Employees who resign are not entitled to various payments under the Employment Ordinance and under the specific terms of their employment contracts. However, employers cannot avoid or minimize the contractual and statutory payments by a sham or a forced “resignation”.

Introduction

An employer may enter into a fixed term contract with an employee (with very favourable terms) if that employee is considered to be conducive to the business development of the employer.

Subsequently, if the employer wants to have an early termination of the employment (not because of the employee’s misconduct), the employer cannot force the employee to “resign” in order to minimize the termination payment which will be payable to the employee.

A sham or forced “resignation” will not enable the employer to avoid or minimize the termination payments. As the resignation was not a genuine resignation, eventually, the employer has to pay all the termination payment on the basis that the employment was actually terminated by the employer. This is illustrated by a case decided by the Court of First Instance in Igal Dafni v CMA CGM SA (HCA 1185 of 2008 consolidated with HCA 1429 of 2012).

Facts of the case

The brief facts of Igal Dafni v CMA CGM are as follows:

1.       The Plaintiff, Igal Dafni, was an employee of a company within the Defendant’s group of companies.

2.       The Defendant, CMA CGM SA, is a large international shipping company.

3.       In or about 2006, the Defendant was planning to acquire Cheng Lie Navigation Co. Limited (“CNC”).

4.       On 21 November 2006, the Plaintiff and the Defendant signed a Heads of Agreement (“HOA”), which provided for the Defendant to procure the employment of the Plaintiff by CNC as its Managing Director for 3 years at a specific salary and sharing of 2.5% net profit after tax with CNC (capped at USD 1 million per year).

5.       In March 2007, CNC was acquired by the Defendant.

6.       On 12 April 2007, an employment contract was signed by the Plaintiff whereby the Plaintiff was employed as the Managing Director and CEO of CNC from 12 April 2007 for a term of 3 years.

7.       In December 2007, the Plaintiff’s previous employer, Zim Integrated Shipping Service Limited commenced proceedings in Singapore against the Plaintiff for breach of fiduciary duties (the “Zim Litigation”).

8.       On or about 12 March 2008, the Plaintiff was asked to attend a meeting with the Chairman of the Defendant in the midnight and was informed by the Defendant that his employment with CNC would have to be terminated in the light of the adverse publicity generated by the Zim Litigation and the embarrassment it caused to the Defendant.

9.       The Plaintiff was also told by the Defendant that for the benefit of all the parties, the termination of employment could be dressed up as a resignation by the Plaintiff but the Plaintiff would be paid in full all his contractual entitlements under the HOA in relation to the termination of his employment.

10.    On 14 March 2008, the Plaintiff signed the resignation letter prepared by CNC upon the assurance of the Defendant in relation to the contractual entitlements under the HOA regarding the termination of his employment.

11.    In or about 2010, all the claims against the Plaintiff in the Zim Litigation were dismissed by the Singapore High Court.

12.    The Defendant failed to pay the entitlements under the HOA to the Plaintiff regarding the termination of his employment. Therefore, the Plaintiff claimed against the Defendant for breach of the terms of the HOA, in particular, Clause 4 of the HOA.

13.    Clause 4 of the HOA stipulated that “if after the 6 months trial period, [the Defendant] or CNC terminates the (employment) contract for any reason whatsoever, [the Defendant] will pay the balance of the period remaining……, except if the termination (of employment) is for reasons of willful misconduct or fraud on behalf of [the Plaintiff], or two consecutive years of losses.”

14.    The Defendant raised the defence that “the Plaintiff had truly resigned out of his own volition or alternatively, the termination was for reasons of wilful misconduct of the Plaintiff”.

15.    The major issues which were considered by the Court are as follows:

(a)  Did the Plaintiff resign or was his employment terminated?

(b)  Whether the Plaintiff “resigned” in reliance on the Defendant’s assurances that his “resignation” would be with the full entitlements under the HOA?

(c)   If the Plaintiff’s employment was in fact terminated, whether the termination could be retrospectively justified on grounds of wilful misconduct?

Decision of the Court

Based on the document submitted and the evidence given by the witnesses, the Court ruled that the Plaintiff was forced to “resign” upon the assurance by the Defendant that he would be paid in full of his entitlements under the HOA. The resignation was merely a dress-up. Moreover, there was insufficient evidence to support the Defendant’s allegation of the Plaintiff’s wilful misconduct. Therefore, the Plaintiff was awarded his salary for the balance of the fixed term contract and profit share according to the terms of the HOA for the same period (the total of which amount to about USD 2.3 million) as well as legal costs of the action.

Conclusion

Employees of the managerial level may be entitled to various contractual benefits and payments well above the payments and benefits conferred on them by the law. Therefore, if the employment has to be terminated by the employer (other than because of the employee’s misconduct), instead of trying to force the employee to resign, the employer may try to reduce its liability by negotiating with the employee and to sign a separation agreement to conclude the employment relationship amicably. As such, the interest of the employer will be better protected.