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Author: Cynthia Chung
Service Area: Human Resources & Pensions
Date: November 2013
Country: Hong Kong

 

Human Resources and Pensions Newsletter 
Issue 4 of 2013: November

SUMMARY OF CONTENTS

Employers must think twice before summarily dismissing an employee
by Elsie Chan, Associate (elsie.chan@deacons.com.hk) and
Victoria Cheung,Trainee Solicitor(victoria.cheung@deacons.com.hk)


If an employer wants to dismiss an employee without notice or paying wages in lieu of notice, there needs to be a good cause. In the Court of First Instance case Grant David Vincent Williams v Jefferies Hong Kong Limited [HCA 320/2011], the Defendant paid a dear price for summarily dismissing the Plaintiff without valid grounds.


Facts
The Defendant is a Hong Kong subsidiary of a New York-based international investment banking firm. The Plaintiff joined the Defendant in August 2010 as Head of Equity Trading Asia with a title of Managing Director. The Plaintiff suggested issuing the Daily Newsletter under the Defendant's name as a marketing tool. The Defendant agreed and set approval procedures for the publication of the Daily Newsletter. Under the approval procedures, the Plaintiff was required to send the daily issue to his London-based supervisor for approval before the newsletter can be sent out to its subscribers.

On 7 December 2010, the Plaintiff sent an email to a personal assistant in New York and to the London-based supervisor enclosing the draft newsletter, requesting the personal assistant to send out the Daily Newsletter when it had been approved. However, the newsletter was mistakenly published without the knowledge of the Plaintiff before approval came through. The personal assistant acknowledged fault of it.

In less than 24 hours of the publication, the Plaintiff was summarily dismissed for gross misconduct. The Plaintiff claimed against the Defendant for wrongful dismissal and for breach of the implied term of trust and confidence.

The Court of Appeal's ruling

The newsletter in question referred to a YouTube video clip depicting Hitler, with subtitles that mocked the CEO of JPMorgan. The judge ruled that the Plaintiff did not create the video and referring to it in the newsletter is not tantamount to promoting it. The mistaken publication was only a result of human error or a defect in the approval system, or a combination of both, but not the fault of the Plaintiff. The Plaintiff was also offered no reasons for the dismissal and no opportunity of discussion when he was fired. Accordingly, the judge concluded that the dismissal was wrongful and unfair.

The judge also concluded that the Defendant breached the implied duty of trust and confidence it owed the Plaintiff for the way it handled the dismissal and its attempt to distance itself from the Plaintiff. Shortly after the publication, the Defendant sent an explanatory email to the subscribers stating that the Defendant had inadvertently distributed "Grant Williams' 7 December 2010 edition of [the newsletter]". This was seen by the judge as an effort to shift the overall responsibility of the publication onto the Plaintiff by denying the newsletter as a corporate publication.

Decision on costs

The Plaintiff sought costs on an indemnity basis, which is higher than the standard basis (i.e. party and party basis). In this case, when deciding whether an unusual order for indemnity costs should be made, the judge took into account the conduct of the Defendant such as for: (1) dismissing the Plaintiff on the misconception that the Plaintiff was the author of the subtitles to the video, (2) shirking accountability onto the Plaintiff when the publication was apparently not his fault, (3) making no constructive efforts to settle the action, and (4) pressing for security for costs from the Plaintiff in order to overawe him. In the end, the Plaintiff was awarded over HK$15.8 million in damages covering his loss of income and bonuses plus costs to be paid to him on an indemnity basis.

This case serves as an important reminder to employers who wish to summarily dismiss an employee of the need to ascertain whether there is any misconduct on the part of the employee and even if there is, whether the misconduct is so serious that a summary dismissal is warranted. Dismissing an employee summarily without supporting grounds can be costly to employers.

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Restrictive covenant is void for protection against competition
by Elsie Chan, Associate (elsie.chan@deacons.com.hk)

In the District Court case Union Gain Limited v Chu Wilton Lucas [DCCJ 2383/2013], the Defendant, Mr. Chu, was employed under an employment contract with the Plaintiff, a hair salon, as a hair stylist.

Immediately after termination of the Defendant's employment, he joined a competitor of the Plaintiff. The Plaintiff sought an interlocutory injunction against the Defendant restraining him from joining the competitor in breach of the restrictive covenant under his employment contract with the Plaintiff.

Under the Defendant's employment contract with the Plaintiff, it was provided that :-

"9(a)...the Employee covenants that he will not without the prior written consent of the Company (such consent to be withheld only in so far as may be reasonably necessary to protect the legitimate interests of the Company) after the termination of this agreement for whatever reason....

....


(iii) for a period of 1 year, whether on his own account or as shareholder, partner, director, agent, servant or consultant or otherwise for any other person, be engaged in the provision of Services within a radius of ½ mile of the Premises or such other business premises of the Company (as to be determined by the Company at its absolute discretion) pursuant to clause 4 above where the Employee habitually worded [sic] 6 months prior to the said termination or the Premises in the case of termination as a result of a breach of Clause 1 above."

The court considered that as it was an interlocutory application, the court could not resolve factual disputes. Further, as it was unlikely that the trial of the action could take place before the expiration of the relevant restrictive covenant, the court considered that the usual American Cyanamid test should be applied with a rider that the court should have a greater regard to the Plaintiff's prospect of success.

The court considered that there was simply nothing pleaded in the Statement of Claim to assert that the restrictive covenant in question was enforceable. In terms of evidence, it appeared that the affirmation of the Plaintiff's witness only contained very general and non-specific references to trade connections, goodwill and confidential information. More importantly, the Plaintiff's counsel had confirmed that such trade connections, goodwill and confidential information which the Plaintiff sought to protect under the restrictive covenant only related to existing customers of the Plaintiff.

In the circumstances, the present restrictive covenant was plainly unreasonably wide as it extended beyond dealing with existing customers of the Plaintiff whom the Defendant had served when he was employed by the Plaintiff. It prohibited the Defendant from serving new customers within the ½ mile radius, even though the Plaintiff had no connection with such customers whatsoever. The court considered that there was simply no justification for such a wide-ranging clause. Therefore the court ruled that the Plaintiff had no good prospect of success in upholding the validity of the present restrictive covenant and dismissed the Plaintiff's application.

Employers should note that a post termination restrictive covenant is only enforceable if the restrictions aim to protect their legitimate business interests and the scope of restriction is reasonable. In addition, the employer wishing to enforce the restrictive covenant has the duty to provide evidence to the court to support the aforesaid.

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The maximum and minimum relevant income levels to be increased for mandatory MPF contributions
by Gladys Ching, Associate (gladys.ching@deacons.com.hk)

On 17 July 2013, resolutions were passed by the Legislative Council to increase both the minimum relevant income ("Min RI") and the maximum relevant income ("Max RI") levels for the purpose of making mandatory contributions under the Mandatory Provident Fund Schemes Ordinance. The changes are summarised below.

Min RI

With effect from 1 November 2013:-

  1. the monthly Min RI will be increased from HK$6,500 per month to HK$7,100 per month (applicable to employees remunerated on monthly basis or less frequently than monthly basis as prorated or self-employed persons);
  2. the daily Min RI will be increased from HK$250 per day to HK$280 per day (applicable to employees remunerated more frequently than monthly basis or casual employees of an industry scheme); and
  3. the annual Min RI will be increased from HK$78,000 per year to HK$85,200 per year (applicable to self-employed persons).

As a result of the aforesaid changes, starting from 1 November 2013, whilst the duty on the part of the employer remains unchanged, only those employees who earn an income of more than the above Min RIs (as the case may be) will be required to make mandatory employee's contributions.

Max RI

With effect from 1 June 2014:-

  1. the monthly Max RI will be increased from HK$25,000 per month to HK$30,000 per month (applicable to employees remunerated on monthly basis or less frequently than monthly basis as prorated or self-employed persons);
  2. the daily Max RI will be increased from HK$830 per day to HK$1,000 per day (applicable to employees remunerated more frequently than monthly basis or casual employees of an industry scheme); and
  3. the annual Max RI will be increased from HK$300,000 per year to HK$360,000 per year (applicable to self-employed persons).

The effect of these changes is that starting from 1 June 2014, the maximum level of contribution required from both employers and employees whose relevant income is more than the current income cap (i.e. more than HK$25,000 per month, HK$830 per day or HK$300,000 per year as the case may be) will be increased. For example, for an employee whose monthly income is HK$28,000, the level of contribution required from both the employer and the employee will be increased from HK$1,250 (i.e. HK$28,000 capped at HK$25,000 x 5%) to HK$1,400 (i.e. HK$28,000 x 5%).

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New PRC Exit-Entry Requirements Involving Foreigners
by Iris Cheng, Partner (iris.cheng@deacons.com.hk) and
Shelley Liang, Associate (shelley.liang@deacons.com.cn)

On 30 June 2012, the Standing Committee of Chinese National People's Congress enacted the "Exit and Entry Administration Law of the People's Republic of China" (the "New Law"), which took effect on 1 July 2013. The State Council subsequently promulgated the "Administrative Regulation of the People's Republic of China on the Entry and Exit of Foreigners" (the "New Regulation") on 22 July 2013, which has come into force since 1 September 2013. The New Law and the New Regulation replace the existing laws and regulations which had been in effect since the mid 1980s. In this article, we highlight some salient points of the New Law and the New Regulation especially those employment-related immigration matters:

1. Changes to the visa categories and resident permits

Under the New Regulation, the types of visa have been increased from 8 to 12, and the main changes to the visa categories are:

  • Dividing F visa into F visa and M visa: F visa, which is currently also used for business purposes, will only be reserved for non-commercial activities such as for scientific, cultural, athletic and educational purposes. A separate M visa will be created to cover business and trade activities.
  • Dividing L visa into L visa and Q visa: Currently, foreigners with L visa may enter China for tourism, family reunions or personal affairs. As this visa category does not precisely correspond to the purpose of these various types of visits, the New Regulation has limited L visa to tourism purposes only and, at the same time, introduced a "family reunion" visa called Q visa, which will be issued to the relatives of Chinese citizens or permanent residence applying to enter and reside in China for purposes of family reunion. Q visa is also divided into Q1 visa (for long term stay of more than 180 days) and Q2 visa (for short term visit of less than or equal to 180 days).
  • Dividing Z visa into Z visa and S visa: Currently, Z visa is the "work visa" issued to foreigners working in China and their accompanying family members. Under the New Regulation, Z visa shall be issued to persons applying to work in China only. The family members of the foreign workers will have to apply for S visa which is newly created to be issued to foreigners with family member residing in China for work or study etc. who come to China for family visit, or other persons who need to reside in China for private purposes. S visa is divided into S1 visa (for long term stay of more than 180 days) and S2 visa (for short term visit of less than or equal to 180 days). To be eligible to apply for S1 visa, the applicant shall be the spouse, parents, children under the age of 18, or parents-in-law of the foreigner who is residing in China.
  • Creating new R visa: A new category of talent visa called R visa is firstly introduced by the New Regulation. R visa will apply to foreign high-level talents and professionals whose skills are urgently needed in China.
  • Splitting X visa: The New Regulation has divided the current X visa (student visa) into X1 visa and X2 visa. X1 visa applies to foreigners coming to China for long-term study for more than 180 days while the X2 visa applies to foreigners coming to China for short-term study for less than or equal to 180 days).

The New Regulation has also newly categorized residence permits into five types, namely working residence permits, study residence permits, journalist residence permits, family reunion residence permits and personal affair residence permits. Different types of visa holders shall apply for the corresponding residence permits for residing in China.

2. Harsher penalties imposed to tackle illegal employment

The New Law imposes harsher sanctions with the aim of tackling illegal entry, illegal residence and illegal employment by foreigners. The New Law, for the first time, gives clear definition of "illegal employment", and stipulates that foreigners should obtain the required identification and employment documents when they are working in China.

Penalties for illegally working in China include:

  • Sanctions on Foreigner: Any foreigner working in China without valid employment documentation may be subject to a fine ranging from RMB 5,000 to RMB20,000. In serious circumstances, detention from 5 to 15 days may also be imposed.
  • Sanctions on Employer: A fine of RMB10,000 may be imposed on employer for every foreigner illegally employed subject to a cap of RMB100,000. Any monetary gains from the employment of such individuals will also be forfeit.
  • Possible Deportation: Those who have committed "severe violations" of the New Law that do not constitute crimes may be deported and prohibited from entering China for a period of up to 10 years.

3. Miscellaneous

Other than the salient points above, the following points of the New Law and New Regulation are also noteworthy:

  • It is newly provided in the New Law that the foreign executive of a company in China may be prohibited from departing China if he or she defaults in paying labour remuneration to workers.
  • The New Regulation provides that relevant entities must report to the local entry and exit administrative authorities if the foreign nationals employed by them have left their jobs, changed work locations, or if the overseas students enrolled by them have left.

As the New Law and the New Regulation have just been promulgated, it is advisable that employers shall pay close attention to their implementation status in the coming months.

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Whilst every effort has been made to ensure the accuracy of this publication, it is for general guidance only and should not be treated as a substitute for specific advice.