The Hong Kong Court of Appeal has affirmed a lower court’s decision that could affect all employers in Hong Kong. In Tadjudin Sunny v Bank of America, National Association (CACV 12/2015), the Hong Kong Court of Appeal affirmed the Court of First Instance’s decision that employers cannot dismiss employees for the purpose of depriving them of a benefit and that this “anti-avoidance” term was implied into the employee’s employment contract at common law. In this particular case, the anti-avoidance term prevented the bank from terminating the employment contract in order to avoid paying a discretionary bonus. Employers who dismiss should now consider whether the employee can reasonably challenge the dismissal on the basis that it is in bad faith and intended to deprive them of a benefit.
Ms. Tadjudin was an Analyst at the Bank of America from 2000 to 2007. Her contract had an express clause allowing termination on notice or pay in lieu of notice. She was also eligible to be considered for a discretionary bonus, subject to her being in employment with the Bank at the time bonus payments were made. She received bonuses every year until 2006. She was dismissed in August 2007, prior to the bonus payment date, and therefore received nothing for that year.
At the Court of First Instance ("CFI"), Ms. Tadjudin claimed for the loss of bonus in 2007 and underpayment of bonus in 2005 and 2006. The CFI allowed the claim for bonus in 2007, but dismissed the claim for underpayment in 2005 and 2006. Both Ms. Tadjudin and the Bank appealed to the Court of Appeal.
Court of Appeal Decision
The Court of Appeal handed down its Judgment on 20 May 2016. Save for a procedural point on pre-judgment interest, it affirmed the CFI’s decision. The main points to note in this 68-page judgment are:
1. The anti-avoidance term was correctly implied into Ms. Tadjudin’s contract of employment. Although the Bank argued that there was no scope for such implied term because the Employment Ordinance already provided for employment protection, this was rejected. Comparing Hong Kong and the UK, the Court found that unlike the UK legislation, (Part X of the Employment Rights Act 1996), Hong Kong the Employment Ordinance does not provide for a comprehensive regime of protection against "unfair" dismissal generally and therefore there was scope to imply additional protections at common law.
2. When Ms. Tadjudin’s boss dismissed her, he did so in bad faith. This was attributed to the Bank because her boss was expressly authorised to act on behalf of the Bank when he dismissed her. The Court also found that he was the “directing mind and will” of the Bank because he influenced senior management to make the decision to dismiss even though he himself was not part of the senior management team, and he individually had no power to terminate Ms. Tadjudin’s employment.
3. Whilst the burden was on Ms. Tadjudin to prove that the Bank terminated her employment in order to deprive her of the bonus, the Court of Appeal agreed with the CFI that if an employer cannot show a valid reason for a dismissal, the court is entitled to draw its own inferences as to the true reason from the circumstances. In this case, the CFI Judge concluded that Ms. Tadjudin’ s performance improvement process had been conducted in bad faith and was deliberately calculated to result in her dismissal. The judge then inferred that the dominant intention behind the termination was to deprive Ms. Tadjudin of the bonus. To be overturned, there either had to be an error in law, or a finding by the Court of Appeal that the conclusion of the CFI was one “which no reasonable judge could have reached” on the facts. The Court of Appeal did not regard this standard to have been met and therefore the finding of the CFI stood.
This decision confirms that there may be limitations implied at common law on the otherwise very broad grounds for termination that are permitted under Hong Kong law. It does not mean, however, that employers can no longer rely solely on a contractual notice provision to terminate without any other reason. The Court of Appeal made it clear that its decision was limited to Ms. Tadjudin’s contract, and not a decision generally about a term which should be implied into all employment contracts. Once it had concluded that the term had been correctly implied based on the specific facts of this case, the Court of Appeal was heavily influenced by the CFI’s finding that Ms. Tadjudin’ s boss’s evidence lacked credibility as to Ms. Tadjudin’s poor performance (which was the Bank’s stated reason for her dismissal). As the CFI’s inference that avoidance of the bonus payment was a dominant intention behind the dismissal was largely driven by its assessment of the witness evidence, the Court of Appeal was reluctant to interfere with that finding; the Bank had failed to convince the Court of Appeal that the CFI’s finding was “plainly wrong”.
Although this decision might lead employers to consider whether they would be better off staying silent as to reasons for termination, the main take-away point is simply that employers should act in good faith. Ms. Tadjudin succeeded largely because her boss (and therefore her employer) was found to have acted in bad faith by imposing a performance improvement plan specifically engineered to result in her dismissal. Going forward, employers are entitled to dismiss without cause in accordance with the contract, but the Court of Appeal, citing Wallace v United Grain Growers Ltd, noted that they must be “honest with the employee and refrain from untruthful, unfair or insensitive conduct”.
It remains to be seen whether future cases will be able to distinguish the findings in Sunny on their facts.