Introduction

The Labour Tribunal has exclusive jurisdiction to hear claims for money that arise from breach of employment contracts. The Tribunal does not have jurisdiction to hear claims found in tort; this includes mixed claims found in both employment contract and tort.

What if an employer commences a mixed claim against an employee in a higher court and the employee has a counterclaim for breach of employment contract?  Should the employee commence that claim in the higher court or the Labour Tribunal?

The recent case of Acumen Hong Kong Limited v Kwan Pak Kei Lawton [2023] HKCFI 2038 illustrates the negative consequences of commencing such a counterclaim at the wrong court. In that case, the Court of First Instance (“CFI”) struck out the counterclaim of the employee defendant (“Employee”), which should have been commenced as a separate claim in the Labour Tribunal first.

Background

The Employee was a former employee of the plaintiff employer (“Employer”). The parties entered into an employment contract (“Employment Contract”) on 1 March 2020. The employment was terminated on 7 January 2022.

The Employer commenced proceedings against the Employee in the CFI for alleged breaches of the Employment Contract, fiduciary duties and duties of care. The Employer’s claim was a mixed claim founded in both contract and tort, it fell outside the exclusive jurisdiction of the Labour Tribunal.

On 15 December 2022, the Employee filed his Defence and Counterclaim. Under the Counterclaim, the Employee sued the Employer for a sum of HK$203,000 pursuant to clause 5.1 of the Employment Contract, which provided that the employment might only be terminated by giving 2 months’ notice in writing or paying salary in lieu of notice (“Counterclaim”).

Employer’s application to strike out the Counterclaim

The Employer’s argument

The Employer filed an application to strike out the Employee’s Counterclaim on the grounds that the same are frivolous or vexatious, or otherwise constitutes an abuse of the Court’s process. The Employer did not raise the jurisdiction challenge, which was later brought up by the Court at its own initiative.

In its striking out application, the Employer mainly relied on a letter dated 7 January 2022 signed by both parties (“Letter”). The Letter stated that in his final pay cheque the Employee would receive:

1.       salary of HK$24,116.13 in respect of the period from 1 to 7 January 2022;

 

2.       unused annual leave of HK$40,967.31;

 

3.       “No supplement as related to the 2 months’ notice period in your contract”; and

 

4.       no severance payment.

 

The Employer argued that the Letter amounted to an agreement that precluded the Employee from claiming 2 months’ salary in lieu of notice.

Court’s rejection of the Employer’s argument

Despite the Letter and the Employer’s argument, the Court was not persuaded that it was plain and obvious that the Employee’s Counterclaim was doomed to failure.

The Court was of the view that the Employee’s Counterclaim was arguable, where:

1.       The Letter might merely be a document that was intended to record the sums of monies received by the Employee upon the termination of his employment.

 

2.       More fundamentally, the contents of the Letter were equivocal and did not support the Employer’s argument. In particular, the Court observed that the phrase “No supplement as related to” appeared to be contradictory to the Employer’s argument. It is difficult for the Court to understand why the Employer would have drafted this part of the Letter as such if it intended that the Employee be deprived of payment in lieu of notice. The Employer should have simply said “No payment in lieu in 2 months’ notice”.

 

3.       Even if the Employer’s argument on the interpretation of the content of the Letter were correct, there was still no valid consideration coming from the Employer at all, and hence there could not be any valid agreement. In particular, the Letter did not provide the Employee would receive any additional benefits to which he was not entitled under his Employment Contract.

 

The Court was of the view that the Employee’s Counterclaim was, to say the least, arguable. The Court declined to strike out the Counterclaim on the basis that it is frivolous or vexatious as contended by the Employer.

The question of jurisdiction

CFI has no jurisdiction in the Counterclaim

Despite the above ruling, the Court on its own initiative raised the concern that the CFI did not have jurisdiction over the Counterclaim.

Under sections 7(1) and (2) of the Labour Tribunal Ordinance (Cap. 25) (“LTO”) and paragraph 1(a) of the Schedule thereto, the Labour Tribunal has exclusive jurisdiction to hear and determine monetary claims arising from breach of employment contracts.

If a claim is within the Labour Tribunal’s exclusive jurisdiction, such claim must be commenced in the Labour Tribunal as it is not actionable in any other court in Hong Kong including the CFI. Case law confirms that the CFI would only have jurisdiction if the claim is transferred by the Labour Tribunal to it under section 10 of the LTO. Otherwise, the CFI has no option but to strike out the claim.

In the present case, the Employee’s Counterclaim fell squarely within the Labour Tribunal’s exclusive jurisdiction. The Counterclaim was hence liable to be struck out for want of jurisdiction.

Can a subsequent transfer order by the Labour Tribunal cure the jurisdictional defect?

After the Employee filed his Counterclaim in this action on 15 December 2022, he commenced separate proceedings against the Employer in the Labour Tribunal under LBTC 721/2023 (“LBTC Proceedings”) on 7 March 2023, and the Employee’s claim there was identical to his Counterclaim in the present case.

On 26 April 2023, the Labour Tribunal ordered that the Employee’s claims in the LBTC Proceedings be transferred to the CFI (“Transfer Order”) and became a fresh action in CFI, namely HCA 713/2023.

The Court ruled that the Transfer Order made by Labour Tribunal could not cure the jurisdictional defect in respect of the Counterclaim:

1.       The Transfer Order only provided that the LBTC Proceedings be transferred to the CFI. It did not impact on, and was incapable of impacting on, the Counterclaim in the present case. The Court did not see how a subsequent Transfer Order was capable of affecting a set of pre-existing proceedings in the CFI (i.e. the Counterclaim in the present case).

 

2.       Although the substance was the same, the reality was that the Counterclaim and HCA 713/2023 were two different sets of proceedings. The Counterclaim in the present case was not transferred from the Labour Tribunal at all. It must be defective as the CFI has no jurisdiction at all.

 

3.       It would be abusive for the Employee to continue prosecuting the Counterclaim in the present case when HCA 713/2023 was clearly the appropriate avenue to resolve the dispute in relation to the 2 months’ salary, which was emanated from the LBTC Proceedings.

 

For the above reasons, the Court ordered that the Counterclaim be struck out for want of jurisdiction and constituted an abuse of process. The Court further ordered that the Employee to pay the Employer 50% costs in respect of the striking out application on the ground that the Employee was to be blamed in commencing the Counterclaim but this striking out was not done on the ground advanced by the Employer.

Takeaway

The Acumen case shows the negative consequences brought upon the Employee for commencing counterclaim for breach of employment contract at the wrong court. Had the Employer based its striking out application on the ground jurisdiction, the Employee would probably have to bear the Employer’s legal costs of the application in full.

The Labour Tribunal was set up in 1973 with a view to provide a quick, inexpensive and informal procedure for adjudicating monetary disputes between employers and employees. Hence, no legal representation is allowed and parties are required to conduct the case themselves. Whilst the Tribunal Officers will help a claimant with drafting the required forms and the Presiding Officer will assist the parties during the hearings, the Tribunal does not provide any legal advice to the parties in respect of their claims.

Regarding questions on jurisdiction, they are often not straight-forward and can be complicated. There is no hard and fast rule in determining whether an employment or employment-related claim (or counterclaim) should be commenced in the Labour Tribunal or other courts.

After all, we have moved on a long way since 1973 and well in the age of multinational businesses and worldwide business interests – and so have employment and employment-related claims, they too have moved on and the legal issues involved are getting more and more complicated. Employers and employees should seek independent legal advice on their own initiative if necessary, in particular, before bringing or defending an employment claim.

 

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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 © 2023