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The District Court in Hum Matthew Ta v Allied Way Security Management Limited [2024] HKDC 134 recently dismissed an employee's claim for wrongful dismissal against his former employer. The employee claimed that his employment had been terminated and, on that basis, decided not to return to work. The Court found that the employer did not initially terminate his employment but the employee's unauthorised absence from work instead gave his employer a valid reason for summary dismissal. The employee therefore lost his entitlement to a Golden Parachute payment and payment-in-lieu of notice (PILON).

Background

The defendant employer is a Hong Kong company that provided consulting and IT solution services on cyber-defence and network infrastructure. The defendant hired the plaintiff to act as its CTO, as well as to oversee the operations a newly acquired business (New Business). In connection with this, the New Business hired three supporting employees to work under the plaintiff's supervision.

The plaintiff's employment agreement with the defendant provided that:

  • the plaintiff was entitled to a housing allowance on top of a basic monthly salary;
  • the defendant may terminate the employment for cause at any time, but was silent on the notice period for the defendant to terminate the employment without cause; and
  • the defendant agreed to provide the plaintiff with "severance benefits equivalent to 12 months of salary" if his employment was terminated "without cause" which was defined to mean reasons other than, amongst others, resignation or termination "for Cause" (Golden Parachute).

In October 2018, members of the defendant's management team met with the plaintiff and informed him that the employment of the plaintiff's subordinates would be terminated (the October Meeting).

The plaintiff claimed that in the October Meeting, he was also told that the New Business would be shut down and was asked if he would accept an offer of 3 months' salary as a severance payment, but declined this offer. Following this meeting, the plaintiff alleged he had been dismissed and did not return to work. He brought a claim seeking payment under the Golden Parachute and PILON provisions of his contract, on the basis he had been wrongfully dismissed.

The defendant denied terminating the plaintiff in the October Meeting and argued that the plaintiff's unauthorised absence following the meeting gave the defendant a basis to summarily terminate his employment under both s 9 of the Employment Ordinance (EO) and his employment contract.

Findings

The District Court found for the defendant.

The first issue for the Court to determine was whether the discussions in the October Meeting amounted to the defendant dismissing the plaintiff. Under the law, a notice of termination of employment must be clear and unambiguous.

After considering the various witness evidence as to the content of these discussions, as well as the credibility of the witnesses, the Court found that nothing in these discussions amounted to a clear and unambiguous notice of termination of employment.

Even if it were the case that the plaintiff was informed by management that the New Business was being shut down, this would not constitute termination as the plaintiff's scope of responsibilities was wider than the New Business. Similarly, that the defendant inquired as to whether the plaintiff would accept a severance offer, could not in itself constitute a termination notice, particularly in circumstances where the plaintiff immediately refused the offer, and no agreement was reached.

The Court also considered that unlike his subordinates who had actually been terminated, the plaintiff had not been provided with a written notice of termination or been included in the formalities that had been arranged for the subordinates to process their terminations. It was also relevant that the plaintiff's versions of events regarding the details of his termination varied between different sets of pleadings and WhatsApp messages following the October Meeting showed that the plaintiff did not consider himself terminated.

Validity of the summary dismissal

As a result of finding that the plaintiff had not been dismissed in the October Meeting and that the plaintiff was fully aware that he had not been so dismissed, the Court needed to then consider whether the defendant's later summary dismissal of the plaintiff was justified.

Under s 9 of the EO, an employer may dismiss an employee without notice or PILON if the employee engaged in misconduct and such conduct was inconsistent with the due and faithful discharge of their duties (or on any other ground on which an employer would be entitled to terminate the contract without notice at common law). The Court held that unauthorised absence for even just one day could be considered as a serious neglect of duty amounting to repudiation of the employment agreement which justified summary dismissal.

The burden was on an employer to justify that the employee has disregarded the essential conditions of the contract of service and this requires the employer to show that the conduct in question amounts to a sufficiently serious breach of the contract of employment such as to indicate that the employee no longer intends to be bound by the contract.

The Court considered that the plaintiff's unauthorised absence from work (and failure to communicate with anyone at work in this time), coupled with his false accusation that his superior had terminated his employment, constituted valid grounds of summary dismissal.

Entitlement to PILON and the Golden Parachute

Given the plaintiff's summary dismissal was found to be valid, the defendant had no obligation to pay either PILON or the Golden Parachute to the plaintiff. However, for completeness the Court did consider how both of these payments should have been calculated.

In respect of PILON, the employment agreement gave the plaintiff the right to terminate at any time with 3 months' notice or PILON. The defendant, under the Golden Parachute provision, had the right to dismiss the plaintiff without cause, but in return for a severance payment. This clause is, however, silent on the notice period. In such circumstances, the Courts will impose a reasonable notice period, which in this case was held to be 3 months, given the plaintiff's senior title as well as that the plaintiff's right to terminate was also subject to a 3 month notice period.

In respect of the Golden Parachute provision, the question arose whether this payment should include the housing allowance the plaintiff received. The Court held that the use of the word "salary" in this clause, rather than "basic monthly salary", as had been used in other clauses, was a deliberate choice, meaning the clause would cover not only the basic monthly salary but also the housing allowance.

Key takeaways

This case serves as a helpful reminder that an unauthorised absence even as short as one day can give an employer the right to summarily dismiss an employee.

Additionally, when carrying out any business reorganisations that may result in redundancies, being clear in conversations with employees and ensuring they fully understand the content and effect of any discussions or communications is of vital importance. Additionally, keeping accurate records of such conversations will be of great benefit in the event there is a dispute such as in this case, or may help to avoid such a dispute occurring in the first place.

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