A high level outline of the obligations that apply in relation to termination of employment in Hong Kong.
Dismissal of an employee in Hong Kong is frequently relatively easy to achieve, when compared with China, Europe, Australia and other Asian jurisdictions, provided notice periods and severance obligations are observed. Although an employee with two or more years of service has, on the face of it, a right to bring a statutory claim in the labour tribunal for dismissal without a valid reason, in practice, such claims usually (unless special circumstances exist) only entitle the employee to claim the entitlements he/she should have received under the Employment Ordinance. In practice there is no meaningful right to challenge a dismissal provided no discrimination has occurred and the limited restrictions in the Employment Ordinance, described below, are observed.
A contract of employment may be terminated by resignation, dismissal by the employer, constructive dismissal, the expiry of a fixed term or by mutual agreement, among other reasons.
Dismissal by employer
The procedure, formalities and costs which apply on a termination of employment are determined by an individual's employment contract and the Employment Ordinance. An employer must ensure that the individual does not fall within a restricted category (see below). An employer must also ensure that any reason for dismissal does not constitute discrimination on a prohibited ground (ie sex, race, pregnancy, marital status, family status and disability). There is no qualifying period for discrimination claims.
Subject to the restricted categories below, an employer can terminate an employment contract on oral or written notice. The contract will generally state the notice period and any additional requirements. The minimum notice that may be specified is seven days unless the contract includes a probationary period (see below). In the absence of an agreed notice period, either party may terminate the contract on not less than one month's notice. Any period of notice cannot include statutory annual or maternity leave. Either party may terminate the contract, without notice, on making a payment in lieu of notice.
During the first month of a probationary period, either party may terminate the contract without notice or payment in lieu. During the remainder of the probationary period, the minimum notice that may be specified is seven days and, in the absence of a stated notice period, the parties may terminate on seven days' notice.
An employer may only terminate a contract of employment without notice or payment in lieu of notice if an employee, in relation to his/her employment wilfully disobeys a lawful and reasonable order, is guilty of gross misconduct or misconduct that is inconsistent with the due and faithful discharge of his/her duties, is guilty of fraud or dishonesty or, is habitually neglectful in his/her duties. Summary dismissal is also allowed on any other ground on which the employer would be entitled to terminate the contract without notice at common law.
Dismissal without a valid reason
In theory, employees who have 24 months' continuous service can bring a statutory claim for dismissal without a valid reason. However, such claims are rare and, provided no special circumstances exist, the employee has no right to claim beyond the termination entitlements he should have received under the Employment Ordinance.
A termination is deemed to be without a valid reason, unless the employer can show that it is due to one of the following: conduct, capability or qualification, redundancy (or other genuine business requirements), continued employment would be in contravention of laws and any other substantial reason. In deciding whether a valid reason has been demonstrated, a court or tribunal is required to have regard to all of the circumstances. If it is found that an employee has been dismissed without valid reason, remedies include reinstatement or re-engagement (as long as both employer and employee consent) or an award of "terminal payments" (although these are due in any case).
An employee may be entitled to an additional payment where he or she is dismissed in breach of any of the restrictions on termination mentioned below (restricted categories). In such a case, if no order for reinstatement or re-engagement is made, the employer may be ordered to pay additional compensation of up to HK$150,000 (approx US$19,000).
The following are items which may be payable upon termination:
- wages (remuneration) until the last day of employment
- payment in lieu of notice (if notice or full notice is not given)
- payment in lieu of untaken annual leave
- pro rata end of year payment if this is an entitlement under the contract
- (possibly) pro rata bonus
- statutory severance payment or long service payment, and
- retirement scheme benefits (these may be payable or may need to be retained in the scheme).
Statutory severance is payable to an employee who has been continuously employed for not less than 24 months and whose employment is terminated by reason of redundancy.
A statutory long service payment will be due to an employee who has been continuously employed for not less than five years and who:
- has been dismissed by his/her employer for reasons other than by way of summary dismissal (and is not entitled to a severance payment)
- terminates his/her contract without notice due to his/her becoming permanently unfit for the type of work he/she is engaged to do under his/her contract, or
- terminates his/her contract, and at the relevant date the employee was not less than 65 years old.
An employee cannot be entitled to both statutory severance and long service payments. Both severance and long service payments are currently capped at HK$390,000.
An employer is entitled to deduct from any severance or long service payment any gratuity based upon length of service or any retirement scheme benefit representing the then current value of the employer's contributions. This often effectively reduces severance or long service payments to negligible amounts or nil.
An employer may not terminate the employment of an employee who has served notice of pregnancy, is on statutory sick leave, has a pending claim under the Employees Compensation Ordinance, or for reason that the employee is involved in trade union activities, is on jury duty, has given evidence or information in relation to proceedings to enforce the Employment Ordinance, the Factories and Industrial Undertakings Ordinance or in respect of any accident at work. Such cases will have to be handled on a case by case basis and a mutually agreed cessation of employment may have to be agreed if necessary.
An employee may terminate his/her contract without notice or payment in lieu if:
- he/she reasonably fears physical danger by violence or disease, such danger not being contemplated under his/her contract
- he/she has been employed under his/her contract for not less than five years and is certified as being permanently unfit for the type of work he/she is engaged to do, or
- he/she is subjected to ill treatment by his/her employer.
An employee may also terminate his/her contract without notice or payment in lieu on any other ground on which the employee would be entitled to terminate his/her contract without notice at common law, or if any wages are not paid to him/her within one month of the date upon which they become due. An employee exercising his/her right to terminate in such circumstances is deemed to have been dismissed by his/her employer and so is entitled to recover a payment in lieu of notice.
Mutual agreement and settlement
An employer and employee can agree to terminate an employment agreement by mutual consent. In such cases a settlement agreement will often be entered into to achieve finality or to deal with any risk that the employee may subsequently bring proceedings. There are no special rules which must be followed in order for a compromise agreement to be valid.
Further information on termination in Hong Kong is available from our International Employment Issues microsite here.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.