Agency and employment contracts: right to terminate without cause unqualified by duties of good faith or mutual trust and confidence

The Court of First Instance (“CFI“) has recently reaffirmed an employer’s right to terminate a contract of employment and agency without cause in the cases of Lam Siu Wai v Equal Opportunities Commission [2021] HKCFI 3092 and Cheung Li On v Sun Life Hong Kong Limited [2021] HKCFI 3784.

In Lam Siu Wai, the dismissed employee claimed wrongful dismissal in breach of the employer’s implied duty of mutual trust and confidence. The CFI ruled that such duty involves the maintenance of the employer-employee relationship, but is not applicable in the context of termination. Further, the employer’s contractual or statutory termination right can be exercised unreasonably or capriciously, so long as it is exercised in accordance with contractual and statutory rights.

In Cheung Li On, where a breach of the implied duty of good faith in the exercise of the contractual right was argued, the CFI similarly ruled that the very nature of the power to terminate a contract without cause is that its exercise does not have to be justified, and it cannot be overridden by the implied duty of good faith. A duty of good faith is implied to restrict an unqualified discretion only if the termination power may prevent a proper exercise of contractual discretion, but not to limit a right to terminate.

To avoid a dispute, employers must pay attention when deciding whether to give or stay silent on the reasons for termination.

31 December 2021
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