Secondments to Hong Kong - Employers Beware

Cantor Fitzgerald’s appeal against a lower court’s decision which found in favour of four of its ex-employees (Cantor Fitzgerald Europe and Cantor Fitzgerald (Hong Kong) Capital Markets Limited v Jason Boyer & Others (HCA44/2012) 29 February 2012) was to have been heard this month.  However, the parties settled their dispute and the appeal hearing was vacated.
 
The ruling of Judge Reyes in the lower court is far reaching in that it applies not only to employees based in Hong Kong but also those seconded to Hong Kong even if their contracts state that their employment is governed by a foreign law.  This article will focus on some of the issues raised relating to the 1^st Defendant.
 
The proceedings were brought by Cantor Fitzgerald Europe, (“CFE”) and Cantor Fitzgerald (Hong Kong) Capital Markets Limited (“CFHK) a financial services brokerage against four employees who had all worked for the Cash Equities Division of CFHK.  Boyer, the 1st Defendant, had been seconded from CFE in London to CFHK and had been responsible for building up CFHK’s equities business.  The second, third and fourth Defendants were employed by CFHK and based in Hong Kong.
 
The employees all terminated their employment contracts and immediately signed new contracts with a start up investment bank, Mansion House Financial Holdings Limited (“Mansion House”) on the same day.
 
After their resignation, CFE and CFHK obtained interlocutory injunctions against the four employees to prevent them from breaching restrictive covenants in their employment contracts.  At the time of the trial, the restrictive covenants had expired.  The plaintiffs sought damages for breach of the employment contracts.
 
Boyer was employed by CFE and his contract was governed by English law which provided that he was only able to terminate his employment by giving four month’s notice prior to 30 September 2011.  When Boyer resigned on 30 May 2011, he sought to expedite the termination of his employment by stating that he would be making a payment in lieu of his notice period, a right afforded to employees working in Hong Kong under section 7 of the Employment Ordinance (Cap 57).  Bringing his employment to an end meant that his post employment restrictive covenants began to run sooner than if he had served out his notice period. 
 
The plaintiffs argued that Boyer should not be able to avail himself of the protection offered to Hong Kong employees by the Employment Ordinance (“EO”) as his employment was governed by English law.  Under English law, Boyer would be required to serve out his 4 month notice period.
 
Boyer’s letter of secondment stated that Boyer’s employment would be governed by English law “save for any mandatory employment laws of Hong Kong”.  Boyer argued that on the basis of his secondment letter, he was entitled to give notice at any time and instead of being required to work out his four month notice period, he was entitled to make a payment in lieu of his notice period.
 
Section 6 of the EO provides that either party to an employment contract may at any time terminate the same by giving to the other party notice.  The right to make a payment in lieu of notice is set out in section 7 of the EO which  provides that either party to an employment contract may at any time terminate the contract without notice by agreeing to pay the other party a sum calculated by reference to the length of their notice period.  In Mr Boyer’s case, as he was paid US$100,000 per month and his notice period was four months, the requisite sum to be paid in lieu of his notice period was US$400,000.
 
Boyer contended that the right to give notice at any time under section 6 and to make a payment in lieu of his notice period under section 7 were mandatory provisions of Hong Kong employment law which by reason of his secondment letter overrode the original express terms of his contract with CFE.  He relied on s.70 EO which nullifies any term of a contract of employment which purports to extinguish or reduce any right, benefit or protection conferred on an employee by the EO. 
 
CFE argued that the proper law of Boyer’s employment was English law as expressly stated in his contract. Boyer was properly employed under that law since he originally worked in London and was only seconded to Hong Kong.  CFE relied on HSBC Bank plc v. Wallace [2008] 1 HKLRD 613 to support their position.  The Judge in that case ruled that the EO did not override a foreign proper law of an employment contract. 
 
Judge Reyes took the view that the reasoning in the Wallace case was wrong and that the EO was an overriding statute.  He stated that “One cannot attempt to get around the protection afforded by the EO to employees working here through the expedient of choosing a foreign law and that such attempts would be struck down by section 70”.
 
In support of his ruling the EO is an overriding statute Judge Reyes relied on the provisions of section 4 of the EO which provides that the EO applies 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.
 
The plaintiffs also claimed Boyer breached his employment contract which required if he was at any time invited or approached to take up employment, or enter into a business relationship, with a competitor, he had to disclose that fact immediately in writing.
 
The court took the view that an employee is free to make up his mind whether to stay or leave his employment.  On reviewing the restriction the court considered that the word "competitor" was vague.  Where an express clause such as that which was contained in Boyer’s contract exists, any ambiguity would be interpreted against the party which drafted the clause.  The Judge in finding that Boyer had not breached the clause took the view that Mansion House was a start up investment bank and could not be considered a competitor of Cantor Fitzgerald which was a leading and long established global enterprise.
 
The court added that even where such an express clause exists, given that an employee cannot be forced to work where he is unwilling, it would be difficult for an employer to establish damage consequent upon a breach of the term.
 
The court considered it was doubtful that there was a duty on other employees at law or in equity to try to persuade an employee not to leave where the former learns that the latter is thinking of resigning.
 
In respect of the plaintiff’s claim that the defendants had procured the other defendants to resign and acted in concert to leave together to join a competitor the court found that there was no evidence to support the plaintiffs' contention.  Although the defendants were aware that the others were in talks with Mansion House to join them and all four employees used the same solicitor to negotiate the terms of their contract, there was no evidence that the defendants persuaded or encouraged each other to resign.  The court found that the defendants made up their minds separately from each other. 
 
As to whether Boyer had breached his restrictive covenant which prevented him from poaching certain Cantor Fitzgerald group employees for a period of 12 months post termination the court considered the legitimate interest which the plaintiffs sought to protect by the clause was reasonable.  However, Judge Reyes considered that the duration of the restriction was too long and unreasonable.  Therefore, the clause was unenforceable.
The consequences of Judge Reyes decision are far reaching.  Employers which second staff to Hong Kong must now familiarise themselves with the mandatory provisions of the EO so that they are aware of the benefits and protections which shall apply to their employees whilst they are overseas.  At the same time they should ensure that any post termination restrictive covenants are carefully worded so as to avoid any ambiguities and that the duration of the restriction is reasonable.    
 
Jezamine Fewins is Counsel and heads up the Employment Team in the Hong Kong office of Clyde & Co.  She regularly advises clients on issues relating to employee benefits and entitlements, sexual harassment, discrimination, the termination of contracts of employment, managing the departure of employees, redundancies and lay offs.  She is a seasoned litigator and has assisted clients in pursuing their claims through the courts of Hong Kong.  Jezamine has significant experience in advising clients in relation to the enforcement of restrictive covenants, the misuse of confidential information by ex-employees and strategy regarding team moves.
 
For further information on employment law please contact Jezamine at jezamine.fewins@clydeco.com