The House of Lords, however, allowed the former employees’ further appeal. It was decided that the bank as an employer was under a general implied obligation not to engage in conduct likely to undermine the trust and confidence between employer and employee, and this general obligation included an implied obligation not to conduct a corrupt and dishonest business. The former employees were awarded damages including loss of earnings owing to the failure to obtain new employment as a result of the stigma.
Application of the Duty
As regards the application of the Duty, the CFI referred to the Hong Kong Court of Appeal’s (CA) decision in Tadjudin Sunny v Bank of America, National Association3. The CA in Tadjudin Sunny in turn referred to the House of Lords’ decision in Johnson v Unisys Ltd4, in which the majority held that the Duty cannot be utilised as a foundation for an employee to recover damages for loss arising from the manner of his dismissal. This was because the Duty was concerned with preserving the continuing relationship which should subsist between employer and employee and therefore it was not appropriate for use in connection with the way that the relationship is terminated. The CFI confirmed that this represents where Hong Kong law stands and the Duty cannot be applied to water down an employer’s right to terminate the employment of its employee without cause by invoking the notice provisions.
In Johnson, the plaintiff employee was dismissed for some alleged irregularity. To terminate the employment, the defendant employer paid the plaintiff employee four weeks’ salary in lieu of notice pursuant to the employment contract which allowed the employer to terminate the employment for cause (based on gross misconduct on the part of the employee) or without cause (by notice or payment in lieu of notice). The plaintiff employee claimed damages at common law, alleging that his dismissal was in breach of various implied terms of his employment contract, one of which was that the employer would not without reasonable cause conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of trust and confidence between itself and its employees. The allegation lay in the fact that he was dismissed without a fair hearing and in breach of the employer’s disciplinary procedure. Due to the manner in which he was dismissed, he suffered mental breakdown and was unable to work. His claim was rejected in the first instance and his subsequent appeals to the English Court of Appeal and the House of Lords failed.
Lord Hoffmann in the House of Lords, in particular, found it difficult to adapt the implied term of mutual trust and confidence to the dismissal in the face of the express provisions that the defendant employer was entitled to terminate the plaintiff’s employment on four weeks’ notice without any reason, given the principle that any terms which the courts imply into a contract must be consistent with the express terms.
Johnson should be distinguished from Tadjudin Sunny. Whilst the employer in the case of Tadjudin Sunny sought to terminate the employment contract by giving one month’s salary in lieu of notice pursuant to the employment terms, the CA decided that the employer was in breach of an implied term.
The plaintiff there was employed by the defendant as an analyst. The employment contract expressly provided that the plaintiff’s eligibility for any bonus under the defendant’s performance incentive program was conditional upon her remaining in the defendant’s employment at the time of payment of the bonus. Following a series of performance issues, the defendant placed the plaintiff on a performance improvement plan and ultimately terminated her employment. As the termination took place prior to the bonus payment date, the plaintiff did not receive any performance bonus prior to her departure.
The CA held that it was intended and understood by both parties that the performance bonus constituted an important benefit for the plaintiff and an integral part of her remuneration package. On this basis, the appellate court found it necessary to imply into the employment contract a term that the defendant could not exercise its contractual right to terminate the plaintiff’s employment by notice or payment in lieu to deprive the plaintiff of her performance bonus. Without such an implied term, the plaintiff’s contractual right to be eligible for consideration under the performance incentive program could be easily taken away by the defendant exercising its contractual right of termination by notice or payment in lieu.
The CA was satisfied that based on the evidence provided, the lower court was correct in finding that the defendant acted maliciously in invoking and conducting the performance improvement plan with the view to terminating the plaintiff’s employment and avoiding payment of her bonus, and therefore was in breach of the implied term.
In Lam, the CFI made it clear that Tadjudin Sunny was not an authority for the general proposition that the right to terminate without cause was qualified by an implied duty to exercise such right in good faith. Indeed, the CA in Tadjudin Sunny acknowledged that the issue before it was “narrow and specific”, based on the particular facts and circumstances of the case.
The CFI also stressed that consistent with the analysis on the Duty (i.e. the right to terminate without cause is not subject to the Duty), the contractual right to terminate an employment (on the part of either employer or employee) can be exercised unreasonably or capriciously so long as such right is exercised in accordance with the relevant employment contract, and the court is not concerned with the rightness or wrongness of the dismissal. The case of Cheung Chi Keung v Hospital Authority5 was referred to. Therefore, the CFI failed to see how or why the Dismissal Reason had any bearing on the termination of the Claimant’s employment.
In Cheung Chi Keung, the defendant employer commenced disciplinary proceedings against the plaintiff employee due to the latter’s unsatisfactory work performance pursuant to the human resources policies which were incorporated into the employment contract. The defendant subsequently terminated the employment contract by giving the plaintiff two months’ salary in lieu of notice before the disciplinary proceedings were concluded. In the plaintiff’s claim for wrongful dismissal, the CFI held that on a proper construction of the relevant employment contract, the defendant had a separate and distinct right to terminate the plaintiff’s employment without cause by notice or payment in lieu. Such right was not subject to the disciplinary proceedings and could be exercised unreasonably or capriciously.
As an obiter, the Honourable Mr Justice Anthony Chan expressed that to imply a duty of good faith in the termination of employment without cause would lead to far-reaching effects on employment law. Reasons for termination may well have to be given for the exercise of such right, which may be subject to scrutiny by the Labour Tribunal. Litigation complexity and costs may increase significantly, and delay may be caused. It would be more appropriate for such significant changes to the law to be dealt with by the legislature.
The CFI’s decision in Lam reminds us that there is an implied duty of mutual trust and confidence between employer and employee under common law. However, in general, it has no application in the exercise of the contractual or statutory right to terminate an employment without cause.
Nevertheless, if an employer exercises the right to terminate an employment with the intent to deprive the employee’s entitlement under the relevant employment contract, the Hong Kong courts may be ready to imply a term in the contract that the employer’s right be exercised in good faith.
It is also important for employers to bear in mind that if the intention is to exercise the right to terminate without cause, the less they say about the reasons for the termination the better. As demonstrated in Lam, whilst the employer meant to terminate the employment contract by making a payment in lieu pursuant to the employment terms, the statement about the employee’s performance in the letter of termination unfortunately gave rise to the subsequent dispute.
1 HKCFI 3092.