Career Advice Legal Case studies for employers

Watch out for unforeseen hitches with summary dismissal

The background

It is well established that an employer is entitled to dismiss an employee summarily, i.e. without notice or payment in lieu, where an employee engages in serious misconduct. However, being the most onerous of an employer’s disciplinary options, this is not a decision which should be taken lightly. That said, it is not always easy for managers and HR professionals to know where to draw the line, and when a court will deem an employee’s misconduct to be serious enough to warrant summary dismissal.

The starting point is that summary dismissal will only be available in the circumstances listed in section 9 of the Employment Ordinance (EO). That is, summary dismissal is available on five grounds. These are: where an employee wilfully disobeys a lawful and reasonable order; engages in conduct which is inconsistent with the due and faithful discharge of his duties; is guilty of fraud or dishonesty; is habitually neglectful in his duties; or otherwise where he could be dismissed summarily at common law.

The first four grounds are reasonably clear and generally easy to identify, but the last one is more difficult. A recent decision of the Court of Appeal in Singapore (in the case of Phosagro Asia Pte Ltd v Piattchanine), explained that at common law the relevant question to ask is “Is the employee’s conduct serious enough to amount to a repudiatory breach of the employment contract?”

The answer to that question will be “yes” in the following situations. Situation 1: The contract clearly and unambiguously states, or otherwise makes it clear, that the parties intended that an employee’s breach of a particular term/obligation would entitle the employer to terminate the contract. Situation 2: The employee has, by words or conduct, renounced the contract (i.e. made it very clear that he does not intend to comply with its terms). Situation 3: A term is of such significance to the relationship that an employee’s failure to comply with that term would deprive the employer of substantially the whole benefit of the contract.


A practical illustration

In the Singapore case referred to above, Piattchanine was the sole director and shareholder of Asiafert Trading Pte Ltd, a company which had been acquired by the Phosagro group. Post-acquisition, Piattchanine was employed as its managing director. He was later dismissed on grounds of serious misconduct, in connection with his expense reimbursement claims.

In summary, Piattchanine had continued a practice that he had put in place prior to the acquisition of Asiafert, whereby he reimbursed himself for both corporate and personal expenses incurred on his corporate credit card, with the intention that he would repay his personal expenses to the company at the end of the financial year.

Piattchanine disputed that his handling of expenses amounted to serious misconduct or that Phosagro was entitled to dismiss him summarily. He commenced legal proceedings against Phosagro seeking to recover certain termination benefits that he claimed were due to him. Phosagro argued that he was not entitled to those amounts because his contact was terminated for serious misconduct.

Ultimately, the court held that Phosagro’s decision to dismiss summarily was justified, and that Piattchanine was not entitled to the termination benefits.

That is because Phosagro had given him, as managing director, a substantial amount of trust and responsibility.

The court was satisfied that the parties intended that a clause in his contract which required him to “faithfully serve the company in all respects and use his best endeavours to promote the interests of the company” was one which would, if breached, justify immediate dismissal.


What this means for employers

When drafting an employment contract, employers should consider carefully whether there are any clauses in the contract that are so important that even a minor breach by the employee warrants summary dismissal.

If so, this should be expressly stated to make it easier for a court to find that breach of those clauses will justify this most serious of sanctions.

Further, when taking on employees following a merger or acquisition, a new employer should carefully review the target company’s existing practices to ensure that its new employees are not accustomed to practices that may constitute serious misconduct.


This article appeared in the Classified Post print edition as Avoiding hitches with summary dismissal.