Practical Guide: Termination of employment contracts Hong Kong

The concept of “Employment at will” is not recognized in Hong Kong. An employment contract must be terminated in accordance with contractual terms and in accordance with statutory provisions contained in the Employment Ordinance (Cap. 57). Unless the situation warrants summary dismissal, the employer or the employee must give notice or payment in lieu of notice to terminate a continuous employment contract. As long as the notice period is not less than the statutory minimum (seven days during the probationary period after the first month of employment and one month thereafter), the employment contract can contain any length of notice period.

Upon the required notice or payment in lieu of notice being given, an employment contract is lawfully terminated irrespective of the reason or, lack of, for dismissing the employee unless:

• the reason is a prohibited reason under the Employment Ordinance (Cap. 57) or an employment-related legislation (for instance, the employee is terminated because they are a member of a trade union); or
• the termination is based on prohibited grounds (gender, race, pregnancy, marital status, family status and disability) under the Sex Discrimination Ordinance (Cap. 480), the Disability Discrimination Ordinance (Cap. 487), the Family Status Discrimination Ordinance (Cap. 527) or the Race Discrimination Ordinance (Cap. 602); or
• the employee has been employed under a continuous contract (that is, the employee worked for the same employer for at least 18 hours per week for a continuous period of four weeks or more) for more than two years.

If an employee has been employed continuously for more than two years, the employer must have a valid reason to terminate their employment. Pursuant to section 32K of the Employment Ordinance (Cap. 57), the five valid reasons for termination are:

• the employee’s conduct;
• the employee’s capabilities and qualifications in relation to the type of work they were employed to perform;
• the redundancy of the employee or other genuine operational requirements of the business of the employer;
• in case the continuation of the employment contract without variation would result in either or both of the employee and employer breaching the law; and
• any other reason of substance, which, as determined by the Hong Kong courts or the Labour Tribunal, is sufficient to cause to warrant the dismissal of the employee or the variation of the terms of the employment contract.

However, even where an employee has been employed continuously for more than two years, there is no statutory requirement to inform the employee of the reason for their dismissal at the time of termination.

If there is a general concept of “dismissal protection”, is it limited to certain requirements (e.g. size of company/workplace, length of service?)

As set out in question #1 above, an employee who has been employed continuously for more than two years can only be dismissed with a valid reason. However, there are cases where termination is prohibited:

• the employee is pregnant or is on statutory maternity leave;
• the employee is on statutory sick leave;
• the employee has suffered an injury at work and workers compensation under the Employees Compensation Ordinance (Cap. 282) is pending;
• the employee is terminated because they have made a complaint or given evidence in relation to the enforcement of the Employment Ordinance (Cap.57), a breach of any statutory duty regarding safety at work, a workplace accident or unlawful discrimination, harassment or vilification;
• the employee is terminated because they are a member or officer of a trade union or they engaged in any trade union activity such as a strike;
• the employee is terminated because they have done or are required to do jury service; and the employee is terminated on the grounds of gender, marital status, pregnancy, family status, race or disability.

In addition, if an employee has been employed under a continuous contract, they may be entitled to certain benefits upon termination under the Employment Ordinance (Cap. 57).

Severance payment is payable to an employee who has been employed continuously for no less than two years and is terminated by reason of redundancy, that is:

• the employer ceased or intends to cease to carry on the business in which the employee was employer;
• the employer has ceased or intends to cease to carry on the business in the place where the employee was employed; or
• the requirements of the business for employees to carry out work of a particular kind, generally or in the place where the employee was employed, ceased or diminished or are expected to cease or diminish.

The employee will be presumed to have been terminated by reason of redundancy unless the contrary is proved.

Long service payment is payable to an employee who has been employed continuously for no less than five years and:

• the employee is dismissed with notice or payment in lieu of notice and is not entitled to a severance payment;
• the employee terminates their employment as a result of having been certified by a medical practitioner as having become permanently unfit for the role for which they were employed; or
• the employee retires after having reached 65 years of age.

An employee dismissed by their employer will not be entitled to a long service payment in case of summary dismissal, resignation prior to the expiry of the notice period given by the employer and unreasonable refusal of an offer of renewal or re-engagement on terms no less favourable than under the previous contract.

The same formula applies to the calculation of both severance payment and long service payment. The amount is calculated by multiplying two-thirds of the employee’s last month’s wages (or two-thirds of HK$22,500, whichever is less) by the number of years of continuous service, capped at HK$390,000. The employer is entitled to set off the mandatory provident fund (MPF) contributions it has made against the severance payment or long service payment (as the case may be).

If a termination is deemed to be invalid, is “reinstatement (including backpay)” or “payment of damages and/or a severance payment” the general remedy?

In case of wrongful termination (termination by either party without giving the required notice or payment in lieu of notice, summary dismissal or constructive dismissal without sufficient grounds), the employee’s right to compensation is generally limited to a sum equal to what would have been payable to the employee if the employment had been terminated by making a payment in lieu of notice.

Termination will amount to unreasonable dismissal in the following circumstances:

• the employee is dismissed because the employer intends to extinguish or reduce any right or benefit conferred by the Employment Ordinance (Cap. 57);
• the employer unilaterally varies the terms of the employment contract because the employer intends to extinguish or reduce any right or benefit conferred by the Employment Ordinance (Cap. 57); or
• the employer terminated the employee other than for a valid reason and in contravention of one of the prohibited circumstances for termination referred to in question #2 above.

In case of unreasonable dismissal, the employee is entitled to three remedies:

• an order for reinstatement requiring the employer to restore the employee to their previous position under the same terms and conditions of employment and to treat the employee as if they had not been dismissed, if both the employer and the employee agree to the reinstatement and the tribunal considers the order is appropriate and reasonably practicable for the employer;
• an order for re-engagement requiring the employer, its successor or an associated company to re-employ the employee in a position on terms comparable to their original employment contract or in other suitable employment, if both the employer and the employee agree to the re-engagement and the tribunal considers the order is appropriate and reasonably practicable for the employer;
• if neither an order of reinstatement or re-engagement is agreed upon by both parties and ordered by the judge, the court may make an award of termination payments by the employer to the employee. The award will only represent the statutory and contractual payments to which the employee was entitled upon termination (including but limited to outstanding wages, payment in lieu of notice, end of year payment, maternity leave pay, paternity leave pay, severance payment, long service payment, payment in lieu of any untaken annual leave, etc.).

If “payment of damages” is the general concept, what is the basis of its calculation/ the maximum amount the employee may receive?

The measure of damages for wrongful dismissal is generally limited to the amount of wages and benefits that the employee would have received for the period until the contract of employment could have been terminated validly less the amount that they could reasonably be expected to earn in other employment.

In case the employee has been unlawfully dismissed by the employer, the employee may be entitled to additional compensation in the following circumstances:

• in case an employer contravenes the prohibition to terminate a female employee who has served notice of her pregnancy, the employer is liable to pay statutory compensation amounting to a sum equivalent to a payment in lieu of notice, an additional one month’s wages and the amount of statutory maternity leave pay which the employee would have been entitled to if she had not been dismissed;
• in case an employer contravenes the prohibition to terminate an employee while on statutory sick leave, the employer is liable to pay a statutory compensation amounting to a sum equivalent to a payment in lieu of notice, an additional seven days’ wages and the amount the statutory sickness allowance which the employee would have been entitled to if they had not been dismissed; and
• in case an employer contravenes the prohibition to terminate an employee because they have made a complaint or given evidence in relation to the enforcement of the Employment Ordinance (Cap. 57), a breach of any statutory duty regarding safety at work, a workplace accident or unlawful discrimination, harassment or vilification, the employer may be ordered by the court to pay compensation to the employee, the amount of which is left to discretion of the court or magistrate as they consider appropriate having regard to the circumstances of the case.

Finally, if the unreasonable dismissal is also unlawful in contravention of the provisions of the Employment Ordinance (Cap. 57) or the the Employees Compensation Ordinance (Cap. 282), the Labour Tribunal may make a compensation award pursuant to Section 32P of the Employment Ordinance (Cap. 57). The Labour Tribunal may make a compensation award as it considers just and appropriate taking into consideration the circumstances of the claim such as the length of service, the circumstances of the parties, the manner in which the termination took place, any loss sustained by the employee as a result of the dismissal, the possibility of the employee obtaining new employment, any contributory fault on the part of the employee and any statutory termination payments that the employee is entitled to receive. The amount of the award may not exceed an amount of HK$150,000. However, in practice, the compensation award is seldom granted.

May the right to terminate in some cases forfeit (e.g. right to terminate forthwith) if not executed timely? If so, what is the respective timeframe?

In Hong Kong, an employee may terminate their employment contract without notice or payment in lieu in circumstances where the employer’s conduct amounts to a repudiation or fundamental breach going to the root of the contract or shows an intention no longer to be bound by one or more of the essential terms of the employment contract. If the employee resigns in these circumstances, the dismissal is referred to as constructive dismissal. In case where circumstances amounting to constructive dismissal arise, the employee must resign soon after the conduct complained of, otherwise they will lose their right to treat themselves as dismissed and will be regarded as having elected to affirm the employment contract (Western Excavating (ECC) Ltd vs Sharp [1978] QB 761)

Reciprocally, an employer is entitled to dismiss an employee summarily (without notice or payment in lieu) in case the employee has committed a fundamental breach of the employment contract. However, an employer shall not allow the employee’s conduct complained of to continue for too long prior to summary dismissal, or the toleration may amount to affirmation of the employment contract. In this case, the employer’s right to summarily dismiss the employee may forfeit.

Has a termination to be delivered in writing or may the delivery of an oral/email/facsimile termination without an original signature be sufficient as well?

There is no requirement to deliver the termination in writing. Written and oral notices are both allowed by the Employment Ordinance (Cap. 57). However, in practice, it is recommended to deliver the notice of termination of employment in writing (by email, by hand and/or by registered mail) so that the employer has evidence in case of dispute.

May a termination be successfully rejected due to the lack of a formal proxy of the managing director or may internal authorization generally be sufficient?

Hong Kong adopts a unitary board structure, meaning that the powers of the directors are vested in the board collectively. However, the board may delegate its powers and allow an individual director or an employee to terminate an employee.

However, termination cannot be successfully rejected due to the lack of a formal proxy of the managing director. The managing director may dismiss employees if they act within the scope of their job description and authority to terminate an employee. In Hilton International Hotels (UK) Ltd v Protopapa [1990] IRLR 316, M, the judges have considered that the test of general liability of an employer for its employee’s actions shall apply in these circumstances and that an employee’s termination by another employee within the scope of their duties is considered valid.

Is there any general formal procedure with regard to the employee (e.g. obligatory meeting with the employee) before a valid termination may be issued?

Other than the requirement to give the relevant statutory or contractual notice period or payment in lieu of notice, there is no particular statutory procedure that must be observed to terminate an employee lawfully. In practice, the employer will usually organise a meeting with the employee. In case disciplinary procedures or policies are stated in the employment contract or in the employee handbook, they constitute contractually binding provisions that shall be complied with by the employer. Also, recent case law has highlighted the importance of ensuring that the employee is afforded procedural fairness in the termination process in case of dismissal for misconduct or for unsatisfactory performance.

All termination payments must be made within seven days after the date of termination. In addition, when a severance payment or long service payment is payable, the employer must provide a written statement to the employee indicating how the payment has been calculated.

Is there any statutory body that needs to be dealt with before a valid termination may be issued? If so, what is the usual timeframe?

There is no requirement to consult a statutory body before a valid termination may be issued. However, the employer must notify the Inland Revenue Department of the termination either one month before the date of termination or as soon as possible thereafter. In addition, a notification of the termination must be sent to the trustee of the mandatory provident scheme or retirement scheme in which the employee is enrolled.

If an employee’s working visa is sponsored by the employer, the employer must notify the Immigration Department of the dismissal. There is no statutory deadline but it is advised to notify the Immigration Department as soon as possible.

Is there -usually- an employee representative body that needs to be dealt with before a termination may be issued? If so, what is the usual timeframe?

There is no statutory requirement to consult or notify an employee representative body before a termination is issued.

The law in this respect is complex. The information provided in this article does not, and is not intended to, constitute legal advice and should not be relied upon as such.

For professional legal advice, please do not hesitate to contact us.