In June 2022, the Court of First Instance handed down a judgment arising out of a two-year salary payment compensation clause in an employment contract. The judgment clarifies the difference between a liquidated damages clause and a penalty clause and confirms that, when properly drafted, a liquidated damages clause in an employment contract can be enforced.
In Ng Yan Kit Alfred & Or v Ever Honest Industries Limited & Or,1 the claimant, Mr Ng, signed a letter of employment with his employer which contained a clause stating:
“The Group cannot dismiss you within three years upon the commencement of this employment agreement. If the Group dismisses you within three years after this employment agreement commences, you will be paid two whole years’ salary as compensation. If this employment is terminated by you within three years, one month’s written notice or one month’s salary in lieu of notice is required and, after resignation, you will not be allowed to work in an organisation that is in the same or relevant industry or the compensation of two whole years’ salary will not be granted.”
Mr Ng was first employed by another company affiliated with the defendants from 1 August 2014. He subsequently signed new employment letters with the first defendant in March 2015 and then again in January 2016. Recognising his contribution to the group, particularly during difficult times including suspension of trading of its stocks, restructuring of debts and resumption of...
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