Employers may have to pay a high price for beaching the implied term of trust and confidence in dismissing an employee summarily without any justification.

Meaning of mutual trust and confidence

The duty of mutual trust and confidence is implied by law to all employment contracts. It imposes reciprocal obligations on the employer and the employee not to, “without reasonable and proper cause, conduct themselves in a manner calculated and likely to destroy or seriously damage the relationship of confidence and trust between them. This obligation probably has its origin in the general duty of co-operation between contracting parties. The notion of a master and servant relationship has become obsolete. Far greater duties are imposed on the employer to care for the physical, financial and even psychological welfare of the employee.”[1] Moreover, “the mere fact of an employee working in a high pressure environment in a well-paid job does not remove the obligation on the employer to ensure that the employee is treated with sufficient respect to satisfy the duty of trust and confidence.”[2]

Employers have to act fairly and reasonably

In view of the implied duty of mutual trust and confidence, an employer should exercise its discretion reasonably and rationally (e.g. in relation to the provision of employees’ benefits and payment of discretionary bonus). When it comes to termination of employment, an employer has to be very careful. If it wants to dismiss an employee summarily, it must have sufficient justification and evidence. Otherwise, it may be very difficult to successfully defend the legal action against the employer for wrongful termination and the employer may have to pay very substantial amount of damages to the employee. Moreover, the way in which the termination was handled and how the out-going employee was being treated will also have an impact on the assessment of damages.

Summary dismissal is justified?

This is illustrated by the case Grant David Vincent Williams v Jefferies Hong Kong Limited.[3] In this case, the Plaintiff was employed as the Head of Equity by the Defendant company on 26 August 2010. The Plaintiff was responsible for publishing daily newsletter for the Defendant company. The Plaintiff’s draft newsletter was to be approved by the Defendant’s London and New York Office. However, one of the newsletters (published on 7 December 2010) was sent out by mistake by a staff member in the New York Office without obtaining the relevant approval (and she admitted that it was her fault).

The newsletter in question made an incidental reference to the existence of a “Hitler video” (without any suggestion of any association of the Defendant’s group with the content or purpose or identity of the parody contained within the video). The Defendant nevertheless took the view that such newsletter might have a negative impact on the Defendant company and/or damage its reputation. The Defendant then sent messages to the recipients of the newsletter to apologise and to distance itself from the newsletter in question, saying that it “contained……material from a website that we do not condone.”

The Plaintiff was summarily dismissed by the Defendant on the following day on the grounds of “his unacceptable and entirely inappropriate misconduct.”

Under the Employment Ordinance of Hong Kong (Cap, 57 of the laws of Hong Kong), “an employer may terminate a contract of employment without notice or payment in lieu of notice (summary dismissal) if an employee, in relation to his employment, wilfully disobeys a lawful and reasonable order; or misconducts himself, such conduct being inconsistent with the due and faithful discharge of his duties; or is guilty of fraud or dishonesty; or is habitually neglectful in his duties, or on any other ground on which the employer would be entitled to terminate the contract without notice at common law.”

In this case, the Plaintiff had not committed any misconduct which would warrant a summary dismissal. The publication without the relevant approval was not the Plaintiff’s mistake. The Plaintiff was not given any opportunity to understand the reasons for his dismissal nor given any chance to provide his explanation. Therefore, it is no surprise that the Court ruled that there was no justification for the summary dismissal and the Plaintiff was “wrongly and unfairly dismissed.”

Breach of mutual trust and confidence by the employer?

The Court ruled that the Defendant Company was in clear breach of the implied duty of trust and confidence. The Court said that “in assessing whether there has been a breach of trust and confidence, what is significant is the impact of the employer’s behaviour on the employee rather than what the employer intended. Moreover, the impact will be assessed objectively.” In this case, the Court took the view that “the blame was put squarely on the Plaintiff’s shoulders. The Defendant was doing its utmost to distance itself from the Plaintiff. In effect, it was denying the publication as a corporate publication. It had all the signs of an ill-considered, hasty, and inaccurate attempt to shuffle off responsibility. It was extremely damaging to the Plaintiff.”

The cessation of the daily newsletter would have been noticed by at least 900 people in the financial world (who had received the newsletter before) and the virtually immediate dismissal of the Plaintiff (though not justified) might make some people query if there was something else behind the decision which did not reflect well upon the Plaintiff.

In addition, there was a great contrast of the treatment received by the Plaintiff and his colleague who was involved in an offence of violence against a police officer while in drink. That colleague of the Plaintiff received support from the Defendant company and he also retained his employment.  The Court commented that “this may give an entirely unwarranted impression on the Plaintiff’s potential employers in the financial world that the Plaintiff’s behaviour must have been particularly heinous.”

Because of the above, the Plaintiff had encountered serious problem in obtaining worthwhile employment or even opportunities for job interview.

Damages for breach of the duty of trust and confidence

The Plaintiff was awarded his contractual damages (i.e. the amount which the Plaintiff would be paid if his employment was properly terminated) (e.g. payment in lieu of notice, restricted stock cash grant, retention bonus and guaranteed bonus) according to the terms of his employment contract in the sum of about HKD 6.8 million.

He was also awarded damages for breach of the implied term of trust and confidence which includes (1) loss of salary (26 months of salary), (2) discretionary bonus for 2012 (USD 250,000) and (3) discretionary bonus for 7 months of 2013 (USD 145,833.33).

Conclusion

The duty of mutual trust and confidence is an implied term of all employment contracts. Both the employer and the employees should treat each other with respect. Before an employer is to dismiss an employee summarily, it has to consider whether it has sufficient justification and evidence in support of the decision. It also has to give an opportunity for the employee to provide his explanation so that unnecessary claim against the employer can be avoided.

 

For enquiries, please feel free to contact us at:

E: employment@onc.hk                             T: (852) 2810 1212 W: www.onc.hk                                           F: (852) 2804 6311 19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong

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© 2014