Get it in writing

By Hong Tran, Registered Foreign Lawyer, Employment and Employee Benefits Group, Johnson Stokes & Master

Article exclusively contributed by Johnson Stokes & Master

The case of Law Shiu Kai v Dynasty International Hotel Corporation & Others highlights the importance of having a written employment contract. Mr Law and his employer, a company in the Dynasty International Hotel Corporation group, had verbally agreed that he would be employed for a fixed term of three years commencing from 1 January 2001. Various drafts of the contract of employment were produced but, ultimately, no written contract was signed by both parties.

By mid-2001, Mr Law had not been paid since April that year and he gave one month's notice expiring at the end of August 2001. Mr Law commenced proceedings claiming, among other things, damages for wrongful termination of the fixed term employment contract on the basis that he had been constructively dismissed. He sought wages for the entire unexpired period of the fixed term contract of some two and a half years.

At common law, if a fixed term employment contract is prematurely and wrongfully terminated by the employer or the employee, the party not in breach is entitled to sue for damages. Such damages are, as a general rule and subject to mitigation, calculated by reference to the wages that the employee would have received from his employer during the "unexpired term of employment".

In relation to a fixed term contract, the "unexpired term of employment" will be either:
- the period up to the end of the fixed term, or
- where the contract contains a notice provision, the period of notice not given to or by the employer.

Section 5(2) of the Employment Ordinance ("EO") provides that, notwithstanding that it is proved that a contract of employment is for a period in excess of one month, such contract shall be deemed to be a contract for one month renewable from month to month, unless the contract is evidenced in writing and signed by both parties.

Section 6(2)(a) of the EO provides that, in the case of a contract which is deemed to be a contract for one month renewable from month to month, and which does not make provision for the length of notice to terminate the contract, the length of notice required to terminate the contract shall be not less than one month.

The Court of First Instance found that Mr Law had been constructively dismissed. It also found that, although various drafts of the contract of employment had been prepared and they referred to the term of employment being for a fixed three-year period, the contract had not been finalised or signed.

Section 5(2) of the EO therefore applied and deemed Mr Law's employment to be for one month renewable from month to month. Accordingly, section 6 of the EO meant that Mr Law's contract of employment could have been terminated by either party on at least one month's notice. The Court, therefore, awarded Mr Law damages in respect of his constructive dismissal of one month's salary (in addition to arrears of wages for the period from April to August 2001).

Q & A on the importance of having a written contract of employment
Q1 What information must an employer provide to a person entering employment?
A1 An employer has an obligation under the EO to inform each person in detail before they enter into employment of the following conditions of their proposed employment:
- the wages and the wage period,
- where an "End of Year Payment" (i.e. contractual annual bonus) is payable under Part IIA of the EO, the amount of the end of year payment or the proportion of it and the payment period, and - the length of notice required to terminate the proposed contract of employment.

Q2 Can a person entering employment demand that an employer enter into a written contract of employment?
A2 No. However, under the EO, where it is proposed that there be no written contract of employment, the person can make a request in writing to the employer, before he or she enters into employment, for the details of the conditions set out in answer 1 above. The employer must then provide such details in writing.

Q3 What is constructive dismissal?
A3 If an employer is guilty of conduct which is a significant breach going to the root of the contract of employment, or which shows that the employer no longer intends to be bound by one or more of the essential terms of the contract, then the employee is entitled to terminate the contract. The employee is said to have been constructively dismissed. Examples of constructive dismissal include a unilateral change of the employee's duties by an employer or unwarranted demotion of the employee.

Taken from Career Times 16 July 2004

(Last review date: 23 August 2013)

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Disclaimer: The opinions expressed in this article are those of the contributor.

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