Employee Discipline: Hong Kong Employment Law

Hong Kong employment laws establish a light-touch framework for employee discipline, providing employers with a wide degree of flexibility as to what procedures to follow. In this article, we discuss what employers and employees need to know if there is any allegation of employee wrongdoing. We place particular emphasis on employment relationships within regulated financial industries. If you’d like more information about your rights, whether as an employer or employee, please contact one of our employment lawyers.

Allegations of wrongdoing in the workplace place employers and employees in a position of conflict. They can destroy the trust and confidence necessary for the employment relationship to work and can lead to disciplinary action that can, ultimately, result in the end of that relationship. For regulated employees, such as licensed representatives or responsible officers of SFC licensed or registered firms, the mere investigation of wrongdoing can, if coupled with the end of the employment relationship, prejudice the employee’s career.

Due Process

The Hong Kong Employment Ordinance (“EO”) establishes a statutory framework which governs the relationship between employers and employees. However, it does not provide any guidance on what procedures employers must follow in employee discipline matters. In particular, it does not require that an employer provide a fair hearing to the employee before terminating an employee’s employment or taking other disciplinary action.

Contractual Rights

The employment contract will sometimes govern what due process will apply. It is not uncommon for staff handbooks to set out a disciplinary process including how investigations will take place and what procedures are to be followed before disciplinary sanctions are imposed.

Regulatory Duties

In the context of regulated industries, the employer may owe regulatory obligations to conduct an impartial investigation. For example, in the context of a licensed technical representative of an insurance broker, where there is an allegation of wrongdoing which may amount to a material breach of regulatory requirements, the Insurance Authority (“IA”) expects the employer to conduct an objective investigation.

Where regulatory obligations apply, it is particularly important for employers as well as employees to ensure that they are well informed as to applicable regulatory requirements through the investigation. Similarly, it is prudent for employers to adhere to practices to ensure adequate procedural safeguards throughout the investigation and discipline process. A failure either to understand regulatory requirements or to afford an employee due process may result in an erroneous finding of wrongdoing and unjustified disciplinary action, and hence, unwarranted long term adverse career consequences for an employee. This, in turn, may give rise to a claim against the employer, such as in defamation, constructive dismissal or wrongful termination.

Given these considerations, it is often prudent for both employers and employees to retain legal counsel well versed in both employment law and the regulatory framework governing the industry in which the employment takes places. Legal counsel can help to identify and inform both employers and employees of applicable regulatory obligations and thus, help to determine whether there is a breach of a regulatory requirement and if so, whether the breach is material.

Legal counsel may be particularly important for employees given the uneven bargaining power between employers and employees. Legal counsel with a sound knowledge of regulatory requirements can help identify facts which may be material to rebutting an allegation of a breach of a regulatory requirement or an internal control procedure giving effect to such a requirement. Equally, legal counsel can help to craft a narrative that puts the employee in the best possible light, both for employment and regulatory purposes.

Suspension from Employment

Where there is an allegation of wrongdoing, it is common for an employer to suspend the employee pending an internal investigation.

Statutory Rights to Suspend Employment

The EO, s. 11(1)(b) provides for suspension from employment pending a decision as to whether or not to terminate an employee's employment for cause. It states:

Notwithstanding any other provision of this Ordinance or of any other law, an employer may without notice or payment in lieu suspend from employment any employee for a period not exceeding 14 days pending a decision by the employer as to whether or not he will exercise his right to terminate the contract of employment under section 9…"

Where an employer exercises such statutory right to suspend employment, the EO, s. 11(2) provides a right for the employee to terminate his employment without notice. It states:

An employee who is suspended from employment under subsection (1) may at any time during the period of his suspension, notwithstanding and, terminate his contract of employment without notice or payment in lieu."

Suspension from Duties v. Employment

Though it is sometimes thought that the suspension rights under the EO provide the only means for suspension pending an internal investigation, this is not the case. The Hong Kong courts have clarified that the EO applies only to full suspensions from employment and is not concerned with partial suspensions from part only of an employee’s duties. Thus, for example, where an employment contract specifically provides for a right to suspend an employee from part of his duties pending an internal investigation, the employee’s right to terminate his contract of employment without notice or payment in lieu does not arise.

Constructive Dismissal

In the absence of an express right of suspension in the employment contract, it is not always clear whether an employer would have a right to suspend the employee from part of his duties pending an internal investigation. Where the employer may be regarded as under an obligation to provide work to an employee, the employer may have no right to suspend an employee from his duties. Where an employee suspends an employee from his duties but has no right to do so, the suspension may constitute a constructive dismissal, meaning that the employee would be entitled to treat the employment contract as having been brought to an end by the employer and to claim compensation for such termination of the employment relationship. Where an employee is constructively dismissed, the employee may no longer be bound by post-employment restrictive covenants such as non-compete and non-solicitation clauses.

Even if a right of suspension may be implied into the employment contract, it is unclear how long the employer may suspend the employee. When exercising the right to suspend an employee for internal investigation, the employer should act in a rational manner. A protracted suspension without proper and reasonable cause may be regarded as unreasonable and may seriously damage the trust and confidence between the employer and employee. This, in turn, may constitute a constructive dismissal of the employee.