Can an Employee be Dismissed to Avoid Bonus Payments?

Introduction Incentive bonuses, being part of the remuneration package, will always be significant to an employee. However, an employee may be terminated prior to the bonus payment date and thus no bonus payment will be received. In a recent case, Tadjudin Sunny v Bank of America, National Association CACV 12/2015, the Hong Kong Court of Appeal (“CA”) affirmed the decision that employers cannot dismiss employee to deprive them of a benefit.

Background

Ms. Tadjudin joined the Bank of America (the “Bank”) as an analyst at the level of vice president in 2000. The employment contract between Ms. Tadjudin and the Bank (the “Employment Contract”) provided that either party might terminate the employment by giving one month’s notice in writing or by making payments in lieu of notice and Ms. Tadjudin was eligible to be considered for a bonus under the Bank’s performance incentive programme, subject to her being in employment with the Bank at the time bonus payments were made. The Bank terminated her employment by giving one month salary in lieu of notice in August 2007, prior to the bonus payment date, without any bonus or pro-rata bonus for that year.

Dispute

At the Court of First Instance (“CFI”), Ms. Tadjudin claimed damages for wrongful termination of employment by the Bank with the intention of depriving her of the performance bonus in 2007 and underpayment of bonus in 2005 and 2006, which were based on the implied terms of (a) anti-avoidance, that the Bank should not exercise its right to terminate her employment by giving one month notice or by payment in lieu of notice in order to avoid her being eligible for the bonus; and (b) mutual trust and confidence that the Bank should not act in a manner contrary to this term. The parties disputed the existence of the implied term of anti-avoidance.

CFI found in favour of Ms. Tadjudin and ruled that the implied term of anti-avoidance existed in Hong Kong and it prevents employers from terminating their employees for the purpose of avoiding payment of the employee’s bonus. The Bank should be aware of Ms. Tadjudin’s eligibility for the performance bonus in 2007. The Bank dismissed her prior to the bonus payment and was acting in bad faith.

The Bank appealed to CA and argued, inter alia, that (a) there was no scope of implied term of anti-avoidance in Hong Kong and (b) the implied term was inconsistent with the expressed term under the employment contract for the right to terminate by giving notice or payment in lieu of notice.

CA Decision

Firstly, CA rejected the Bank’s submission that there was no scope of implied term of anti-avoidance in employment contract and ruled that Part VIA of the Employment Ordinance does not provide for a comprehensive regime of protection against “unfair” dismissal generally and therefore there was scope to imply additional protections at common law.

Secondly, the Bank failed to exercise the right to terminate the Employment Contract in good faith. CA also upheld CFI’s ruling that Ms. Tadjudin’s manager dismissed her in bad faith by imposing a performance improvement plan specifically engineered to result in her dismissal. Therefore, CA formed the view that there is no inconsistency with the Bank’s right to terminate.

The key issue before CA was whether the anti-avoidance term is implied into the Employment Contract. CA referred to and relied on the test established in BP Refinery (Westernport) Pty Ltd v President, Councillors and Rateplayers of the Shire of Hastings (1997) 180 CLR 266, that there are five conditions must be satisfied before a term can be implied into a contract: (a) it must be reasonable and equitable; (b) it must be necessary to give business efficacy to the contract, so that no terms will be implied if the contract is effective without it; (c) it must be so obvious that “it goes without saying”; (d) it must be capable of clear expression; and (e) it must not contradict any express term of the contract. In Paragon Finance Plc v Nash [2002] 1 WLR 685, the court held that the power or discretion for an employer to terminate an employment contract is unqualified and it is an implied requirement that such discretion can only be exercised in good faith, rationally and for a proper purpose, and not arbitrarily or capriciously or in a manner which is not bona fide.

CA found it was crucial to consider the facts of the present case in order to consider whether the anti-avoidance term ought to be implied into the Employment Contract. Ms. Tadjudin was employed in a department which operated in a highly competitive environment in relation to both business and talents and the expressed purpose of the performance bonus was to compete for business and talents, which was of particular relevance to the employees working for the Bank.

The performance bonus attracted and retained talents, which also gave employees the motivation to perform so as to maximise the profits for the Bank and in return the employees who achieve more will be rewarded a higher bonus and recognition. As such, performance

bonus formed a major part of the remuneration of employees working in Ms. Tadjudin’s department and she had the right to be eligible for the bonus programme which constituted an important benefit for her and an integral part of her remuneration package.

CA is satisfied that the anti-avoidance provision is necessary in order to give effect to the common, reasonable, expectation of both the Bank and Ms. Tadjudin that the Bank could not exercise the power of termination in order to avoid Ms. Tadjudin being eligible for the performance bonus. The court also found that if there was no anti-avoidance term, Ms. Tadjudin’s contractual right for the performance bonus would become illusory and could be easily taken away by the employer by exercising the right of termination.

Conclusion