Summary Dismissal in Hong Kong - An Expensive Lesson Learnt

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While an employer might feel compelled to immediately dismiss an employee in situations of perceived gross misconduct, employers should exercise caution following the recent case of Grant David Vincent Williams v Jefferies Hong Kong Limited [2013] HKEC 1084, where the employer, who was found to have wrongfully terminated the employment of a senior employee, was criticised for leaving its former employee 'high and dry.'

Although there is no concept of 'unfair dismissal' in Hong Kong, this case examines at the interplay between termination and an employer's implied duty of trust and confidence.

Background

The defendant, Jefferies Hong Kong Limited (Jefferies HK) is a subsidiary of global investment banking firm Jefferies LLC and the plaintiff, Mr. Grant David Vincent Williams (Williams) was the Managing Director, Head of Equity Trading Asia of Jefferies HK.

Williams drafted a daily newsletter entitled "Things That Make You Go Hmmm…," (Newsletter), an 'edgy' publication with an irreverent tone, which was branded as a Jefferies product and used as a marketing tool. The agreed protocol for review and approval of the Newsletter was as follows: Williams would send a draft Newsletter to Jefferies' London office, which would review and vet the Newsletter. Following approval, Jefferies' New York office and Jefferies HK would distribute the approved Newsletter to Jefferies' clients.

In December 2010, Williams drafted the Newsletter (December Newsletter), which included a link to a video depicting Hitler, and promoted a joke about the CEO of JP Morgan. A personal assistant in Jefferies' New York office accidentally distributed the December Newsletter before it had been approved by Jefferies' London office.

The following day, Jefferies issued an apology to its clients for the inadvertent distribution of the December Newsletter. Williams was then summarily dismissed during a meeting which lasted only a few minutes, on the grounds of his 'unacceptable and entirely inappropriate misconduct.' The termination letter did not articulate reasons for Williams' dismissal. Jefferies HK did not ask Williams what had led to the distribution of the December Newsletter, and he was not given the opportunity to discuss or explain his position.

Judgment and Damages

The Judge took the view that Jefferies HK had drawn "irrational and patently unfair" conclusions against Williams, which had significantly affected his career - it had breached the implied duty of trust and confidence owed to Williams and then deprived him of the chance to persuade Jefferies HK against the 'folly' of its actions.

Williams was awarded:

  • HK$6,852,434.81 in damages by reference to the amount which he would have earned had his employment been terminated with notice (six months' payment in lieu of notice, bonus payments and restricted stock cash grant)
  • HK$7,700,000 in damages for breach of the implied term of trust and confidence; and
  • Costs on an indemnity basis.

The HK$7,700,000 award of damages for breach of trust and confidence was based on just over two years' loss of salary and contractual benefits. In assessing damages, the Court considered Jefferies HK's actions and the effect that they had upon Williams. In particular, the fact that blame was put "squarely on the plaintiff's shoulders" was considered by the Court to be an ill-considered attempt to shuffle off responsibility. With the immediate cessation of the Newsletter (which would have been noticed by at least 900 people in the financial world) and the virtually immediate dismissal of Williams, the Court highlighted the difficulties which an individual would face in seeking employment after being dismissed by a well-known group in the financial world in these circumstances.

Had Jefferies HK lawfully terminated Williams' employment with six months' notice (or payment in lieu of notice), it is possible that the stigma attached to his termination would have been lessened, and the damages awarded for breach of trust and confidence, reduced. However, the key factor in assessing damages under this head was Jefferies HK's shuffling of responsibility, which would have been an issue regardless of whether Williams' employment was terminated summarily or with notice.

Indemnity costs - the loser pays it all

A significant feature in this case was the award for indemnity costs to Williams. If costs are assessed on an indemnity basis, while the receiving party can only recover what he/she incurred in the course of events, proportionality is not an issue. This is different to the award of costs on the usual 'party and party' basis, where the court will only allow costs which are proportionate to the matters in issue. Indemnity costs are therefore more onerous to the paying party.

Lessons for employers and businesses

This case highlights the cost of getting summary dismissal wrong - aside from being liable to pay damages representing contractual and statutory termination payments, an employer may also be liable for damages for breach of implied trust and confidence, and costs on an indemnity basis.

We set out below key take away points for employers:

  • Preserve Trust and Confidence - Employers should not act in a way that does, or is calculated to destroy the relationship of trust and confidence between employer and employee, particularly in the context of a contemplated termination. Employees should be treated in a rational and fair manner. Where an employer fundamentally breaches the duty of trust and confidence, an employee may be justified in treating his contract as having been unlawfully breached, enabling him to claim constructive dismissal (and walk away from any post-termination obligations)
  • Investigate - Prior to any summary termination, employers should investigate the circumstances giving rise to the termination, and provide the employee with the opportunity to explain his position. In the Jefferies case, Jefferies HK was criticised for terminating Williams' employment without affording him the opportunity to persuade Jefferies HK otherwise, and in a meeting which took little more than two minutes
  • Be Consistent - Employers must ensure that consistent treatment is afforded to all employees when contemplating summary dismissal. In the Jefferies case, Williams drew the Court's attention to an instance where another Jefferies HK employee retained his job and was purportedly given special treatment after he committed an offence of violence against a police officer when drunk. The Court held that Jefferies HK's contrasting treatment of Williams gave the unwarranted impression to third parties that Williams behavior must have been particularly heinous, which is relevant to our next point; and
  • Think of Consequences - Aside from the consequences and negative publicity for the employer, employers should also be mindful of consequences for the employee. Where wrongful summary dismissal results in unfair stigmatisation of an employee, this can affect his ability to seek alternative employment, and may result in an increased award of compensation.

Topics:  Banks, China, Dismissals, Hong Kong, Indemnification

Published In: Business Torts Updates, General Business Updates, International Trade Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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