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Hong Kong – The View From Our Offices: Dismissal.

26 June, 2015


What Is The Minimum Notice Required To Terminate Employment?

 

The employment relationship can be terminated by either party giving notice in writing or orally, or by either party making a payment to the other in lieu of the requisite period of notice. The amount payable in lieu of notice must be equal to the wages that would have accrued during the notice period.

 

The parties can agree the length of notice in the employment contract, provided that it is longer than the following minimum periods:

 

  • Within the first month of the probationary period, either party can terminate the employment relationship without giving any notice, or pay in lieu of notice;
  • After completion of the probationary period, either party can terminate the employment relationship by giving the notice period as set out in the employment contract, provided that this is not less than seven days.

 

If there is no agreed period of notice in the employment contract, then either party must generally give one month’s notice to terminate the employment relationship.

 

On termination, an employee is usually entitled to certain termination payments depending on the length of service, the terms of employment contract and the reasons for the termination. These may include: outstanding wages, holiday pay, end of year payment, a severance payment and/or a long service payment. Termination payments should be made as soon as practicable, in any case, not later than seven days after the termination of employment.

 

Is Dismissal Without Notice Possible, And If Yes, On What Grounds?

 

Both the employer and employee can effectively ‘buy out’ the notice period by making a payment to the other of the wages that would have accrued during the notice period.

 

In addition, an employer may dismiss an employee summarily without providing notice or pay in lieu of notice when an employee:

 

  • Wilfully disobeys a lawful and reasonable order;
  • Is engaged in misconduct;
  • Is guilty of fraud or dishonesty; or
  • Is habitually neglectful in his/her duties.

 

However, the following types of employees are protected and cannot be dismissed until they are no longer subject to the particular circumstances described below:

 

  • Pregnant employees who have served notice of pregnancy;
  • Employees on paid sick leave;
  • Employees giving evidence or information in proceeding in connection with the enforcement of employment legislation or breach of work safety regulations;
  • Members of trade unions or those taking part in related activities; and
  • Employees suffering from work-related illness before the appropriate claim has been resolved.

 

What Are The Remedies For Dismissal In Breach Of Contract (“Wrongful Dismissal”)?

 

If an employer fails to give adequate notice of termination or adequate payment in lieu of notice, then an employee who has been continuously employed by the employer for two consecutive years has the right to make a claim to the Labour Tribunal for ‘unreasonable dismissal’. The remedies are, however, limited. The Labour Tribunal can only make an order for re-instatement or re-engagement if both parties agree. Failing mutual agreement, the sanction would be damages but such damages are, in effect, the unpaid statutory and contractual entitlements which the employer should have paid on termination.

 

 

What Are Considered “Fair” Grounds For Dismissal?

 

Any employee who has been continuously employed by the employer for two consecutive years has the right to make a claim to the Labour Tribunal for ‘unreasonable dismissal’ if he/she is dismissed or his/her contract is varied without his/her consent.

 

Once that claim has been made, the employer must produce a valid reason for dismissal (or the contract variation). The ‘fair’ reasons are:

 

  • The employee’s conduct;
  • The employee’s capabilities or qualifications;
  • Redundancy; and
  • Any other reason of substance.

 

What Minimum Dismissal Process Must Be Followed?

 

Apart from the requirement to give notice or payment in lieu, and a written statement of the employee’s severance payment or long service award, there are no formal dismissal procedures to be followed.

 

There is no requirement to give written reasons for dismissal but a valid or fair reason may be required to be established if unless the employee brings a claim for ‘unreasonable dismissal’.

 

That said, summary dismissal is a serious disciplinary action. Before summarily dismissing an employee without notice or payment in lieu of notice, an employer should carry out a thorough investigation in respect of the employee’s alleged misconduct in order to avoid any legal ramifications.

 

Where appropriate, the employer may wish to inform the Inland Revenue Department and/or the Immigration Department as to the dismissal of a particular employee.

 

What Are The Remedies For “Unfair Dismissal” (Or Its Equivalent?)

 

The remedies for ‘unreasonable dismissal’ are limited. The Labour Tribunal can only make an order for re-instatement or re-engagement if both parties agree.

 

Failing mutual agreement, the sanction would be damages but such damages are, in effect, the unpaid statutory or contractual entitlements that the employer should have paid on termination.

 

On termination, an employee is usually entitled to certain termination payments depending on the length of service, the terms of employment contract and the reasons for the termination. These termination payments usually include:

 

  • Accrued but outstanding wages;
  • If applicable, wages in lieu of notice;
  • A payment in respect of accrued untaken annual leave and pro-rated accrued annual leave (if any);
  • End of year payment if the employee is contractually entitled to such payment;
  • A severance payment is also payable to employees who have completed at least 24 months of continuous employment and have been dismissed by reason of redundancy or lay off. The statutory formula is the employee’s monthly wages (however, any wages above HKD 22,5000 are disregarded) times the period of continuous employment (and there is a maximum cap of HKD 390k).
  • A long service payment is also payable to employees who are dismissed but having completed at least five years of continuous employment with the employer. The calculation is the same as the statutory formula laid down for a severance payment.

 

Termination payments should be made as soon as practicable, in any case, not later than seven days after the termination of employment.

 

Severance payments should be made to the employee no later than two months from the employee claiming for such payment.

 

(Figures stated are accurate as of January 2015.)

 

What Statutory Protection Is There For Employees Against Dismissal Because Of Or Connected To The Sale Of A Business?

 

On the change of ownership of a business, the employees of the seller and their respective employment contracts are not automatically transferred to the buyer of the business.

 

The employment contracts between the seller and the affected employees remain in place, and one of three things will then happen:

 

  • The employees may accept an offer of employment with the buyer;
  • They may choose to resign; or
  • They may be dismissed by the seller on grounds of redundancy.

 

When a change of ownership of business occurs, and a seller’s employee takes the offer of employment from the buyer, the employee’s preceding period of employment with the seller will count as a period of employment with the buyer, hence the continuity of the employee’s employment will not be broken by such changes.

 

If an employee’s employment is automatically terminated on the transfer of a business (i.e. none of the three things listed above occur), the employee is entitled to claim for unreasonable dismissal and may be entitled to a severance payment (but not if the buyer had made a re-employment offer which was unreasonably refused by the employee).

 

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For further information, please contact:

 

Jezamine Fewins, Partner, Stephenson Harwood

jezamine.fewins@shlegal.com

 

Chunfai Lui, Partner, Stephenson Harwood

cf.lui@shlegal.com

 

Paul Westover, Partner, Stephenson Harwood

paul.westover@shlegal.com

 

Yeeling Wan, Stephenson Harwood

yeeling.wan@shlegal.com

 

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