The Court of First Instance has recently confirmed in Lee Yiu Hong v Well-in Hotel Supplies Co Limited [2020] HKCFI 2760 that a mixed claim founded in both contract and tort is excluded from the jurisdiction of the Labour Tribunal, and that a tortious claim arising from breach of express or implied term(s) of the contract of employment also falls outside the jurisdiction of the Labour Tribunal. The facts of this case are set out below.
Parties
The Claimant was an employee of the Defendant, who worked as a sales director at the time of resignation (“Employee”). The Defendant was the employer of the Claimant (“Employer”).
Facts
The Employee brought a claim against the Employer at the Labour Tribunal for unpaid commission in the sum of HK$306,822.73 (“Unpaid Commission”). Both parties subsequently reached settlement on part of the Unpaid Commission, and the Labour Tribunal granted judgment in favour of the Employee with respect to the remaining portion of the Unpaid Commission (“LT Judgment”).
The Employer then sought leave to appeal against the LT Judgment, on the ground that the Labour Tribunal erred in law by failing to discharge its statutory duty to investigate or explore and subsequently take into account relevant issues or claims raised by the Employer, being the Employee’s breach of his duties of fidelity and good faith owed to the Employer, including the obligation not to disrupt the Employer’s business.
In particular, the Employer alleged that the Labour Tribunal erred in attaching little or no weight to the following:
(i) the Employee failed / refused to return the Employer’s computer and/or disposed of important company documents without authorisation;
(ii) the Employee failed to provide complete sets of documents for client orders and erased the Employer’s company information in the computers that were returned, which disrupted the Employer’s business and operations;
(iii) the Employee joined a competing company that carried on a similar business shortly after he resigned from the Employer; and
(iv) the fact that the Employee held a senior position of sales director and was privy to important sales information essential to the Employer’s business that was not known to other employees.
(collectively known as the “Employer’s Complaints”).
The Employer therefore argued that the Labour Tribunal should have investigated into the Employer’s Complaints which the Employer claimed might have led to a defence of set-off that might have resulted in substantial damages for extinguishing or reducing the remaining portion of the Unpaid Commission under the LT Judgment.
Issue
The Employer did not seek to challenge the findings and determination by the Labour Tribunal in relation to the Unpaid Commission. The question of law was whether there was an arguable case that the Labour Tribunal would have jurisdiction to deal with the Employer’s Complaints, i.e. alleged claim for unliquidated damages for breach of the Employee’s duties.
Relevant provisions in the Labour Tribunal Ordinance
Section 7(1) of the Labour Tribunal Ordinance provides that “the tribunal shall have jurisdiction to inquire into, hear and determine the claims specified in the Schedule.”
The Schedule to the Labour Tribunal Ordinance, inter alia, states that:
“1. A claim for a sum of money, whether liquidated or unliquidated, which arises from –
(a) the breach of a term, whether express or implied…, of a contract of employment…
3. Notwithstanding paragraphs 1 and 2, the tribunal shall not have jurisdiction to hear and determine a claim for a sum of money (whether liquidated or unliquidated), or otherwise in respect of a cause of action, founded in tort whether arising from a breach of contract or a breach of duty imposed by a rule of common law or by any enactment.”
Judgment
The Court stressed that paragraph 3 of the Schedule to the Labour Tribunal Ordinance made clear that all claims in tort are expressly excluded from the jurisdiction of the Labour Tribunal. Further, a mixed claim founded in both contract and tort would also be excluded from the Labour Tribunal.
The Court went on to consider a number of cases which confirmed that a mixed claim founded in both contract and tort were excluded from the jurisdiction of the Labour Tribunal, and that a tortious claim arising from breach of express or implied term(s) of the contract of employment also fell outside the jurisdiction of the Labour Tribunal.
The Court concluded that the Employer’s Complaints either fell within tort and/or in both contract and tort, and would have fallen outside the jurisdiction of the Labour Tribunal pursuant to paragraph 3 of the Schedule, or there was no cause of action at all. In particular:
(i) the complaint that the Employee failed / refused to return the Employer’s computer and/or unauthorised disposal of company documents would have been a tortious claim in conversion;
(ii) alternatively, if the complaint was that there was misuse or threat of misuse of confidential information contained in such computer and/or documents, it would have been a claim for breach of confidence grounded in both tort and contract;
(iii) for the complaint that the Employee failed to provide complete set of documents for client orders and erased company information in the computers, the relevant cause of action for damages would have been the tort of causing loss by unlawful means;
(iv) for the complaint that the Employee joined a competing company that carried on a similar business shortly after he resigned, there was no express restraint of trade clause in the employment contract and therefore there was no breach of contract;
(v) for the complaint that the Employee formed a new company when he was still employed by the Employer, the Court’s view was that the Employee was not in breach of his duty of fidelity at any given moment merely because at that time he intended to act subsequently in a way which would be in breach of his fiduciary duty.
The Employer’s application for leave to appeal was therefore dismissed.
Takeaway Points
- Whilst a claim by an employer against an employee or former employee for loss and damages arising from breach of express or implied term(s) of the contract of employment or breach of fiduciary duties falls within the exclusive jurisdiction of the Labour Tribunal Ordinance, a cause of action founded in tort, whether arising from a breach of contract or a breach of duty imposed by a rule of common law or by any enactment is excluded.
- Parties should carefully identify the type of claims that fall within the jurisdiction of the Labour Tribunal. If a claim or counterclaim does not fall within the exclusive jurisdiction of the Labour Tribunal, then the party should either commence a separate action at a higher court, or apply to transfer the case to a higher court as soon as practicable.
- It is advisable to incorporate post-termination restrictions into the contract of employment when appropriate, so that a cause of action for damages arising out of a breach of the employment contract will be available to the employer, should there be any breaches of the post-termination restrictions.
Catherine Leung, Partner
Catherine.Leung@lewissilkin.com
Iris Chin, Associate
Iris.Chin@lewissilkin.com
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