Can dishonesty automatically justify a summary dismissal?
Introduction
Termination of employment contract without notice or payment in lieu of notice under section 9 of the Employment Ordinance (Cap. 57), commonly referred to as “summary dismissal”, is a serious disciplinary action. It only applies to cases where an employee has committed very serious misconduct or fails to improve after repeated warnings.
What about dishonesty? Say an employment contract provides that an employee is entitled to reimbursement for certain out-of-pocket family expenses. The employee obtained reimbursement with invoices issued to him that were not in fact his or his family’s expenses but for expenses incurred by his friend’s son. Can such a dishonest act automatically justify summary dismissal?
This is the scenario that the Court of First Instance (“CFI”) had to grapple with in Hu Yangyong v Alba Asia Limited [2025] HKCFI 2484. On the facts of this case, the CFI said “No”. In its decision, the CFI reiterated that summary dismissal only applies to very serious misconduct and discussed the principles on summary dismissal.
Background
Mr Hu Yangyong (“Employee”) was employed as the Chief Operating Officer (Asia) of Alba Asia Limited (“Employer”) under a fixed three-year term of employment agreement commencing from 1 June 2017. Clause 3(b) of the employment agreement (“Clause 3(b)”), the key contractual provision in issue, provided as follows:
“Expenses reimbursement
The [Employee] shall be entitled to a reimbursement for the out-of-pocket family expenses which includes (but not limited to) his house rental fee, kid’s tuition and family member home visit travel expenses in Mainland China up to an amount of RMB20,000 per month. The [Employee] will be reimbursed for such expenses after providing the [Employer] with official tax invoices (Fa Piao).”
On 7 September 2018, the Employer summarily dismissed the Employee primarily on the grounds that he repeatedly submitted claims for monthly expense reimbursements that were not in compliance with Clause 3(b). The Employer’s case was that the invoices submitted by the Employee were not for expenses covered by Clause 3(b), and the Employee failed to provide sufficient explanations when being asked to clarify the nature of the expenses claimed. The Employee initiated proceedings for wrongful dismissal and sought damages for lost wages and various benefits in 2019.
The dispute centered on certain expenses submitted by the Employee, which the Employer challenged as fraudulent because they were not the Employee’s genuine family expenses. In particular, three hotel tax invoices (Fa Piao) of approximately RMB16,000, RMB15,700 and RMB14,800 respectively that were issued in the Employee’s name did not actually cover expenses incurred by the Employee or his family but were in fact expenses incurred by his friend’s son for his wedding banquet.
The Employee’s case was that he did have genuine monthly family expenses exceeding RMB20,000 which were claimable under Clause 3(b) and invoices for them. However, due to practical difficulties, it was often impossible for him to obtain tax invoices (Fa Piao) in his name directly for certain expenses, such as his son’s tuition fees, family transportation, or daily household costs. After discussions (“Discussions”) with one Mr Zhang Liguo (“ZL”) (a staff member that the Employee understood to be the person dealing with his expense claims), an informal arrangement was agreed whereby the Employee could obtain invoices from “other sources” issued in his name instead of the actual invoices issued for his family expenses, to support his reimbursement claims (“Arrangement”). Regarding ZL, the Employee understood ZL was the Acting Chief Financial Officer and Financial Controller of ALBA International Recycling GmbH (formerly known as “ALBA CGA Holding GmbH”), a German company, which was a joint venture vehicle of a then intended joint venture arrangement that was to hold a number of subsidiary companies including the Employer.
Principles on summary dismissal
The CFI summarized the key principles on summary dismissal as follows:
1. Summary dismissal is justified where the employee has committed a fundamental breach of the contract of employment. It should be regarded as a strong and extreme measure, justified only in exceptional cases. The onus of proof is on the employer to establish that summary dismissal is justified.
2. Summary dismissal may be justified by an act of gross misconduct by the employee. What amounts to gross misconduct is a question of fact, depending on the circumstances of each case.
3. Cases involving serious dishonestly tend to justify summary dismissal. The standard of proof is generally a balance of probabilities, but the more serious the allegation, the stronger should be the evidence before the court concludes that the allegation is proved. An act of dishonesty will not automatically justify summary dismissal since there are degrees of dishonesty; summary dismissal will only be justified if the dishonest act is such as to constitute a repudiation of the contract of employment.
4. Breach of duty of good faith and fidelity by the employee can be capable of justifying summary dismissal.
5. A single act of misconduct is unlikely to justify summary dismissal, unless the misconduct is very serious. The cumulative effect of a series of minor incidents may amount to sufficient grounds for summary dismissal.
6. Habitual neglect of duties; a single act of negligence or incompetence of a serious nature; persistent lateness or unauthorised or unjustified absence; or willful disobedience of a lawful and reasonable order, may all be sufficient justification to justify summary dismissal on appropriate facts.
7. If the employer has allowed conduct complained of to continue for too long prior to summary dismissal, this may amount to acquiescence such that the behaviour cannot be relied upon as grounds for summary dismissal.
8. The employer may rely on reasons not disclosed at the time of dismissal to justify summary dismissal, and may even justify dismissal by reference to facts only discovered after termination of the employment contract.
9. If the conduct complained of does not justify summary dismissal, the termination is wrongful.
Court’s findings and decisions
After considering all the evidence before it, the Court found that:
· The Employee incurred genuine family expenses exceeding RMB20,000 each month, and could have submitted to the Employer invoices for those expense to validate his claims. He personally gained nothing from the Arrangement, and the Employer had lost nothing in monetary terms.
· During the Discussions, ZL, who acted with the apparent authority of the Employer, agreed to the Arrangement or such discussions at least gave the Employee reasonable cause to believe that the Arrangement was acceptable to the Employer.
· Invoices submitted by the Employee every month were checked by the Employer’s staff, who should have noted that a large percentage of the submitted invoices were unusual in terms of nature for supporting reimbursement claims for the Employee’s family expenses. Nevertheless, these claims were approved for payment, reinforcing the Employee’s belief that the Arrangement was acceptable to the Employer.
· The Employee was doing what he could to comply with what he thought was required for the invoices submitted, to the extent that he could (and albeit that there was some degree of “muddling” in the approach), without dishonest intent.
At paragraph 104 of the judgment, the CFI held that:
“I have also considered whether [the Employee]’s conduct in relation to the invoices– even if not fraudulent – was nonetheless sufficient to justify summary dismissal on the basis of a loss of trust and confidence, as [the Employer] argued. I think that in more usual circumstances, that a COO would consider it acceptable to submit invoices for family expenses which did not in fact relate to family expenses incurred, may well be sufficient to justify loss of confidence warranting summary dismissal. However, I reiterate that the facts are very [un]usual: given the conversation with ZL and the subsequent checking of invoices by [the Employer] and approval for payment, I am again not persuaded that summary dismissal was justified.”
The CFI found that the Employer had not discharged its burden of showing that the threshold for summary dismissal was crossed and ruled in favour of the Employee.
Takeaways
Hu Yangyong serves as a potent reminder for employers that summary dismissal is a strong and extreme measure, justified only in exceptional cases. The onus of proof is on the employer to establish summary dismissal is justified. In cases involving dishonesty, the more serious the allegation, the stronger the evidence should be before the court may find that the allegation is proved. An act of dishonesty will not automatically justify summary dismissal since there are degrees of dishonesty; summary dismissal will only be justified if the dishonest act is so serious that it constitutes a repudiation of the employment contract. As always, if in doubt, it is advisable to seek legal advice.
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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors. |
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Published by ONC Lawyers © 2025 |
