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Is an employer in a position to take into account an employee’s performance in determining his entitlement to any contract-end gratuity?

In the case of Chok Kin Ming v Equal Opportunities Commission (HCLA 42/2015), the former employee claimed that the employer had no power to consider his performance in deciding whether to grant any contract–end gratuity. The Presiding Officer in the Labour Tribunal ruled in favour of the former employee, and the employer appealed this decision in the High Court. The High Court set aside the LT’s decision and the matter was remitted back to the LT. 


Mr. Chok (the “Plaintiff”) commenced his employment with the Defendant, Equal Opportunities Commission (“EOC”) in 1996. The last renewal of his contract was for 3 years from 2011 until 31 October 2014 as Chief Equal Opportunities Officer. The employment contract between the Plaintiff and the EOC incorporated the terms contained in “Memorandum on Conditions of Service in the Equal Opportunity Commission Office” (the “Conditions of Service”).

Clause 13 of the Conditions of Service provided that:-

“13.1       On satisfactory completion of the agreement in the opinion of the employer, or if the agreement is terminated under Clause 11.3 of this Memorandum for reasons other than misconduct, the employee will receive a gratuity in respect of the actual period of service, including periods of vacation leave earned and taken. Such gratuity will be payable at a rate specified in the letter of appointment.

13.3        Gratuity will not be payable to an employee who resigns and leave the office within the agreement period.

13.4        The employer may withhold the gran[t] of gratuity while the employee is being subject to any disciplinary or criminal proceedings or investigation into any acts which may affect the grant of gratuity.

13.5        In circumstance where a gratuity is paid to the employee in the mistaken belief that he/she has:

(a)   satisfactorily completed his/her agreement; or

(b)   not been convicted of any of the following offences during and in respect of his/her employment-

(i) any offence under the Prevention of Bribery Ordinance (Cap. 201), being an offence related to his/her previous service with the Commission; or

(ii) any other offence that if determined on its own fact, would have led to the employee’s dismissal from the service

 the employer shall be entitled, without affecting its other rights, to recover from the employee the whole or part of the gratuity commensurate with all the circumstances of the case including the unsatisfactory nature of the employee’s service and the seriousness of the offence on his / her part. Such right of the employer shall survive any termination of the agreement between the employer and the employee.”

Furthermore, the EOC issued an employees’ code of conduct (the “Code of Conduct”) which contained, inter alia, the provisions concerning avoiding conflict of interests, including in any activity outside the EOC. Employees were responsible to report to the supervisor in situations where conflict of interest may arise or have arisen and make full disclosure of the interest.

The EOC launched a 3-month public consultation on discrimination law review (the “DLR consultation”) which would end on 7 October 2014. The Plaintiff, out of his own initiative, was one of the key members of the taskforce on the DLR consultation. According to the EOC, its role in canvassing the views of the public in the DLR consultation was to be impartial whilst the Plaintiff was responsible for explaining the objectives and proposals of the DLR to the public in several consultation forums.

The Plaintiff attended the first public consultation forum meeting on 9 August 2014 as the EOC’s representative and speaker, and attended a church forum on 16 August 2014. This is the Plaintiff’s behaviour in the church forum which triggered the disputes.

The Church Forum

On 26 August 2014, Apple Daily reported what the Plaintiff said at the church forum with verbatim quotes, and he was found to, among others, urge the audience to give certain specific answers to the questions in the consultation document, offer to help the participants to present their views in a manner that would not be similarly discounted (suggesting that when they sent their views to the Commission, they could use the template drafted by him with suitable variations), tell the audience that the ultimate aim of such legislation was to protect “sexual minorities” which might ultimately lead to the removal of prohibition against all kinds of sexual practices including incest and bestiality. 

He was criticized by the Apple Daily for compromising the integrity of the EOC and the credibility of the DLR consultation.

EOC Internal Investigation

In view of the waves of criticism in the media that were following, the EOC initiated internal investigation against the Plaintiff.

The Plaintiff said his sharing at the forum was a totally private religious sharing on his religious belief with a group of restricted number of Christians of or related to that denomination during his own time without remuneration, and he invoked the protection of his “religious right to be free from discrimination”, and that he relied on his freedom of expression, freedom and privacy of communication and freedom of conscience and religion under the Basic Law.

The EOC internal investigation report concluded that the Plaintiff did not state his private capacity clearly in the Church Forum but instead referred to his participation in the DLR working group. The report also listed out the “misconduct” of the Plaintiff at the church forum, including misleading participants on the objective of DLR and proposals; breaching the Code of Conduct by conflicting with the interests of the EOC; and inappropriately and/or wrongly disclosing office information to third party by taking advantage of his position and participation in the DLR working group.

A formal warning notice was given by Dr. York Chow, the then Chairman of EOC to the Plaintiff, setting out the details of misconduct and stated that the internal investigation report concluded that he had breached the Code of Conduct. Subsequently, the EOC decided not to grant any contract-end gratuity under Clause 13.1 of the Conditions of Service to the Plaintiff on the ground that the Plaintiff had not, in the EOC’s opinion, satisfactorily completed the employment agreement.

Nevertheless, considering the Plaintiff was a long-serving employee, the EOC wished to offer him a chance by preparing a draft deed of release pursuant to which the gratuity would be paid to the Plaintiff on a discretionary basis if he accepted the terms in that draft deed including a requirement for a written apology for his actions at the church forum and a provision that he shall not make any negative statement concerning the EOC or say or do anything prejudicial to the management or policies of the EOC before or after the termination. The Plaintiff refused and thus no gratuity was paid by the EOC.

Issues before the High Court:

1)     Whether, as a matter of construction, the contract of employment entitled the EOC to take into account the work performance of the Plaintiff in deciding whether to pay him the gratuity?

2)     Whether the Labour Tribunal failed to apply the correct legal test in ruling that the EOC wrongfully failed to pay the gratuity?

Court of First Instance Decision:

1)      Factor of “Work Performance” in deciding the grant of gratuity

(i) The Court was of the view that the expression “on satisfactory completion of the agreement in the opinion of the employer” in Clause 13.1 of the Conditions of Service includes the manner in which the agreement has been completed.

(ii) Even though Clause 13.1 provides for a contractual entitlement to the sum which is termed as “gratuity” because of the words “will receive”, this is subject to the condition of “satisfactory completion of the agreement in the opinion of the employer.” Thus, the reference to employer’s opinion introduces an element of discretion or judgment on the part of the employer.

(iii) Disagreeing with the too narrow approach taken by the Labour Tribunal in emphasizing the absence of the phrase “work performance” in Clause 13.1, the Court of First Instance adopted the approach to construe the provision in the context of the contract as a whole:-

(a)   Various obligations were imposed on the Plaintiff by the contract and his position required him to perform various duties.

(b)   The word “satisfactory” imported the scope for judgment by the employer in line with “opinion”.

(c)    Thus, it would be apt to refer not so much to finishing the term but to the level of performance of the obligations commensurate with the appointment.

(d)   Clause 13.3 expressly stipulated that gratuity is not payable to an employee who resigns and leaves the office within the period of employment. Past examples of payment of gratuity in special circumstances such as health or personal reasons were best viewed as instances of the EOC waiving its rights and making ex gratia payment.

(e)   The word “withhold” in Clause 13.4 implied that the gratuity would otherwise be payable but also envisaged that there might be some acts that may affect the grant of gratuity. Payment could be withheld pending investigation into such acts or pending disciplinary proceedings.

(f)    Clause 13.5 stipulated that where the gratuity has been paid to the employees in the mistaken belief that he or she has “satisfactorily completed his / her agreement”, the EOC can recover from the employee the whole or part of the gratuity commensurate with all the circumstances. EOC as employer would be entitled to have regard to both the length of employee’s service and the nature of his service in forming opinion as to satisfactory completion of the contract.

(g)   The Labour Tribunal failed to take into account Clauses 13.3, 13.4 or 13.5 when construing Clause 13.1. “Satisfactory completion” did not only refer to dimension of time but also the quality of employee’s performance may be taken into account by the EOC in forming the opinion.

(h)   The Court rejected the Plaintiff’s submission that even if the EOC could take into account the standard of performance, no “unfettered” discretion had been conferred by Clause 13.1 on the EOC but only disentitled the employee to the gratuity should there be such “misconduct” as to amount to justify “summary dismissal”. There was no warrant for so limiting or imposing restriction on the phrase “satisfactory completion of the agreement”. Cases showed that opinion as regards satisfactory completion of the agreement by an employee cannot be formed by the EOC in bad faith or irrationally.

2)      Failure to Apply Correct Legal Test by the Labour Tribunal

(i) Cases showed that where the employer has a discretionary power such as in relation to the payment of a bonus under the contract of employment, a breach of contract is to be established by showing that the employer’s decision was irrational or perverse (namely, no reasonable employer would have exercised the discretion in the same way).

(ii) The Presiding Officer of the Labour Tribunal failed to correctly direct herself on the applicable approach as aforesaid. Instead, she regarded the question before her to be whether, in the view of the Tribunal, there was misconduct justifying non-payment of the gratuity, and in particular, misconduct justifying summary dismissal. This led her to think it was irrelevant to see how EOC came to the decision not to pay the gratuity to the Plaintiff, and the use of the phrase “balance of probabilities” in her Reasons suggested that the Presiding Officer considered it a matter for her to make a finding whether the forum had any effect on the work performance of the Plaintiff. She failed to apply the correct test in ruling that the EOC breached the contract of employment in deciding not to pay the Plaintiff the gratuity.

In view of the above reasoning, the order of the Labour Tribunal was set aside and the matter would be remitted to the Labour Tribunal for determination.


If it is the intention of the employer to impose conditions precedents on the employee’s entitlements, they should be clearly set out in the contract. Otherwise, the employer cannot later on impose conditions, even though it was the company’s intension.

Key Contacts

Elsie Chan

Partner | Employment and Pensions

Email or call +852 2825 9604

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