Court looks into employer’s allegations that their COO committed fraud
A Hong Kong court recently dealt with a case involving a chief operating officer (COO) who was summarily dismissed for alleged fraud and dishonesty in relation to expense claims, raising important questions about procedural fairness and the burden of proof required for dismissal based on serious misconduct allegations.
The worker argued that his dismissal was wrongful, claiming he had been authorised by company representatives to submit invoices from alternative sources to meet contractual requirements.
He maintained that he had genuine family expenses exceeding the monthly allowance limit and had acted in good faith based on representations made by the employer’s financial staff.
The employer defended the dismissal, arguing that the worker had committed fraud by submitting false invoices for reimbursement of family expenses.
The company maintained that the worker had acted dishonestly by using invoices from hotel banquets that were not his own expenses, constituting serious misconduct that justified summary termination.
COO’s expense arrangement creates problems
The worker had been employed as COO of a waste management company from June 2017 under a three-year fixed-term contract. His employment agreement provided for reimbursement of “out-of-pocket family expenses up to an amount of 20,000 RMB per month” upon providing “official tax invoices.”
Early in his employment, the worker claimed he was told invoices should be issued in the company’s name. He later spoke to the financial controller in November 2017, explaining the difficulty of obtaining family expense invoices in the company’s name and requesting permission to “obtain invoices from ‘other sources’ issued under [the company’s] name.” The financial controller allegedly agreed to this arrangement.
The court found this conversation did take place, noting that the financial controller “did not appear as a witness” and his statement “did not contain a clear denial of a conversation in the terms alleged by [the worker].”
The court determined the financial controller had apparent authority to make such representations based on emails directing the worker to deal with him for all expense matters.
Executive’s invoice controversy sparks investigation
The dispute centred on three hotel invoices dated 25 January 2018 for amounts totalling RMB46,600, which the worker submitted for different months’ expense claims.
Under cross-examination, the worker revealed these invoices were actually for his friend’s son’s wedding banquet and that he had asked his friend to have the invoices issued in the company’s name.
The worker explained that he used this method for “around 50 to 60% of the expense claims” under the family allowance provision.
When initially questioned about these invoices, he told the office manager they were “expenses for things like dinner, gym, swimming” but later provided a fuller explanation to management, inviting them to “check with [the financial controller]” about their prior agreement.
The court found it significant that the worker’s expense reports “were checked including by Chinese speaking staff” and “payment was made, notwithstanding that it would or could have been apparent that there was at least something rather unusual” about the invoices.
This checking and approval process “would tend to reinforce in [the worker’s] mind that the unusual manner in which invoices were being used was acceptable to [the company].”
Court examines fraud allegations thoroughly
The employer alleged that the worker had committed fraud and serious misconduct warranting summary dismissal. The company argued the worker had “acted fraudulently by using ‘other official invoices’” and submitted invoices that were “fake.”
However, the court applied the principle that “the standard of proof for fraud is commensurate with the seriousness of the allegation.”
Crucially, the court found the worker “incurred genuine family expenses exceeding RMB20,000 in every month, and that he could have submitted to [the company] invoices for those expenses.”
This meant the worker “had nothing to gain from behaving as he did, and that [the company] lost nothing in monetary terms.”
The court concluded: “I am not persuaded to the requisite standard [that the worker] acted with dishonest or fraudulent intent, and I accordingly find that he did not.”
While acknowledging the conduct was “highly irregular or unsatisfactory,” the court found the unusual circumstances, including the apparent authority given by the financial controller and the company’s approval of similar invoices, meant summary dismissal was not justified.
HK rules on wrongful dismissal claim
The court concluded: “I conclude that there was insufficient basis for [the company] to summarily dismiss [the worker], and it follows that [the worker] was wrongly dismissed from his employment with [the company].”
The court found that while irregular, the worker’s actions did not meet the high threshold for summary dismissal based on serious misconduct.
The court determined: “The most likely factual scenario is that: [the worker] was under the impression that he had been requested to submit invoices in [the company’s] name; the alleged conversation with [the financial controller] did occur; [the worker] was doing what he could to comply with what he thought was required for the invoices submitted; and was done without dishonest intent.”
The court awarded substantial damages including “lost wages from 1 September 2018 to 31 May 2020” amounting to HK$2,100,000, plus additional compensation for lost benefits and outstanding expense reimbursements.
The total award exceeded HK$5 million, representing the full value of the remaining contract term plus interest and costs. The court also dismissed the employer’s counterclaim, finding no breach of contract or fiduciary duties had occurred.
