Discontinuing employmenti Dismissal
The usual events by which a contract of employment may be terminated include:
- termination by one party by giving contractual notice to the other;
- termination by one party making a payment in lieu of notice to the other; and
- termination by the employer by summary dismissal (i.e., for cause).
The EO lays down minimum periods of notice that must be given to terminate the contract. Usually, the period of notice in the contract of employment will be longer than that prescribed by the legislation, in which case the longer period must be used. Subject to this, the minimum statutory notice period for a continuous contract (including in a redundancy situation) is seven days.
Hong Kong law does not recognise the concept of termination at will.iii Termination by one party making a payment in lieu of notice to the other
The EO permits an employer to make a payment in lieu of notice to an employee (including in a redundancy situation) and this can be given either at the time that the notice is given, or at any time during the period of notice. This is a mutual provision (but available only to the party who gave the notice), so the employee may also use it to bring his or her employment to an early end. A new employer might also 'buy out' the employee from the previous employer.
Assuming that the termination of the employment contract by a payment in lieu of notice is made in accordance with its terms, the employee will be entitled to receive contractual pay and benefits (with some exceptions) that he or she would have received had he or she instead served out the full period of notice of termination, and any other payments to which he or she may be entitled under the contract.iv Termination by the employer by summary dismissal (i.e., for cause)
This type of termination permits the employer to dismiss the employee immediately and with no further entitlement to pay or benefits. In a well-drafted contract, the grounds of termination would be clearly laid out. In the absence of express grounds of termination, the EO provides for a number of grounds for summary dismissal including any ground available at common law.
In the case of senior employees, it is not unusual for the employer and employee to enter into a settlement agreement where, given the seniority of the employee, the employer may want to manage termination of the relationship in a more discreet way.v Redundancies
An employee whose contract is terminated, whether by notice or unlawfully, and who satisfies the eligibility requirements, may be entitled to receive either a statutory severance payment or long-service payment. Entitlement to one form of payment will exclude entitlement to the other.
An employee will be entitled to a long-service payment in several situations, including if he or she is dismissed, has been in continuous employment with the employer for not less than five years and the employer is not liable to pay a severance payment. The amount of the payment is calculated on the same basis as the severance payment.
An employee will be entitled to a severance payment if he or she has been employed under a continuous contract for a minimum of 24 months and is dismissed by reason of redundancy or is laid off. There is no requirement to notify any government department other than the IRD, and no requirement to notify any trade union, unless the employer is bound by an agreement with the union to do so.
Except for the requirement that the employee must be given a statement of the calculation of the severance payment, termination of an employee for redundancy would follow the same procedure for termination as in a non-redundancy situation.
The amount of a severance payment (and long-service payment) payable to the employee is calculated by reference to his or her number of years of service (pro rata for any part year) and the last full month's wages. For each year of service, the employee will be entitled to receive either two-thirds of his or her last full month's wages or two-thirds of HK$22,500, whichever is less. This sets a ceiling of HK$15,000 on the monthly amount. This amount has not changed for many years and, consequently, has fallen well behind overall wage levels when compared with those prevailing when it was set. After a statutory payment has been made to an employee, an employer is entitled to claw back the amount of that payment from the employer's mandatory contributions to the employee's MPF account, thereby in all likelihood setting off in full (or close to it) the statutory payment made to the employee (however, see Section II.vi).vi Notifications to government departments
An employer who wishes to cease to employ a person in Hong Kong must notify the IRD at least one month before the date of cessation. The IRD will accept shorter notice where reasonable, such as in a summary dismissal situation.
Additionally, if an employee is about to leave Hong Kong for more than a month, the employer must also notify the IRD at least one month before he or she actually leaves. This requirement does not apply to an employee whose job requires him or her to leave Hong Kong at frequent intervals.
An employer whose employment relationship with an employee holding a work visa has been terminated must inform the Immigration Department as soon as possible.