Hong Kong: When can an employer dismiss summarily?

Employers have a range of options at their disposal for dealing with disciplinary matters, from informal verbal warnings through to summary dismissal (i.e. dismissal without notice or payment in lieu). Summary dismissal is not something which should be taken lightly, as it is not always easy for managers and HR professionals to know where a court will draw the line and treat an employee's conduct as serious enough to warrant summary dismissal. A recent decision is a timely reminder that the consequences of getting this decision wrong can be significant for the employer.

When is summary dismissal available?

The starting point is that summary dismissal will only be available in the circumstances listed in section 9 of the Employment Ordinance (EO). That is, summary dismissal is available on five grounds, being:

1. where an employee:
   1. wilfully disobeys a lawful and reasonable order;
   2. engages in conduct which is inconsistent with the due and faithful discharge of his duties;
   3. is guilty of fraud or dishonesty;
   4. is habitually neglectful in his duties; or
2. in other circumstances, where summary dismissal is available at common law.

In the event of challenge, the burden is on the employer to prove that the circumstances warranted summary dismissal. Existing case law has repeatedly shown that the courts in Hong Kong have set the bar quite high.

A recent case involving a company secretary, authorised representative and financial controller of a company listed on the Hong Kong stock exchange, demonstrates how difficult it can sometimes be to determine whether an employee's conduct is sufficiently serious as to warrant summary dismissal. This is particularly so where the conduct in question involves carelessness or an error in judgment.

The background

In that case, the employee had been asked by his supervisor to obtain legal advice as to the number of shares one of its related companies could apply for in an upcoming rights issue and whether it was correct that the company would only be issued such number of shares that would not result in public ownership of the listed entity to fall below 25% (as required by the Listing Rules), irrespective of the number of shares for which the company applied.

Following a brief telephone call with the company's lawyers, the employee proceeded to apply for just over 300 million shares, which amount would have reduced public ownership to less than 25%. In order to avoid a breach of the Listing Rules (and the serious consequences which would follow from that), the company had to negotiate with the underwriters to allow it to sell some shares to maintain the 25% public holding.

The company considered that the employee's actions were unacceptable given his senior position, qualifications and past experience and dismissed the employee summarily on the ground of serious misconduct/negligence.

The decision

The Labour Tribunal agreed that the employee's mistake was indisputably serious and there was prima facie evidence to support the employer's decision to dismiss summarily. However, after finding that the employee had honestly misunderstood the legal advice given to him, the Tribunal was not satisfied that the employee's conduct amounted to a repudiation of the employment contract entitling the employer to dismiss summarily under section 9 of the Employment Ordinance or the common law.

On appeal, the Court of First Instance agreed. In upholding the Tribunal's decision, the Court of First Instance stated:

'[In considering whether it is justifiable to dismiss an employee under s. 9…. of the Employment Ordinance] ….it is necessary to make a finding as to why the employee has committed the conduct in question. Without such consideration, it is difficult, if not impossible, to ascertain objectively whether the employee has manifested an intention not to be bound by the employment contract. It is only when it is clear that the employee has by his conduct manifested such an intention that he can be dismissed summarily under s. 9 of the ordinance.'

While the court later acknowledged that there may be some situations where an employee's conduct amounts to such a serious neglect of duty producing such grave consequences that summary dismissal may be justified without the need to show that the employee had by his conduct manifested the relevant intention, it clarified that this was not such a case and made it clear that such cases should be viewed as the exception rather than the rule.

Key takeaways

In light of the very strict interpretation by the courts of section 9 of the Employment Ordinance, employers should consider carefully all relevant factors before exercising the right to summarily dismiss. Such a decision should only be made after a full investigation of the circumstances surrounding the conduct in question, and careful consideration of any mitigating factors or explanations offered by the employee.