Must an employer complete disciplinary proceedings before termination?

by Hong Tran, Senior Associate Employment and Employee Benefits Group, Johnson Stokes & Master

Article exclusively contributed by Johnson Stokes & Master

Mr Cheung was employed as a general manager with the Hospital Authority (HA) from March 1994. His employment contract stipulated that termination could be by giving two months' notice or making payment of wages in lieu. In March 2002, the HA issued a written warning to Mr Cheung for providing misleading information to its finance sub-committee. This warning made it clear that he would be liable to disciplinary action if he failed to achieve a satisfactory standard of conduct and performance.

Subsequently, in January 2003, the HA decided to initiate disciplinary proceedings for unsatisfactory performance at work. However, before the proceedings were completed, Mr Cheung's contract was terminated, with the HA paying two months' wages in lieu of notice.

Mr Cheung began proceedings in the Court of First Instance, claiming wrongful dismissal and that the HA could not terminate his contract of employment while disciplinary proceedings were taking place.

The basis of Mr Cheung's action was the UK case of Gunton v Richmond-upon-Thames LBC. In this case, the defendant local borough council had appointed the plaintiff as a college registrar. The employment contract could be terminated by one month's notice and it incorporated a procedure for dismissal on disciplinary grounds. The plaintiff's superior recommended his dismissal and commenced disciplinary proceedings accordingly. However, before the procedures had been completed, the council gave one month's notice of termination.

The plaintiff brought an action for a declaration that the council's purported termination was void. The court granted the declaration and ordered an assessment of damages. The court also said that because the disciplinary procedures had been incorporated in the plaintiff's employment contract, he could not lawfully be dismissed on disciplinary grounds until the procedure had been carried out.

While Mr Cheung's contract incorporated a disciplinary procedure, it only applied if the HA sought to terminate his employment for cause. If the HA chose to do that, it would need to allow the disciplinary procedures, including any possible appeals, to run their full course.

However, if the HA chose to terminate his employment by notice, there was no obligation requiring compliance with the disciplinary procedure, even if this had begun but not been completed.

Accordingly, the Court found that if the HA chose to terminate Mr Cheung's contract by way of notice or payment of wages in lieu, it did not need to complete any disciplinary procedures beforehand. The Court also held that termination of employment in accordance with the notice provision is not wrongful and is consistent with the decision in the Gunton case.

It was the HA's prerogative to determine whether to terminate for cause or by giving the required notice or payment. Both claims were dismissed and the Court found that the HA had complied with its contractual obligations.

Q & A on termination of contract
Q1 Is it true that an employer can terminate a contract of employment at any time without complying with any disciplinary procedures?
A1 Not necessarily. It depends on the terms set out for disciplinary procedures. If the contract expressly stated that disciplinary procedures must be applied in every situation involving termination, including by giving notice, then the employer would have to follow these procedures prior to confirming termination.

Q2 What is the difference between a contractual disciplinary procedure and a "non-contractual" one?
A2 The procedure will be a contractual if it is incorporated as a term in the contract of employment. Otherwise, it will be non-contractual and an employer need not necessarily comply with it.

Q3 How can I tell if a disciplinary procedure is contractual?
A3 Usually, the employment contract will state this clearly. Alternatively, the relevant details may be incorporated in a staff handbook, which should be distributed to all employees.

Taken from Career Times 25 August 2006

(Last review date: 23 August 2013)

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