Can Termination Of A Fixed-term Employment Contract During Sick Leave Constitute Dismissal?

Introduction

Can termination of a fixed-term employment contract during sick leave constitute dismissal? InChung Hoi Yin Aggie v The General of the Salvation Army[2025] HKCFI 3680, the Court of First Instance ("CFI") clarifies on the termination of fixed-term employment contracts when employees are on sick leave. This case illustrates the legal distinctions between contract expiry, dismissal, and notice requirements under the Employment Ordinance ("EO").

Background

The defendant, Salvation Army ("Employer"), employed the claimant ("Employee") as a registered contract social worker since 2005. On 30 March 2020, the Employer and the Employee entered into a fixed-term employment contract for the period 1 April 2020 to 31 March 2021 as a contract team leader ("EmploymentContract").

Key provisions of the Employment Contract included:

• Clause 4: The team leader's primary duties are to assist senior officers in leading and managing service teams, respond to community needs, and provide quality professional services to youth and their families.
• Clause 10 (Code of Conduct): Obligation to provide services aligned with the Employer's social mission and comply with evolving service quality standards ("SQS"), occupational safety, hygiene, environmental protection, and social work professional codes.
• Clause 12: Incorporation by reference of the Contract Employee Handbook ("Handbook") and employee performance assessment forms, which the Employee acknowledged and agreed to abide by.

The Handbook stipulated the following:

• Service quality:Employees should adhereto the Employer's SQS, which are standards agreed between the Social Welfare Department and the Employer.
• Termination notice requirements: Employees who resign must give four weeks' prior notice to the Employer. Likewise, the Employer must also provide employees with the required notice periodwhenterminating their employment.

Clause 5 of the SQS ("SQS 5") was a human resources ("HR") procedural policy covering contract renewal and termination notices, which provided that the HR Department would issue contract renewal letters within four weeks before or after the contract end date. For senior officers or above, termination notices must be given at least two months or 28 days before contract expiration.

After the expiration of the Employment Contract on 31 March 2021, the Employer renewed the Employment Contract by six three-month renewals ("SubsequentRenewals"), resulting in a total renewal period of one and a half years, ending on 30 September 2022.The Employee was on sick leave from before the expiry of the Employment Contract and throughout the Subsequent Renewals. The Subsequent Renewals expired on 30 September 2022. On 30 September 2022, the Employer informed the Employee that there would be no further renewals when she was still on sick leave.

The Employee commenced Labour Tribunal proceedings against the Employer, and claimed:

1. SQS 5 required 28 days' notice for termination and this formed part of her Employment Contract;
2. the Employer's failure to give 28 days' notice constituted unlawful dismissal; and
3. the Employee sought 28 days' wages in lieu of notice, compensation arising from termination, and dismissal compensation under section 32P of the EO.

The Labour Tribunal held thatSQS 5formed part of the Employment Contract. As a result, the Tribunal ruled that the Employer ought to have provided the Employee with 28 days' notice prior to termination. The Employer's failure to give such notice constituted dismissal without proper grounds. Accordingly, the Tribunal awarded the Employee 28 days' wages in lieu of notice and compensation for wrongful dismissal under section 32P (Award of compensation) of the EO.

The Employer appealed to the CFI against the Tribunal's decision.

Legal issues

The Employer argued that the Employment Contract was clearly fixed-term, with no automatic renewal or contractual notice rights, and that SQS 5 was only an HR guideline.

The key legal issues in dispute were:

1. Whether SQS 5 formed part of the Employment Contract?
2. If it did not, whether expiry of the fixed-term employment should be regarded as dismissal?
3. If the answer to (2) is "yes", whether there were proper grounds for dismissal?

Relevant EO provisions

Section 32P of the EO addresses compensation for wrongful dismissal. Section 33(4B) protects the employee's statutory sick leave entitlements, including sick leave allowance and restrictions on employer termination during statutory sick leave, except for valid reasons independent of the sick leave.

The Employee's continuous sick leave raised the issue of whether the termination via non-renewal during sick leave triggered protection or compensation under the EO.

CFI judgment and key reasoning

The CFI overturned the Labour Tribunal's ruling and allowed the Employer's appeal on the following grounds:

• Non-incorporation of SQS 5:SQS 5 was a guideline for the Employer's HR management and did not create mutual contractual obligations between the Employer and the Employee. While Clause 10 provided compliance with SQS, this related to service quality only. Clause 10 did not incorporate HR procedures or notice requirements into the Employment Contract.
• Fixed-term contract expiry:Insofar as the Subsequent Renewals are concerned, each renewal was explicitly for a defined fixed term of three months. There was no express or implied term granting automatic renewal or a contractual right to notice on expiry.
• Effluxion of time not dismissal:FollowingDemery v Cathay Pacific Airways Ltd[2010] 4 HKLRD 99, the CFI held that expiration of a fixed-term contract by effluxion of time was not a dismissal requiring notice or compensation.
• Sick leave:Ongoing sick leave did not transform the Employment Contract and the Subsequent Renewals into indefinite terms nor create additional protections beyond statutory sick pay entitlements.
• No wrongful dismissal compensation:Without dismissal, no entitlement to compensation under section 32P existed, and the Labour Tribunal's award was set aside.

Consequently, the Employee's claim should have been dismissed and the Labour Tribunal's award was set aside.

Takeaways

This case highlights the importance of clear, fixed-term employment contracts specifying renewal terms and notice rights. Fixed-term contracts expire "naturally" by effluxion of time without the need for the employer (or employee) giving notice of termination. This applies even when the employee concerned is on sick leave. If the parties want to incorporate internal policies, such as SQS 5, into an employment contract, it should be clearly set out in the employment contract to avoid any ambiguity. As always, if in doubt, it is advisable to seek legal advice.

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.