Court Upholds High Bar for Summary Dismissals in Hong Kong

In Hu Yangyong v Alba Asia Limited[1], the Court considered whether an employer (the “Company”) was justified in summarily dismissing its former Chief Operating Officer (“Mr. Hu”). While it was not disputed that the nature of certain expense claims submitted by Mr. Hu were inconsistent with the underlying invoices, the  Court found there were surrounding circumstances that did not warrant his summary dismissal.  This case highlights the importance of conducting a careful and thorough investigation – and the potentially hefty cost of a wrongful termination. 

Background

Mr. Hu was employed as the Company’s Chief Operating Officer (Asia) under a three-year fixed term contract.  There was no ability to terminate the contract during the fixed term except for “good cause”. 

Under the contract, Mr. Hu was entitled to reimbursement of out-of-pocket family expenses of up to RMB20,000 per month, including for housing, education and family travel to Mainland China. 

Mr. Hu submitted monthly expense reports with supporting invoices.  However, an issue arose around three suspicious hotel invoices.  Upon investigation, the Company concluded that the invoices were fraudulent, and therefore summarily dismissed Mr. Hu on the ground of misconduct.  Mr. Hu commenced proceedings against the Company for wrongful termination. 

Evidence

Mr. Hu’s case

Mr. Hu claimed he was informed internally that invoices submitted for reimbursement needed to be issued in his name.  As most of the invoices for his family expenses were not issued in his name, he discussed this with a person responsible for processing his expense claims (“Mr. Zhang”).   According to Mr. Hu,  Mr. Zhang agreed that he could provide invoices from “other sources” issued in his name in support of his expense claims. 

Mr. Hu therefore relied on this representation and submitted invoices from “other sources” in support of his monthly expenses that were not, in fact, invoices for his actual expenses.  As these invoices were reviewed and approved by the Company’s staff,  Mr. Hu believed that this practice was acceptable to the Company. 

Significantly, Mr. Hu did have genuine invoices for family expenses which exceeded RMB20,000 per month.  However, he did not submit those invoices for reimbursement, as they were not issued in his name. 

Defendant’s case

The Company denied that Mr. Hu had been told to submit invoices issued in his name.

Mr. Zhang did not give evidence at trial, but submitted a statement in which he admitted having a discussion with Mr. Hu about his personal expenses.  He claims he told Mr. Hu that it should not be a problem as long as the invoices were genuine.  However, he claimed that this was said in a personal, friendly context.  He denied he had authority to represent the Company on this matter. 

Findings of Fact

The Court concluded that there had been a misunderstanding on Mr. Hu’s part regarding the requirement to submit invoices in his name.  However, the Court preferred Mr. Hu’s evidence that Mr. Zhang had agreed with Mr. Hu submitting  invoices from “other sources”.  It was specifically noted that Mr. Zhang did not go so far as to deny Mr. Hu’s version of events. 

The Court further held that Mr. Zhang did have apparent authority to make representations to Mr. Hu on the Company’s behalf regarding the expense claims.  This was supported by an email in which the Office Manager had informed Mr. Hu that all expenses should go through Mr. Zhang.  This was relevant to the question of whether Mr. Hu had acted dishonestly in relation to his expense claims. 

The fact that the Company’s staff had approved the expense claims after checking the invoices reinforced Mr. Hu's belief that the practice he was following was acceptable to the Company. 

Given that Mr. Hu had genuine invoices that he could have submitted for the reimbursement of his family expenses, he had nothing to gain by submitting the invoices from “other sources”.  In addition, the Company failed to put forward any plausible explanation as to why Mr. Hu would have acted dishonestly. 

Summary Dismissal Principles

The Court outlined the following principles relating to summary dismissal: 

• Summary dismissal is justified only in exceptional circumstances where an employee has committed a fundamental breach going to the root of the employment contract, e.g. by committing an act of gross misconduct.

• Unless the misconduct is very serious, a single incident will unlikely justify summary dismissal.  However, the cumulative effect of more minor incidents may constitute grounds for summary dismissal, e.g. persistent lateness or habitual neglect of duties. 

• The burden of proof is on the employer to justify summary dismissal.

• The more serious the allegation, the stronger the evidence needs to be.

• Not all dishonesty will justify summary dismissal; there are degrees of dishonesty. Any dishonesty or breach of the duty of good faith and fidelity must constitute a repudiation of the employment contract.

• If an employer allows the misconduct to continue for too long, this may amount to acquiescence, which may prevent the employer from justifying summary dismissal of the employee.

Conclusions

The Court found, on the balance of probabilities, that the Company had failed to meet the high threshold necessary to justify Mr. Hu’s summary dismissal. 

Consequently, the Court awarded Mr. Hu damages of approximately HK$5.4 million, comprising lost wages and end-of-year payments, medical insurance, annual leave pay and family expense allowances for the remainder of the term of his contract, as well as reimbursement of business expenses.

Takeaway

This case is a stark reminder that summary dismissal requires clear evidence of misconduct going to the root of the contract. It also highlights the dangers of individuals with apparent authority making representations that bypass the company’s established procedures – and the consequences of failing to investigate the full implications of those decisions.  As this case demonstrates, each situation is fact-specific, underscoring the importance of a careful and thorough investigation prior to implementing a summary dismissal.