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Legal Update

Threat of Dismissal May Amount to Constructive Dismissal

29 March 2012
Mayer Brown JSM Legal Update


The Court of First Instance in Kwan Francis Hung Sang v. Hong Kong Exchanges and Clearing Limited ("HKEx") considered that informing an employee that he should resign or else he would be dismissed could amount to constructive dismissal. However, in this case the employee had signed a separation agreement and even if he had a valid constructive dismissal claim, such claim had been compromised. On this basis HKEx successfully struck out its former employee's ("P") claim for constructive dismissal.

Full Update

The facts:

P alleged that during a meeting with the Chief Operating Officer of HKEx (the "COO") he was informed that he should resign immediately, failing which he would be dismissed by HKEx. P alleged that faced with this "threat" he had no option but to resign and did so verbally but also sought to "[reserve] all his rights". P alleged that the COO had sought to terminate his employment out of personal spite and to avoid the vesting of any options in him under the HKEx's Share Option Scheme.

P gave formal notice of resignation on the next day following the meeting . HKEx replied by letter on the same day accepting his resignation and advised him of the amount of monies to be paid to him on the termination of his employment (the "Letter"). The Letter included, among others, (a) payment in lieu of notice (b) an ex gratia payment of HK$340,000 and (c) a general release of all claims P may have against HKEx.

Although P signed the Letter, he subsequently commenced proceedings claiming that he had been constructively dismissed during the meeting. He argued that (i) but for the dismissal he would have been able to exercise his options under HKEx's Share Option Scheme and (ii) the Letter was unenforceable due to a lack of legal consideration.

HKEx applied to strike out P's claim.

The Court's finding:

The Court said it takes a "substance over form" approach when considering whether an employee is constructively dismissed. The Court said that if an employee was threatened with dismissal unless he resigned, it may hold such "resignation" to be constructive dismissal. However, if the "resignation" was motivated by other facts, such as a financial benefits or a reference letter, the termination might be a voluntary resignation notwithstanding that the employee was told either to resign or be dismissed.

The Court accepted that the COO's comments to P during the meeting was capable of constituting constructive dismissal and that P had reserved all his rights there and then. As the terms contained in the Letter had not been communicated to P until after the meeting, they could not have constituted motivation for P to resign at the meeting.

However, P's letter on the day after the meeting clearly stated that he "would like to resign" and there was no evidence to suggest in that letter he had been threatened or forced to resign. HKEx offered benefits it was not obliged to offer, namely to extend P's employment to the end of the month and to make an ex gratia payment. There was no allegation that P was forced to accept the terms contained in the Letter. Even if P had been constructively dismissed during the meeting, there had been subsequent negotiation and compromise which he accepted the following day.

The circumstances showed the termination was by mutual agreement, rather than constructive dismissal. P's constructive dismissal claim was struck out.


If an employee is "threatened" that he would be dismissed unless he resigns, the Court may hold such "resignation" to be constructive dismissal. This would depend on the circumstances of the particular case.

If the "resignation" was motivated by other factors, such as financial benefits, the termination may be a voluntary resignation notwithstanding that the employee is told either to resign or he will be dismissed. Depending on the circumstances, it may be better for an employer to proceed with a dismissal and suggesting to the employee that if he/she would like to put forward a proposal whereby he resigns, the employer would consider such proposal.

For inquiries related to this Legal Update, please contact Duncan Abate, Hong Tran, or your usual contacts with our firm.

Learn more about our Hong Kong office and Employment & Benefits, Litigation & Dispute Resolution practices.


  • Duncan A. W. Abate
    T +852 2843 2203
  • Hong Tran
    T +852 2843 4233

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