Ex-managing director challenges employer's motives in termination decision
The High Court of Hong Kong recently dealt with an employment dispute involving a senior executive in the financial services industry. The case focused on issues of discretionary bonuses, termination of employment, and alleged breaches of implied contractual terms.
The worker, a senior managing director at a major financial institution, argued that his employer had breached his contract of employment in three key ways: by issuing him an unjustified warning letter, by unfairly denying him a substantial bonus, and by terminating his employment under false pretences.
He claimed these actions were not only unfair but also calculated to damage the relationship of trust and confidence between him and his employer.
The worker had held dual roles as head of China and chairman of investment banking for Asia ex-Japan.
The case arose following an inspection by the Securities and Futures Commission (SFC) in 2016, which raised concerns about potential conflicts of interest in the company's practices.
The SFC's inspection focused on meetings the worker had arranged between equity research analysts and clients.
These meetings, particularly one in April 2015 with a potential IPO applicant, were seen as problematic due to the potential perception of conflicts of interest.
Following the SFC's concerns, the employer issued a warning letter to the worker. The worker argued that this warning was unjustified and breached implied terms of his employment contract.
The court examined the circumstances surrounding the warning letter. It found that the employer had reasonable cause to issue it. The judge noted that the main issue was not necessarily a breach of specific policies, but rather the worker's approach to managing potential conflicts of interest.
The court said: "As mentioned above, what concerned [the employer] was not so much a breach of a black letter rule but [the worker's] inability to recognise and handle the perception of a conflict of interest between the IBD and Research functions of the firm and to take appropriate action accordingly; as a member of senior management, [the worker] was expected to promote compliance with [the employer's] policies and guidelines both in letter and spirit."
Following the warning letter, the employer decided not to award the worker any bonus for the 2016/17 performance year. The worker argued that this decision was irrational and breached implied terms of his contract.
The court examined whether the employer had exercised its discretion properly in making the bonus decision. It looked at factors such as the worker's financial contributions, the warning letter, and negative feedback received about the worker's performance.
The judge accepted the employer's explanation that while the worker's financial contributions were considered, they were outweighed by negative factors. The court quoted the employer's representative:
"...it is clear from [the manager's] evidence that the most important – indeed the overwhelming – factor that led to the FY16/17 Bonus Decision being zero was the Warning Letter. While he did consider the other negative factors, they only further anchored the decision being zero. As to the positive factor of [the worker's] contribution, it was present and was considered, but was unable to outweigh the overwhelming negative factors which led to zero bonus".
The final major issue in the case was the termination of the worker's employment. The employer had stated redundancy as the reason for termination. The worker argued that this was not the true reason and that the termination was intended to deprive him of bonus awards.
The court found that redundancy was not the true reason for the termination. The judge noted that the employer's representative admitted it was not a true redundancy. Instead, the termination was related to the worker's conduct and the breakdown of separation negotiations. The court said:
"[The manager] further accepted that [the worker's] 'redundancy' was not a real redundancy, since [the employer] could have terminated the employment given [the worker's] conduct, but it was called a redundancy in order to save [the worker's] face or to give him face."
However, the court did not agree with the worker's argument that the termination was intended to deprive him of bonus awards. The judge found no evidence to support this claim and pointed out problems in the worker's argument.
The court dismissed the worker's claims. The judge's final remarks emphasised the employer's right to exercise discretion in bonus decisions and terminations, provided they act in good faith and consider relevant factors:
"Whether or not another employer may have weighed the factors differently and awarded a bonus is not the test; even if another employer may reasonably have decided, on the same facts, to award [the worker] a bonus, this is not relevant. The court only intervenes if the decision-making process was irrational, and [the worker] falls far short of demonstrating irrationality."
"I therefore do not agree that [the employer] was in breach of contract in forfeiting the Unvested Bonus Awards."
"In the light of the above, I find that the termination of [the worker's] employment was not a breach of [the worker's] contract of employment," the court said.
