Court also looks into duration clause and contract's terms
A Hong Kong court recently dealt with an employment dispute involving the interpretation of an employment contract's duration clause and the employee's entitlement to share awards upon termination.
The case arose from a Labour Tribunal decision that dismissed a worker's claims for damages, loss of income, loss of benefits, and unpaid entitlement of share awards under his employer's share awards/stock options scheme.
The worker put forward two main arguments in his appeal. Firstly, he said that his employment contract was for a fixed term until he reached age 65, and therefore couldn't be terminated before then.
Secondly, he argued that he was entitled to share awards for the years 2016 to 2020, despite the termination of his employment. These claims hinged on the interpretation of specific clauses in his employment contract and the company's share awards scheme.
Understanding the duration clause
According to records, the employment contract, dated 19 January 2009, contained a duration clause that stated:
"Duration of Agreement: This agreement will commence on 1 January 2009 and will continue unless and until terminated by either party giving to the other not less than 6 months' notice in writing.
Notwithstanding the previous paragraphs, this contract shall end upon attainment of age 65."
The worker argued that this clause meant the contract was for a fixed term until he reached age 65, and couldn't be terminated before then.
He said that the employer's notice of termination, dated 29 December 2020 and claimed to take effect on 31 December 2020, was served before he attained 65 years of age and was, therefore, unlawful.
The court disagreed with this interpretation. It found that the "notwithstanding" clause didn't override the entire preceding provision, but rather meant the contract would automatically end at age 65 regardless of whether notice had been given.
The court explained: "Even giving the overriding effect to the Notwithstanding Clause, read as a whole, the Duration Clause only means that the Contract and the employment thereunder will automatically continue until it is terminated by 6 months' notice, but when the conditions specified in the Notwithstanding Clause are satisfied by [the worker] attaining the age of 65 years, then the Contract and the employment cannot continue, and the termination by 6 months' notice no longer applies."
Share awards and termination procedure
The worker also claimed entitlement to share awards under the company's scheme for the years 2016 to 2020. The employer had provided payment in lieu of notice when terminating the contract through a letter dated 10 December 2020.
The court found the Labour Tribunal had erred in equating termination with payment in lieu of notice to summary dismissal without notice.
It explained:
"Although a payment in lieu of notice terminates the contract with immediate effect, it does not equate to summary dismissal and termination without notice as provided for under section 9 of the Employment Ordinance. A payment in lieu of notice is unilateral, and serves as an alternative to giving the notice period."
The court said that this distinction was important because the share awards scheme had different provisions for regular termination versus "extraordinary cancellation without notice."
The scheme conditions provided that the grant of share awards was discretionary and set out terms for allocation.
The employer argued that share awards allocated in 2016 would not vest until March 2021, which was after the termination of the worker's employment on 31 December 2020.
The court emphasised that employers must be clear about their chosen method of termination, stating:
"Since different consequences follow from the distinct methods for the termination of the contract, the courts have made it clear that [the employer] must make an election, bear the consequences of its election and make its election clear to [the worker] if it considers that it has grounds to terminate [the worker] under section 9 but nevertheless makes payment to [the worker]."
The court further noted:
"The Letter can be reasonably understood to be [the employer's] choice to terminate the Contract by making payment in lieu of the 6 months' notice provided for in the Contract, and there was no indication in the Letter of any conduct on the part of [the worker] which would have entitled [the employer] to terminate the Contract without notice."
Based on these findings, the court granted the worker leave to appeal on the question of law regarding whether the termination of the contract was without notice, and the effect this may have on the worker's claims for damages in respect of the employer's alleged breach of the contract of employment.
