Prior warnings – a relevant factor in determining whether summary dismissal is justified?

In October, the Court of First Instance handed down a decision which may shed light on the factors relevant to determining whether summary dismissal is justified.

Summary of Facts

The Plaintiff was employed as the Managing Director of the 1st Defendant, a limited company incorporated in Hong Kong.  The 1st Defendant was a wholly owned subsidiary of the 2nd Defendant.

The Plaintiff was summarily dismissed by the 1st Defendant, and he claimed that he was unlawfully dismissed.

In defence, the 1st Defendant alleged that the termination was due to the Plaintiff's habitual neglect of his duties in numerous transactions, and thus the summary dismissal was justified under the Employment Ordinance (Cap. 57) ("EO").

Decision

The key issue

The Court was asked to consider whether the dismissal of the Plaintiff was an unlawful dismissal.

Legal principles

Under Section 9 of the EO, an employer may summarily dismiss an employee if the employee is habitually neglectful in his/her duties, among other grounds.
Referring to case precedents, the Court stated that:

• for the Defendants to rely on the ground of habitual neglect, the neglect must be substantial and habitual;

• it is a question of fact and degree whether a series of similar neglects amounts to "habitual" neglect, and the greater number of such neglects, the more likely that the employee is habitually neglectful; and

• in relation to all grounds of summary dismissal under Section 9 of the EO, the onus is on the employer to show that the employee has disregarded the essential conditions of the contract of service – the test is whether the conduct amounts to a sufficiently serious breach of the contract of employment such as to indicate that the employee no longer intends to be bound by the contract.

Prior warnings

In obiter, the Court stated that while this is not a legal requirement, prior warnings are a relevant factor in considering whether the employee has so acted to indicate an intention not to be bound by the contract of employment.  If the employee has been warned but still persists in the neglect, that may be a very material pointer to such an intention.  

On the other hand, in cases of incompetence or negligence where the question of whether the employee has fallen below the required standard is a matter of judgment, rather than a case of compliance or otherwise with specific rules where the observance or breach thereof can be determined objectively (e.g. punctuality for work) – if the employee has not been warned and continues to act as before, the Court was of the view that it may be more difficult to conclude that there is a lack of intention to be bound by the contract.

Summary dismissal

The 1st Defendant alleged that the Plaintiff was neglectful of his duties on 50 transactions, but the Court found that the Plaintiff only breached his duties in four of those transactions.

Applying the legal principles above, the Court held that the four breaches did not amount to 'habitual neglect' and that neglectful or careless the Plaintiff might have been, he did not show an intention not to be bound by his contract of employment.

Key takeaways

• There is a very high threshold to justify summary dismissal.  To rely on the ground of habitual neglect pursuant to Section 9 of the EO, employers should ensure that the neglect is substantial and of a regular nature.

• It appears that prior warnings may be a significant factor in determining whether summary dismissal is justified, particularly in cases where there is no objective standard to determine whether there is a neglect of duties.