust and confidence between the parties.

This can cover a wide range of behaviour of parties, even where there is no corresponding contractual or statutory obligation. For example, if an employer puts an employee through a disciplinary process, it could breach its duty of trust and confidence if that process is not carried out fairly and according to principles of natural justice, such as by not giving the employee an opportunity to respond to allegations.

While the duties and obligations described above are generally accepted to apply universally, the courts may also choose to treat particular terms in an employment contract as implied, where the criteria set out above have been met. For example, the Court of First Instance recently awarded damages to an employee who was dismissed shortly before she would have been eligible for a significant discretionary bonus.

Recently, it has been suggested by the Court of First Instance that there could be a so-called “anti-avoidance” term implied into some contracts of employment. In the case in question, an employee was dismissed shortly before she would have been eligible for a significant discretionary bonus. The terms of her contract were such that, if she was no longer an employee at the time of the bonus payment, she was not entitled to participate in the incentive programme to receive a bonus.

On the particular facts of that case, the Court determined that an “anti-avoidance” term should be implied into the employee’s employment contract which meant that it was a breach of her contract to terminate her employment in order to avoid payment of the discretionary bonus. In that case, the employee was entitled to recover damages in the amount of the bonus that the court determined that she would have received had she remained eligible.

While the judgment was appealed, the case nonetheless serves as a good reminder to employers that not all of the parties’ rights and obligations will be contained in the employment contract or even within the relevant ordinances.

Both parties to an employment relationship need to think carefully about their duties to one another when making decisions that could affect the ongoing relationship.

Such decisions should always be made for legitimate reasons and should be documented appropriately.

Kathleen Healy is a partner in Freshfield’s expanding employment, pensions and benefits practice in Asia and specialises in advising on Asia-Pacific employment and HR projects.

Laura Chapman is a senior associate in Freshfield’s employment, pensions and benefits team based in Hong Kong. She has a broad range of experience advising employers on both contentious and non-contentious employee matters throughout the Asia-Pacific region.