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Hong Kong – Cantor Fitzgerald Europe vs. Boyer [2012] HKCU 478.

17 October, 2012

 

Legal News & Analysis – Asia Pacific – Hong Kong – Labour & Employment

 

Cantor Fitzgerald took a number of its former employees to court alleging breach of employment contracts and fiduciary duties with respect to team move.

 

This article highlights two employment related issues: the first one being the application of the Employment Ordinance to those employment contracts expressly governed by foreign law, and the second one being the enforceability of those provisions which restrict the time when the contracting party may serve termination notice.

 

A. Application of the Employment Ordinance on contracts governed by foreign law

 

In Hong Kong, it is common for multi-national companies to enter into employment contracts with their senior officers, which are governed by the laws of their head office rather than Hong Kong law. This is particularly the case if the senior officers are in fact transferred from the head office. This is to ensure that senior officers enjoy the same level of benefits, and are subject to the same level of restrictions.

 

It has long been the understanding that parties have freedom to choose the governing law of their contracts provided that it is not a sham to deprive the benefits of the employees. If the employment contract is not governed by Hong Kong law, the Employment Ordinance shall not apply and shall have no effect.

 

The above understanding is supported by the case HSBC Bank plc v Wallace [2008] 1 HKLRD 613. This case was heard in the Court of First Instance.

 

In the HSBC case, the defendant employee was employed by HSBC Bank plc, a company incorporated and based in the UK. Their employment contract was governed by English law. He was then seconded to work for HSBC Markets (Asia) Limited, a company incorporated and based in Hong Kong.

 

Under the UK contract, the defendant employee had the right to terminate the employment with HSBC Bank plc by serving six months’ written notice. There was no provision giving him the right to make payment in lieu of notice in the contract, and under UK law, he did not have such right unless the contract provided otherwise.

 

The defendant employee purported to terminate his employment with HSBC Bank plc with immediate effect by making payment in lieu of notice relying on section 7 of the Employment Ordinance. The court was asked to determine whether the Employment Ordinance applied in such case.

 

It is expressly set out in the judgement that:-

 

“….parties to contracts including employment contracts are entitled to choose the governing law; in this case English law. Thus there is a presumption that English and not Hong Kong laws are to be applied in establishing the parties’ rights. This presumption is capable of being overridden if the statutory law of the land says so; in other words that the statute is an overriding statute……The Employment Ordinance has no similar provision; thus the Employment Ordinance is not, an overriding statute; this statutory exception does not arise.”

 

Therefore, it was decided in the HSBC case that in case the governing law of an employment contract was not governed by Hong Kong law, the Employment Ordinance should not apply.

 

However, the judge in the Cantor case did not agree with the judge’s reasoning in the HSBC case, and since the HSBC case was not binding on him, the judge in the Cantor case decided not to follow the same.

 

In the Cantor case, the 1st Defendant’s employment contract with his employer CFE (a company incorporated overseas) was stated to be governed by English law. That contract had been varied by a secondment letter, which stated that his employment was governed by English law“save for any mandatory laws of Hong Kong.”

 

As set out above, under English law, an employee does not have a right to terminate his employment by making payment in lieu of notice unless the employment contract provides otherwise. However, under section 6 of the Employment Ordinance, either party to an employment contract may at any time terminate the employment contract by giving to the other party notice of an intention to terminate. The requisite length of notice is the agreed period in the employment contract. The agreed period as stipulated in the contract with CFE was 4 months. Section 7 of the Employment Ordinance further provides that either party to an employment contract may at any time terminate the contract without notice by agreeing to make payment in lieu of notice.

 

The judge in the Cantor case considered that one could not attempt to get around the protection afforded by the Employment Ordinance to employees working here through the expedient of choosing a foreign law. Such attempt would be struck down by section 70 of the Employment Ordinance which prohibits parties from contracting out of the Employment Ordinance.

 

The judge made reference to section 4 of the Employment Ordinance:-

 

“4(1) Subject to subsection (2) and section 69, this Ordinance applies to every employee engaged under a contract of employment, to an employer of such employee and to a contract of employment between such employer and employee.

 

 

4(2) Subject to Part IVA, this Ordinance does not apply:-

 

  • Repealed;
  • To a person who is a member of the family of the proprietor of the business in which he is employed and who dwells in the same dwelling as he proprietor;
  • To an employee as defined in the Contracts for Employment Outside Hong Kong Ordinance;
  • to a person who is serving under a crew agreement within the meaning of the Merchant Shipping (Seafarers) Ordinance, or on board a ship which is not registered in Hong Kong.
  • Repealed.”

 

The judge considered that section 4(1) provides for the application of the Employment Ordinance to every employee engaged here under a contract of employment, to an employer of such employee, and to a contract of employment between such employer and employee. Section 4(2) then carved out an exception to the wide ambit of section 4(1). Under that exception, the Employment Ordinance was not to apply to “a person who is serving….. on board a ship which is not registered in HK”. Since crew on board a ship which was not registered in HK were unlikely to be employed under contracts governed by Hong Kong law. Therefore the deliberate carving out of their contracts as an exception to section 4(1) suggested that the Employment Ordinance was intended to apply to all employments in Hong Kong, including employments governed by laws other than Hong Kong law.

 

Since the HSBC case and the Cantor case were both heard in the Court of First Instance, they do not have overriding effect on each other. This means that we now have two conflicting cases on the issue of the application of the Employment Ordinance in those employment contracts for performance of service in Hong Kong which are expressly governed by foreign law, and the legal position remains unclear.

 

B. Enforceability on those provisions which restrict the time when either party may serve termination notice

 

The 2nd Defendant’s employment contract began on 18 January 2002. It expressly provided for a narrow window for giving notice of termination. After an initial period of 2 years, the contract was automatically renewable for successive periods of 1 year. It was stated in the contract that notice to terminate must be given “on any date within the last 2 weeks of the final month of …. a Renewal Period”. Such notice would then terminate the employment “on the expiry of 3 months from the latest date notice could have been given”.

 

Section 6 of the Employment Ordinance provides that either party to a contract of employment may at any time terminate the contract by giving to the other party notice of his intention to do so. Section 6 further provides that the length of notice required to terminate a contract of employment shall be (i) in the case of a contract which is deemed to be a contract for 1 month renewable from month to month and which makes provision for the length of notice required to terminate the contract, the agreed period, but not less than 7 days; or (ii) in every other case, the agreed period, but not less than 7 days in the case of a continuous contract.

 

The judge in the Cantor case considered that the 3-month period was theagreed period as stipulated in section 6. In addition, section 6 provides that either party to a contract of employment may at any time terminate the contract by giving to the other party notice. Therefore, the contractual provisions restricting the time when the employee might serve notice was unenforceable.

 

C. Appeal

 

Cantor Fitzgerald has served notice of appeal, challenging the judge’s decision on a number of issues. However, the issue of the application of the Employment Ordinance on employment contracts governed by foreign law is not one of the grounds of appeal. The appeal has been set down for hearing in April 2013.

 
 

 

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