In Wu Kit Man v Dragonway Group Holdings Limited, HCLA15/2016, the Court of First Instance (“Court”) held that an addendum amending an employee’s contract of employment by requiring the employer to pay the employee a bonus of HK$350,000, was void as the addendum was only beneficial to the employee and the employee had not provided sufficient consideration for the addendum to be binding.
Background & Decision
Wu Kit Man (“Wu”) was hired by Dragonway Group Holdings Limited (“Dragonway”) in May 2015 to assist with preparing Dragonway for listing on the Hong Kong Stock Exchange. In October 2015, the parties signed an addendum stating that:
“If the Company or its holding company ceased the listing plan or you leave the Company for whatever reason before 31 December 2016, a cash bonus of HK$350,000 will be offered to you within 10 days after the cessation or termination and in any event no later than 31 December 2016.”
Wu left Dragonway on 21 December 2015 and had successfully argued at the Labour Tribunal that the addendum was valid and binding and she was entitled to the cash bonus of HK$350,000. Dragonway appealed on three grounds.
First, it argued that the Labour Tribunal had failed to consider the underlined part of the bonus clause which required the bonus to be paid “in any event no later than 31 December 2016” and therefore Wu’s claim had been submitted prematurely. In rejecting this ground, the Court found that it was clear the phrase “in any event no later than 31 December 2016” was intended to ensure that even if Wu left less than 10 days before 31December 2016, she would still receive her bonus no later than 31 December 2016. The relevant time limit for the bonus was 10 days, not 31 December 2016.
Second, Dragonway argued that Wu had not disclosed her previous criminal record before accepting Dragonway’s offer of employment, and due to this misrepresentation, her employment contract and the addendum were void. In rejecting this ground, the Court reiterated that under common law, employees are under no obligation to disclose a criminal record.
Third, Dragonway argued that the addendum lacked consideration and therefore was not a valid contract. In accepting this ground, the Court stated that if any amendment to a contract only benefits one party, the amendment would be invalid due to lack of consideration. The Court held that the addendum which granted Wu the right to receive the bonus did not require Wu to fulfil any further conditions to receive the bonus. Rather, it only required her to continue to carry out her existing role which was to assist with preparing Dragonway for listing. On that basis, the addendum lacked consideration and was invalid, and Wu was ordered to repay the cash bonus of HK$350,000.
To avoid any dispute over consideration, any amendments to an employment contract should be executed as a deed, as a deed does not need consideration to be binding on the parties.
Employers are often concerned with ensuring they are providing appropriate consideration to the employee so that a contract is valid. This case is a good reminder to employers to be equally aware of whether the contract benefits the employer as well as the employee (eg, is the employee taking on more responsibilities, etc.). If in doubt, use a deed as explained above.
Finally, if you want to ensure prospective employees disclose any criminal records, you must ask the employee directly, as there is no common law duty to disclose such records. Alternatively, you can include disclosure of any criminal record as a condition in the employment contract.
* The authors would also like to recognise the contributions of Natasha Hall, Professional Support Lawyer, Baker McKenzie, Hong Kong.