Hong Kong: What is considered constructive dismissal? Two significant rulings shed light on the threshold

Two significant rulings by the Hong Kong courts provide important guidance on the doctrine of constructive dismissal, clarifying the circumstances in which an employee may treat themselves as dismissed and the legal consequences that follow.

Decisions

In Green Light Multiplex Co Limited v Lam and Ho [2024] HKCFI 2101, the plaintiff employer sued its former General Manager for breach of fiduciary duties, while the General Manager counterclaimed for constructive dismissal and unpaid entitlements. The General Manager alleged that the employer had, without reasonable cause, stripped him of key responsibilities and powers, installed overlapping management, excluded him from management meetings and decision-making, and dismissed his subordinate without consultation, thereby breaching the implied term of mutual trust and confidence.

The Court confirmed that Hong Kong law implies a duty of mutual trust and confidence into employment contracts, but emphasised that not every change in duties will amount to a repudiatory breach. The Court drew on English and Hong Kong authorities, holding that only a fundamental change to the "whole nature" of the employee's job, such as a unilateral removal of core responsibilities, will pass the threshold. In this case, while some administrative duties were reassigned, the General Manager's primary responsibility for business development remained intact. The Court found no evidence of deliberate undermining by the employer and held that the changes did not amount to constructive dismissal. The counterclaim for outstanding salary was dismissed, but the General Manager was awarded a pro rata performance bonus, as the contract did not require completion of a full year for entitlement.

In Kwan v Hong Kong Exchanges and Clearing Limited HCA 1498/2010, a senior executive claimed constructive dismissal after being told to resign or face termination. The employee argued that the employer's conduct was motivated by a desire to prevent the vesting of share options. After the meeting, the employee submitted a resignation letter and subsequently signed an acknowledgement accepting a settlement package described as "full and final settlement of all claims".

The Court accepted that the employee had been constructively dismissed. In substance, if an employee is threatened with dismissal unless they resign, such a "resignation" may be treated as constructive dismissal. However, the Court found that the subsequent negotiation and acceptance of a settlement package, which contained benefits the employer was not obliged to offer, constituted a mutual agreement to terminate, extinguishing any claim for constructive dismissal. The Court further held that the settlement agreement, by its wording, covered all actual and potential claims, including those arising from constructive dismissal. 

Key Takeaways

These decisions underscore that not every change in job duties will amount to constructive dismissal. Rather, only fundamental changes to the "whole nature" of the role or conduct seriously damaging trust and confidence will suffice. Further, a forced resignation can amount to constructive dismissal (ie, "sign or be dismissed"), however, the facts and behaviours of the parties are ultimately determinative. Before adjusting responsibilities, initiating difficult conversations or proposing exit terms, employers should ensure that business justifications are well‑documented, communications are measured, and any restructuring or performance concerns are handled in a fair, consistent, and procedurally sound manner.