In Xinhua News Media Ltd & Another v Chan Chun Wo & Another [2021] HKDC 903, the District Court (Court) struck out the employers’ claim against former employees for overpaid wages and expenses on the ground that they should have been initiated in the Labour Tribunal. The Court reiterated that the focus is on the substance of the claim, free of “window-dressing”, when considering whether it falls within the Labour Tribunal’s exclusive jurisdiction.
Background
The Defendants were former directors of the 2nd Plaintiff and employees of the 1st Plaintiff. Before the Court proceedings, the employees had brought claims in the Labour Tribunal against the employer for arrears of wages and other payments.
The employers commenced the Court proceedings claiming overpaid salaries and medical expenses arising from misappropriation of the employers' assets and/or breach of fiduciary duties.
The employees applied to either strike out the claim or permanently stay the proceedings, or for a declaration that the Court had no jurisdiction. The employers argued that the Court had jurisdiction because their claim was not based on breach of the employment contract but breach of fiduciary duties and tort.
The Court’s Decision
The Court struck out the employers' claim, which it held fell within the Labour Tribunal’s exclusive jurisdiction. The Court also held that the claim was an abuse of process.
The Court reiterated that the focus is on the substance, not labels, of the claim. Even where the claim is for breach of fiduciary duty which arose out of an employment contract, it falls within the Labour Tribunal’s jurisdiction. It might be different if the claim for breach of fiduciary duty was for an employee’s breach of confidence by exploiting their position.
The Court held that, ignoring any “window-dressing”, the employers' claims were in substance simply for alleged overpayments of wages and reimbursements. Wages and reimbursement were express terms in the employees' employment contracts and the “Employment Handbook” incorporated into those contracts. Therefore, the claim fell within the Labour Tribunal’s exclusive jurisdiction.
Further, from a practical perspective, the claim was simply a factual dispute of whether the employees had followed the required procedure such that the payments they had obtained were authorised. The Court considered it immaterial whether the legal basis was breach of fiduciary duty, bad faith, gross misconduct or honest mistake. Therefore, the claim would be suitable to be dealt with by the Labour Tribunal. This raised suspicions as to whether the employers' additional allegations were “window-dressing” as an excuse to initiate the action in the District Court in order to frustrate the employees' Labour Tribunal proceedings.
The Court found that regardless of the suspicion, it was an abuse of process for the employers to start their claim in the Court under the circumstances.
Therefore, the Court claim was struck out.
Takeaway for Employers
When starting legal proceedings against employees, employers should pay attention to the substance of their claim. If the claim is in substance for breach of the employment contract or a fiduciary duty arising out of it, then it should be started in the Labour Tribunal. Initiating the action in a court or another tribunal may result in the claim being struck out.
The judgment is available at the following link:
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August 25, 2021 at 01:56PM
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Hong Kong Court Strikes Out Employment Claim for "Window Dressing" | Perspectives & Events - mayerbrown.com
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