Hong Kong: Must You Apply Disciplinary Procedures Before Terminating For Poor Performance?

In the recent Hong Kong High Court decision of Lam Chun Choi v. Standard Chartered Bank (Hong Kong) Limited (HCLA 15/2015), the Court held that the employer was obliged to apply its disciplinary procedures (the "Procedures") to an employee even though the employee's performance had already been the subject of a performance improvement plan (PIP). The case involved a point of contractual interpretation on when the Procedures must be applied to an employee.

Facts

The plaintiff was an underperforming employee of Standard Chartered Bank (the "Employer"). He was put on a PIP. At the end of the PIP period, the employee's performance remained short of the Employer's expected standards. The Employer then terminated the employee's employment by payment of wages in lieu of notice.

The employee sued the Employer for wrongful dismissal. He claimed that the Employer failed to (also) apply the Procedures before deciding whether to terminate his employment. The employee claimed that the Procedures formed part of his employment contract and the evaluation of work performance fell within the scope of the Procedures.

The Employer argued that the Procedures only applied to "misconducts or conduct-related performance issues" and not to straightforward cases of poor performance. As the employee's poor performance could not be categorised as misconduct or conduct-related, the Employer argued it was entitled to terminate the employee's employment without having to implement the Procedures beforehand.

Court Findings

The key question for the Court was whether the employee's issues of poor performance fell within the scope of the Procedures. This was a matter of interpreting the language of the Procedures.

The Court held that the Procedures expressly excluded "minor conduct and performance issues" from its scope. However, the Procedures made multiple references to both "conduct" and "performance" issues as falling within its scope. The Court held that on a proper interpretation of the Procedures, they applied to both conduct issues (including wilful disobedience, dishonesty or conflict of interest) and performance issues (including incompetence, neglect of duty or general sloth or indolence), but excluding cases where the degree of severity of the conduct or performance was "minor".

As a result, despite the Employer having already reviewed the employee's performance under their PIP, the Court held that the Employer should have additionally applied the Procedures to the employee.

Lessons For Employers

It is not unusual for Hong Kong employers to have in place internal processes for handling employee underperformance and misconduct. These procedures can offer transparency and provide for consistency in treatment of employees. However, care should be taken to ensure that the procedures do not unnecessarily prolong a process for managing an underperforming employee, such as in the present case. An employer should carefully (a) define the scope of when its performance process and disciplinary procedures will be applied, and (b) set out how the performance process and disciplinary procedures will interact with each other (e.g., provide that if a PIP has been implemented, then the disciplinary procedures will not be applied in respect of the same performance issues).

Originally published 17 June 2016.

Visit us at www.mayerbrown.com

Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2016. The Mayer Brown Practices. All rights reserved.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.