Introduction

In Hong Kong, the Labour Tribunal offers a quick, informal and inexpensive way of settling monetary disputes between employers and employees. However, it does not cover all disputes that arise in the employment context. In the recent case of Lee Yiu Hong v Well-in Hotel Supplies Company Limited 2020 HKCFI 2760, the Court of First Instance (“CFI”) reiterated that claims in tort, including mixed claims founded in both contract and tort fall outside the exclusive jurisdiction of the Labour Tribunal (“Tribunal”).

Background

On 18 March 2002, Well-in Hotel Supplies Company Limited (“Employer”) employed the claimant, Lee Yiu Hong (“Employee”), as a sales executive. The Employee was promoted as a sales director on 13 May 2004 and his salary was increased to basic monthly salary of $36,000 plus commission. The Employee resigned on 14 August 2018 with his last working day on 24 August 2018.

On 27 December 2018, the Employee claimed the Employer for unpaid commission at the Tribunal. The Tribunal granted judgment in favour of the Employee for unpaid commission and ordered the Employer to pay the Employee’s costs (“Judgment”).

The Employer subsequently sought leave to appeal against the Judgment on 15 July 2020 on the ground that the Tribunal erred in law by failing to discharge its statutory duty to investigate or explore and subsequently to take into account relevant issue / claim raised by the Employer, which was Employee’s breach of his duties of fidelity and good faith, including the Employee’s obligation not to disrupt the Employer’s business. In particular, the Tribunal erred in attaching little or no weight to the following facts:

1. the Employee’s unauthorised disposal of important company documents shortly before his termination;
   
2. the Employee’s refusal / failure to return the Employer’s computer containing confidential information of the Employer’s business;
3. the Employee’s appointment as a director of a competing company shortly after his resignation; and
4. as the sales director, the Employee was privy to important sales information that was exclusively available to him and not to other staff.

(collectively “Facts in Issue”).

During the trial, the Tribunal treated the Facts in Issue as mere background information and did not accord them any weight when coming to its conclusion in the Judgment. In seeking leave to appeal, the Employer argued that the Facts in Issue could have led to a defence of set-off that would in turn extinguish or reduce the amount of unpaid commission granted by the Tribunal in favour of the Employee.

Key issue

In deciding whether the Tribunal should have investigated into the Facts in Issue in the first place, the CFI noted that the starting point should be whether there was any arguable case that the Tribunal would have jurisdiction to deal with the Employer’s claim for Employee’s alleged breaches of duty?

On this issue, the Employer argued that the claim for damages for breaches of duty would have fallen within the exclusive jurisdiction of the Tribunal and the Tribunal erred by failing to inquire into the same.

Relevant provisions in the Labour Tribunal Ordinance

The CFI referred to section 7(1) of the Labour Tribunal Ordinance (Cap. 25) (“Ordinance”) which provides “the tribunal shall have jurisdiction to inquire into, hear and determine the claims specified in the Schedule.” Further, the Schedule to the Ordinance provides, among others, that:

“1.   A claim for a sum of money, whether liquidated or unliquidated, which arises from –

      (a) the breach of a term, whether express or implied ……, of a contract of employment ……

 3.     Notwithstanding paragraphs 1 and 2, the tribunal shall not have jurisdiction to hear and determine a claim for a sum of money (whether liquidated or unliquidated), or otherwise in respect of a cause of action, founded in tort whether arising from a breach of contract or a breach of a duty imposed by a rule of common law or by any enactment.” (emphasis added)

The CFI’s decision

The CFI took the view that paragraph 3 of the Schedule makes it clear that all claims in tort are expressly excluded from the Tribunal’s jurisdiction. The tension in the language of paragraphs 1 and 3 of the Schedule shows there can be overlap between a claim falling within paragraph 1 and a claim also falling within paragraph 3 (i.e. a mixed claim founded in both contract and tort is also excluded from the Tribunal).

The CFI concluded that the Employee’s breach of duties of fidelity and good faith were founded in both contract and tort. In particular:

1. the cause of action for the Employee’s unauthorised disposal of important company documents and failure to return the Employer’s company computer would have been tort of conversion;
2. the cause of action for the Employee’s misuse of confidential information would have been a breach of confidence which can be founded both in contract and in tort; and
   
3. the cause of action for the Employee’s disruption to the Employer’s business by not providing a complete set of documents for client orders and erasing company information in the company computer would have been tort of causing loss by unlawful means.
   

The CFI held that the claims arising out of the Facts in Issue did not fall within the Tribunal’s jurisdiction. Therefore, the Tribunal was right in not investigating further into these facts / matters. The CFI also held that the Tribunal had no duty to transfer the claims to other court venues.

Takeaway

While the Labour Tribunal offers a quick and simple way of resolving employment disputes, one should bear in mind its jurisdictional limitation. Whilst monetary claims from breach of employment contracts are within the Tribunal’s jurisdiction, the Tribunal does not have jurisdiction over tort claims whether arising from a breach of contract or a breach of a duty imposed by a rule of common law or by any enactment. A mixed claim founded in both contract and tort is also excluded from the Tribunal.

Therefore, if an employee commences Labour Tribunal proceedings against an employer and the employer has a counterclaim against the employee, the employer should at an early stage seek legal advice on whether the counterclaim falls within the Tribunal’s jurisdiction. Where the employer’s counterclaims fall outside the Tribunal’s jurisdiction, the employer may apply to the Tribunal for the case to be transferred to the District Court or the CFI (as applicable) or commences a separate action against the employee in the District Court or the CFI (as applicable).