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Legal Update

Employee who affirms employer's breach cannot claim constructive dismissal

25 October 2017
Mayer Brown JSM Legal Update

The Court of First Instance in Chen Xiang(陈翔)v. China Daye Non-Ferrous Metals Mining Limited (中国大冶有色金属矿业有限公司)[2017] HKCFI 1547 dismissed the employee's claim for constructive dismissal as he had affirmed his contract of employment following a salary reduction of 52.5%.

Facts

The Appellant was employed by the Respondent on a salary of HK$80,000. From March 2014 to May 2014, his salary was reduced by 52.5%. On 23 May 2014, the Appellant tendered a written notice of resignation ("the Resignation Letter") and he ceased employment a month later.

The employee lodged a claim against his employer for constructive dismissal at the Labour Tribunal. Although it was held that his salary reduction had unquestionably changed a fundamental term of his contract of employment ("the Contract"), the Labour Tribunal had to consider whether the employee, by his conduct, had accepted his employer's repudiation of the Contract or elected to affirm the Contract.

The Labour Tribunal dismissed the employee's claim finding that the employee had affirmed the Contract and he had not been constructively dismissed. The employee appealed to the Court of First Instance.

The Law

The key issue on appeal was whether the employee had elected to affirm the Contract.

The law in this area is quite clear. When one party repudiates the contract, the innocent party may choose either to accept the repudiation (and treat himself as discharged from any contractual obligations) or affirm the contract (and remain bound by the terms of the contract). An affirmation of the contract can be express or implied. Where the innocent party, who has knowledge of the breach and of his right to choose, acts in a way which may be inferred that he treats the contract as continuing, he will be found to have affirmed the contract impliedly.

Decision

The appeal was dismissed. The judge considered that before the employee tendered his resignation, it was unclear from his conduct that he had chosen to affirm the contract. However, given the way the employee expressed in the Resignation Letter that he "wishes" to quit 30 days after tendering his resignation even though the Contract provided for a four-month notice period ("the Notice Period"), this demonstrated that the employee had affirmed the contract. The employee was still abiding by the Notice Period as stipulated in his Contract and he was trying to come to an agreement with the Respondent for a (shorter) 30-day notice period instead. Furthermore, the Appellant had not sought to rely on the Respondent's repudiation as a reason to resign.

Lessons for Employers

Just as an employee can affirm a breach by his/her employer, an employer can also affirm a breach by an employee. As such, employers should be careful when dealing with an employee who has breached his/her contract of employment (e.g., misconduct, breach of confidentiality, failing to follow lawful and reasonable instructions, etc.) not to (inadvertently) affirm the breach.

The judgment is available at the following link (in Chinese only):
http://legalref.judiciary.hk/doc/judg/word/vetted/other/ch/2016/HCLA000024_2016.doc

Authors

  • Hong Tran
    Partner
    T +852 2843 4233

Related People

  • Duncan A. W. Abate
    T +852 2843 2203
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