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Bad Faith Warning and Termination of an Employee
1 August 2015

Statutory Grounds for Dismissal

In Hong Kong, an employer’s statutory right to summarily dismiss an employee is set out in Section 9 of the Employment Ordinance (Cap 57) which provides the following 5 grounds :-

1. the employee wilfully disobeys a lawful and reasonable order;

2. the employee misconducts himself, such conduct being inconsistent with the due and faithful discharge of his duties;

3. the employee is guilty of fraud or dishonesty;

4. the employee is habitually neglectful in his duties; and

5. any other ground on which he would be entitled to terminate the contract without notice at common law.

Depending on the circumstances of the case, a single incident of misconduct by an employee may not be sufficient to meet any of the above grounds to justify summary dismissal, but a series of misconduct might suffice, especially if warning in the form of oral and written warnings were given after each incident of misconduct. But what if a written warning was made in bad faith or the employer genuinely but mistakenly believes there is no issue of bad faith and relies on the written warning to dismiss an employee ? A recent Court of Appeal case in the United Kingdom (which is likely to be followed in Hong Kong) discussed the question.

Way v Spectrum Property Care Ltd [2015] EWCA Civ 381

Mr Way was employed by Spectrum Property Care Ltd (“SPC”) as a recruitment manager. In 2010, a final warning letter (“the Warning Letter”) was given to Mr Way after an internal investigation regarding Mr Way’s inappropriate appointment of a family member, contrary to SPC’s procedures regarding fair recruitment and disclosure of relationships. The Warning Letter was effective for 12 months. At the time Mr Way did not appeal the Warning Letter because he was told that if he did, the result of the appeal could be a dismissal rather than a final warning.

Subsequently in 2011, Mr Way was subject to another internal investigation regarding inappropriate emails sent to a colleague in breach of SPC’s computer usage policies which resulted in his dismissal for repeated misconduct. This time, Mr Way appealed internally against his dismissal and argued that the first Warning Letter was made in bad faith because his line manager had actually sanctioned Mr Way’s appointment of his family member knowing his relationship with him. With the benefit of hindsight, Mr Way stated that he would have appealed against the Warning Letter at the time it was made. However, Mr Way’s appeal within SPC failed and the SPC upheld the dismissal decision. Thereafter, Mr Way claimed unfair dismissal against SPC in the Employment Tribunal in the United Kingdom (“the ET”).

In the first instance, the ET rejected Mr Way’s claim for unfair dismissal and did not allow Mr Way to present evidence relating to the background of the first Warning Letter as it was irrelevant. The Employment Appeals Tribunal (“the EAT”) decided that the evidence that the Warning Letter was given in bad faith should have been allowed to be presented in the ET, but held that it would not have affected the ET’s decision even if bad faith on the Warning Letter was established because :-

1. the Warning Letter was valid on its face and Mr Way did not appeal at the time; and

2. when Mr Way did appeal the Warning Letter later, the bad faith allegation was rejected internally by SPC.

The Court of Appeal allowed Mr Way’s appeal. The Court of Appeal held that a warning given in bad faith was not allowed to be taken into account in deciding whether there was sufficient reason for dismissing an employee and to do so would not be in accordance with equity or the substantial merits of the case. Additionally, if a warning letter was actually given in bad faith, it could not be validated by an internal appeal procedure. As a result the Court of Appeal remitted the case back to a differently constituted EA to determine if Mr Way was unfairly dismissed.

Case Applications

Based on the above judgment, before dismissing an employee through summary dismissal, an employer should properly consider if it has proper grounds to do so and all its internal procedures leading up to the dismissal have been followed. If an employer relies on previous warnings to summarily dismiss an employee, it should thoroughly investigate the background of each warning to see if it may be challenged by the employee. If there is doubt on whether a warning can be relied upon, the employer should consider if the employee can still be dismissed without relying on the warning.

If you have any queries regarding the above eNews or any other questions relating to drafting employment contracts, formulating employment handbooks, terminating or dismissing employees or other employee stock options or compensation matters, experienced lawyers in our Employment department would be happy to assist you.

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