Career Advice Legal Case studies for employers

Tide may be turning against employers in dismissal cases

The Background
Hong Kong has traditionally been viewed as having relatively “employer friendly” labour laws. In particular, employers have previously been able to terminate the employment of an employee without cause and without incurring a significant compensation bill. However, a recent decision by Hong Kong’s High Court, together with a proposed change to the Employment Ordinance, suggests that the tide may be turning.

The recent High Court decision is significant not because of the facts of the case, but because it could signal that, in future, employers could face higher compensation awards from employment claims in Hong Kong.

The Case
A former employee of a global investment banking firm was recently awarded damages in excess of US$1.85 million as a result of his dismissal. What is most striking about the award is that over half of it was awarded not because the court found that he had been wrongfully dismissed, but because it ruled that the employer’s actions breached the implied term of trust and confidence.

The employee held a senior position at the firm. As part of his role, he produced a daily client newsletter that had an “edgy and colloquial tone and content”. Before each newsletter was distributed, the employee was required to have its content approved by a senior manager based at the firm’s global headquarters.

An edition of the newsletter was inadvertently distributed before the requisite approval had been given. That edition contained content which the firm believed its clients would find offensive. As a result, the firm dismissed the employee the following day without notice, citing his “unacceptable and entirely inappropriate misconduct”.

The court found that the employee had been wrongfully dismissed and that the employer had breached the implied term of trust and confidence.

In determining the level of damages to be awarded to the employee, the court’s view was that the employer’s actions would have an impact on the employee’s reputation and his ability to find new employment.

Accordingly, in addition to awarding the employee the payments that he would have received during his six-month notice period, the court awarded him a further payment equal to slightly more than two years’ worth of salary and discretionary bonuses that the court determined would have likely been paid.

The Examination
Employers may have reasonable commercial motives for opting to dismiss an employee, but the legal situation may not always be quite as clear cut. They need to be aware that in future, if the circumstances of a dismissal are in dispute, there is a risk that they would be required to reinstate or re-engage the employee.

Currently, under the Employment Ordinance, if an employee is found to have been unreasonably dismissed without a valid reason, such as misconduct, incapability or redundancy, the Labour Tribunal may make an order for termination payments. Alternatively, if both parties consent, it can make an order for reinstatement or re-engagement. There is no separate penalty for the employer if it refuses reinstatement or re-engagement.

A proposed change to the Employment Ordinance envisages that the consent requirement on the employer’s part be removed. This means that a Labour Tribunal will be able to make a compulsory order for reinstatement or re-engagement without securing the consent of the employer.

In deciding whether to make such a compulsory order, the Labour Tribunal may take into account the circumstances of the claim, including the relationship between the employee and the employer, the circumstances surrounding the dismissal and whether the employer may face any genuine difficulties in complying with the order.

If the employer fails to comply with the order, they will be ordered to pay a further sum of three times the employee’s monthly wages, capped at HK$50,000. However, it is not yet clear if and when this may become law.

The proposed amendments to the Employment Ordinance and the potential precedent set by the High Court decision serve as good reminders to employers of the need for caution when considering the dismissal of an employee.

Companies should review existing termination policies and procedures to ensure that a careful and demonstrable process is undertaken before an employee is dismissed.

Kathleen Healy is a partner in Freshfields’ expanding Employment, Pensions and Benefits practice in Asia. Based in Hong Kong, she specialises in advising on Asia-Pacific employment and HR projects, and on the multijurisdictional employment aspects of internal investigations.

The information contained in this article should not be relied on as legal advice and should not be regarded as a substitute for detailed advice in individual cases. If advice concerning individual problems or other expert assistance is required, the service of a competent professional adviser should be sought.