Introduction

In Hong Kong, there is no statutory requirement for an employer to pay bonus to their employees.  However, in order to provide incentives for employees to perform well, many employers will set up a “performance incentive program” and pay annual bonus to employees who have satisfied the requirements of the incentive program.

If employers have adopted a “pay for performance philosophy” and expressly committed themselves to promote a performance-based culture, they cannot try to avoid bonus payment by terminating the employment of the employees (who should be rewarded with bonus for their good performance) without justification.

This is illustrated by the case Tadjudin Sunny v Bank of America, National Association HCA 322/2008 (judgment given on 24 December 2014).

Facts of the case

The brief facts of this case are as follows:

1.       Tadjudin Sunny (the “Plaintiff”) was employed by the Bank of America (the “Bank”) as an Analyst (Vice President) on 5 June 2000.

2.       The Plaintiff’s employment contract provided that she was “eligible to be considered for a bonus under the Bank’s performance incentive programme (the “PIP”), subject to her being in employment with the Bank at the time of the Bank came to decide upon and pay bonuses under the programme”.

3.       The Plaintiff received generous bonuses from the Bank from 2000 to 2006 which were granted with reference to various factors including but not limited to the Plaintiff’s performance and her contribution to the Bank’s profit.

4.       The Plaintiff’s performance evaluation for 2006 contained serious criticisms of her lack of teamwork, refusal to recognize his immediate superior as the Head of Desk and her friction with members of other department.

5.       On 29 June 2007, an official warning letter was issued to the Plaintiff and the Plaintiff has to be subject to the Bank’s Performance Improvement Plan Process (“Improvement Plan”). The Improvement Plan set out a list of specific goals which the Plaintiff was required to perform within 4 weeks (i.e. by 27 July 2007).

6.       On 28 August 2007, the Bank terminated the Plaintiff’s employment by giving her one month’s salary in lieu of notice, without any bonus or pro-rata bonus for 2007.

7.       The Plaintiff commenced proceedings against the Bank in the Labour Tribunal for breach of contract and the case was subsequently transferred to the Court of First Instance.

8.       One of the Plaintiff’s claims was for wrongful termination of employment by the Bank with the intention of depriving her of the performance bonus for 2007.

9.       The Plaintiff submitted that “the Bank was subject to an implied term of the employment that it shall not exercise its right to terminate her employment by giving one month’s notice or by paying one month’s salary in lieu of notice to avoid her being eligible for the PIP (the “Implied Term of Anti-Avoidance”).

10.    The Bank argued that the termination was because of the Plaintiff’s conduct.

This article will discuss some of the major issues canvassed by the Court.

Issues considered by the Court

Nature of the bonus - contractual or discretionary?

The Court commented that:-

“The Plaintiff’s bonus was not contractual like salary, which was expressly provided by the employment agreement. There is no expressed amount to be paid or formula on which it is to be assessed. The principles governing the administration of the PIP and evaluation of an employee’s performance were determined by the Bank. Therefore, whether to award a bonus and the amount to award was discretionary in nature.”

“However, given the bank’s expressed commitment to pay for performance, the very comprehensive programme of performance evaluation and assessment of bonus, and the significant ratio the performance bonus has to bear on the total remuneration package, the discretion is not an unfettered one. Therefore, it is not wholly discretionary. The discretion has to be exercised in a serious and bona fide manner. The discretion is not to be exercised in an irrational, perverse or arbitrary manner……”

Implied term of anti-avoidance

As bonus has to be earned by performance, it gives employees the incentive to perform so as to maximise profit for the Bank. Under such circumstances, employees who performed well would have a reasonable expectation to receive the bonus at the end of the year.

The Court further commented that “No talent (employee) will stay if he/she is under the constant fear that his/her employer would deprive him/her of the fruits of his/her effort by terminating him/her before the date of payment of the bonus. Without the assurance given by the implied term, the purpose of the PIP would be defeated.” Therefore, the Court ruled that the “anti-avoidance term” can be implied into the employment agreement and it is reasonable, equitable, and necessary to give business efficacy to the employment agreement.

Moreover, there is no inconsistency between the implied term and the clause in the employment agreement which allows the Bank to terminate the employment by notice or payment in lieu of notice.

Mutual trust and confidence

Apart from the terms of anti-avoidance as mentioned above, the obligation of mutual trust and confidence is also implied into all contracts of employment. As an employer, the Bank is under an implied duty to deal with his employees fairly and in good faith.

The Bank’s intentions in terminating the Plaintiff’s employment

Based on the available evidence, the Court found that “the Plaintiff’s direct superior had misled the senior management of the Bank in authorizing the Improvement Plan to be imposed on the Plaintiff. The Improvement Plan was clearly not instituted with good faith. In fact, it was instituted with malice.” One of the emails from the Plaintiff’s direct superior to the Bank’s Human Resources Department clearly showed his express intention to have the Plaintiff’s employment terminated regardless of her performance under the Improvement Plan.

The Improvement Plan was not invoked for the proper purpose of remedying the Plaintiff’s conduct but to pave the way for her exit and smooth transfer of the clients and accounts handled by her.

The Court took the view that the Plaintiff’s conduct substantially improved during the Improvement Plan period and should be regarded as having passed the Improvement Plan. The termination of the Plaintiff’s employment on the ground of her failing the Improvement Plan could not have been a genuine reason.

Decision of the Court

In view of the above, the Court drew as the only reasonable inference that one of the dominant intentions of the Bank in terminating the Plaintiff’s employment was to avoid her being eligible for consideration under the PIP for the year 2007. The bank had not acted in good faith, it had breached the implied term of anti-avoidance in relation to the bonus which is payable to the Plaintiff. Therefore, the Plaintiff should be awarded damages.

The Plaintiff was awarded HK$3.9 million as damages for loss of bonus for 2007 which she would have been awarded if her employment was not terminated by the Bank. The amount of damages was assessed with reference to the amount of bonus which the Plaintiff’s received during the course of her employment with the Bank and her contribution to the Bank’s profits in those years.

Conclusion

Employers and employees are subject to the implied term of mutual trust and confidence under all employment contracts. They must act in good faith towards each other. Employees shall act in the best interest of their employers. On the other hand, if the employment contract makes provisions for bonus payment under a performance incentive programme / scheme, the employer cannot try to avoid bonus payment by terminating the employment without any justification.