Stop, Start, Change of Heart – Pulling out of an Employment Contract Between Acceptance and Commencement

The path between accepting a new job and commencing the new role should be simple. And in most cases it is. But there are significant implications if either party (individual or employer) changes its mind and decides not to proceed with the employment at some point between acceptance of the offer and the legal commencement of the employment. A recent Court of Appeal decision sheds important light on this often overlooked area.

Recent Court of Appeal case

In Law Ting Pong Secondary School v Chen Wai Wah, [2021] HKCA 873, a teacher accepted an offer of employment from the school and signed three documents: an Offer of Appointment, an Acceptance Letter and the Conditions of Service. A few days before the start of the academic year and the stated employment commencement date, the teacher informed the school that he would not be taking up the position. He also refused to make payment in lieu of notice to the school prompting the school to bring a claim for payment. 

The Acceptance Letter provided that once this was signed, the Conditions of Service would also come into immediate effect, and the Conditions of Service stipulated a requirement to give 3 months’ notice (or payment in lieu) to terminate the employment. The teacher argued that the notice period should not apply because the actual employment (and the performance of the employment duties) would not commence until later.

The Court found that it was clearly stated that the Conditions of Service would commence on signing of the Acceptance Letter. Accordingly, the Court distinguished between the employment contract commencement and the actual employment commencement and determined that the three months’ notice provision would apply and the teacher must make payment in lieu of notice. The Court also rejected the teacher’s argument that such payment constituted a penalty and therefore should be unenforceable.

The key takeaway is that if the contractual documentation is clear, contractual obligations and employment terms may commence before the individual has formally commenced work. This seems a reasonable protection for an employer, such as a school, because it dis-incentivizes an individual from changing their mind at the last minute and leaving the employer to find a suitable alternative at short notice.

Other scenarios to consider

By inference, the other key point that emerges from this case is that without specific contractual wording to cover this scenario, it is easy for either an individual or an employer to change their mind and pull out of an accepted employment which has not yet commenced without any consequences. This may leave the other party in a difficult situation. 

For employers, this may be frustrating after a lengthy hiring process and leave the company without coverage while it re-starts the process to find a suitable candidate for the relevant role. For individuals, it is likely to be extremely debilitating to lose the new position (and the remuneration that comes with this) having already resigned from their previous employment.

This situation is more likely to occur when there is a considerable hiatus between the employee accepting the new employment and the actual commencement. This is common, for example, in the financial or tech sectors, where senior staff may need to serve 6 or 12 month non-compete periods before being free to take up their new role. Circumstances may change during such period. The challenges of COVID, for instance, have prompted businesses to re-think their strategies and staffing requirements. 

Similarly, many employment contracts are stated to be subject to the company completing background checks and obtaining references to its satisfaction. Or to the individual obtaining a visa or specific regulatory licenses. It is advisable for individuals to check with their prospective new employer on the status of any such checks or legal requirements when they accept an offer, in order to avoid a nasty surprise once they have already resigned from their current employment. 

It is important for both employers and employees to consider whether specific contractual provisions should be included in the employment documentation so that the obligations and entitlements are clear in case one party decides to pull out of the proposed employment between acceptance and commencement. This is particularly relevant for an individual who gives up substantial deferred compensation rights as part of an intended move.

Contributing Advisors