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Is an employee constructively dismissed if he is partially suspended from performing his duties?

2021-06-29

Introduction

Section 11 (Suspension from employment in certain cases) of the Employment Ordinance (“EO”) gives employers the power to suspend employees from employment without notice or payment in lieu for a period not exceeding 14 days in certain circumstances (including as a disciplinary measure for any reason for which the employer could have summarily terminated the employment).  Where a suspension from employment falls under section 11, an employee may, under section 11(2), at any time during the period of suspension terminate the employment contract without notice or payment in lieu.  

In the recent case of Lengler Werner v Hong Kong Express Airways Ltd [2021] HKCFI 1333, the Court of First Instance (“CFI”) clarified the scope of the employer’s power under section 11.

Is an employee constructively dismissed if he is partially suspended from performing his duties?

Background

Hong Kong Express Airway Ltd (“Employer”), an air operator, employed Mr Lengler Werner (“Employee”) as a pilot in March 2015. In November 2017, the Employee had a verbal dispute with two other pilots (“Incident”) leading to an internal inquiry by the Employer against the Employee (“Investigation”). The Employee was suspended from flying duties for around six weeks between November 2017 and December 2017 pending the conclusion of the Investigation.  The Employee was not suspended from his other non-flying duties.

During the suspension, the Employee continued to be paid his basic salary and allowances, but not overtime or productivity bonuses which the Employee would normally be entitled to had he not been partially suspended from his employment. After six weeks, the Investigation had not been completed. When the Employee enquired about the progress of the Investigation, he was informed that two warning letters would be sent to him. Before the warning letters were issued, the Employee resigned and alleged that the Employer had constructively dismissed him.


Decision of the Labour Tribunal

The Employee commenced Labour Tribunal proceedings against the Employer for constructive dismissal. The Labour Tribunal found in favour of the Employee and held that the Employer could not rely on section 11 to suspend the Employee because the Incident was not serious enough to constitute gross misconduct. However, the Employee was entitled to rely on the said section to terminate the employment contract without notice or payment in lieu.

The Labour Tribunal also regarded the Employer’s silence or inaction for six weeks breached the implied terms of the employment contract that an employer should not exercise his right and discretion arbitrarily, capriciously or inequitably. The Labour Tribunal held that the drop in the Employee’s income constituted a repudiatory breach of the employment contract and so constructively dismissed the Employee.

The Employer appealed.


The law: constructive dismissal

The EO recognized several circumstances where an employee may terminate his contract without notice or payment in lieu. In particular, section 10A (Deemed termination of contract under section 7) of the EO stipulates that an employee may deem himself to have been dismissed on common law grounds or if any wages are not paid to him within one month of the date upon which they become due.

Under the common law, if an employer commits a repudiatory breach of the employment contract that causes an employee to reasonably believe that it is impossible for him to continue to work for the employer (for example, unilaterally reducing the employee’s salary), the employer’s breach may constitute constructive dismissal. In such circumstances, the employee may choose to accept the repudiation of the employment contract, treat himself as dismissed and claim compensation from the employer under section 10A.


Key issues in appeal and the CFI Decision

Issue 1: Whether section 11 of the EO applies in the present case

Section 11 stipulates that an employer may suspend from employment any employee for a period not exceeding 14 days, inter alia, as a disciplinary measure, and that an employee who is suspended may terminate his employment without notice or payment in lieu at any time during the suspension.

The CFI distinguished between suspension from employment and mere suspension from partial performance of duties, and held that section 11 was not concerned with any partial suspension from an employee’s duties. Section 11 envisaged a complete suspension of the rights and obligations of the employment contract so that the employee was not required to do any work and the employer was not required to pay the employee. On the facts of the case, the Employee was simply suspended from his flying duties, but not his employment. Since his basic salary and allowances were continued to be paid by the Employer during the suspension of his duties, the CFI held that section 11 of the EO did not apply and the Employee could not rely on the same to claim for constructive dismissal.

Issue 2: Whether partial suspension of the Employee’s duties constitutes constructive dismissal

The CFI took the view that the Labour Tribunal failed to distinguish between a suspension of employment and a partial suspension of duties. The Labour Tribunal also failed to consider the terms in the employment contract and employee handbook that safeguarded the Employer’s right to suspend its employees from their duties during any investigation or disciplinary proceedings. Further, as the employment handbook separately provided for a set of disciplinary procedure for “Minor Offences”, the Employer’s contractual power to suspend an employee from his duties would also cover the Incident. Therefore, the Employer was entitled to suspend part of the Employee’s duties.

Since the drop in the Employee’s salary arose from the exercise of the Employer’s right to suspend part of the Employee’s duties, the Employee’s salary reduction did not constitute a repudiatory breach of the employment contract. Accordingly, the Employer did not constructively dismiss the Employee.

As a result, the CFI allowed the Employer’s appeal and the Employee was ordered to pay costs of the appeal.


Takeaway

Section 11(1) of the EO gives employers the power to suspend an employee from employment without notice or payment in lieu in certain circumstances for a period of not exceeding 14 days. The circumstances include: (1) as a disciplinary measure for any reason for which the employer could have summarily dismissed the employee; (2) pending a decision by the employer as to whether he will exercise his right to summarily dismiss the employee; or (3) pending the outcome of any criminal proceedings against the employee arising out of or connected with his employment. 

Under section 11(2), an employee who is suspended from employment under section 11(1) may at any time during the period of his suspension, notwithstanding section 6 (Termination of contract by notice) and section 7 (Termination of contract by payment in lieu of notice), terminate his contract of employment without notice or payment in lieu.

This case illustrates that where an employee’s duties have only been partially suspended, such partial suspension does not fall within section 11. Thus, an employee may not rely on section 11(2) to terminate his employment without notice or payment in lieu. That said, it is prudent for employers to include terms in the employment contract to the effect that the employer has the right to partially suspend the employee’s duties. With such provisions in place, employers may be protected from the employee’s constructive dismissal claims when the employer partially suspends the employee from his duties.

 


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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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