Introduction

Gratuity payment subject to “satisfactory completion” of an employment contract in the opinion of the employer is commonly included as a term of in employment contracts as an incentive to motivate employee’s performance during the term of the employment. In deciding whether to pay the gratuity, is an employer entitled to take into account of the employee’s work performance? A recent decision of the Court of First Instance (“CFI”) in Chok Kin Ming v Equal Opportunities Commission HCLA 42/2015 considered this question.

Background of the Case

This case has arisen from a dispute between an employer, the Equal Opportunity Commission (“EOC”), and its former employee (“Claimant”) concerning what the Claimant said and did at a forum organised by a church on 16 August 2014.

The Claimant began his employment with the EOC in 1996. The last renewal of his employment contract was for 3 years from 1 November 2011 and 31 October 2014 as a Chief Equal Opportunities Officer. The contract incorporated the terms contained in a “Memorandum on Conditions of Service in the Equal Opportunity Commission Office” (“Conditions of Service”).

The letter offering the Claimant’s appointment stated, among other things:

“Subject to the terms as set out in the attached [Conditions of Service], you will receive a gratuity for the period of service upon satisfactory completion of the agreement in the opinion of the EOC.  …  The gratuity payable for the agreement will be the sum which, when added to the EOC’s contribution to the said MPF Scheme, equals 25% of the total basic salary of substantive office drawn during the period. …”

Clause 13 of the Conditions of Service governed the payment of the contract-end gratuity. Clause 13.1 stated, among other things:

“On satisfactory completion of the agreement in the opinion of the employer … the employee will receive a gratuity in respect of the actual period of service, including periods of vacation leave earned and taken.  Such gratuity will be payable at a rate as specified in the letter of appointment.”

Towards the end of the Claimant’s employment, the EOC was conducting a 3-month public consultation on discrimination law review (“DLR”) to be concluded on 7 October 2014. The Claimant was one of the key members of the EOC’s DLR taskforce. The DLR was a major exercise intended to be a comprehensive review of all the existing discrimination laws to consider how they could be modernised to meet the society’s needs. It started in late 2012 and consisted of 5 phases. Public consultation was the second phase, following an internal review by the EOC and to be followed by an assessment of all the submissions and views received during the public consultation, drafting submissions and recommendations to the Government, and advising the Government on how the recommendations could be implemented.

Over 70 questions were posed to the public in the consultation document. According to the EOC, its role in canvassing the public’s views in the DLR consultation was to be impartial.  The Claimant was responsible for explaining the objectives and proposals of the DLR to the public in consultation forums scheduled on 9, 16, 23 and 30 August 2014. He attended the first public consultation meeting on 9 August as the EOC’s representative and speaker and, following the church forum in issue in the morning of 16 August, he attended the second public consultation meeting in the afternoon of the same day.

Meanwhile, the EOC had decided in July 2014 not to renew the Claimant’s employment contract when it expired in 3 months’ time in October.

On 16 August 2014, the Claimant attended and gave a talk at a forum organised by Tsung Tsin Mission of Hong Kong (香港崇真會) (“Church”) to introduce and explain the DLR consultation. The forum was open to members of the branches of the Church and the schools run by it. It appears that those who attended included headmasters, teachers, and parents of students of the schools. Members of the media had not been invited. In the Labour Tribunal proceedings later commenced by the Claimant against the EOC, the Presiding Officer found that the Claimant had been invited to the forum in his personal capacity and because of his Christian religion. The Tribunal also concluded that it was a private function.

At the forum, the Claimant, among other things, suggested the participants at the forum to give particular responses to certain questions in the consultation to the effect that was to oppose same-sex marriage. The Claimant also criticised the actions of the EOC on sexual orientation discrimination as pointless and the way it had conducted the DLR.

After the newspaper reported what the Claimant said at the forum, the Claimant and the EOC came under a great deal of criticism in the media. The EOC discharged the Claimant from his DLR duties immediately and conducted an internal investigation on the matter. As a disciplinary action, the Chairperson of the EOC issued a formal warning notice, which set out the details of the misconduct found including, among other things, the Claimant had breached of the EOC’s internal code of conduct in that he had placed himself in a position of conflict by expressing his personal views rather than remaining impartial in the consultation process. The Claimant did not agree with the outcome of the internal investigation but did not lodge any appeal.

The EOC decided not to grant the contract-end gratuity to the Claimant under clause 13.1 of the Conditions of Service because he had not satisfactorily completed the employment contract. Since the Claimant was a long-serving employee, the EOC offered him a chance and prepared a draft deed of release, according to which the gratuity would be paid to him on a discretionary basis provided he accepts the terms including providing a written apology for his action and a provision that he shall not make any negative statement concerning the EOC. The Claimant refused to sign the deed of release and the EOC did not pay him the gratuity.

The Tribunal’s Decision

The Claimant commenced proceedings against the EOC in the Labour Tribunal. The Tribunal ruled that as a matter of construction, the phrase “satisfactory completion” in clause 13 of the Conditions of Service refers to temporal completion of the contract, which in this case the completion of his 3-year term.  The EOC could not take into account of the Claimant’s work performance in deciding whether to pay him gratuity under clause 13.  If such construction of clause 13 was wrong, the Tribunal considered on facts that the Claimant’s claim should be upheld for the reasons set out in its decision.  The Tribunal decided that the Claimant was entitled to the gratuity and ordered the EOC to pay the same.  The EOC appealed.

CFI’s Decision

The CFI considered the questions of law raised were: (1) whether, as a matter of construction, the contract of employment entitled the EOC to take into account the work performance of the Claimant in deciding whether to pay him the gratuity; and (2) whether the Tribunal failed to apply the correct legal test in ruling that the EOC wrongfully failed to pay the gratuity.

On the first question, the CFI found that the expression “[o]n satisfactory completion of the agreement in the opinion of the employer” in clause 13.1 plainly includes the manner in which the agreement has been completed. Although clause 13.1 provides for a contractual entitlement to the “gratuity” because of the words “will receive”, this is subject to the satisfactory completion of the agreement in the opinion of the employer. The reference to the employer’s opinion introduces an element of discretion or judgment on the part of the employer.

The CFI was of the view that the Labour Tribunal took too narrow a view of the meaning of “satisfactory completion” and failed to construe the provision in the context of the contract as a whole. The contract imposed various obligations on the Claimant and his position required him to perform various duties. Completion of the employment contract implied discharge of the obligations by performance. There was no warrant to confine the meaning of “satisfactory completion” to simply sitting out the appointment. The word “satisfactory” imported scope for judgment by the employer, in line with “opinion”. It was apt to refer not so much to finishing the term but to the level of performance of the obligations attendant with the appointment.

On the second question, the CFI considered that the EOC had not been irrational or perverse in deciding not to grant the Claimant the gratuity. The Tribunal had failed to apply the correct legal test which had been set out in previous case law in ruling that the EOC breached the employment contract in deciding not to pay the Claimant his gratuity. The CFI allowed the EOC’s appeal and the case was remitted to the Tribunal for determination in the light of the CFI’s judgment.

Takeaway points

Whether an employer is entitled to take into account of the employee’s work performance in deciding whether to pay the gratuity is a matter of construction depending on the terms of the employment contract. The relevant gratuity clause will need to be construed in the context of the employment contract as a whole. A properly drafted gratuity clause that provides gratuity is payable subject to satisfactory completion of the employment contract in the opinion of the employer will be enforceable and the employer is entitled to take into account of the employee’s work performance in deciding whether to pay the employee gratuity. Of course, the employer must exercise this discretion rationally and properly, otherwise it may give rise to a claim by the employee for breach of contract. If an employer intends to incorporate a gratuity clause into an employment contract as an incentive to recruit high calibre candidates, it is advisable to seek professional legal advice.