Introduction

The Labour Tribunal was established with the intention to provide an informal forum for employees and employers to resolve disputes in wages and others payments in a speedy manner. It has exclusive jurisdiction to hear claims for most employment-related disputes. Exceptions include non-monetary claims or claims based on a cause of action founded in tort. In a recent case of Xinhua News Media Ltd & Another v Chan Chun Wo & Another [2021] HKDC 903, the District Court struck out a claim brought by the employer against its former employees for, what is in substance, overpaid wages and expenses on the ground that they should have been initiated in the Labour Tribunal.

Background

The 1^st defendant was the Co-chairman of the Board, Executive Director and Chief Executive Officer of the 2^nd plaintiff as well as the Chief Executive Officer of the 1^st plaintiff. The 2^nd defendant was the Managing Director, Chief Financial Officer and Company Secretary of the 2^nd plaintiff and an employee of the 1^st plaintiff. They had respectively initiated claims at the Labour Tribunal against the 1^st plaintiff for arears of wages and other payments. Subsequently, the plaintiffs commenced proceedings against the defendants in the District Court for overpaid salaries and medical expenses on the bases that the defendants had misappropriated the plaintiffs’ assets.

Exclusive jurisdiction of the Labour Tribunal

Under the Labour Tribunal Ordinance (Cap. 25) (“LTO”), any claims based on a breach of express or implied term of a contract of employment falls within the exclusive jurisdiction of the Labour Tribunal.

The plaintiffs argued that in view of their positions in the companies, the defendants are different from that of a normal employee. Their breach of fiduciary duties are not within the Labour Tribunal’s exclusive jurisdiction. The plaintiffs also argued that their claims were not only based on breach of the employment contract but on tort, which is an exception to the Labour Tribunal’s jurisdiction.

The Court’s decision

In deciding whether the plaintiffs’ claim falls within the exclusive jurisdiction of the Labour Tribunal, the test is to look at the substance and not the labels of the claim (Ho Chee Sing James and Secretary for Justice [2015] 4 HKLRD 311). The Court was of the view that:

“… some cases may be concerned with breaches of fiduciary duties arising out of the employment contract and imposed by equity, others may be concerned with a breach of confidentiality e.g. if the employee exploited his position to gain otherwise confidential information and had used that against the interest of the company ...

The former category of cases should be within the exclusive jurisdiction of the Labour Tribunal whilst the latter, being a claim which might be founded on both contract and tort, could be caught by the exclusion of jurisdiction in paragraph 3 of the Schedule of the LTO …”.

The Court concluded that the plaintiffs’ claim was in substance a claim for overpayments of wages and reimbursements. The plaintiffs’ so-called breach of fiduciary claims or tort claims were mere “window-dressing”.

The Court noted that wages/remunerations were express terms in the defendants’ employment contracts, which were subject to the policy on reimbursement of expenses in the “Employment Handbook”. The claim clearly fell within the Labour Tribunal’s exclusive jurisdiction.

In the present case, both the defendants had already commenced claims in the Labour Tribunal. The plaintiffs then initiated claims at the District Court for, what is in substance, a simple claim for unauthorized payments, wages and expenses. All the plaintiffs need to show is that such payments were unauthorized. This claim would be determined by a factual finding of the defendants’ alleged failures to follow procedures. Whether such failures were due to breaches of fiduciary duties, bad faith, gross misconducts or, indeed, perfectly honest mistakes would not affect the finding nor the quantum. There was no reason why this case should not be dealt with at the Labour Tribunal.

The Court found that it was clearly an abuse of process for the plaintiffs to take out their current claim in the District Court, and struck out their claim.

Takeaway

It is not uncommon for employers to apply to transfer cases against them from the Labour Tribunal to a higher court when they have a counterclaim. In order to do so, the employer’s claims or counterclaims must fall outside the jurisdiction of the Labour Tribunal. In “Can employers bring a claim against employees for wrongful conduct during employment in the Labour Tribunal?”, we have discussed the decision of the Court of First Instance (“CFI”) in Lee Yiu Hong v Well-in Hotel Supplies Company Limited [2020] HKCFI 2760, where the CFI looked at the relevant provisions in the LTO and reiterated that claims in tort, including mixed claims founded in both contract and tort fall outside the exclusive jurisdiction of the Labour Tribunal.

There may sometimes be tactical advantages for an employer to transfer a case from the Labour Tribunal to a higher court. Just because an employer thinks he has a mixed counterclaim against an employee, it does not automatically mean that the case will be transferred to a higher court. The Court will look at the substance of the claim in deciding whether the employer’s claim or counterclaim falls within the exclusive jurisdiction of the Labour Tribunal. It will strike out an employer’s so-called mixed claims that are merely window dressing. Unsuccessful attempt to transfer a case from a Labour Tribunal can have costs consequences. Employers should take caution and seek legal advice on whether the counterclaim falls within the Labour Tribunal’s jurisdiction.