Hong Kong: Employment Law – Application Of The Implied Anti-Avoidance Term In Hong Kong

Last Updated: 18 March 2010

In the United Kingdom, there appears to be an emerging trend of recognizing the implied anti-avoidance term in employment contracts. An anti-avoidance term is defined by Cabrelli in "Discretion, Power and the Rationalisation of Implied Terms" as a term that has the effect of binding employers not to engage in tactics which evade the operation of an express term conferring a certain or conditional benefit on the employees. However, in the case of Sunny Tadjudin v Bank of America, National Association [2009] 4 HKC 507, the Hong Kong High Court has declined to imply an anti-avoidance term into an employment contract in Hong Kong.

BACKGROUND OF THE CASE

In this case, the Plaintiff was employed by the Defendant as a vice-president from 5 June 2000 to 27 August 2007. The employment agreement ("Agreement") between the Plaintiff and the Defendant provided that, among other terms, the Plaintiff would be eligible for consideration under the Defendant's performance incentive program to receive payment of bonus, conditional upon the Plaintiff being employed by the Defendant at the time of payment. The Agreement also expressly provided that either party might terminate the Agreement by giving a minimum of one month's notice in writing or salary in lieu of notice.

The Defendant terminated the Plaintiff's employment on 28 August 2007 by paying salary in lieu of notice. The Plaintiff commenced proceedings against the Defendant alleging that an implied anti-avoidance term in the Agreement was breached by the Defendant when the Defendant terminated her employment with intention to avoid paying her incentive bonus, which would otherwise be due to be paid in February 2008. The Plaintiff claimed for an amount exceeding HK$10 million being her loss of incentive bonus.

The Plaintiff argued that the Defendant had a contractual duty not to exercise its express right to terminate the Plaintiff's employment in order to avoid payment to the Plaintiff under the Defendant's performance incentive program.

THE ISSUES

The claim was first commenced in the Labour Tribunal but was transferred to be heard in the Court of First Instance. Master Levy of the High Court granted an order to strike out and dismiss the Plaintiff's claims. The Plaintiff appealed to the Court of First Instance. The appellate Court considered the following issues :-

  1. Whether the implied anti-avoidance term was part of the Hong Kong common law; and
  2. Whether as a matter of construction, the term could be implied into the Agreement.

THE COURT'S DECISIONS

(1) Whether The Implied Anti-Avoidance Term Was Part Of Hong Kong Common Law

The Court held that for an implied term to be applicable, it must be consistent with legislative policy as expressed in the statutes. Part VIA of the Hong Kong Employment Ordinance ("EO") protects an employee against unfair dismissal in circumstances where the employer dismisses the employee with the intention of extinguishing or reducing the statutory right, benefit or protection conferred by the EO. The Court considered Part VIA as providing a limited form of anti-avoidance legislation. Further, sections 6 and 7 of the EO expressly provide a statutory right for parties to an employment contract to terminate the contract without cause by serving the requisite notice or payment in lieu of such notice.

Based on sections 6 and 7 as well as Part VIA, the Court held that the legislature did not intend to provide remedies for loss flowing from the manner in which an employee was dismissed and that it would be inappropriate for the courts to construct a common law remedy based on an implied anti-avoidance term which goes contrary to the evident intention of the legislature.

The Court found no justification for allowing an implied term that could have the effect of diminishing the clear statutory right of termination without cause, as conferred by sections 6 and 7 of the EO.

(2) Whether As A Matter Of Construction, The Term Could Be Implied Into The Agreement

The Court relied on the Privy Council's decision of Reda & Anor v Flag Ltd [2002] IRLR 747. In Reda, the employment contract expressly provided that the employer was entitled to terminate the contract without cause. Upon being dismissed without cause, the employee sought to argue that the employer was in breach of the implied term of trust and confidence because the dismissal was for a collateral purpose to avoid granting him the benefit of a stock option plan which was about to be introduced. The Privy Council rejected the employee's argument and held that the employer's express and unrestricted power of dismissal without cause was not qualified, whether by reference to the implied term of trust and confidence or otherwise.

The Court also relied on the case of Johnson v Unisys Ltd [2003] 1 AC 518 in which the House of Lords pointed out that any term implied into a contract must be consistent with and cannot override express terms.

In the present case, the terms of the Agreement clearly gave the Defendant as well as the Plaintiff a right to terminate the employment by notice or salary in lieu.

Further, the Court found that for an employee to be properly regarded as having a legitimate or reasonable expectation of receiving any contractual benefits, he should have already accrued the right or benefit when the employment was terminated. The Court distinguished two English case authorities of Takacs v Barclays Service Jersey Ltd [2006] IRLR 877 and Jenvey v Australian Broadcasting Corporation [2002] IRLR 520, in which the employees were entitled to a guaranteed bonus as opposed to the Plaintiff's discretionary bonus. On the facts, the Plaintiff in the present case had not accrued the benefit or right to the incentive bonus because at the time when the bonus came to be payable, she was no longer in the Defendant's employment and was not eligible for consideration under the incentive program.

The appeal was accordingly dismissed.

CONCLUSION

Although the anti-avoidance term has been accepted in other jurisdictions, the Hong Kong court in this particular case has demonstrated reservations in implying such a term if it is not consistent with Hong Kong's employment legislation or the express terms of the Agreement. The Court is of the view that employee protection involves complex policy issues and should be debated and decided by the legislature.

If you have any queries regarding the above judgment or on any employment matters in Hong Kong or mainland China, experienced lawyers in our Employment Practice will be happy to assist you.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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