Hong Kong has traditionally been known as a relatively “employer-friendly” regime. Unless the employee is a protected employee (e.g. is pregnant or on paid sick leave) it is currently relatively easy for an employer to dismiss an employee without cause and without having to pay a significant amount of compensation to that employee.

The Legislative Counsel has recently proposed two significant changes to employment law in Hong Kong which, if passed, are likely to lead to increased difficulties and costs for employers here.

The first of these proposed changes is an amendment to the remedies available to an employee who has been unreasonably dismissed by his/her employer. Under the existing provisions, if an employee is found by the Labour Tribunal to have been unreasonably dismissed (i.e. dismissed without a valid reason such as misconduct, incapability, or redundancy) the Labour Tribunal may either make an order for terminal payments (which are the statutory payments that an employee is entitled to upon termination which will have usually already been paid to the employee) or make an order for reinstatement/re-engagement but only if the employer consents. This means that an employee, particularly one who has already been paid his/her terminal payments, has very little incentive to bring this type of claim, because the only remedy remaining available to him or her is an order for reinstatement/re-engagement which the employer can refuse without consequence.

The proposed change envisages that, in a situation where the Labour Tribunal considers that reinstatement/re-engagement of the employee is appropriate, it will be able to make a compulsory order for reinstatement/re-engagement without securing the consent of the employer. In the event of non-compliance with the order, the employer will be ordered to pay a further sum of three times the employee’s monthly wages, capped at HK$50,000.

It will thus make it more difficult for employers to dismiss an employee without having a recognised good reason. In consequence, employers would be more likely to seek to construct in advance a “fair” reason for dismissal (e.g. by compiling a record of unsatisfactory performance) or accept the practical need to pay the employee up to HK$50,000 in exchange for a waiver of claims.

The second change currently being debated (as part of the wider debate relating to the overhaul of the Mandatory Provident Fund scheme) is to abolish the employers’ right to off-set MPF contributions made by the employer against severance or long-service payments due to some departing employees. The current position is that, when an employer makes either a severance or long-service payments, it has the right to off-set the amount of such severance/long-service payment by the amount it has contributed throughout the employee’s employment to that employee’s MPF fund. This can be done by either reducing the amount of the severance/long-service payment by the amount of employer MPF contribution or by paying the full amount of the severance/long-service payment and then applying to the MPF provider for reimbursement of the employer’s contributions from the employee’s MPF fund. This invariably means that employees often walk away with little or no severance/long-service payment despite years of service.

The change currently being debated would mean that this off-set mechanism would be abolished and employees would be entitled to receive their full severance/long-service entitlement as well as their MPF fund in full. The maximum amount to which an employee can currently be entitled in respect of his/her severance/long-service payment is HK$390,000, so the proposed change could significantly increase the cost of terminating a long-serving employee’s contract.

It is not clear yet if these proposed changes will become law and, if so, when, but clearly these proposed changes could be significant for employers.