On onboarding employees, and about-turns.

If a prospective employee agrees to join a company and signs a letter of appointment, but later on decides not to join the company after all, can the company sue the employee?

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G was offered a job by Company K. He accepted the offer, and signed a letter of appointment ("LOA") in October 2020. The LOA stated that his employment would begin on 1 December 2020, but G would still be serving notice then.

G tendered his resignation with his existing employer. While he was serving notice, his existing employer made a counter-offer. Eventually, on 19 December 2020, G told Company K that he had decided to stay with his existing employer.

Company K then sued G - for around RM1.4 million.

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Why RM1.4 million?

The LOA guaranteed G employment for 3 years, and G would receive his salary for the balance of the 3 year term if his employment was terminated early. However, if G left Company K before the 3 years were up, he would have to pay the equivalent of his salary for the balance of the 3 years.

Company K argued that G's employment begun on 1 December 2020. Since G was leaving Company K before the 3 years were up, G was liable for the sum equivalent to his salary for almost 3 years - i.e. around RM1.4 million.

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Company K failed in its claim for around RM1.4 million. The High Court held that:

(a) G and Company K had agreed that G's employment would only started on 1 January 2021, not 1 December 2020. This was despite the express wording of the LOA. In coming to this decision, the Judge considered the parties' conduct and discussions, and even Company K's internal communications.

(b) Further, even if G's employment had already started on 1 December 2020, the clause was an unenforceable penalty clause. Although Company K argued that the 3 years' worth of salary was a genuine pre-estimate of its loss should G decide to leave, the Judge disagreed.

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Some takeaways, for employers and employees:

(a) employees should pay attention to the clauses in any letters or contracts that they sign, even before they formally start work. Some employees seem to have the view that so long as they have not yet reported for work, they can change their minds and walk away with no consequences. This is not always the case.

(b) it is natural for employers to include contract terms ensuring a proper transition period when employees leave. Well and good. But if the clause stipulates a financial penalty if the employee leaves the employer early, I suggest obtaining legal advice on the enforceability of such a clause. A clause which is weighted too heavily in favour of the employer may well turn out to be unenforceable.

(c) when deciding whether to sue an (ex-)employee, companies should consider not just the wording of the employment contract(s), but also their past conduct, and whether such conduct is consistent with the case they intend to run.