Managing employee termination in Hong Kong can be a sensitive and difficult task. At some point, you may need to part ways with an employee due to misconduct, poor performance, or organisational changes.
Dismissing employees may be less complex in Hong Kong than in mainland China and jurisdictions elsewhere. Nevertheless, it is important for employers to comply with the applicable contractual provisions and statutory requirements. Familiarity with the various rules can help mitigate the risks associated with wrongful termination and prevent potential legal complications. Whether you are handling redundancies, poor performance, or disciplinary issues, understanding your obligations and rights as an employer is paramount to ensuring a smooth and fair termination process.
This article will provide you with an overview of the key aspects of employee termination in Hong Kong. It covers important topics, such as the legal grounds for termination, notice periods, procedural requirements, and unfair grounds for dismissal.
Table of Contents
What are the types of employee termination?
Termination for cause
There are specific grounds that allow an employer to dismiss an employee without giving notice or payment in lieu of notice. Termination for cause refers to the dismissal of an employee due to his/her misconduct or wrongdoing. Under Section 9 of Hong Kong’s Employment Ordinance (Cap. 57), an employer has the right to terminate an employee immediately if the employee engages in the following actions in connection with his/her employment:
- Intentionally disregards a lawful and reasonable instruction;
- Behaves inappropriately;
- Commits fraud or engages in dishonest behaviour;
- Consistently fails to fulfil his responsibilities; or
- Any other legal basis under common law that would grant the employer the right to terminate the employee without prior notice.
This is deemed a summary dismissal, which is a grave disciplinary measure. It is reserved for instances where an employee has engaged in severe misconduct. This serious disciplinary action is also meted out where the employee demonstrates a lack of improvement despite receiving multiple warnings from the employer.
An employee’s participation in a strike does not offer a valid legal justification for the employer to terminate his/her employment.
The employer bears the burden of proof in cases of termination for cause. This means that the employer bears the responsibility to provide evidence justifying the termination. Legal precedents indicate that an employer can only summarily terminate an employee if the latter’s misconduct is severe enough to be considered a complete disregard for his/her contractual obligations. If an employer terminates an employee without proper justification, it could constitute a wrongful dismissal.
Termination with notice
Sections 6 and 7 of the Employment Ordinance give both the employer and the employee the right to terminate an employment contract at any time. This can be done by giving the other party the required notice. Alternatively, a payment in lieu of notice can be made, in which case notice can be dispensed with.
In Hong Kong, the statutory period of notice for terminating employment is one month where the contract makes no provision. But if both parties mutually agree upon a different timeframe, it is possible to modify the length of the notice period. This must be provided for in the employment contract, and the notice period must not be less than seven days. In addition, it should be noted that statutory annual or maternity leave cannot be included in the notice period.
In the initial month of the probationary period, both parties have the right to terminate the contract without any notice or payment. However, for the remaining duration of the probationary period, a minimum notice period of seven days applies if the contract makes no provision for it.
Termination by mutual agreement
Both the employer and employee have the right to end their employment relationship through mutual agreement. If both parties come to an agreement, no notice needs to be given. In such cases, however, it is common for the employer to provide compensation to the employee that exceeds their statutory obligation. This payment is usually made in exchange for the employee’s agreement to release the employer from any potential claims. To achieve closure or prevent the employee taking legal action against the employer in the future, both parties will often enter into a settlement agreement.
What is the procedure for terminating an employee?
Arrange a meeting with the employee
Apart from the need to provide the required notice or payment in lieu of notice, as required by the law or contract, there are no specific legal procedures that must be followed to terminate an employee. It is usual, though, for the employer to arrange a meeting with the employee to discuss practical matters relating to the termination.
Following the prescribed disciplinary procedures
In cases of termination for cause, the importance of procedural fairness given to employees during the termination process has been underscored by recent case law. In particular, where the employment contract includes provisions for disciplinary and grievance procedures, the employer must adhere to such procedures prior to giving notice or payment in lieu of notice.
Inform the Inland Revenue Department (“IRD”)
Employers are required to inform the IRD regarding the termination of an employee either one month prior to it or promptly afterwards. Additionally, if the employer becomes aware of the employee’s departure from Hong Kong for a period exceeding one month following termination, they must notify the IRD accordingly.
Inform the Immigration Department and Mandatory Provident Fund (“MPF’) trustee
Where the employer sponsors the employee’s working visa, the employer must inform the Immigration Department of the termination. In addition, the trustee of the MPF overseeing the scheme on which the employee is enrolled must be notified.
Settle termination payments
Payments due upon termination must be made within seven days from the termination date. Further, in cases where severance or long-service payments are applicable, the employer must furnish the employee with a written statement explaining how the calculation has been derived.
Under what circumstances can you not dismiss an employee?
Under the Employment Ordinance, an employer is forbidden from dismissing an employee who:
- Has been confirmed pregnant and has informed the employer of her pregnancy;
- Is on maternity leave;
- Is on statutory sick leave;
- Is a member of a trade union and participates in activities organised by a trade union;
- Has sustained an injury at the workplace and is awaiting compensation under the Employees Compensation Ordinance (Cap. 282);
- Has sustained an injury at the workplace and is awaiting the issuance of a certificate of assessment, or the conclusion of a compensation agreement with the employer;
- Is doing jury service;
- Has provided evidence or information in proceedings in relation to the enforcement of the Employment Ordinance, accidents at the workplace, or violations of work safety legislation.
Employers are also strictly prohibited from terminating employees based on discriminatory factors, such as gender, marital status, race, etc.
What constitutes unreasonable dismissal?
Requirement for valid grounds for dismissal
The Employment Ordinance safeguards employees from unfair dismissals or alterations of their employment contracts without their consent. To be entitled to such protection, an employee should have completed a minimum period of 24 months of continuous employment.
Under certain circumstances, an employee who has not been in continuous employment for 24 months may still bring a claim. He or she must be terminated without a valid reason (as listed below) and on a prohibited ground (as listed in the previous section).
Unless the employer can provide evidence that the termination is a result of any of the following reasons, the dismissal shall be deemed unreasonable:
- The employee’s conduct;
- The employee’s capability and qualifications to perform the assigned work;
- Redundancy or legitimate operational needs of the employer’s business;
- Continued employment would constitute a violation of the law; or
- Any other substantial reason that, according to the court or tribunal, justifies the dismissal of the employee or the modification of the employment terms.
Remedies
When determining whether the reason for dismissal is valid, the court or tribunal will consider all relevant circumstances. In the event that an employee is found to have been unfairly dismissed, remedies typically include the following:
- Reinstating the employee to his/her former role under the same terms of employment had the employee not been terminated;
- Provided that both parties agree, reengaging the employee in a position under terms of employment comparable to those of the original contract, or in alternative appropriate employment;
- Awarding terminal payments, which refer to any outstanding statutory and contractual entitlements that are owed to the employee and should have been paid upon termination.
If the employer fails to reinstate the employee as per the terms in the court order, they are obligated to provide additional compensation. This sum is in addition to terminal payments and other compensation already owed. It is calculated as three times the employee’s average monthly wages, subject to a maximum of HKD 72,500.
Furthermore, if an employee is terminated on a prohibited ground (as listed in the previous section), the employer may be ordered to pay a sum of up to HKD 150,000. This is on top of any outstanding terminal payments owed to the employee.
How CW can help
We prioritise safeguarding your company’s interests and reputation by handling employee terminations on your behalf with utmost professionalism and sensitivity. Drawing on our vast knowledge of local employment regulations and best practices, we adopt a comprehensive and holistic approach to ensuring that your company fulfils all its legal obligations and meets the various statutory requirements. By engaging our expertise, you can mitigate the risk of non-compliance and costly legal disputes that may arise from wrongful dismissals.
Contact us to find out how we can help.
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