Hong Kong SAR

High Court considers case of summary dismissal and takes into account employee’s intention behind misconduct

In Cheung Chi Wah Practice v Hong Kong Cement Company Limited (HCLA 18/2016), the High Court in Hong Kong sided with the claimant and the Labour Tribunal that the claimant was wrongfully terminated by the defendant.

In this case, the employee, Cheung, was employed by the defendant as its Financial Controller and was appointed company Secretary, Authorised Representative and Financial Controller of a listed company that wholly owns the employer. The listed company sought to raise funds by a rights issue and Cheung was to assist in the process. In order to avoid breaching the listing rules of Hong Kong, the company’s public float cannot fall below 25%. As instructed by his immediate supervisor, Cheung sought legal advice on how many rights shares the majority shareholder of the listed company could apply for without causing the public float to fall below 25%. Cheung then relied on but honestly misunderstood the legal advice. This caused the public float to fall below 25%, resulting in the company having to take remedial action to rectify the situation. The defendant summarily terminated Cheung’s employment on the ground that he had committed an act of gross negligence.

The Labour Tribunal decided in favour of Cheung. Whilst the Labour Tribunal acknowledged that Cheung committed an act of gross negligence and his mistake was undeniably serious, it held that it was necessary to consider whether the misconduct amounted to a repudiation of the employment contract and whether Cheung evinced an intention not to be bound by the terms of his employment contract, which would have justified summary dismissal. Since Cheung honestly misunderstood the legal advice, the employer could not summarily dismiss him either under s. 9 of the Employment Ordinance or under common law.

The High Court subsequently dismissed the defendant’s appeal. It held that the Labour Tribunal’s conclusion that Cheung had honestly but erroneously believed and relied on the legal advice was not an irrational one. While it would have been reasonable for the Labour Tribunal to arrive at a different conclusion, the different conclusion is not the only reasonable one. Further, it held that it is necessary to consider the employee’s explanation as to why the misconduct was committed, as without doing so it would be difficult to ascertain objectively whether Cheung had manifested an intention not to be bound by the employment contract. Only when it is clear that the employee has, by his conduct, manifested such an intention can he then be summarily dismissed under section 9 of the Employment Ordinance.

Court of Appeal considers the implications of foreign same-sex marriage or civil partnerships for the purposes of dependant visa application

In the case of QT v Director of Immigration (CACV 117/2016), the Court of Appeal unanimously ruled that the denial of the application for a dependant visa by a same-sex partner amounted to unlawful discrimination based on sexual orientation. QT had entered into a civil partnership with her same-sex partner in England. Her application for a dependant visa was declined by the Director of Immigration. Under Hong Kong laws, only a spouse or a child under the age of 18 of a person who is working in Hong Kong may apply for a dependant visa. The Director of Immigration refused the dependant visa application on the ground that QT and her same-sex partner are not “spouses” because such would contravene Hong Kong law, which defines marriage as “monogamy and the concept of a married couple consisting of one male and one female”.

QT applied for judicial review but was unsuccessful in the Court of First Instance. On appeal, the Court of Appeal considered that, although there is no right to same-sex marriage in Hong Kong, using marital status as a condition to access other rights or benefits may still be discriminatory. This position is supported by Article 25 of the Basic Law of Hong Kong, which grants every citizen in Hong Kong the right to equality before the law. Whilst the Court of Appeal acknowledged that the Immigration Department must strike a balance between attracting talented and skilled people and exercising stringent immigration controls, using someone’s marriage status to differentiate people when a case falls outside the areas of life involving core rights and obligations unique to the status of marriage requires justification. The Court concluded that it was irrational for the Director of Immigration to refuse QT’s application for a dependant visa on the sole ground that she and her partner were of the same sex. The Court also held that the nature of a dependant visa such is that it enables the applicant to stay in Hong Kong in the capacity as a dependant with conditions attached. It does not, as the Director of Immigration attempted to argue, have the legal effect of the Director of Immigration recognising the validity of the union of relationship between the applicant and the sponsor (be it heterosexual or homosexual) under Hong Kong law. Further, although the Director of Immigration argued that the Immigration Department uses marriage as a criterion for setting eligibility requirements for administrative workability and convenience, the Court countered that the level of administrative workability and convenience does not differ between heterosexual and homosexual couples.

For the above reasons, the Court of Appeal determined that the Director of Immigration failed to establish how the marital status requirement is rationally connected to the aim of striking a balance between the need to attract talent and exercise stringent immigration control. It therefore failed to justify the indirect discrimination on the ground of sexual orientation that QT suffered.

Revised Vento scale in the United Kingdom

Under Hong Kong’s anti-discrimination legislation, one of the common remedies that a claimant in a claim for an unlawful act of discrimination or harassment usually seeks is damages for injury to feelings. The assessment of such damages is usually carried out according to what is called a Vento scale, which consists of three broad “bands” of damages, depending on the severity of injury to feelings. The Vento scale, derived from English case law, has been adopted and consistently applied in Hong Kong.

Over the years, the Vento scale has gradually developed by way of case law and there has been constant suggestion that it should be revised based on evolving social circumstances. On 20 July 2017, the Presidents of the Employment Tribunals in England & Wales and in Scotland (the “Employment Tribunals”) launched a consultation on proposed changes to the awards for injury to feelings and psychiatric injury.

The consultation concluded that the Employment Tribunal does not need to undertake a review of awards for injury to feelings generally, and the Vento bands in particular should not be reformed. However, the Employment Tribunal also acknowledged the need to revalue the Vento scale in order to reflect inflation and recent case law, which suggested that a 10% uplift should be applied. Therefore, since 4 September 2017 and ultimately subject to the Employment Tribunal’s discretion, the Vento scale in the United Kingdom has been adjusted upwards. It remains to be seen whether the adjustment will be adopted by Hong Kong courts via new case law, or if the courts / legislators will adopt a similar approach in re-evaluating the Vento scale as it is currently applied in Hong Kong.

High Court applies a restrictive interpretation to the deductions from wages prohibition and exemptions

The High Court considered in the case of Voahanginiaina Aimee Chantal v Leung Man Kai (HCLA 27/2016) the situation where an employer paid a portion of the employee’s salary to a creditor of the employee in satisfaction of a debt owed by the employee to the creditor. The Court held that if an employer makes a payment out of the employee's salary to a third party on behalf of the employee in satisfaction of the employee's obligation to such third party, this amounts to a deduction from wages which is prohibited under section 32 of the Employment Ordinance unless an express legislative exception is applicable. As there is no such exception for a payment to a third party in satisfaction of the employee’s liability (even with the employee’s consent), the Court rejected the employer's arguments and also opined that if there were consent (or a request) from employees to make deductions from wages, then the employer could always make an application to the Commissioner for Labour for approval, which would be an express exemption under the Employment Ordinance. This illustrates that the Courts in Hong Kong adopt a restrictive approach to the interpretation of the Employment Ordinance in relation to the prohibition against deductions from wages.

Director sentenced to imprisonment for defaulting on mandatory provident fund contributions

In July 2017, a company director was sentenced to 21 days’ imprisonment for failing to comply with court orders to make mandatory provident fund contributions in arrears and surcharges for the company’s employees, which is a criminal offence under the Mandatory Provident Fund Schemes Ordinance (the “MPFSO”). This is the first case in which a company director has been sentenced to imprisonment for failing to comply with the MPFSO.

Financial Institution (Resolution) Ordinance (Cap. 628)

The Financial Institution (Resolution) Ordinance (“FIRO”) came into operation on 7 July 2017. Its primary objective is to establish a cross-sector resolution regime that grants certain powers to the Insurance Authority, the Monetary Authority and the Securities and Futures Commission to intervene and manage the failure of financial institutions in Hong Kong where such failure could have adverse systemic consequences.

Of relevance from an employment law perspective is Part 8 of the FIRO, which is not yet in force. Part 8 introduces a clawback mechanism which enables the above-mentioned resolution authorities to make applications to the court to claw back fixed or variable remuneration received by an officer (e.g. director, shadow director, CEO, etc.) in respect of services provided to the financial institution during the controlled period (i.e. three years and a further three years’ extended period as may be fixed by the court, immediately before the date on which the resolution of the financial institution was initiated). The court may make a clawback order against an officer if it is satisfied that (1) the officer, in performing his or her functions, acted or omitted to act in a way that caused or materially contributed to the financial institution ceasing, or being likely to cease, to be viable; and (2) the act was done, or the omission was made, intentionally, recklessly or negligently.

Proposed legislative changes on employment rights

In her 2017 Policy Address, Chief Executive of Hong Kong Carrie Lam proposed a number of polices relating to employment rights. The following two proposals are particularly notable:

1.  Proposed abolition of offsetting of Mandatory Provident Fund contributions

Under the current Employment Ordinance, employers are entitled to offset an employee’s statutory severance or long service payment with accrued benefits derived from the employer’s contributions made to the employee’s retirement scheme. On 23 June 2017, the Executive Council affirmed the government’s proposal to progressively abolish such “offsetting”. The current government has been willing to assist small and medium enterprises in dealing with the financial impact of the proposed abolition and intends to re-open the consultation process in order to devise proposals on how to implement the offsetting mechanism.

2. Increased maternity and paternity benefits

The government intends to commence an impact and feasibility study for the proposal to increase statutory paid maternity leave from 10 weeks to up to 14 weeks, in line with standards adopted by the International Labour Organisation, and to increase statutory paid paternity leave from three days to five days.