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Hong Kong

Termination and Severance Policies

Learn about the legal processes for employee termination and severance in Hong Kong

Notice period

In Hong Kong, the Employment Ordinance (Cap. 57) provides the legal framework for notice periods during employment termination.

Statutory Minimum Notice Period

If the employment contract does not specify a notice period, the statutory minimum notice period is one month for both employers and employees.

Notice Periods in Employment Contracts

Employers and employees can agree on a different notice period in the employment contract. This period can be shorter (but not less than seven days) or longer than the statutory minimum.

Notice Period During Probationary Period

Probationary periods are common in Hong Kong employment contracts. The notice period during probation varies:

  • During the first month of the probationary period, either party can terminate the contract without notice.
  • After the first month of the probationary period, the minimum notice period is seven days unless otherwise specified in the contract.

Payment in Lieu of Notice

Employers or employees can choose to provide payment in lieu of notice instead of working the notice period. The payment amount should be equivalent to the wages that would have been earned during the notice period.

Important Note

Statutory annual leave or maternity leave cannot be included within the notice period.

Severance pay

Severance pay in Hong Kong is a form of compensation for eligible employees whose employment is terminated due to specific circumstances.

Eligibility for Severance Pay

To be eligible for severance pay in Hong Kong, an employee must have been employed under a continuous contract for at least 24 months. The employee must have been dismissed by the employer due to redundancy or lay-off. Redundancy refers to situations where the employer's business has closed, the work has ceased, or the job requirements have diminished. Lay-off refers to situations where the employee is temporarily or permanently laid off due to a lack of work for reasons beyond their control.

Calculation of Severance Pay

Severance pay is calculated using the formula: Last Monthly Wages x (2/3) x (Years of Service). The payment calculation is based on the last full month of employment. The monthly wage is capped at a maximum of HK$22,500 for severance pay calculations. Years of service are counted for completed years only.

Circumstances Where Severance Pay is Not Payable

An employee will not be entitled to severance pay in the following situations: resignation by the employee, summary dismissal due to serious misconduct, expiry of a fixed-term contract without the employer offering renewal, or if the employer offers renewal or re-engagement, and the employee unreasonably refuses.

Severance Pay vs. Long Service Payment

An important point to note is that an employee is not entitled to both Severance Pay and Long Service Payment under the Employment Ordinance.

Termination process

Terminating an employee in Hong Kong requires adherence to specific legal guidelines to ensure a fair and lawful process. There are two types of termination: Termination with Notice and Summary Dismissal (Termination without Notice).

Types of Termination

  • Termination with Notice: Either the employer or employee can terminate the employment contract by providing the requisite notice period or payment in lieu of notice in line with the Employment Ordinance (Cap. 57) and the terms of the employment contract.

  • Summary Dismissal (Termination without Notice): An employer may summarily dismiss an employee without notice or payment only in cases of serious misconduct by the employee, such as willful disobedience, fraud, or habitual neglect of duties.

Steps for Termination with Notice

  1. Issuing Notice: The employer must provide a written notice of termination to the employee, clearly stating the termination date and the length of the notice period (or payment in lieu of notice). If there are performance-related reasons for the termination, these should be outlined and supported by any relevant documentation.

  2. Meeting with the Employee (Recommended): While not legally required, it's good practice to hold a meeting with the employee to discuss the reasons for termination and answer any questions they may have.

  3. Final Payment: The employer must settle all outstanding payments to the employee within seven days of termination or the expiry of the employment contract. This includes wages for work done, payment in lieu of notice (if applicable), and any unused annual leave.

Additional Considerations

  • Informing Government Departments: Employers must notify relevant departments, including the Inland Revenue Department (IRD) and the Mandatory Provident Fund (MPF) scheme trustee, about the employee's termination.

  • Disciplinary Procedures: If the termination is due to misconduct or performance issues, it's essential for the employer to have followed fair disciplinary procedures prior to dismissal.

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