In a recent case heard in the Court of First Instance (CFI), the court decided it was unnecessary for an employer to give any reasons for termination, suggesting that the implied duty of mutual trust and confidence does not cover termination of an employment.
The case examines how the contractual right to terminate employment can be exercised capriciously, as long as it is in accordance with the employment contract.
In the decision of Lam Siu Wai v Equal Opportunities Commission (2021) HKCU 4949, the Court of First Instance (CFI) heard that Lam has been working for the Equal Opportunities Commission (EOC) for over two decades since 1996. The last renewal of her employment with the EOC was for three years from 1 March 2016. Prior to her dismissal, Lam was a Chief Equal Opportunities Officer. Lam’s employment contract provided that the EOC may terminate her employment by giving three months’ notice or by paying three months’ salary in lieu of notice.
On 15 May 2018, the EOC gave notice and informed Lam that her employment had been terminated with immediate effect. The letter of termination stated that:
“…We come to this decision after full consideration given to your job requirements, including personal attributes needed of your Chief Equal Opportunities Officer post. Our conclusion is that your recent attitude and behaviour do not closely match with the requirements of this senior position and hence it is regrettable that we have to terminate your employment contract with the Commission.” Upon her dismissal, the EOC paid Lam three months’ wages in lieu of notice and all benefits due to her.
Lam commenced proceedings in the Labour Tribunal, alleging that her employment was wrongfully terminated in bad faith and in doing so, the EOC had breached its implied duty of mutual trust and confidence of the employment contract. Lam claimed loss and damages, including loss of her income, the EOC’s MPF contributions, and the remaining gratuity for her remaining period of employment.
The Tribunal decided that the implied duty of mutual trust and confidence applies to the termination of an employment. The Tribunal held that the EOC bore the burden to prove that the "reason of termination" was a good and valid reason to terminate. By failing to discharge such burden, the EOC breached the implied duty of mutual trust and confidence.
The EOC appealed against the Tribunal’s decision on the grounds that it was entitled to terminate Lam’s employment without cause (by payment in lieu of notice) upon exercise of its contractual right, and the implied duty of mutual trust and confidence does not apply to the termination of employment.
The CFI noted that the implied duty of mutual trust and confidence applies to both the employer and the employee. In respect of the employer, the implied duty requires an employer not to, without reasonable and proper cause, conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of confidence and trust between the employer and employee.
Upon considering case authorities, the CFI took the view that the fundamental purpose of the implied duty of mutual trust and confidence is to maintain the relationship between the employer and the employee and it was inappropriate to apply this implied duty to the termination of an employment. The Labour Tribunal was wrong in applying the implied duty of mutual trust and confidence to the termination of Lam’s employment. The CFI made the following important clarifications:
Clarification on the contractual right to terminate
It has been a well-established contractual right that termination of an employment can be exercised unreasonably or capriciously, as long as it is in accordance with the employment contract and, therefore, the court is not concerned with the “rightness or wrongness of a dismissal”. If the EOC was entitled to dismiss Lam without cause in accordance with the employment contract, it would also be unnecessary for the EOC to give any reason of termination at all from the beginning.
Clarification on the case authority
The CFI considered and distinguished Tadjudin Sunny v Bank of America, National Association  HKCU 1193. In Tadjudin Sunny, the Court of Appeal (CA) upheld an implied term in the employment contract that required the bank not to exercise its right to terminate by giving one month’s notice or by paying one month’s salary in lieu of notice, where the CA found that such termination was intended to avoid the employee from being eligible for a performance incentive programme.
The CFI considered that Tadjudin Sunny was not an authority for the general proposition that the right to terminate without cause was qualified by an implied duty to exercise such right in good faith. Instead, Tadjudin Sunny, at the highest, was only an authority opening “the door for further development in the common law in this regard”. The CFI commented that implying a duty of good faith in the termination of employment without cause would bring about a too far-reaching effect since the reason(s) for termination may then be subject to scrutiny by the Labour Tribunal and the judiciary, which will in turn complicate the matter with more time and costs. Such a change of law, if needed, should be performed by the legislature. The CFI allowed the appeal.
Takeaway points for HR professionals
The CFI’s decision made it clear that an employer is entitled to terminate an employment by giving notice or payment in lieu of notice in accordance with the employment contract and sections 6 (Termination of contract by notice) and 7 (Termination of contract by payment in lieu of notice) of the Employment Ordinance (Cap. 57), without the need to give any reasons of termination. The common conception that employers have to give a reason for termination is a myth.
An implied duty of mutual trust and confidence applies to both the employer and the employee. Under this duty, an employer may not behave in a manner calculated and likely to destroy or seriously damage the relationship of trust and confidence between the employer and employee. An employer could be in breach if it unreasonably and unnecessarily suspends an employee from work, bullies an employee, or behaves in any abusive manner. Be that as it may, in Lam Siu Wai, the CFI has made it clear that the implied duty of mutual trust and confidence does not apply to the termination of an employment contract.
原訟庭最近就Lam Siu Wai v Equal Opportunities Commission  HKCU 4949一案進行審理。案中林女士自1996年起在平等機會委員會（平機會）服務超過20年。她最後一次與平機會續約的生效日期為2016年3月1日，為期三年。林女士被解僱前擔任平機會總主任一職，所簽署的僱傭合約訂明，平機會可向她發出三個月通知或支付相等於三個月薪金的代通知金，以將她解僱。平機會於2018年5月15日通知林女士已被解僱，即時生效。解僱信說明：
平機會就審裁處的決定提出上訴，理由是 (1) 平機會有權行使其合約權利，支付代通知金以解僱林女士而無須說明原因，及 (2) 隱含的互信責任不適用於解僱情況。
原訟庭引用Tadjudin Sunny v Bank of America, National Association  HKCU 1193為案例，並指出該案與本案的分別。Tadjudin Sunny一案中，上訴法庭（上訴庭）堅持維護僱傭合約所隱含的一項條款，就是要求僱主不得行使其權利，藉發出一個月通知或支付一個月代通知金以開除僱員。上訴庭認為Tadjudin Sunny案中，所涉僱主是意圖避免合資格僱員享有績效獎勵計劃。