Hong Kong HR Investigation Insights: suspension or administrative leave?

Where there is an ongoing investigation into the alleged misconduct of an employee, the employer wish to suspend an employee’s duties until the investigation is concluded. In Lengler Werner v Hong Kong Express Airways Ltd [2021] HKCFI 1333, the Court of First Instance (“CFI”) clarified the scope of an employer’s right under the Employment Ordinance (“EO”) to suspend an employee’s duties. This case highlights the importance of employers being clear about both their right to suspend an employee from their duties during an investigation, and the scope of such suspension, so as to reduce the risk of the employee bringing a claim for constructive dismissal.

Background

Mr Werner, a pilot formerly employed by Hong Kong Express Airways Limited (“HK Express”), was involved in an oral dispute with two other captains during his employment (the “Incident”). HK Express conducted an internal investigation against Mr Werner and he was suspended from his flying duties on reduced pay in the meantime. Around seven weeks into the internal investigation, Mr Werner asked about the progress of the investigation and was informed that two warning letters would be sent to him. He resigned at that point and stated that HK Express’ actions constituted a constructive dismissal. Mr Werner then commenced proceedings before the Labour Tribunal against HK Express, seeking back pay, payment in lieu of notice, and overtime pay. HK Express counterclaimed for payment in lieu of notice.

Statutory vs contractual right to suspend employee

A statutory right of suspension is set out in section 11(1) of the EO, which provides that in specified circumstances – including where there is a pending decision by an employer as to whether it will summarily dismiss an employee – an employer may, without notice or payment in lieu, suspend an employee from employment for up to 14 days. Under section 11(2) of the EO, an employee who is suspended from employment under section 11(1) may, at any time during the suspension, terminate his/her employment contract without notice or payment in lieu.

In Mr Werner’s case, the Labour Tribunal (“Tribunal”) allowed his claim and dismissed HK Express’ counterclaim, holding that:

1. Given the minor nature of the Incident, HK Express was not entitled to rely on section 11(1) of the EO to suspend Mr Werner. However Mr Werner, having been suspended, was entitled to rely on section 11(2) to terminate his employment contract without notice or payment in lieu.
2. HK Express was in repudiatory breach of the employment contract and its actions constituted constructive dismissal, since it suspended Mr Werner’s flying duties for almost seven weeks with no apparent justification or progress, and had not contacted Mr Werner for almost two weeks prior to his resignation. HK Express’ inaction was unfair and unreasonable, and breached the implied terms of the employment contract that an employer should maintain the relationship of trust with its employee, and should not exercise its rights and discretion arbitrarily, capriciously or inequitably.

On appeal, the CFI held that section 11 of the EO only applies to a suspension from employment, as opposed to a suspension from duties. The judge held that this (i) was clear from a literal reading of section 11, which relates to “suspension from employment” and is not concerned with any partial suspension from an employee’s duties; and (ii) it was the probable legislative intention, since section 11(1) allows suspension in circumstances relating to potential summary dismissal and criminal prosecution, being circumstances where suspension from employment is more likely than a mere suspension from a part of the employee’s duties. The CFI referred to previous cases which make clear that, a partial suspension of an employee’s duties with a reduced salary is very different from “suspension from employment” under section 11 of the EO. The latter which relates to “the suspension of the rights and obligations of the contract of employment so that the employee was not required to do any work and the employer was not required to pay the employee”.

The distinction between a suspension from employment and partial suspension of duties was also made clear in the contractual documents between Mr Werner and HK Express. The employment agreement provided HK Express with a contractual right to suspend Mr Werner from work during any investigation, and the employee handbook drew a distinction between (a) suspension from employment for not more than 14 days (ie mirroring section 11(1) of the EO); and (b) suspension from part of an employee’s duties, when the employee “may or may not be required to perform other duties”.

On the facts, there was no dispute that Mr Werner’s employment had not been suspended, but only his flying duties. Mr Werner continued to be paid his normal wages while his flying duties were suspended, and any reduction in what he received related only to overtime or productivity bonus. The CFI held that, since there was no suspension from employment, section 11 of the EO had no application and Mr Werner was therefore not entitled to rely on section 11(2) to terminate his employment contract without notice or payment in lieu.

Key takeaways

While it is common practice for employers to suspend employees on full pay during an investigation, it is important that employer’s ensure that their employment contracts contain a clear contractual right for them to do so and it is clear that this right is distinct from the statutory rights provided under the EO.

It is also critical that, at the point of suspension, the proposed arrangements are clearly set out and communicated to the employee, including the duration of the suspension (and any right the employer has to vary this), any impact on their pay or benefits and other expectations during the suspension period (for instance, around communications with the employer or its employees, clients etc.).

To avoid a claim that the suspension constitutes a constructive dismissal, employers will generally need to continue paying the employee’s usual wages until the investigation is concluded. The investigation should also be conducted promptly, and regular updates should be given to the employee regarding the status of the investigation; a lengthy investigation during which the employee is not informed of what is happening may cause the employee to resign and/or allege that he/she has been constructively dismissed.

Finally, employers may consider using alternative language such as “administrative leave” when describing the suspension of an employee’s duties, so as to make clear that the suspension is not punitive, and that the employer is not relying on the statutory right of suspension under section 11 of the EO.

Our previous piece in the Investigation Insights series, on the need for prompt and thorough investigations, can be viewed here.