Employment Update, Hong Kong

05 February 2008

Darren FitzGerald, Megan Yeung

Case law

HSBC Bank Plc and Another v Steven Andrew Wallace (HCA 2422 of 2007; 28 November 2007)

Background

This case confirms that employees can generally work in Hong Kong under a foreign law employment contract and the Hong Kong Employment Ordinance does not apply to such contracts.

Facts

Mr Wallace was a senior investment banker who was employed by HSBC Bank Plc (HSBC) (a UK company) under an employment contract governed by the English law. The terms of employment required Mr Wallace to work in Hong Kong. In April 2004, Mr Wallace signed the employment contract and a secondment agreement to HSBC Markets (Asia) Limited which was a Hong Kong company.

Mr Wallace’s contract with HSBC required him to give 6 months notice, during which HSBC could insist on paid garden leave. There was also a non-compete clause pursuant to which Mr Wallace could not work for a competitor for 6 months post termination.

In June 2007, Mr Wallace resigned in order to take up a position with Citigroup. HSBC directed Mr Wallace to take garden leave until the end of the notice period in December 2007.

Under Hong Kong Employment Ordinance, it is possible for both employers and employees to make payment in lieu of notice. Mr Wallace purported to pay HSBC 3 months of his wages in order to halve the amount of garden leave that he would otherwise have been required to take.

HSBC rejected this payment and continued to pay Mr Wallace his monthly wages after he had served 3 months garden leave. Essentially HSBC applied for an interim injunction to restrain him from working for Citigroup until the end of his 6-month garden leave. HSBC also sought an injunction to restrain Mr Wallace from working for Citigroup or another competitor for 6 months after his contract came to an end (less any time he had taken as garden leave). The effect was that HSBC only sought an injunction that Mr Wallace not work for Citigroup/a competitor for 6 months after he resigned.

HSBC contended that since the employment contract was expressed to be governed by English law, the Hong Kong Employment Ordinance did not apply. It is not possible to make payment in lieu of notice under English law.

In Hong Kong, parties to contracts, including employment contracts, are entitled to choose the law governing their respective rights and obligations under that contract. Here the parties chose English law. There was therefore a presumption that English and not Hong Kong laws applied.

The Hong Kong Employment Ordinance does not override the parties’ choice of law.

The presumption in favour of English law may however be rebutted where the contract has no connection with England and the choice of English law was a device artificially introduced to exclude Hong Kong Employment Ordinance protection.

The Court decided that there was a sufficient connection with England, since Mr Wallace was a British citizen recruited to work for an English parent company. The choice of law was genuine. It made sense for a group of companies to employ its senior executives under one umbrella and one governing law.

Applying English law, the Court found that Mr Wallace’s notice period could not be foreshortened by payment out. It upheld the validity of the garden leave and non-complete clauses and granted a 6-month restraint.

Effects on employers

This case restates and supports a standard practice in Hong Kong. Where employers wish to apply a standard set of laws/conditions to employees worldwide, Hong Kong law generally facilitates this process.

Employers may wish to bear in mind that Hong Kong employment law is much less prescriptive than most other jurisdictions, particularly when it comes to termination and benefits. It may be in employers’ interests to consider applying Hong Kong law to the contracts of employees working in Hong Kong.