Introduction

Section 70 (Contracting out) of the Employment Ordinance (Cap. 57) (“EO”) provides:

“Any term of an employment contract which purports to extinguish or reduce any right, benefit or protection conferred upon an employee by this Ordinance shall be void.”

It is settled law that section 70 only strikes down any term of a contract of employment that seeks to do what is prohibited. Section 70 has no application to composition agreement or settlement agreement, which is not a term of an employment contract. See Chiu Wing Hang and Others v B. G. Lighting Co. Ltd. and Another HCLA67/1999.[i] Likewise, section 70 simply does not apply to invalidate an ad hoc agreement, arrived at by the employer and employee not at the beginning but only at the time when one of them wanted to terminate the contract of employment – which is common enough situation, and that ad hoc agreement is not a contract of employment. See Kao Lee & Yip (A Firm) v Lau Wing & Anor [2007] HKCU 1128.[ii]

It is also common for employers to provide leaving employees with a receipt for payments upon termination (or completion of employment contract) for the employee to sign off, where the employee will confirm he has checked the employer’s calculation of final payments, the calculation is correct and he has received final payments. Such receipt may also seek the leaving employee to confirm there is “no other outstanding amount owing to me by the employer” and, in some cases, “full and final settlement of any claims against my employer”.

Does such a receipt for payments upon termination signed off by an employee bar him from bringing a claim against the employer at the Labour Tribunal? Is it void under section 70? Or section 70 has no application because it is a subsequent ad hoc agreement or settlement agreement that is not a contract of employment?

In a recent judgment in Dock Brian v Pacific Gourmet Holdings Limited [2022] HKCFI 444, the Court of First Instance (“CFI”) examined some of these issues.

 

Background

The employee claimant, Mr Brian Dock (“Employee”), was employed by employer defendant, Pacific Gourmet Holdings Limited (“Employer”) as a member of food service staff from 16 December 2016 until his employment was terminated on 30 April 2021. After termination, he lodged a claim with the Labour Tribunal claiming against the Employer a sum of approximately HK$142,700 under the EO.

The Employee claims that he was dismissed because in March 2021 he refused to sign an agreement to increase his work hours from 9 to 10. On 1 April 2021, he was given a one-month notice of the termination of employment. No reason for his termination was given. He claims that he was dismissed with no valid reason[iii] or by reason of redundancy which entitled him to severance payment, terminal payment and/or monetary compensation under the EO.

The Employer gave the Employee a pay cheque for his last month’s salary and accrued holiday pay, and asked him to sign a document dated 28 April 2021 (“Document”), which he did sign. The Document stated that:

“I checked the above calculation and hereby confirmed the final payment of my remuneration is correct and also confirmed there is no other outstanding amount owing to me by the company.”

The Employee claims that the Document was a waiver that sought to extinguish his rights under the EO and is void under section 70.

The Tribunal pointed out that the Document was prima face a valid settlement agreement and adjourned the Employee’s claim sine die for want of jurisdiction. The Tribunal’s rationale was (1) the Document, being a valid settlement agreement, has the effect of preventing the Employee from claiming under the EO, such that (2) the Document would have to be declared void and set aside by a higher court first before the Employee could proceed with his claim in the Tribunal, and that (3) the Tribunal has no jurisdiction to declare a settlement agreement void or to set it aside.

In reaching its decision, the Tribunal relied on the CFI’s Labour Tribunal appeal decisions in Minarni v Ho Ho Fan Ivy [2018] HKCFI 852 [iv] and Poon Kwok Leung Lenny v Swett (China) Limited HCLA 19/2012, unreported, 19 December 2012.[v]

The Employee appealed to the CFI against the Tribunal’s decision.

 

CFI’s findings and decision

The Employee relied on two main errors of law, namely (1) the Tribunal erred in ruling that it had no jurisdiction over the claim, and (2) the Tribunal erred in ruling that the Document, unless set aside, could defeat the Employee’s claim under the EO.

The Tribunal’s jurisdiction

The Employee’s claim for a monetary award comprised of three heads: (1) severance payment of HK$65,589.04, (2) terminal payment of HK$65,589.04 or to be assessed, and (3) monetary compensation of HK$77,100 as an alternative to terminal payment.

Head (1) is on the basis that the Employee was dismissed by reason of redundancy which would entitle him to a severance payment. This head is based on Part VA (Severance Payments), sections 31B(1)(a) and 31G of the EO.

Heads (2) and (3) are on the basis that he was dismissed other than for a valid reason which would entitle him to a terminal payment and, if not, to monetary compensation. These two heads are based on Part VIA (Employment Protection), sections 32A(1)(c), 32M, 32O and 32P of the EO.

The CFI pointed out that claims based on Parts VA and VIA of the EO are expressly listed in the Schedule to the Labour Tribunal Ordinance (Cap. 25) (“LTO”) and so on the face of it fall within the Tribunal’s jurisdiction under sections 7(1) and 7(2) of the LTO. Paragraphs 4 and 7 of the Schedule provide that:

“4.     Any question as to – (a) the right of an employee to severance payment under Part VA of the Employment Ordinance (Cap. 57); or (b) the amount of such payment, other than a claim specified in the Schedule to the Minor Employment Claims Adjudication Board Ordinance (Cap. 453).

…

7.       A claim for remedies under Part VIA of the Employment Ordinance (Cap. 57).” (emphasis added)

However, it is settled that claims can be excluded on certain bases, including that the relief sought includes non-monetary awards such as injunctive relief.

The merits of the appeal

The CFI was of the view that the starting point is that the Tribunal has jurisdiction over “any question as to … the right of an employee to severance payment under Part VA of the [EO]” and over “a claim for remedies under Part VIA of the [EO]”.

In this case, the Employee sought monetary relief under Parts VA and VIA of the EO. He did not seek (and he does not need to seek) a declaration that the Document was void or that it be set aside. Whilst the Employee referenced the Document and said that it should not have the effect of defeating his claim under the EO, this was a reply in anticipation of one part of the defence that the Employer had already mentioned in correspondence.

In view of such a possible defence, the Tribunal will have to decide if the defence could be made out. This is part and parcel of the wider inquiry of whether the Employee’s claim under the EO could ultimately succeed. The CFI pointed out that the Tribunal acts inquisitorially, and whether the claim has somehow been “settled” or is otherwise barred is simply one of the “any question[s]” as to the Employee’s right to a severance payment under Part VA, and an issue arising on his claim for remedies under Part VIA of the EO. Such a question might arise on the claim is not same as saying that the Employee had to seek the relief of setting aside the Document or declare it void.

There is also the prior question as to what was the proper effect of the Document. Though the Tribunal described it as a “settlement agreement”, there was no analysis as to why it might be described as settling or compromising a claim, or why it amounts to a waiver of a claim, and if so what claim – even before considering whether that was legally possible under the EO (and in particular in light of section 70).

The CFI agreed that there was an error of law. The CFI took the view that the Tribunal does have jurisdiction to hear the claim, and in the exercise of that jurisdiction, there are necessary questions which relate to the proper effect of the Document that must be determined. The CFI allowed the appeal and remitted the Employee’s claim back to the Tribunal for re-consideration and determination.

As to the two authorities (Minarni and Poon Kwok Leung) relied upon by the Tribunal to support its decision, the CFI took the view that they were wrongly decided in accordance with the above analysis.

Takeaway

In Dock Brian, the CFI made it clear that Minarni and Poon Kwok Leung were wrongly decided. If Dock Brian will be followed by the courts, then a document signed by the employee, which on the face of it, contains an agreement between the employer and employee for the settlement of all the employee’s claims against the employer arising from the termination of the employee’s contract of employment will no longer in itself bar the employee from bringing a claim in the Labour Tribunal – the Tribunal does have jurisdiction to hear the claim and determine the proper effect of that document. It will not be necessary for the employee to have the document declared void and set aside by a higher court before he can proceed with his claim in the Tribunal.

The implications can be wide, since the Tribunal does not only have jurisdiction on “any question as to the employee’s right to a severance payment under Part VA”, and “an issue arising on his claim for remedies under Part VIA of the EO” (which are the basis of the Employee’s claim in Dock Brian), it also has jurisdiction on a claim for a sum of money, whether liquidated or unliquidated, which arises from “the breach of a term, whether express or implied, of a contract of employment”[vi] or “the failure of a person to comply with the provisions of the EO”.[vii]

It remains the case that section 70 of the EO has no application to compromise agreement, settlement agreement or ad hoc agreement arrived at by the employer and employee at the time when the parties want to terminate the employment contract. However, for a document that simply confirms the calculations rather than settle or waive some other claim, which is not mentioned and perhaps not even yet raised, and if it has not provided any fresh consideration and purports to extinguish the employee’s rights under the EO, it would be void under section 70.

If employers want to ensure a departing employee will not be making any claims against them, the employers should consider entering into an agreement with the employee concerned, where the employee agrees to waive and release all claims that he may have against the employer. The agreement should be properly drafted, clearly state the terms of the settlement and properly executed by the employer, employee and (in some cases) other parties concerned. It is strongly recommended that legal advice should be obtained in preparing the agreement, and when in doubt, it is always prudent to speak to an employment lawyer.

 

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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.

Published by ONC Lawyers © 2022