Guide to Employee Termination in Hong Kong

Employment termination follows specific regulations and practices that aim to protect both employers and employees. An employment contract can be terminated in two ways:

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Katrina Huang

Manager, Human Resources

• Termination by notice or
• Immediate termination.

Immediate termination

The employer may terminate the contract without notice in case o

• Willful disobedience of a lawful and reasonable order;
• Misconduct;
• Fraud or dishonesty; or
• Habitual neglect of duties.

No notice is required during the first month of a probation period – if one is agreed upon. The employee may terminate the contract without notice for:

• Reasonable fear of physical danger by violence or disease;
• Ill-treatment by the employer; or
• Becoming permanently unfit for the type of work engaged in, as judged by a medical practitioner.

Termination by notice or payment in place of notice

Either side may terminate an employment contract by giving the other party notice or by providing payment in place of notice. The default time to give notice is seven days during probation and one month after. Parties may contractually agree upon shorter notice but at least seven days. If termination happens in the first month of the probation period, then neither notice nor payment is required.

The calculation for the payment in place of notice involves taking the employee's average daily wages or monthly wages (depending on whether the notice period is expressed in days, weeks, or months) earned in the 12 months preceding the day when the notice of termination is given, or the day when the contract is terminated if no notice has been given.

The employer or employee may terminate an employment contract by giving the other party due notice or payment in place of notice. In the case of a continuous contract of employment, the length of notice or the amount of payment in place of notice required are:

Employers should note that immediate or summary dismissal is a serious disciplinary action. It only applies to cases where an employee has committed serious misconduct or fails to improve after the employer's repeated warnings. An employer may only summarily dismiss an employee without notice or payment in place of notice if the employee, concerning their employment:

• Deliberately disobeys a lawful and reasonable order;
• Misconducts themselves;
• Is guilty of fraud or dishonesty or
• They are habitually neglectful in their duties.

Termination prohibition

In five cases, an employee cannot be terminated:

• An employee who is confirmed to be pregnant and has submitted a pregnancy notice;
• An employee on paid sick leave;
• For reasons of giving evidence or information related to court proceedings or an inquiry related to the enforcement of employment laws;
• For trade union membership or activities; or
• An employee injured at work without having first come to an agreement on compensation or before the issue of a certificate of assessment.

Termination payments

The items and amount of payments payable to an employee on termination of employment or expiry of the contract depend on several factors, such as the length of service, the terms of the employment contract, and the reason for termination of a contract. Termination payments usually include:

• Outstanding wages;
• Wages in lieu of notice, if applicable;
• Payment in lieu of untaken leave;
• Any outstanding sum of end-of-year  payment, and pro rata end-of-year payment for the current payment period;
• Where appropriate, severance payment or long service payment; and
• Other payments under the employment contract, such as gratuity, provident fund, etc.

Severance payment

An employee who has worked with a company for at least 24 months under a continuous contract is eligible for a severance payment. A severance payment is payable if the employee is dismissed because of redundancy, the contract is not renewed, or the employee is otherwise laid off.

Redundancy means that the employer closes or intends to close the business, has ceased or intends to cease to do business in that area, or the type of work the employee is involved in is expected to diminish or cease.

Layoff is a specific term that applies when the employee is hired under terms where remuneration depends on particular tasks that the employer provides. If during half of the total number of working days, in any consecutive four weeks, no work has been provided, this is a layoff. It is also a layoff if work has not been provided in one-third of any 26 consecutive weeks.

The severance payment should be calculated according to the following formula:

Service of an incomplete year should be calculated on a pro-rata basis. Any gratuity or employer’s contribution and interests/dividends in Provident Fund (PF) / MPF Schemes can be set off from the total amount of Severance Payment.

The total entitlement is subject to a maximum payment of HK$390,000 (US$49,908). Severance Payment shall be paid to the employee as soon as practicable and not later than two months after receiving a notice of claim made by the employee.

Long service payment

Employees who have been employed under a continuous contract for not less than five years are entitled to long service payment if:

• The employee is terminated for reasons other than serious misconduct or redundancy;
• The contract expires and is not renewed*;
• The employee dies (money goes to spouse, children, or parents);
• The employee has been issued a certificate in a specified form by a registered medical practitioner or a registered Chinese medicine practitioner, certifying that the employee is permanently unfit for the present job and resigns; or
• The employee is aged above 65 and resigns on grounds of old age.

The amount of any contractual gratuity based on length of service is deductible from the amount of extended service entitlement.

In addition, part of a retirement scheme payment, which is due to the employer’s contributions, may be deducted from the amount of long service payment. Long Service Payment shall also be paid by the employers to the employee as soon as possible but, in any case, not later than seven days after the day of termination.