Refusal to produce proof for legitimate expense claims may justify summary dismissal

The recent Court of First Instance decision in Alcohol Countermeasure Systems (HK) Limited, Alcohol Countermeasure Systems (Dongguan) Limited v. Li Chi Kong, Peter, [2023] HKCFI 227, serves as a reminder to employees of their obligation to comply with reasonable and lawful orders of their employer. In the context of an expenses claim or a reimbursement request, even where the employee's claim is legitimate, when requested by the employer to properly explain the expenses and produce proof, any unreasonable refusal to co-operate might, in extreme cases, justify a summary dismissal.

Alcohol Countermeasure Systems (HK) Limited (ACS Hong Kong) was a Hong Kong company which engaged employees to oversee a factory to be set up in Mainland China (the Factory). Alcohol Countermeasure Systems (Dongguan) Limited (ACS China) was a PRC company which ran the Factory.

Mr Li, the employee, was employed by ACS Hong Kong as the general manager of the Factory under a brief employment letter (the Hong Kong Employment Contract). A few months later, the Employee signed two other employment contracts with ACS China (the PRC Employment Contracts), which contained provisions to allow him to claim reimbursement of certain heads of expenses, including travel and entertainment expenses, rental deposit, and living allowance.

During the course of his employment, the employee incurred a number of expenses and sought reimbursement from ACS China. However, ACS China and ACS Hong Kong were of the view that the expenses were improper, and the employee was not entitled to reimbursement. They commenced an action against the employee for fraudulent misrepresentation (in respect of ACS China) and breaches of employee duties (in respect of ACS Hong Kong). The employee was also summarily dismissed by ACS Hong Kong. The employee disputed the claims and counterclaimed for wrongful dismissal, among other things.

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The applicable terms and conditions of employment

In order to determine the disputes, the court needed first to consider the basic question of what the applicable terms and conditions of the employee's employment were. In particular, the court considered whether both the Hong Kong Employment Contract and the PRC Employment Contracts were applicable, or just the Hong Kong Employment Contract.

The court found that the employee was employed by both ACS Hong Kong and ACS China, under the HK Employment Contract and the PRC Employment Contracts, for the following main reasons:

• Taking into account (i) the parties' discussions after the signing of the Hong Kong Employment Contract; (ii) the fact that the PRC Employment Contracts were subsequently entered into; and (iii) the brevity of the Hong Kong Employment Contract, the Hong Kong Employment Contract did not contain all the terms of the Employee's employment.
• The Hong Kong and PRC Employment Contracts were prima facie binding and effective.

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Entitlement to the reimbursements

Upon examining the various expense claims in detail, the court found that the expenses were proper and genuine. The court also found, among other things, that the employee was entitled to the reimbursements contractually, under the Hong Kong Employment Contract and one of the two PRC Employment Contracts.

As such, the court dismissed the claims made by ACS Hong Kong and ACS China.

Validity of the summary dismissal

However, in respect of the Employee's claim of wrongful dismissal, the court found against the employee and took the view that the summary dismissal was valid, for the reason that he had wilfully disobeyed ACS Hong Kong's lawful and reasonable orders. The court explained its decision as follows:

• ACS Hong Kong had asked the employee to provide certain information in relation to various expenses claims. There was no response from the employee.
• Subsequently, ACS Hong Kong made various attempts to contact the employee to follow up on the matter, which were also ignored by the employee.
• While the expenses were proper and genuine, ACS Hong Kong's requests to the employee for explanations and provision of information in relation to the expenses were lawful and reasonable orders. However, the employee did not respond to these orders, even though he was aware of them. As such, the employee's conduct justified a summary dismissal.

Employee expense claims in Singapore surged since the start of the pandemic due to claims such as transportation and internet subscriptions.

Key takeaways

Employees may be asked by the employer to perform work for another company (usually within the employer's group), whether in or outside Hong Kong. While such arrangements are often intended to be a "secondment" or "placement" under which there would be no employment relationship between the employees and the other company, the parties should be very careful in establishing such arrangements. Depending on how the arrangements are structured, a dual employment scenario may arise, under which the employees are considered to be in the employ of both the original employer and the other company. As a matter of good practice, clear documentation should be put in place to delineate the relationship between the employees, the original employer and the other company.

In addition to the above, it is also important to note that, while an employee may be justified or entitled to certain requests made, it remains important for the employee to be co-operative towards the employer's reasonable and lawful requests for further information or explanations. Again, the employer should document all relevant communications for proper record.

For more information, contact Fatim Jumabhoy, Managing Partner and leader of the Employment, Pensions and Incentives team at Herbert Smith Freehills in Singapore.