27 Jun 2016

Implied term of anti-avoidance in Hong Kong

The Court of Appeal in Tadjudin Sunny v Bank of America, National Association (CACV 12/2015) (hereinafter, “Ms. Tadjudin” and “the Bank” respectively) upheld the Court of First Instance’s decision that the Bank, when it terminated Ms. Tadjudin’s employment, was in breach of the implied term of anti-avoidance, in order to avoid her being eligible under the performance incentive programme.

The crux of the case was whether the Court of Appeal would uphold the Court of First Instance’s finding that there existed an implied term of anti-avoidance in Ms. Tadjudin’s employment contract. It was held that the term is necessary to give effect to the common, reasonable expectation of the parties such that the Bank could not exercise its power of termination under the employment contract in order to avoid Ms. Tadjudin being eligible under its performance incentive programme. The Court of Appeal held that without the existence of this term, the performance incentive programme would become illusory and could be easily taken away by the Bank through the termination of Ms. Tadjudin’s employment. Based on the facts and circumstances of this case, it was held that an implied term of anti-avoidance existed in Ms. Tadjudin’s employment contract, but it was not held that an implied term of anti-avoidance existed in all employment contracts.

The Court of Appeal held that Mr John Liptak (an employee of the Bank and Ms. Tadjudin’s supervisor) was an agent of the Bank, and his malice and intention could therefore be attributed to the Bank. It was also noted that the decision to terminate Ms. Tadjudin’s employment was made collectively by the senior management through the manipulation by Mr Liptak, and there was no reason why Mr Liptak’s intention should not be attributed to the directing mind and will of the Bank in this situation.

In summary, this case represents the judiciary taking a more assertive role in addressing the rights between employers and employees. It also serves as a reminder that employers should be careful when dismissing employees especially where discretionary bonuses are involved because termination of employment close to the payment of a bonus may lead to a claim that there is a breach of an implied term of anti-avoidance.