Under Hong Kong employment law, both an employer and an employee generally have the right to terminate an employment contract either for cause or without cause. In the case of a termination without cause, the Employment Ordinance provides for termination by notice given by the employer or the employee or for payment in lieu of notice. In the case of termination with cause, the Employment Ordinance sets out specific circumstances for termination of employment immediately and without notice. In this article, we provide an overview of the law relating to termination of employment contracts. If you would like more specific information, please contact one of our employment lawyers.
Table of Contents
- Termination by Notice
- Notice Period Set out in Employment Contract
- No Notice Period Set Out in Employment Contract
- Employment Subject to Probation
- Fixed Term Employment Contracts
- Calculation of Time in Notice Periods
- Payment in Lieu of Notice
- Payment in Lieu of Notice Expressed in Months
- Meaning of “Wages”
- Calculating Average Wages
- Combining Notice and Payment in Lieu of Notice
Though certain employees are excluded and some employment contracts may choose to apply a foreign law rather than Hong Kong law, the Employment Ordinance governs employment contracts in Hong Kong, including termination of employment. In broad terms, this legislation sets out 2 modes for termination of employment, namely termination by notice (known also as termination without cause) and termination without notice (known also as termination for cause).
Termination by Notice
Under the Employment Ordinance, in general, either the employer or the employee may terminate an employment contract at any time by giving notice (orally or in writing) to the other party. The length of notice required to terminate an employment contract depends on:
whether the employment is subject to a probation period,
whether the contract is a continuous contract of employment,
whether the contract is deemed to be a contract renewable month to month; and
the express provisions for termination in the contract.
Where notice is given to terminate an employment contract, no reason for the giving of notice is required.
There are certain prescribed circumstances in which an employer may be prohibited from giving an employee notice of termination (e.g. the employee is on maternity leave).
Notice Period Set out in Employment Contract
An employment contract which is deemed to be a contract renewable from month to month and which makes provision for the required notice period may be terminated by giving that period of notice. However, in the case of a continuous contract of employment, the notice period must be at least 7 days.
An employment contract is deemed to be continuous contract of employment where the employee has been employed for at least 4 weeks, with the employee working at least 18 hours per week. If an employment contract is not a continuous contract of employment, the 7 day minimum notice period does not apply.
No Notice Period Set Out in Employment Contract
An employment contract which is deemed to be a contract renewable from month to month and which makes no provision for the required notice period may be terminated by giving one month’s notice.
Employment Subject to Probation
An employment contract which is subject to probation may be terminated in the first month of employment immediately without notice and thereafter, may be terminated by giving 7 days’ notice or, if the employment contract provides for a notice period of at least 7 days, by giving that period of notice.
Fixed Term Employment Contracts
Every contract of employment which is a continuous contract is deemed to be a contract renewable from month to month unless there is an express agreement to the contrary. Thus, a fixed term employment contract, may not be regarded as a contract renewable from month and month. As the provisions of the Employment Ordinance setting out notice periods for termination of an employment contract generally depend upon the employment contract being renewable from month to month, it is unclear whether a fixed term employment contract may be terminated by notice and if so what notice period may govern such termination.
Calculation of Time in Notice Periods
For the purpose of when notice periods end, the Employment Ordinance provides that the notice period commences on the day when notice of termination of employment is given and ends at the end of the day before the corresponding date in the following month. If there is no corresponding date in the following month, the notice period ends on the last day of the following month.
Payment in Lieu of Notice
Under the Employment Ordinance, whenever an employer and the employee may terminate their employment contract by notice, either the employer or employee may instead terminate the employment contract without notice (i.e. immediately) by agreeing to pay the other party a payment in lieu of notice.
Payment in Lieu of Notice Expressed in Months
Where the notice period required to terminate an employment contract is expressed in months, the amount of the payment in lieu of notice is calculated by multiplying the number of months required in the notice period by the monthly average of the “wages” earned by the employee during the 12-month period (or the shorter period if the employee is employed for less than 12 months) immediately before the day when a notice of termination is given.
Meaning of “Wages”
For the purposes of this calculation, the Employment Ordinance defines the term “wages" broadly including:
“all remuneration, earnings, allowances including traveling allowances and attendance allowances, attendance bonus, commission, overtime pay, tips and service charges, however designated or calculated, capable of being expressed in terms of money, payable to an employee in respect of work done or to be done under his contract of employment”
However, the definition of “wages” carves out a number of types of payments including for example, the value of any accommodation, contributions made by an employer to any retirement scheme, and any gratuitous annual bonus payable only at the discretion of the employer.
For the purpose of calculating a payment in lieu of notice, “wages” excludes overtime pay except where the overtime pay is of a constant character or the monthly average of overtime pay is significant.
Calculating Average Wages
When calculating average wages, generally, the calculation should exclude periods for which an employee is not paid his wages or full wages (e.g. statutory holidays).
Combining Notice and Payment in Lieu of Notice
The Employment Ordinance offers some flexibility to a party who has given notice required for termination but wishes to accelerate the termination date. Having giving proper notice to the other party, the terminating party may at any time bring about an immediate end to the contract by making a payment in lieu of notice, the sum of which is proportionate to the remaining notice period.
Termination for Cause
The Employment Ordinance recognizes the right of both an employer and an employee to termination a contract of employment immediately without notice.
Employer’s Right of Summary Dismissal
The Employment Ordinance recognizes an employer’s right to immediately terminate an employment contract without notice or payment in lieu (i.e. termination for cause). Where an employment is brought to an end by termination for cause by an employer, it is known as a summary dismissal. In broad terms, an employer may terminate employment for cause if the employee:
wilfully disobeys a lawful and reasonable;
engages in misconduct inconsistent with a due and faithful discharge of his duties;
is guilty of fraud or dishonesty;
is habitually neglectful of his duties; or
any other grounds on which the employer would be entitled to terminate the contract without notice at common law.
The Employment Ordinance specifically provides that taking part in a strike is not a lawful ground for termination for cause.
The employer bears the burden of proof to justify a termination for cause. Case law suggests that an employer may summarily dismiss an employee only when the employee’s misconduct is so serious that it amounts to a fundamental rejection of the employee’s contractual obligations. Summary dismissal without sufficient justification may amount to wrongful dismissal.
Effect of Summary Dismissal
Termination for cause brings the employment contract to an immediate end. A summary dismissal does not affect an employee’s right to outstanding wages and accrued end of year bonus. However, the employee will not entitled to any long service payment or severance payment.
As a converse to the employer’s right to immediately terminate an employment contract, the Employment Ordinance recognizes an employee’s right to immediately terminate employment without notice or payment in lieu if the employer has engaged in conduct which amounts to a serious breach of the contract. Such conduct results in what is known as “constructive dismissal” by the employer. Under the Employment Ordinance, an employee may terminate the employment contract immediately without notice or payment in lieu if the employee:
reasonably fears physical danger by violence or disease which was not contemplated by his contract of employment;
is subject to ill-treatment by the employer;
has been employed for at least 5 years and is certified by a medical practitioner as being permanently unfit for the type of work which he is contracted to perform; or
any other grounds on which the employee would be entitled to terminate the contract without notice at common law.
Effect of Constructive Dismissal
In case of a constructive dismissal, an employee is entitled to retain all statutory rights and benefits.