Hong Kong employer required to reimburse expenses that benefit the business

Employer had no written expense policy

Hong Kong employer required to reimburse expenses that benefit the business

A Hong Kong court decision holding an employer liable for various payments and benefits owed to a former employee highlights the importance of making prompt payment of all amounts due upon termination of employment.

The plaintiff, Anthony Mackay, was the former Chief Executive Officer (CEO) of the defendant, Chi-X Asia Pacific Holdings Limited. 
 
From 2015 to 2016, Mackay assisted a New York-based private equity firm to acquire certain business assets. Chi-X was incorporated to hold those assets after their acquisition and Mackay began working as its CEO. However, Chi-X did not set up any bank accounts in its name at the time. As a result, Mackay paid for Chi-X’s business and professional expenses out of his own pocket and then sought reimbursement. Those expenses included travel, hotel, and entertainment expenses as well as notary, solicitors, and bank fees. 
 
In November 2016, Mackay was served notice and he was placed on garden leave for the six-month notice period. Chi-X made some termination payments to Mackay but failed to reimburse him for the business and professional expenses as well as other contractual obligations which were owed to him. 
 
Mackay commenced legal proceedings against Chi-X for his outstanding entitlements and later applied for summary judgment. 

The court found in Mackay’s favour in respect of a number of his claims and awarded summary judgment to him. Chi-X was allowed to continue to defend a few remaining claims.

Unpaid business expenses

In respect of the claims in which Mackay was successful, the court found as follows.

Mackay had made numerous requests for reimbursement of the expenses which he had incurred for and on behalf of Chi-X (totaling more than HKD430,000), but Chi-X refused to do so and provided no explanation for its refusal.

During the summary judgment application, Chi-X suggested to the court that Mackay should not be reimbursed as the company had no written expense policy at the time the expenses were incurred. They also claimed that, at a later point in time, they had changed their expense policy such that some of the entertainment expenses would be excluded. The court gave Chi-X’s arguments short shrift in light of how past expenses were claimed and reimbursed, and Mackay provided full supporting documentation for the expenses.

Chi-X also attempted to persuade the court that there was a large volume of expenses being claimed which should be fully investigated at trial. The court took the view that Chi-X had had the opportunity to investigate the expenses for a number of years before proceedings were initiated but failed to do so, and that the asserted desire to investigate was nothing more than an attempt to raise a triable issue in a summary judgment application where none existed. 

Other unpaid amounts

The court similarly held Chi-X liable for other amounts that it had failed to pay to Mackay. These included: 

  • Bank charges deducted from salary payments. Chi-X argued that these charges were incurred as a result of Mackay choosing to have his salary paid into his bank account in Monaco. However, there was no contractual requirement that Mackay had to hold a Hong Kong bank account. Chi-X was therefore required to bear the cost of the bank charges which had been deducted from his salary, plus interest.
     
  • Unlawful withholding of salary. Following the termination of Mackay’s employment, Chi-X withheld his salary for a period in excess of the statutory limit. An employer is entitled by law to withhold an employee’s salary for a period of one month where the employee is about to leave Hong Kong. However, in this case, Mackay had not made any notification that he was planning to leave Hong Kong. Accordingly, the court ruled that Mackay was entitled to interest which had accrued on the salary that had been withheld by Chi-X for the period in excess of one month.

Takeaways for employers on employee entitlements

This case covers a wide range of entitlements an employee may claim against an employer upon termination of their employment where the employer acts unreasonably. Employers are reminded that all payments due to employees, including expenses upon the termination of employment, should be made in full and on time to avoid any disputes. 

Employers should ensure that if they want to avoid bearing the cost of bank charges for salaries paid to their employees in accounts overseas, their employment contracts should require their employees to have a Hong Kong bank account.

Any salaries withheld by an employer who is informed by the employee that he or she intends to leave Hong Kong can only be withheld for one month. Employers cannot unilaterally withhold payments, especially where an employee has not stated that they intend to leave Hong Kong.

For all sums of money owed to employees that are not paid on time, the employee is entitled to interest on the amounts at the judgment rate for the period between when the payment falls due and when the payment is eventually made. 

Jezamine Fewins is a partner and Head of Litigation at Lewis Silkin in Hong Kong. Karen Chu is an associate at Lewis Silkin in Hong Kong.

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