Termination of Employment

Mark Sun was a Business Manager of an international company which supplies industrial gas. Although Mr. Sun’s contract was governed by Hong Kong law, he was assigned to work in the PRC and was not required to work in Hong Kong. Owing to the company’s realignment of its organizational structure, certain staff members had to be made redundant and Mr. Sun was one of them. Pursuant to the terms of Mr. Sun’s employment contract, the company was entitled to terminate his employment by giving him 6 months’ notice.

There was a slightly unusual feature in Mr. Sun’s employment contract in that there was no express provision allowing the company to give him wages in lieu of notice. Relying on its statutory rights under section 7 of the Employment Ordinance, however, the company terminated Mr. Sun’s contract partly by notice and partly by paying him wages in lieu of notice. In addition, Mr. Sun was also paid his accrued wages, severance pay, annual leave pay and other contractual entitlements. On termination of his employment, Mr. Sun has worked for the company for a period of approximately three and a half years.

Being discontented with the company’s “unfair” termination decision and its manner of terminating his employment, Mr. Sun retained lawyers to pursue his claim against the company in the High Court of Hong Kong. The legal issues In the writ issued by Mr. Sun’s lawyers against the company, amongst other things, Mr. Sun argued:  the company was prompted by certain alleged “ulterior ill motive” in terminating his employment; the company was not entitled to give him wages in lieu of notice; he was entitled to have his employment continued until the end of the six months’ notice period and he should be provided with benefits that fall outside the definition of “wages” until the end of the six months’ notice period.

(For instance, he argued he was entitled to loss of use of company car and compensation for not having a performance appraisal for the year 2000/2001); and the company breached its obligation of trust and confidence and/ or was negligent in failing to terminate his employment contract properly. The company, on the other hand, refuted his claim and argued those contentions were plainly unarguable. To eradicate the unarguable and scandalous parts of Mr. Sun’s claims, Johnson Stokes ; Master as solicitors for the company applied to the court for an order to strike them out. The key issue before the court was whether, assuming the facts asserted were true, Mr. Sun’s contentions were plainly unarguable and incontestably bad.

At first instance, the company’s strike out application was made to a High Court Master by Johnson Stokes ; Master and was successful. Being discontented with the outcome, Mr. Sun sought to appeal the Master’s decision. The Court’s decision In this case, the High Court Judge accepted the company’s argument that Mr. Sun’s contentions were plainly unarguable. The Judge also held that termination of a contract of employment pursuant to a power conferred by the EO cannot be invalidated by some alleged ulterior ill motive on part of the employer. In concluding that Mr. Sun’s contentions were plainly unarguable, the Judge also highlighted the following issues which are important to employers and employees generally:

1. The nature of an employment contract is a contract for personal services. It would be quite unreasonable to force an employer to accept the services of an employee against its will. 2. Even in the absence of any express contractual term which provides for payment of wages in lieu of notice, an employer may still rely on section 7 of the EO to terminate an employee’s contract by giving him wages in lieu of notice or partly notice and partly wages in lieu of notice.

3. The implied obligation of mutual trust and confidence and the implied duty not to injure an employee’s health cannot operate to cut down the statutory termination rights conferred either by section 6 or section 7 of the EO or by the express terms of the contract. In other words, these implied obligations must yield to the express termination provisions of the contract and the termination rights conferred by statute. 4. Mr. Sun has no viable claim for not having his performance appraisal. As the company was successful in striking out the offending and scandalous allegations, Mr. Sun was ordered by the court to pay the company’s legal costs.

Conclusion

Employers who wish to dismiss part of their workforce as a result of change in business needs should take great care in calculating the amounts due to staff members in terminating their contracts. Any delinquent employee who wishes to challenge the process leading to dismissal and the fairness of the employer’s dismissal decision will invariably face an uphill battle if the employee has received all payments which should have been paid to him upon termination of his employment.