Money Matter

Pay or stay

by Bucky Chan, Partner, Litigation Department, Woo Kwan Lee & Lo

Article exclusively contributed by Woo Kwan Lee & Lo

Could an employer refuse to accept payment in lieu of notice and insist the employee continue to work until the end of the period of termination notice when the employee suddenly resigns on the spot?

The Court of First Instance's decision in Kao, Lee & Yip (a firm) v Lau Wing and Tsui Wai Yu (HCA 1854/2005) illustrates that under Sections 6 and 7 of the Employment Ordinance Cap 57, an employer cannot insist that the employee must work until the end of the termination notice if the employee chooses to pay his/her wages in lieu of notice.

In this case, two young solicitors, Ms Lau and Ms Tsui, were working for the plaintiff. Their employment contract with the plaintiff stipulated that either party wishing to terminate the employment should give three months' notice. On 19 August 2005, Ms Lau and Ms Tsui gave three months' notice in writing but stated that they would work for only one month (until 19 September 2005) and pay the plaintiff two months' wages in lieu of the remaining two months' notice. The plaintiff refused to accept the cheques for the two months' wages and insisted that Ms Lau and Ms Tsui serve the firm until the end of the three-month period.

Section 7(2) of the Employment Ordinance provides that either party to an employment contract may at any time after proper termination notice is given, by agreeing to pay to the other party such proportion of the sum as is proportionate to the period between the termination of the contract and the time when the notice given would have expired, thereby bring his or her employment to an end.

The plaintiff did not agree that the defendants could choose to do so and argued that the words "by agreeing to pay" mean that there must be an agreement between the employer and the employee that such money can be paid as an alternative to the employee working out the full period of notice. There must be a consensus between the parties.

However, the Court held that "by agreeing to pay to the other party" does not require consensus between the employer and the employee as in a contract situation. The phrase adopted in the legislation is "by agreeing to pay to the other party" but not "by agreeing with the other party to pay". The Court took the view that "agreeing" means "being willing to".

Although there was a contrary decision in Yip Wan Chiu v Magnificent Industrial [1974] HKLR 183 that mutual agreement was necessary, the dissenting opinion of no consensus being required in that case was adopted. The dissenting opinion was more logical in the sense that it would not have required a statute to state the obvious, that is to say that a contract of employment, like any other contract, can be terminated by mutual consent.

Be that as it may, could the plaintiff insist that the defendants must continue in their work on the ground that the defendants owed a duty to act in the best interest of the plaintiff's clients and therefore should not leave too suddenly? The Court said if the defendants' departure was in accordance with the law, they should not be complained of no matter how sudden it (their departure) might have been. So the inconvenience caused to the employer, no matter how great or unfair the employer sees it as being, will not be an excuse for the employer to insist that the employee work until the termination notice expires.

Q & A on termination notice and payment in lieu
Q1 Could an employee insist to continue working until the termination notice served by the employer expires?
A1 No. This ruling applies to both parties. If the employer chooses to pay the employee salary in lieu of termination notice, the employee could not insist to continue working for the employer.

Q2 If the termination notice is served by the employee, could the employee leave earlier than the expiration of the notice without making any payment in lieu?
A2 Yes. According to section 8 of the Employment Ordinance, the requirement of termination notice or payment in lieu does not prevent the employer from waiving his right to such notice or to payment in lieu of notice. The employer could always waive his or her right to receive the notice or payment in lieu. However, the waiver should be exercised upon the employee's request and the employer cannot force the employee to leave immediately after the employee serves the termination notice.

Taken from Career Times 16 February 2007

(Last review date: 23 August 2013)

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