The Situation
Given the absence in Hong Kong of an “unfair dismissal” regime similar to that which exists, for example, in the UK and Australia, the termination of an employment contract in Hong Kong is considered by many to be relatively straightforward. Despite this, Hong Kong employers should be mindful of the laws which govern dismissals, so as to avoid liability for unreasonable or unlawful terminations.
Subject to certain exceptions, under the Employment Ordinance (EO) by Labour Department both employers and employees may terminate their employment relationship by providing the other with requisite notice of the termination, or by making a payment in lieu of such notice (calculated by reference to the employee’s average salary). The EO stipulates the minimum length of notice for various types of employment contract, but parties are free to agree on longer notice periods.
Any decision taken by an employer to dismiss an employee should be based on one of the five very broad reasons cited in the EO, which include the employee’s conduct, capability or qualifications, or any other reason of substance. In certain circumstances – including where an employee has wilfully disobeyed a lawful and reasonable order, engaged in misconduct, is guilty of fraud or dishonesty, or has been habitually neglectful in their duties – an employer may summarily dismiss an employee without providing notice or payment in lieu of notice.
The Dangers
Summary dismissal is a serious disciplinary outcome and employers considering this option should exercise extreme caution. This point was illustrated by a recent Hong Kong case in which an employer that was found to have wrongfully summarily dismissed an employee was required to pay damages of US$2 million to the employee. The court made this order because, among other things, it found that the employer had breached its duties of good faith and confidence towards the employee in question.
This case demonstrates the importance of affording employees procedural fairness in the processes leading up to a dismissal taking place. Accordingly, prudent employers should ensure that before any decision to dismiss summarily is made, a thorough investigation is carried out in respect of an employee’s alleged misconduct, a detailed paper trail in respect of any investigation is maintained, and the employee is provided with the opportunity to explain his or her position.
Certain categories of employees are protected from dismissal under Hong Kong law. Generally speaking, employers may not dismiss any employee who has served notice of pregnancy or is on statutory maternity leave; is on paid sick leave; or is suffering from a work-related illness or injury and is in receipt of employees’ compensation under the Employees’ Compensation Ordinance.
Employers are also prohibited from terminating the employment of an employee by reason of the employee giving evidence or information in any proceedings or inquiry in connection with the enforcement of labour legislation, industrial accidents or breach of work safety regulations; for trade union membership and activities; or jury service.
Furthermore, employers should ensure that any termination decision does not contravene Hong Kong discrimination legislation, and accordingly must not dismiss an employee on the grounds of that employee’s sex, marital status, pregnancy, family status, disability or race.
The Payouts
Upon termination of employment, employers should be mindful that an employee will be entitled to be paid for certain accrued, but unused, contractual entitlements. These include any accrued wages, annual leave, holiday pay and end-of-year payments. In addition, qualifying employees may be entitled to receive either a severance payment or a long-service payment. To be eligible for a severance payment, an employee must have completed at least 24 months of continuous employment and have been dismissed by reason of redundancy or lay off. Those employees who are not entitled to a severance payment, but who have completed at least five years’ continuous employment, may be eligible for a long-service payment.
Employees may bring a claim in the Hong Kong Labour Tribunal on the basis that they have been dismissed other than for one of the valid reasons set out in the EO. Remedies for such a claim include an order for reinstatement or re-engagement, or an award for “terminal” payments – essentially any unpaid statutory and contractual entitlements which the employer should have paid to the employee on termination. If the dismissal is also found to be unlawful, compensation of up to HK$150,000 may be awarded instead of, or in addition to, the terminal payments.
From an employer’s perspective, the consequences of a wrong dismissal decision can prove to be both expensive and time-consuming. It is therefore always prudent to seek legal advice before taking any action to terminate an employee’s contract of employment.
Herbert Smith Freehills has 2,800 lawyers and 460 partners in over 20 offices globally. It advises on dispute resolution and employment, among other areas. Gareth Thomas is head of the Hong Kong commercial litigation team and responsible for the Greater China employment practice. Helen Beech is a senior member of the Hong Kong employment practice and has a wide range of experience in employment matters.
The information contained in this article should not be relied on as legal advice and should not be regarded as a substitute for detailed advice in individual cases. If advice concerning individual problems or other expert assistance is required, the service of a competent professional adviser should be sought.
