Effect of transfer on contracts of employment
Hong Kong law does not make provision for the automatic transfer of employees on the transfer of a business. A transferee is under no obligation to take on the transferor’s employees. It is for the transferee to decide which, if any, of the transferor’s employees it wishes to retain.
For a “transfer” of employment to occur, an employee must (1) be dismissed by the transferor, and (2) accept an offer of employment with the transferee.
Notice of transfer
It is recommended that the notice of termination and any offer of employment be issued at the same time.
Terms of offer
The transferee is under no statutory obligation to maintain existing terms and conditions and is free to determine the terms of employment it offers to the transferor’s employees.
In the case of a transfer of a trade, business or undertaking, the transferee is obliged to recognise a transferring employee’s prior service with the transferor. This obligation is relevant to the calculation of certain statutory entitlements.
There is no legal obligation for either the transferor or transferee to consult with affected employees.
Restrictions on termination
Hong Kong law prohibits the dismissal of certain categories of employees (eg those who have given notice of pregnancy or who are on statutory sick leave). If a transferor has employees falling into any of the restricted categories, it should consider asking them to resign.
Entitlements on termination
The principal entitlements that arise on termination are: (1) payment in lieu of notice (if notice or full notice is not given), (2) payment in lieu of accrued but unused annual leave, (3) (where applicable) pro rata end of year payment, (4) (possibly) pro rata bonus, and (5) statutory severance or long service payment.
Liability for the above sums lies with the transferor and not the transferee. The transferor and transferee may agree that accrued entitlements will be “rolled over” and recognised by the transferee, but there is no need for the transferee to accept responsibility for these entitlements. If accrued entitlements are to be rolled over, that should be reflected in the termination and offer letters.
Statutory severance/long service pay
Please refer to Economic Dismissal and Termination of Employment for more details on the circumstances under which employees would be entitled to statutory severance/long service payment and how such payment is calculated.
These payments are mutually exclusive. The employees will not be entitled to receive severance/long service payment if (1) a transferee makes offers to the transferor’s employees, (2) those offers take effect on the termination of the employment with the transferor, and (3) the employees accept the offers made.
The transferor will be liable to make a statutory severance payment to an employee who has not less than two years’ service if: (1) the transferee makes an offer on less favourable terms and the employee rejects the offer (and is dismissed by the transferor), or (2) if the transferee makes no offer to the employee and the transferor dismisses him/her due to redundancy.
The transferor is not required to pay a statutory severance pay if the transferee’s offer (1) is on the same or no less favourable terms, (2) is made in writing, not less than seven days in advance of the termination of employment with the transferor, (3) takes effect on or before that date, and (4) is an offer of suitable employment which is unreasonably refused by the employee. The transferor is, however, liable to pay long service pay if it decides to dismiss the employee and the employee has at least five years’ service.
If a transferring employee is sponsored for employment visa, the transferee must arrange for the change of sponsorship of the visa before commencement of employment with the transferee.
The transferor should notify the trustee of its retirement scheme of the cessation of employment. The transferee must enrol the transferring employees into a retirement scheme within 60 days of each employee’s commencement date.
The Inland Revenue Department must be informed whenever the employment of an employee who pays Hong Kong salaries tax commences or ceases.
Employees’ compensation insurance
It is compulsory for the transferee to take out employees’ compensation insurance.
Personal data (privacy) ordinance
Employee consent is required for the transfer of employees’ personal data to a transferee, unless such transfer is already covered in the personal information collection statement provided at the time of collection.
Further detail on business transfers in Hong Kong is available 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.