'They were paid by mistake,' argues employer
Hong Kong’s High Court recently dealt with a case involving a worker's claims against their employer for unpaid director's fees, wages, and other emoluments.
The employer, in turn, filed counterclaims against the worker to recover past payments, arguing that they “were not properly authorized and were paid by mistake.”
The case, which was originally brought in the Labour Tribunal, was transferred to the High Court. The worker's claims included fees for acting as director from March 1, 2021, to June 30, 2021, amounting to HK$73,333.32; wages in lieu of unused annual leave of 18.98 days, amounting to HK$1,056,730.19; and fees related to their management role as director of the employer's wholly-owned subsidiaries.
The fees for the subsidiaries were divided into two periods: March 2020 to February 2021, amounting to HK$8,244,000, and March 2021 to June 2021, amounting to HK$3,067,999.99.
Director’s employment history
The court examined the worker's employment history with the employer, which began in 1990 when the worker was appointed finance director.
Over the years, the worker held various senior managerial positions, including Group Managing Director, Deputy Chairman, Chief Executive Officer (CEO), and Chairman.
The worker's employment was governed by a Confirmation Letter dated March 28, 2012, which remained in effect until the worker resigned from all positions on July 1, 2021.
The Confirmation Letter stated that the worker's appointment was subject to "the requirements under the Listing Rules of the Stock Exchange of Hong Kong Limited, the provisions of [the employer's] Articles of Association in force from time to time and any other applicable laws and regulations."
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Role of Remuneration Committee
The court also considered the role of the employer's Remuneration Committee (RC) in determining the worker's remuneration.
The RC was established in 2005 to ensure a formal and transparent procedure for developing policies on and overseeing the remuneration packages of all directors.
According to records, the RC had "the delegated responsibility to determine the specific remuneration packages of all executive directors and senior management, including benefits in kind, pension rights and compensation payments, including any compensation payable for loss or termination of their office or appointment."
Interpretation of Confirmation Letter
The worker's remuneration for the year ending February 28, 2021, was a central focus of the case. The court examined the effect of the employer's Articles of Association and those of the subsidiaries upon the interpretation of the Confirmation Letter, particularly clauses that dealt with the worker's director's fee and salary, respectively.
The court noted that "the starting point is the ordinary and natural meaning of the words of the contract," but in more difficult cases, "the surer guide to interpretation is context."
The court found that there was a specific clause of the Confirmation Letter, which stated that the worker would be entitled to a salary and other emoluments and benefits "recommended by Remuneration Committee from time to time," which was "clear and unambiguous."
The court held that "the recommendation by the RC as to the salary, other emoluments and benefits of [the worker] as Deputy Chairman and Chief Executive Officer of [the employer], by itself and without more, gives to [the worker] an entitlement to be paid such salary, emoluments and benefits by [the employer] as per the RC's recommendation."
Employer’s alleged contractual breaches
The court also considered the worker's remuneration for their role in the subsidiaries from March to June 2021. The employer's board passed a resolution on August 18, 2021, purporting to "nullify" the worker's 2020/21 remuneration package.
The court examined whether this action breached implied terms of the Confirmation Letter, such as the employer's obligation not to "do any act to put an end to the state or circumstances which entitled [the worker] to remuneration or benefits in respect of his role as regards the management of [the employer]."
The court found that the employer's actions in preventing the RC from considering, recommending, or approving any remuneration for the worker for the period from March 2021 were "contrary to previous practise and contrary to [the worker's] legitimate expectation that that practice would continue." The court held that these actions were in breach of the implied terms of the Confirmation Letter.
High Court’s decision on unpaid remuneration
In its decision, the court upheld most of the worker's claims, finding that they were entitled to recover unpaid remuneration attributable to their role in the subsidiaries for the period from March 2020 to February 2021, amounting to HK$8,244,000.
The court also awarded damages of HK$3,068,000 for breach of implied terms concerning the worker's remuneration for the period from March 2021, stating that "there is in my view no reason to believe that, had the RC properly considered the remuneration to be paid to [the worker] for the period from March 2021, it would have determined that such remuneration should have been any less than the remuneration it approved for the previous year."
The court determined that the payments made by the employer in July and August 2021 should be treated as partial payments towards the worker's claims for director's fees and annual leave pay.
Consequently, the total sum for which judgment was entered in favor of the worker amounted to HK$12,064,271.80, with interest to be assessed.