When a Settlement Agreement Fails to Resolve a Dispute By Jezamine Fewins, Partner, Stephenson Harwood

Facts

A recent High Court decision in Zhang Qiang (Plaintiff) v Cisco Systems (HK) Limited (Cisco) (Defendant), (HCA 1497/2010 17/03/2021) (Decision) held that ignoring and failing to comply with instructions constituted a serious case of misconduct by the plaintiff, and justified his summary dismissal for ignoring clear instructions to relocate, failing to comply with instructions to attend Telepresence meetings, refusing to answer questions related to his whereabouts, and failing to show any reasonable excuses for his absence.

Legal principles

In this case, Zhang, the plaintiff, was a former employee of Cisco Systems (HK) Limited (Cisco). He began working for Cisco in 2000 and was assigned to work in Beijing in September 2002 as Customer Support Engineer. Between 2002 and 2006, Zhang had various discussions with the organisation complaining about the terms of his employment, including his salary and benefits. He believed that his position was incorrectly graded and that his salary and benefits were not appropriate.

In February 2005, Cisco informed Zhang that he would be repatriated to Hong Kong and would receive increased salary and benefits. In 2006, both parties engaged in a series of correspondence leading to the execution of:

a) a Repatriation Agreement and a Relocation Acknowledgment Clause pursuant to which Zhang was entitled to and did receive certain repatriation benefits on the condition that he would relocate to Hong Kong; and

b) a Settlement Agreement on 17 August 2006 comprising a Without Prejudice Letter, a Release Agreement, and a Deed of Release. Under the settlement terms, Zhang would receive a settlement sum without Cisco admitting any liability regarding his complaint that his position had been incorrectly graded.

On 4 September 2006, Zhang informed Cisco that he had not received any payment from them pursuant to the Settlement Agreement. It was in early September 2006, that the organisation discovered errors in the Without Prejudice Letter where the Notional Employee Stock Purchase Plan (ESPP) Gain was stated as HK$64,4910.46 instead of HK$64,491.46. On 15 September 2006, Cisco provided Zhang with an updated Without Prejudice Letter but he never signed it.

On 28 August 2009, Cisco informed Zhang that his start date in Hong Kong would be 7 September 2009. He reported to Cisco’s Hong Kong office on 7, 10, and 14 September 2009 but left Hong Kong on the same day on each occasion. He was asked to liaise with the organisation’s visa agent to assist with the repatriation process and to attend meetings via Telepresence, which he refused to do. During October 2009, Zhang failed to join meetings or attend the Hong Kong office. He also refused to account for his whereabouts or answer questions posed to him as to where he was living in.

On 5 November 2009, Zhang emailed Cisco through a personal email account stating he was sick and had lost all access to the organisation’s network. Cisco replied to Zhang asking for his medical certificates and reminded him that he needed to report his absence to his direct manager. On the following day, Zhang replied that due to his health condition he was unable to reply to Cisco fully but stated that he had medical certificates.

On 10 November 2009, Cisco asked Zhang to deliver his medical certificates to them or they could arrange a courier to collect them from him, and that they needed him to attend a Telepresence meeting as soon as possible.

On 2 December 2009 Cisco wrote to Zhang again asking him to explain his absence and to provide his medical certificates immediately.

On 7 December 2009, Zhang wrote to Cisco explaining he was on sick leave and possessed medical certificates. Cisco replied to Zhang the following day stating he had committed serious misconduct by being absent from work and was liable to be summarily dismissed. The organisation repeated their request that Zhang provide his medical certificates by 11 December 2009. Failing a response from Zhang, Cisco sent him a letter on 11 December 2009 summarily dismissing him for failing to provide medical certificates to justify his absence from work. He then sued the organisation for various sums which he claimed were owed to him under the Settlement Agreement, the Repatriation Agreement, as well as claiming that the termination of his employment by Cisco was wrongful as he was on sick leave and had provided medical certificates.

Decision

Firstly, the Judge accepted Cisco’s defence that there was a unilateral mistake in respect of the Notional ESPP Gain as stated in the Settlement Agreement. As there was no meeting of the minds between the parties on this point, the Judge considered that there was never a legally binding settlement between both parties.

The Judge took into account that there were emails stating the US dollar equivalent of the Notional ESPP Gain and an updated letter correcting the typographical error. Also, Zhang was aware of the formula used for the calculation, the amounts of contribution he had made to ESPP, and the actual ESPP Gain he had received. On this basis the Judge concluded that he was aware of the mistake. As the mistake affected the entire agreement, Cisco was not in breach of a contract which had never existed.

Secondly, the Judge found that Zhang’s claim based on the Repatriation Agreement was problematic. It was not disputed that, based on the Relocation Acknowledgement Clause signed by Zhang as part of the Repatriation Agreement, the repatriation benefits were conditional upon his relocation to Hong Kong. However, since Zhang had not in fact repatriated to Hong Kong, the court ruled that he was not entitled to the benefits or the other items claimed which had not been incurred. Furthermore, he was liable to repay the amounts he had already received. Thirdly, the Judge agreed with Cisco that Zhang’s serious misconduct, including ignoring clear instructions to relocate, failing to comply with instructions to attend Telepresence meetings, refusing to answer questions related to his whereabouts, and failing to show any reasonable excuses for his absence, justified his summary dismissal. The Judge found that Zhang demonstrated wilful defiance and had no valid reasons for disobeying the organisation’s instructions.

Furthermore, the court ruled that as a matter of fact, Zhang only provided medical certificates to Cisco on 15 December 2009, four days after he had been summarily dismissed. The Judge also commented that the sick leave certificates which were eventually provided by Zhang, did not comply with the requirements set out in the Employment Ordinance as they were not provided by a medical practitioner, a Chinese medicine practitioner, or a dentist registered in Hong Kong, and were sent to Cisco long after the deadlines set by them had expired.

Takeaway points for employers and HR practitioners

Employers should be mindful that all terms in a repatriation agreement need to be drafted and checked carefully so that there are no errors. Where an error is discovered, employers should, as soon as practicable, make clarifications and corrections in writing to the employee. Written communications are always important to avoid misunderstandings and disputes, and if an agreement containing an error has already been signed by the employee, the employer should ensure that the employee signs an updated and corrected document.

With respect to benefits and allowances an employee is entitled to under any repatriation agreement, all conditions should be clearly stipulated and strictly applied. Employers should expressly state whether the repatriation allowance has to be incurred for the employee to be entitled to the benefit and any upper limit which is fixed. Employers should also envisage how different scenarios may play out in reality and clearly stipulate the consequences if an employee fails to comply with the conditions of payment. Where there is a requirement that an employee relocates, the employer should set a deadline for the relocation and a cut-off date for claiming expenses associated with the relocation.

A summary dismissal may be justified when an employee is completely uncontactable, even if it is due to injury or sickness, and fails to report to the workplace without contacting their employers to seek leave. Furthermore, where an employee fails to comply with what appears to be a lawful and reasonable instruction of the employer, the burden of establishing a reasonable excuse for not complying with those instructions and adducing satisfactory evidence in support of their claim falls on the employee.

Note: The information contained herein is intended to be a general guide only and is not intended to provide legal advice. This journal, its publisher and the HKIHRM do not assume any legal responsibility in respect of any comments provided in this article, which do not constitute legal advice and should not be taken or construed as such. Independent professional legal advice should be sought as necessary in respect of legal matters and issues raised in this article.