It is common for senior management of a company, regardless of the size of organization to delegate various tasks to subordinates. In the event a subordinate commits fraud or gross negligence against the employer, will the senior manager be held responsible and can the employer summarily dismiss him ? The decision in the Court of First Instance case Qvist Henrik v Clatronic Far East Limited  HKCFI 2464 clarifies the principles and factors in deciding whether such summary dismissal may be justified.
Facts of the Case
The plaintiff, Mr Qvist (“Qvist”) was employed by the defendant (with its headquarter in Germany) as Managing Director since 2009. He was the only person in the Hong Kong office with authority to sign cheques on behalf of the defendant. In May 2011, Mr Tang was hired as the defendant’s Administration Manager. Amongst Mr Tang’s duties were the preparation of cheques for Qvist to sign as well as the management of petty cash.
It turns out that Mr Tang was a crook. By various means, he was able to procure the issue of 50 cheques paying out a total of over HK$1.4 million from the defendant’s account to himself or to a company which he owns over a period of 2 years. In early 2015, Qvist was summarily dismissed by the defendant for acting in breach of his duties as the Managing Director to manage, supervise and control the financial affairs of the defendant, thereby allowing Mr Tang to perpetuate his frauds causing losses to the defendant. The defendant further relied on section 9(1)(a)(iv) of the Employment Ordinance (Cap.57) which states that an employer may terminate a contract of employment without notice or payment in lieu if the employee is habitually neglectful in his duties. Qvist denied that he had been in breach of his duties and claimed that his summary dismissal was wrongful and claimed damages in the sum of about HK$1.6 million being the lost wages in lieu of notice, long service leave pay and other entitlements under his employment contract.
Firstly, the court found that the Plaintiff had not breached his duties under the employment contract as Managing Director but he did fail to exercise due care and skill or reasonable skills and competence in the performance of his duties. However, for the defendant to rely on the ground of habitual neglect of one’s duties, the court stated that the neglect must be substantial and habitual.
Regarding “substantial neglect”, the onus was on the employer to show that Qvist had disregarded the essential conditions of his employment contract. The test was whether Qvist’s conduct amounted to a sufficiently serious breach of his employment contract such as to indicate that Qvist no longer intended to be bound by it. The court needed to balance the impact on Qvist’s summary dismissal (which disentitled him to wages in lieu of notice and other benefits such as severance and long service payment) with the effect of his misconduct on the employer. It was held that the defendant only suffered monetary loss of relatively modest amounts. Balancing the impact caused to the defendant and the consequences of summary dismissal on Qvist, the court held that the neglect of Qvist was not serious enough to warrant the summary dismissal.
On the issue of habitual neglect, the court was of the view that the neglect of duties must not be a one-off event, but must have happened more than once. It is a question of fact and degree whether a series of similar neglects amounts to “habitual” neglect, and the greater number of such neglects (and perhaps with great regularity), the more likely it is that the employee is habitually neglectful. Out of the 50 cheques in question, the court found that Qvist had only breached his duties in 4 of those transactions. The court further stated that while it is not a legal requirement, prior warnings are relevant, perhaps highly relevant, factor in considering whether the employee has so acted to indicate an intention not to be bound by the employment contract. If Qvist had been warned but still persisted in the neglect, that may be a very material pointer to such an intention. The court held that 4 breaches did not amount to habitual neglect and in the case of negligence with no prior warning, the court found that Qvist did not show an intention not to be bound by his employment contract.
Thus, the court held that the neglect of Qvist was not serious enough to warrant summary dismissal and thus his summary dismissal was wrongful and Qvist was entitled to damages plus interest.
Summary dismissal is a serious matter. Therefore employers must be very careful if they wish to summarily dismiss an employee. In relation to summary dismissal on the ground that an employee is habitually neglectful of his duties, the “neglect” must be both substantial and habitual and the onus of proof is on the employer. It is also advisable to give employee prior warning(s) in order to justify the summary dismissal.
If you have any questions on the above case or relating to employment law matters, experienced corporate and employment lawyers in our firm would be happy to assist you.