3 December 2021
Under Hong Kong employment law, governed primarily by the Employment Ordinance (“EO”) (Cap. 57), both the employer and the employee, have the right to terminate an employment contract by giving the other party due notice or payment in lieu of notice and with or without cause, subject to certain restrictions which are discussed below.
Although dismissing tends to be relatively easy in Hong Kong compared to other jurisdictions such as mainland China, the UK or the US, employers should ensure that they adhere to the relevant statutory requirements and any specific contractual provisions. They should also remain mindful of the implied obligation of mutual trust and confidence where possible, so as not to seriously damage the relationship between the parties.
This guide outlines the legal considerations and proper procedures for employers to consider when terminating employees.
Legal considerations when terminating an employee in Hong Kong
The EO sets out two broad legal considerations when terminating an employee (unless the employee belongs to a restricted category as listed below):
1. Termination by Notice
Also known as termination without cause. Under such termination, the employer is not required to provide cause for dismissal.
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Under the EO, either the employee or the employer can terminate a contract by providing a written or an oral notice to the other party, or by making a payment in lieu of notice.
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The contract will generally state the notice period (of at least seven days) and any additional requirements to be fulfilled by the parties.
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In absence of an agreed period of notice in the contract, either party may terminate the contract by giving at least one month’s notice.
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Probationary periods – there is no requirement to provide any notice period for the first month of any probationary period and it can be as little as seven days thereafter. Accordingly, both the employer and employee can legally terminate the relationship quickly during the probationary phase if their paths are not aligned.
2. Termination for Cause
Also known also known as summary dismissal. In specific (and generally serious) circumstances an employer is entitled to terminate immediately, without notice or payment in lieu, if the employee has:
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Intentionally disobeyed an otherwise lawful and reasonable order.
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Conducted themselves in a manner that has stopped them from fulfilling their duty of due diligence, care and competence.
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Not performed their duties of fidelity and good faith.
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Engaged in fraudulent or otherwise dishonest activities.
It should be noted that the employer bears the burden of proof in this case as summary dismissal without just cause may result in grounds for wrongful dismissal of the employee.
3. Termination by Mutual Agreement
Employers and employees are also entitled to terminate employment by mutual agreement. Provided the parties agree, no notice is required, although such arrangements typically involve a payment to the employee in excess of any statutory entitlements in return for the employee agreeing to release the company from any claims.
The arrangement is normally confirmed in a written document, variously referred to as a settlement, separation, compromise or mutual termination agreement. Such agreements can be helpful to achieve an amicable and smooth exit with certainty for both parties.
There are certain statutory restrictions on an employer’s right to terminate if an employee who falls under any of the following restricted categories:
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Is pregnant and has served notice of pregnancy.
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Is on paid sick leave.
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Is away on jury duty.
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Is a member of and participates in the trade union activities.
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Has a claim pending under the Employees’ Compensation Ordinance.
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Is giving evidence or information in any proceedings or inquiries relating to the EO and/or the Factories and Industrial Undertakings Ordinance.
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Has suffered injury at work and has neither entered into an agreement with the employer concerning compensation nor been issued a certificate of assessment.
What are employees entitled to on termination?
Employees have certain statutory rights upon termination. In cases where the employment contract provides additional entitlements upon termination, employers should take due care to factor in such contractual obligations. Depending on the circumstances, statutory entitlements may include the following:
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All outstanding wages up to the last day of employment (pro-rata), including payment in respect of accrued but untaken annual leave (pro-rata).
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Payment in lieu of notice, if notice or full notice is not given.
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Monies relating to bonus (pro-rata) and any other end of the year payments (if applicable).
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Any payment in relation to retirement scheme benefits.
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Statutory severance and long service payment:
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Statutory severance is due to an employee who has been continuously employed for at least 24 months and is dismissed by way of redundancy.
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Statutory long service payment is due to an employee employed continuously for at least 5 years where the termination by the employer is for a reason other than summary dismissal.
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An employee is not entitled to both statutory severance and statutory long service payment.
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Both these statutory payments are currently capped at HK$390,000.
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Some practical thoughts on the termination process
Terminating an employee is often sensitive but necessary for the needs of a business. While it is vital to take into account the legal considerations outlined above, employers should also consider the following practical steps to help navigate the process as smoothly as possible:
1. Be prepared
Review relevant employment documentation and other information to prepare for a termination and ensure that employee entitlements are correctly evaluated and calculated.
2. Follow company and legal regulations
Review relevant employment documentation and other information to prepare for a termination and ensure that employee entitlements are correctly evaluated and calculated.
3. Be concise and clear
Ensure that all communications and concise and clear. This includes meeting with the employee in person (if possible) to deliver the news in a clear and respectful manner. In most cases it makes sense to have a member of your HR team (or other appropriate personnel) present when delivering the news.
4. Document the process
Document all actions taken before, during and after terminating the employee. This may be useful as evidence that all protocols were followed in case of any subsequent dispute or proceedings.
5. Plan ahead
Employers should plan ahead to ensure that all company property is returned by the employee prior to the end of the employment or when the employee is placed on garden leave, if applicable). This may include company ID card, keys and other access cards, electronic equipment, remote access tokens or similar devices, company documents and all other company items. In serious circumstances, employers may wish to have security present to oversee an employee’s departure.
For further information in relation to terminating an employee and other employment related matters, please do not hesitate to contact our employment lawyers.
