The High Court¹ has recently upheld a Labour Tribunal decision, commenting on the nature of termination by payment in lieu of notice and whether it constitutes termination with or without notice.

Mr Lo Wai Keung was dismissed by his employer, Hannover Ruck SE. The company terminated his employment by a letter dated 10 December 2020 (the Termination Letter), which stated that his employment would be terminated on 31 December 2020. He was paid HK$1,723,042 in lieu of his contractual six months' notice.

Mr Lo first sued in the High Court in 2022² for alleged unlawful dismissal, seeking damages in tort (for defamation and malfeasance), but his claim was struck out on the basis that it had been wrongly commenced in the High Court, when it fell within the exclusive jurisdiction of the Labour Tribunal.

Then, in 2024, he brought a claim against the company at the Labour Tribunal, claiming unlawful termination and breach of his employment contract, seeking damages, loss of income and loss of benefits. The crux of his grievance arose out of his claim for unpaid entitlement of share awards under a share award scheme operated by the company for its employees (the Scheme), which was governed by German law. The share awards under the Scheme had been allocated in 2016 but would not vest until March 2021. Under the Scheme's conditions, an employee was not entitled to share awards if their employment had been terminated based on "extraordinary cancellation without notice" or on issues of conduct. Thus, whether or not the termination of his employment was with notice or without notice became a key issue which would determine whether he was entitled to the share awards.

The Labour Tribunal³ dismissed all his claims. In particular, the Labour Tribunal found that his termination, which was effected by way of payment in lieu of notice, was "termination without notice", which constituted an event of "extraordinary cancellation without notice" under the Scheme, thus he was not entitled to the shareawards from 2016 to 2020. The Employment Ordinance (Cap. 57) makes clear distinctions (in sections 6, 7 and 9) between termination by notice, termination by payment in lieu of notice and summary dismissal without notice. In reaching its conclusion, the Labour Tribunal equated payment in lieu of notice with summary dismissal without notice.

Mr Lo appealed. The court granted leave for him to proceed on one ground of appeal, which was whether or not the Tribunal had erred in finding that his termination was "without notice".

Despite the Scheme being governed by German law, neither side adduced any expert foreign law evidence and, for the purposes of the appeal hearing, it was presumed that German law would be the same as Hong Kong law. The court accepted the company's interpretation of the relevant clause in the Scheme that termination of the employment contract based upon "extraordinary cancellation without notice" must mean without the contractual notice of six months. Thus, the question is whether, by choosing to make a payment in lieu instead of giving six months' notice, the company can be said to have terminated the employment contract with notice or without notice.

The court noted there is no Hong Kong authority on this question and thus looked at two English cases. In Gothard v. Mirror Group Newspapers Ltd⁴,the court held that money in lieu of notice is "as a matter of law, a payment which falls to be set against, and will usually be designed by the employer to extinguish, any claim for damages for breach of contract, i.e. wrongful dismissal" and, during that period to which the money relates, the employee is not employed by the employer. The court in Delaney v. Staples⁵ agreed with Gothard that termination without notice constitutes a breach of contract and that payment in lieu of notice would extinguish damages for that breach, but only in cases where "without the agreement of the employee, the employer summarily dismisses the employee and tenders a payment in lieu of proper notice". It would not apply to cases of garden leave, where both parties agree to end the contract or where the contract expressly allows for termination by payment in lieu of notice. In those cases, the employee is entitled to the payment in lieu, not as damages, but under their employment contract.

Based on the English authorities, the court found the Labour Tribunal was correct in holding that the payment in lieu of notice was "termination without notice"which came within the requirement of an event of "extraordinary cancellation without notice" under the Scheme, and thus Mr Lo's claim for the share awards failed.

Whilst this might appear to be a question of semantics, it is important for employers to understand the legal impact of payments made to employees at termination, particularly on any related bonus plans or extra-contractual documents.

Acknowledgements to Trainee Solicitor Faith Colenutt for research and contribution to this article.

1. Lo Wai Keung v. Hannover Ruck Se [2025] HKCFI 262, 15 January 2025.
2. Lo Wai Keung v. Hannover Ruck Se [2023] HKCU 684 (the appeal of the Master's decision, which failed).
3. Handing down its decision on 5 March 2024.
4. [1988] ICR 729, 733.
5. [1992] 1 AC 687, 692.