Issues to consider in exercising the power to redeploy

By Duncan Abate and Hong Tran, Employment and Employee Benefits Group, Johnson Stokes & Master

Article exclusively contributed by Johnson Stokes & Master

In 2001, ISS Hong Kong Services Ltd (ISS) lost its cleaning contract with MTRC. As a result, it sought to redeploy some employees pursuant to a provision in their contracts of employment. This provided, in Chinese, that ISS could redeploy if there was a "need" (the mobility clause). Some of the employees resisted the redeployment and claimed constructive dismissal.

When this happened, ISS alleged in turn that the employees were "wrongfully absent" from work and summarily dismissed them. Later, the employees unsuccessfully brought claims in the Labour Tribunal for their termination entitlements and appealed to the High Court. However, did ISS act within its powers under the mobility clause? The employees did not dispute that ISS had power to redeploy them under that clause. Their dispute, though, centred on whether the facts fell within the terms of the mobility clause and could trigger its operation. They argued that "need" had to be considered on two levels: the need of the place where the employees were removed from and of the place they would be sent to. On this basis they argued that there were insufficient jobs at the new workplace to absorb the transferred employees and therefore that there was no "need" for them.

In construing the terms of a contract, it is necessary to consider all the factual circumstances. In this regard, the court considered the size of ISS's operations, the nature of the cleaning industry and the high mobility of the cleaning workforce. It found that the mobility clause was clearly intended to provide ISS with a degree of flexibility in the redeployment of its employees, which was essential to the operation of the business. The court considered that the needs of the new workplace were irrelevant. Therefore, ISS was acting within its contractual powers.

Even if ISS had the contractual power to redeploy, was there any breach of statutory or common law duty?

The crux of the dispute (as highlighted by the court) was whether the employees had a right to demand ISS to dismiss them, instead of redeploying them, in order to avoid its immediate obligation to make severance payments. The employees alleged that ISS had acted in "bad faith" by not dismissing them and paying them severance entitlements.

This was considered by reference to three legal principles – namely, constructive dismissal, the duty to act rationally in the exercise of discretion by an employer, and the implied duty of trust and confidence.

An employee is said to have been constructively dismissed if his or her employer acts in a manner such as to repudiate a fundamental term of the contract of employment. In this case, the court found that the change brought about by the redeployment was not substantial enough to amount to a repudiatory breach by ISS.

Where an employer has discretion in deciding the level of certain benefits payable to an employee, the law implies a duty to exercise such discretion rationally (as opposed to reasonably). The court held that it was within ISS's rational exercise of its power to redeploy so as to lawfully avoid severance payments for the time being.

There is implied in every contract of employment a term that the employer will not, without reasonable and proper cause, conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee. The court found that it was not possible to imply a duty on ISS not to redeploy, stemming from the duty of trust and confidence. This was because of the express mobility clause and in light of the protection already afforded to employees in the Employment Ordinance in respect of statutory severance pay. The court found that ISS had not breached any statutory or common law duty in choosing to redeploy the employees instead of dismissing them.

Q & A on matters relating to terms of dismissal
Q1 When will an employee be treated as having been "dismissed" for the purposes of determining whether he or she is entitled to statutory severance pay?
A1 A "dismissal" for statutory severance pay purposes includes:
(a) Termination by an employer with or without notice or payment in lieu other than by summary dismissal;
(b) The expiry of a fixed term contract which is not renewed with comparable terms; and
(c) Constructive dismissal where an employee is entitled to terminate his or her contract without notice by reason of the employer's conduct.

Q2 My contract says that my employer has the discretion to vary the terms of my contract in its sole discretion. Is such discretion unfettered?
A2 No. The employer has a duty to act rationally in the exercise of its discretion.

Q3 Is it possible for an employer to include an express term in the contract of employment to exclude the application of this implied duty?
A3 Theoretically, it is possible to do so, but it has not been tested in Hong Kong.

Taken from Career Times 26 August 2005

(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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