How one line in a termination letter cost an employer a full year of an executive's pay
A fish-trading company failed to overturn an order to pay a departing sales executive a full year's salary, Cheng J ruled on 28 May 2026.
The dispute turned on a single line in a termination letter. The executive had run the company's sales operation since 2013 as its vice president of sales. His contract carried a non-competition clause and, at clause 8.3, a matching promise: if the company chose to hold him to that restriction after he left, it had to say so within three weeks and pay him compensation equal to one hundred per cent of his annual basic salary.
When the company ended his employment on 22 February 2024 with payment in lieu of notice, its termination letter told him to abide by the restrictions in clause 8. The executive read that instruction as the company electing to enforce the non-compete, which in his view switched on the compensation promise. In September 2024 he brought a claim in the Labour Tribunal for HK$2.6 million, a year's pay under clause 8.3.
A company director had met him on the day of termination to walk through the terms. According to the company's own account, after about ten minutes the executive stood, said "I understand. I don't agree", and left without signing. He was paid only the sums the law already owed him: wages for days worked, pay in lieu of notice, and long service pay.
The tribunal's deputy presiding officer handed down judgment on 11 March 2026, awarding the executive HK$2.6 million under clause 8.3, plus costs and interest, and dismissing the company's counterclaim, which had alleged he was in repudiatory breach and sought to claw back what he had been paid.
The company applied for leave to appeal on a point of law and for a stay. Its central argument was new: that the executive had quietly settled the whole claim by conduct, because he and his family kept using the company medical insurance, which ran until 22 August 2024. Accepting a settlement that way, the company said, would have extinguished the clause 8.3 entitlement.
Cheng J was not persuaded. The burden of proving a contract made by conduct falls on the party asserting it, and, as the judgment put it, "The conduct relied on must be unequivocally referable to the contract sought to be inferred." Leaving the insurance running was an omission rather than a positive act, the court found, and the company had never mentioned the point until after all the evidence at trial had closed. The former executive's unchallenged evidence was that his family used the cover only because it remained active, and that the insurer itself had suggested using it for eye examinations.
There was, in short, no way to read continued use of the insurance as a change of heart by a man who had rejected the deal outright. The deputy presiding officer had found it "obvious that the Claimant had rejected the Termination Letter once and for all", and the judge held that finding was neither wrong in law nor irrational.
Leave to appeal was refused, the stay was discharged, and the company was ordered to pay the costs of its stay application. The award of a full year's salary stood.
The judgment makes clear that a termination letter directing a departing employee to observe a non-compete can be read as the company's election to enforce it, and that continued use of benefits left switched on after termination is not, without more, referable to acceptance of a settlement already rejected in plain terms.
