An employer or employee can end their employment relationship in Hong Kong by terminating the employment contract. Employment termination must be carried out according to the terms and conditions specified in the employment contract.

This guide provides an overview of the basic rules and regulations governing employee termination in Hong Kong.

Hong Kong Employment Ordinance

The Employment Ordinance of Hong Kong is the major labor legislation governing termination of employment. Every employment contract must contain a clause on termination that clearly specifies both employers and employees rights, duties and responsibilities on termination of employment.

To whom does the Employment Ordinance Apply?

The Employment Ordinance’s stipulation regarding employment contract termination applies to employees who are protected under the Ordinance. Note that the Employment Ordinance covers all employees whether temporary or part-time, except:

• A family member who lives in the same dwelling as the employer;
• An employee who serves under a crew agreement or on board a non-Hong Kong-registered ship;
• An employee who is covered by the Contracts for Employment Outside Hong Kong Ordinance; and
• An apprentice.

Employment termination guidelines for employees excluded by the Employment Ordinance should be drafted according to the employing company’s policy. The common practice in Hong Kong is to draft the guidelines for excluded employees as well in accordance with the Employment Ordinance’s stipulations.

Who Can Terminate An Employment Contract?

In Hong Kong, the Employment Ordinance allows either party i.e. the employer or employee to terminate the employment contract at any time, by giving notice or wages in lieu of notice. However, there are certain special circumstances under which the employment contract can be terminated without giving any notice or any wages in lieu of notice. In certain cases, employment contracts come to a natural termination and notice periods are not applicable.

The table below illustrates the circumstances under which a contract can be terminated.

Termination by Employers

Unsatisfactory probation

Some organizations appoint employees on an initial probationary period of six months. These employees are later appointed as permanent staff upon successful completion of the probation. However, the employer is entitled to terminate the employment before the probationary period ends, by providing notice or paying wages in lieu of notice.

Employee summary dismissal

An employer may choose to terminate the employment contract without giving notice to the employee nor paying wages in lieu of notice, if the employee is dismissed summarily on the grounds of willful disobedience, serious misconduct, fraud, dishonesty, or habitual negligence.

Employee dismissal due to redundancy or employee lay-off

• An employer can terminate an employment contract by dismissing an employee on the grounds of redundancy. Normally, an employee becomes redundant under the following circumstances: The employer closes or intends to close the business; the employer relocates the business operations; or when the business requirements for employees to carry out a particular type of work no longer exists.
• An employee is considered laid-off if he is not provided with work or is not paid for:
  • More than half of the total number of normal working days in any four consecutive weeks; or
  • More than one-third of the total number of working days in any 26 consecutive weeks.
• An employee who has been employed under a continuous contract for 24 months or more and is dismissed due to redundancy or lay-off is entitled to a severance payment.
• Under the Employment Ordinance, the amount of severance payment is two-thirds of the employee’s last month’s wages or two-thirds of HK$22,500, whichever is lower, multiplied by the total number of years of service. The current maximum severance payment payable is HK$390,000.
• Mandatory Provident Fund (MPF) scheme benefits, retirement scheme benefits and gratuities that are due to the employee, based on the employee’s length of service, can be used to offset the severance payment.
• Severance payments that are paid in accordance with the provisions of the Employment Ordinance are not tax assessable and neither the employer nor the employee is required to report this payment in their tax returns. However, it is mandatory for the employer and employee to report payment that is in excess of the Employment Ordinance’s stipulated statutory entitlement.

Termination by Employees

Resignation

An employment contract is terminated when an employee resigns from the company. An employee can resign by giving notice or by paying wages in lieu of notice. The notice period to be served should be as per the contractual terms. In the absence of such terms, the Employment Ordinance’s stipulations will apply. There are certain circumstances under which the employee can terminate the contract without giving notice or paying wages in lieu notice such as on medical grounds.

Poor treatment by employer

An employee can terminate the employment contract on the grounds of poor treatment by the employer. The employee is entitled to terminate the contract without giving notice to the employer nor paying wages in lieu of notice.

Natural Termination

Expiry of fixed term contract

A contract is automatically terminated on expiry of contractual terms. In such cases, there is no notice period to be served as the contractual terms have ended.

Death of either party

An employment contract is automatically terminated on an employee’s demise. An employer’s death will lead to contract termination, if he was the sole-employer.

Employment Termination Guidelines

Statutory restrictions on employment contract termination

Under the Employment Ordinance, employers cannot terminate the employment contract of their employees under the following circumstances:

• Employees on maternity leave: Employers cannot terminate employees who are confirmed pregnant and are on maternity leave.
• Employees on paid sick leave: An employer cannot dismiss an employee while (s)he is on sick leave.
• Employees helping authorities on an inquiry: An employer cannot terminate the contract of an employee solely based on the employee’s participation in any legal proceeding or inquiry in connection with the enforcement of labor legislations, industrial accidents or breach of work safety regulations.
• Employee’s trade union membership: Employers are prohibited from dismissing employees due to their trade union membership and related activities.
• Employee injured at work: An employer cannot dismiss an injured employee unless the compensation claim has been settled with the employee or unless a relevant certificate of assessment has been issued by the Labor Department.

Termination with notice period

• Either party, without the need to give a notice period, can terminate the employment contract during the first month of probation at any time.
• The employer or employee, who intends to terminate the contract, after the first month of probation, must give at least seven-day’s notice to the other party in writing.
• The notice period to be given for permanent employees who have completed probation must be as per contractual terms agreed upon at the time of employment, but not less than seven days. In the absence of notice period being previously agreed upon, the notice period should not be less than one month.
• The notice period can be waived upon mutual agreement between both parties.
• Employees who have fully served the required notice period are entitled to Mandatory Provident Fund (MPF) contributions for the notice period salary that they receive.

Termination by paying wages in lieu of notice

• Payment in lieu of notice is usually done when either party wishes to terminate the contract without giving any notice.
• Either party can terminate the employment contract during the first month of probation at any time without giving wages in lieu of notice.
• After the first month of probation, the wages in lieu of notice must not be less than seven days wages.
• The wages in lieu of notice for permanent employees who have completed probation must be as per the previously agreed upon contractual terms, but not less than seven days wages. In the absence of previous agreement, the wages in lieu of notice must not be less than one month’s wages.
• Payment in lieu of notice that is paid in accordance with employment contract terms or the provisions of the Employment Ordinance is not income relating to a service provided by an employee and is thus not taxable.

Termination without providing notice or wages

There are certain circumstances under which an employer or employee can terminate the employment contract without giving notice or paying wages in lieu of notice.

An employer can terminate the employment contract without notice nor payment of wages in lieu of notice if the employee is summarily dismissed on the following grounds:

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

According to Sec 10 of the Employment Ordinance, an employee can terminate the employment contract without notice or payment of wages in lieu of notice on the following grounds:

• The employee reasonably fears physical danger by violence or disease;
• Poor treatment by the employer;
• The employee has been employed for more than 5 years and a registered medical practitioner certifies him or her as being permanently unfit for the type of work (s)he is engaged in.

Annual leave and notice Period

Under Sec 6(2A) of the Employment Ordinance, annual leave cannot be included in the notice period required to terminate an employment contract. However, the Court of Final Appeal’s ruling regarding the employees’ right to use accrued annual leave during the termination notice period in the case Kao, Lee & Yip vs. Lau Wing and Tsui Wai Yu (FACV No.7 of 2008), confirms that employees can use annual leave during the notice period and to also offset the notice period, but employers cannot force the employees to do so. Sec 6(2A) was meant only to protect the employee and it would therefore not apply to cases where the employee decides to use the annual leave either during the notice period or to offset the notice period.

An employee who exercises his right to use annual leave to offset the notice period and brings forward his last day of work, will only be paid until this last day of work. Whereas, an employee who uses his annual leave during the notice period does not bring forward the last day of work, and the employer will pay the salary for the full notice period. Any unused annual leave can be en-cashed by the employee.

Sick leave and notice period

There is no specific provision regarding sick leave taken during notice period in the Employment Ordinance.

Maternity leave and notice period

There is no specific provision regarding the use of maternity leave as notice period in the Employment Ordinance.

Appeals against dismissals

An employee who considers his dismissal to be unfair can file a claim with the Labor Tribunal within three months from the date of dismissal. If the dismissal is proved to be unfair, the Labor Tribunal will order the employer either to reinstate the employee to the original job or to pay the employee a monetary compensation.

Notifications on Termination

• Notifying the Mandatory Provident Fund (MPF) trustee: Employers must send a written notification of the employee’s employment termination date to the Mandatory Provident Fund (MPF) trustee on the 10^th day of the following month after an employee ceases employment.
• Notifying the Inland Revenue Department of Hong Kong: Employers must notify the Inland Revenue Department of the employee’s termination one month before the date of employment termination. Tax clearance is required for employees intending to leave Hong Kong for a period of one month or more, following the cessation of employment. The employer must notify the Inland Revenue Department of the employee’s expected date of departure, at least one month prior to the departure date. The employer must also withhold all payment due to the employee from the date on which the notification was given, for a period of one month or until the IRD does an assessment and confirms that all taxes have been paid by issuing a letter of release , whichever is earlier.
• Notifying the Immigration Department of Hong Kong: Foreign employees on an Employment Visa and their respective employer must send a written notification of employment termination to the Immigration Department prior to the date of termination.