Sources of regulation
On 1 July 1997, China became a dual legal system, as the Governments of the United Kingdom and the People’s Republic of China had agreed in 1984 to maintain the application of the basic law in application after the return of Hong Kong to China. The term “basic law” includes the common law, rules of equity, ordinances, subordinate legislation and customary law.
The main legislation regulating termination of employment in Hong Kong Special Administrative Region (HKSAR) is the Employment Ordinance (Chapter 57) of 1968 (EO), which was amended several times and lastly in 2007.
Other relevant legislation includes the Factories and Industrial Undertakings Ordinance 1968 (Chapter 59) (FIUO), the Employees’ Compensation Ordinance (Chapter 282) (ECO), and the Labour Tribunal Ordinance (Chapter 25) (LTO). The common law is also another important source of regulation.
Scope of legislation
The EO applies to every employee engaged under a contract of employment exception made for persons (sec. 4, EO):
- Who are members of the employer’s family and who live with the employer;
- Covered under the Contracts for Employment Outside Hong Kong Ordinance (Ch. 78);
- Serving under a crew agreement in accordance with the Merchant Shipping (Seafarers) Ordinance (Ch. 478);
- Employed on board a ship which is not registered in Hong Kong; and
- Serving as apprentices, except to the extent provided under the Apprenticeship Ordinance (Ch. 47).
Contracts of employment
Under the EO (sec. 2), “contract of employment” means any agreement, whether in writing or oral, express or implied, whereby one person agrees to employ another and that other agrees to serve his/her employer as an employee, and also a contract of apprenticeship.
The EO (sec. 5) provides for different contracts of employment, such as:
- Every contract of employment, which is a continuous contract, unless expressly agreed to the contrary, is deemed to be a contract for 1 month renewable from month to month; and
- A contract of employment entered into by a manual worker for a period of 6 months or more or for a number of working days equivalent to 6 months or more is deemed to be a contract for 1 month renewable from month to month.
The most important distinction, as far as contracts of employment are concerned, is the one between continuous and non-continuous contracts. This distinction is relevant in the EO in order to determine entitlements including, namely, rest days, statutory paid holidays, severance pay, and long-service payments. A person is considered to work under a continuous contract where he/she has worked for the same employer for four weeks or more and for at least 18 hours in each of the four weeks (Schedule 1, EO).
Termination of employment
In accordance with the EO, an employment contract can be terminated in the following situations by:
- Mutual agreement by giving to the other party notice, orally or in writing, of his/her intention to do so (sec. 6, EO);
- Mutual agreement without notice, by agreeing to pay the other party a sum equal to the amount of wages which would have accrued to the employee during the period of notice (sec. 7, EO);
- Any event affecting an employer such as his/her death, which operates so as to terminate a contract under which an employee is employed by the employer (sec. 31ZC, EO).
An employee may terminate his/her employment without notice or payment, in particular, if the employee (sec. 10, EO):
- Is subjected to ill-treatment by the employer;
- Reasonably fears physical danger by violence or disease such as was not contemplated by his/her contract of employment expressly or by necessary implication; and
- Has been employed under the contract for not less than 5 years and by a certificate in issued by a registered medical practitioner is certified as being permanently unfit for a particular type of work specified in the contract.
Dismissal
Reversing the common law principle of employment at will, the EO Amendment of June 1997 contains the requirement of a valid cause for dismissal. As such, the employer has to prove that he/she had a valid reason for dismissing the employee (sec. 32A(4)(b), EO).
It is valid for an employer to dismiss an employee (sec. 32K, EO):
- For the reason of employee’s conduct;
- Lacking the capability or qualifications for performing work of the kind which he/she was employed by the employer to do;
- Redundancy or other genuine operational requirements of the business of the employer; or
- Where the employee or the employer or both would, in relation to the employment, be in contravention of the law.
An employer may, however, terminate a contract of employment without notice or payment in lieu if an employee (sec. 9, EO);
- Willfully disobeys a lawful and reasonable order;
- Engages in misconduct, such conduct being inconsistent with the due and faithful discharge of his/her duties;
- Is guilty of fraud or dishonesty;
- Is habitually neglectful in his/her duties; or
- Any other ground at common law.
The EO also gives wide discretion to the court or the labour tribunal in deciding if there are any other reasons of substance to warrant the dismissal of the employee (sec. 32K, EO).
No employer can terminate, or threaten to terminate, the employment of, or in any way discriminate against, any employee if such an employee:
- Gives evidence, or agree to give evidence, in any proceeding for the enforcement of any of the provisions of the EO (sec. 6, FIUO and sec. 72B, EO);
- Provides information to a public officer in any inquiry made by such officer for the purposes of or in connection with the enforcement of any of the provisions of this Ordinance (sec. 6, FIUO and sec. 72B, EO);
- Chooses to become a member or an officer of a trade union (sec. 21B, EO);
- Provides notice of pregnancy and desire for maternity leave (sec. 15, EO);
- Is incapacitated, arising from work-related injuries and illnesses, before the injury or illness has been certified as preventing the employee from working, or before compensation for incapacity has become payable to the employee (sec. 48, ECO); or
- Has taken sick leave where sick leave allowance is payable (sec. 33(4B), EO).
While a valid cause is required only for workers employed under a continuous contract, these grounds of unlawful dismissal may be invoked by a worker who may not qualify as working under continuous employment (sec. 32A(c), EO).
In addition, in December 1996, the Sex Discrimination, Disability Discrimination and Family Status Discrimination Ordinances were introduced, making it unlawful, inter alia, to dismiss on the basis of gender, marital status, pregnancy or disability (unless the employer can justify dismissal on the basis of a genuine occupational qualification) or family status (defined as having responsibility for the care of an immediate family member). These Ordinances also incorporate concepts of “indirect” discrimination (i.e. requirements or conditions which are neutral on their face but in fact disadvantage one group and cannot be objectively justified). The new laws also rendered sexual harassment unlawful.
Notice and prior procedural safeguards
In accordance with the EO, an employer is required to give notice of termination of contract or pay in lieu of such notice (secs. 6 and 7, EO). The length of the notice period depends on whether the contract of employment is continuous or a “monthly renewable” contract and whether or not the parties have agreed on the notice period. As such, the length of notice required to terminate a contract of employment is (sec. 6, EO):
- Not less than one month in case of a contract for 1 month renewable from month to month and which does not make provision for the length of notice required to terminate the contract;
- In the case of a contract which is for 1 month renewable from month to month and which makes provision for the length of notice required to terminate the contract, the agreed period, but not less than 7 days;
- The agreed period, but not less than 7 days in the case of a continuous contract.
Where in any contract of employment, whether in writing or oral, it has been expressly agreed that the employment is on probation and the contract both does and does not make provision for the length of notice required for its termination, such contract may be terminated (sec. 6(3), EO).
- By either party at any time during the first month of such employment without notice or payment in lieu;
- By either party at any time after the first month of such employment by giving to the other party notice of not less than 7 days.
As far as collective dismissals are concerned, there are no legal requirements for notice, consultation, prior authorization from workers’ representatives, any judicial or administrative body in relation to proposed redundancies.
Severance pay
The EO was amended in 1974 to introduce statutory provisions for severance pay in case of prolonged lay-off or redundancy (sec. 31B, EO). To be eligible for severance pay, the worker has to have been employed under a continuous contract for at least 24 months.
Additionally, long-service payments were introduced in 1986 for workers, who have been employed under a continuous contract for more than five years, and dismissed for reasons other than redundancy, lay-off or serious misconduct justifying summary dismissal (sec. 31R, EO). The method of calculation of a long-service payment is similar to that of severance pay (sec. 31V, EO).
The amount of a severance payment to which an employee is entitled in any case is calculated as follows (sec. 31G, EO):
- For monthly rated employee, two-thirds of his/her last full month's wages, or two-thirds of $22500, whichever is less; and
- In any other case, 18 days' wages based on any 18 days chosen by the employee and occurring during his/her last 30 normal working days, or two-thirds of $22500, whichever is less,
- For every year (and pro rata as respects an incomplete year) of employment under a continuous contract by his/her employer.
An employee is not entitled to a severance payment in case of dismissal (sec. 31C, EO):
- Where his/her employer, being so entitled by reason of the employee's conduct, terminates his/her contract of employment without notice or payment in lieu;
- If, not less than 7 days before the relevant date, the employer has made to him/her an offer in writing to renew his/her contract of employment, or to re-engage him/her under a new contract, where the offer is for suitable employment, no less favourable to the employee than before, and the employee has unreasonably refused that offer; and
- Where, having been given notice of the termination of his/her contract of employment by his/her employer and where he/she leaves the service of his/her employer before the expiration of that notice.
Avenues for redress
An employee who is aggrieved about his/her termination of employment may file a claim with the Registrar of the Labour Tribunal within nine months of the date of dismissal. Moreover, an employee may be granted remedies against his/her employer where the employee (sec. 32A, EO):
- Has been employed under a continuous contract for a period of not less than 24 months ending with the relevant date and he/she is dismissed by the employer because the employer intends to extinguish or reduce any right, benefit or protection conferred or to be conferred upon the employee by the EO;
- Is employed under a continuous contract and the employer, without his/her consent and, in the absence of an express term in his/her contract, varies the terms of the contract of employment because the employer intends to extinguish or reduce any right, benefit or protection conferred or to be conferred upon the employee by the EO; and
- Is dismissed by the employer for other than for a valid reason, such as conduct of the employee, lack of skills, and redundancy.
However, it should be noted that the qualifying period of 24 months is reduced to 12 months’ continuous employment for dismissals effected for trade union membership or activity or because the employee has given evidence in proceedings under the Ordinances (sec. 72B(1), EO, and sec. 6, FIUO).
If a dismissal is found to be for no valid reason, several remedies are available. A Labour Tribunal may make an order for reinstatement or re-engagement, or award a terminal payment. If no order for reinstatement or re-engagement is made, and the dismissal is held to be for automatically unfair reasons the Tribunal may award compensation at a level that it considers just and appropriate in the circumstances (secS. 32M, 32N, EO).
If any party is dissatisfied with an award, order or determination by the tribunal on the grounds that the award, order or determination is, erroneous in point of law or outside the jurisdiction of the tribunal, such party may, within 7 days after the date on which the award, order or determination was served on him/her, apply to the Court of First Instance for leave to appeal and the Court of First Instance may grant such leave (sec. 32, LTO). If any party is dissatisfied with a decision of the Court of First Instance on an appeal, such party may, within 7 days after the date of the decision, apply to the Court of Appeal for leave to appeal and, if the Court of Appeal considers that a question of law of general public importance is involved, it may grant leave (sec. 35A, LTO).
Further information
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