Dismissal before a certain age not allowed in 'fixed-term' contract, says worker
A Hong Kong court recently dealt with a labour dispute involving a worker's claim for damages and unpaid entitlements following the termination of his employment.
The case centred on the interpretation of an employment contract clause and the worker's entitlement to share awards under the employer's scheme. At the heart of the dispute were the worker's arguments that his employment contract was for a fixed term until he reached 65 years of age, and that his termination before this age was unlawful.
He also contended that he was entitled to certain share awards, despite the employer's claim that the termination disqualified him from these benefits.
Background of the case
The dispute arose when a worker applied for leave to appeal against a Labour Tribunal decision that dismissed his claims for damages, loss of income, loss of benefits, and unpaid entitlement of share awards.
These claims stemmed from what the worker alleged was unlawful termination and breach of his employment contract by the employer.
The case hinged on two main points of contention:
- The interpretation of the contract clause specifying the duration of employment
- Whether the termination constituted an "extraordinary cancellation without notice" under the employer's share awards scheme
The worker argued that his employment contract was for a fixed term, set to expire when he reached 65 years of age. He claimed that the employer's termination notice, served before he reached this age, was unlawful.
Interpreting the employment contract
The court examined the relevant clause in the employment contract, which 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 the "Notwithstanding" clause overrode the preceding provisions, effectively creating a fixed-term contract until he reached 65. However, the court disagreed with this interpretation.
The decision on contract interpretation
The court emphasised the importance of reading contract terms as a whole and considering all relevant surrounding circumstances. It referred to the judgment in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, where Lord Clarke stated that the process of construction is "one unitary exercise".
The court concluded that the "Notwithstanding" clause did not create a fixed-term contract. Instead, it found that the clause meant the contract would automatically continue until terminated by 6 months' notice, but would end when the worker reached 65, regardless of whether notice had been given.
The court explained:
"[The clause] does not prevent the Contract from coming to an end, upon the condition of the attainment of age 65 being satisfied, and despite the fact that the Contract was to continue and no 6 months' notice had been served."
This interpretation, according to the court, aligned with both the plain language of the clause and business common sense.
Share awards and termination
The second major issue concerned the worker's entitlement to share awards under the employer's scheme. The employer had terminated the contract with a payment in lieu of notice, which the Labour Tribunal had interpreted as a "termination without notice".
The court found that this interpretation was potentially erroneous. It explained the distinction between termination by notice, termination by payment in lieu of notice, and summary dismissal without notice under the Employment Ordinance.
The court noted:
"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."
This distinction was crucial because the share awards scheme had specific conditions for forfeiture in cases of "extraordinary cancellation without notice".
Conclusion and implications
The court granted leave to appeal on the question of whether the termination was "without notice" and how this might affect the worker's claims for damages. It stated:
"On the authorities, it is reasonably arguable that the Tribunal erred in law, in equating termination by payment in lieu of notice with summary dismissal without notice."
This decision highlights the importance of clear contract drafting and careful consideration of termination procedures. It also underscores the potential complexities in interpreting employment contracts and benefit schemes.
“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 employee if it considers that it has grounds to terminate the employee,” said the court.
