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News //
Hong Kong Employment Law Alert - November 2017
Submitted by // K Bowers, Partner / Solicitor Advocate; P Yeung, Senior Associate
28 November 2017

 

A time-honoured tradition: something promised, something given, something performed

Background

It is a well established legal principle that consideration is a vital element in forming legally binding contracts. Consideration requires that each party to a contract provide something of value (a promise, an object, or an act) in exchange for receiving something of value. A contract that allows one party to gain from the deal without giving up anything is void and unenforceable because there has been no mutuality of obligations.

In the context of employment agreements, establishing the existence of consideration is often not an issue because the employers usually promise to provide compensation and in return employees provide their service.

In the case of Wu Kit Man v Dragonway Group Holdings Limited [2017] HKCFI 986, although the parties entered into an addendum to the employment contract which provided that the employee had a right to receive a bonus, the terms did not require her to fulfil any obligations in return. The Court held that the addendum was invalid due to a lack of consideration.

Wu Kit Man v Dragon Group Holdings Limited

In Wu Kit Man, the employee Wu was employed by Dragonway in May 2015 to assist with facilitating Dragonway's IPO on the Hong Kong Stock Exchange. Around five months into Wu's employment, the parties signed an addendum stating that:

"If the Company or its holding company ceased the listing plan or you leave the Company for whatever reason before 31 December 2016, a cash bonus of HK$350,000 will be offered to you within 10 days after the cessation or termination and in any event no later than 31 December 2016."

Wu left her employment on 21 December 2015 and claimed an entitlement to the cash bonus of HK$350,000 pursuant to the addendum. Wu was successful before the Labour Tribunal where the Presiding Officer found that the addendum was valid and binding.

Decision of the Hong Kong Court of First Instance

Upon appeal by Dragonway, the Hong Kong Court of First Instance overturned the Labour Tribunal's decision. On the facts determined by the Presiding Officer (which Wu did not dispute on appeal), the addendum did not require Wu to perform any work beyond what was required of her under the original employment contract. Accordingly, the Court found that, as a matter of law, the employment addendum was only beneficial to Wu and therefore invalid.

Implications for employers and employees

In executing employment addendums or side letters, the parties must ensure that sufficient mutual consideration has been given in addition to the consent of the parties to vary the original terms of employment. Alternatively, the agreement could be executed in the form of a deed, which is binding irrespective of the existence of any consideration.


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Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice.  Please contact pr@hwbhk.com if you have any questions about the article.