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What Every Employer Needs to Do Before Retrenching or Terminating Their Staff

Guide to Terminating or Retrenching Employees in Hong Kong Compared to a lot of other jurisdictions, terminating or retrenching employees in Hong Kong is not such a complex matter. However, you will need to abide by the requirements set in place.


Who Sets the Requirements?

The guidelines for terminating or retrenching your employees in Hong Kong are set by the Hong Kong Labour Department. Any company that violates those rules will be subject to a fine.

The reason for terminating an employment contract must fall within any of the broad categories that are defined in the Employment Ordinance (EO). The ground for qualification per the EO includes employee conduct, competence, or qualifications.


When Can Contracts Be Terminated?

Contracts can be terminated during the probationary period. Contracts can be terminated within the first month or after the first month of employment. If you terminate a contract within the first month, it is lawful to do it without notice. If it is after the first month, seven days’ notice must be given prior to the termination. You may also give a lump sum payment in lieu of notice for the latter option. Contracts can still be terminated without notice of there is serious misconduct on the part of the employee.

If you are terminating or retrenching your employee after the probationary period, you must provide seven days’ notice. This applies if there is no probationary period involved as well.


Payment in Lieu

An employer can give the employee payment in lieu of notice. The payment will be calculated based on the employee’s average daily wage. This will be up to the day the termination notice is given. The sum will then be multiplied by the number of days that should be the notice period.


Termination With No Notice or No Payment in Lieu

This only happens under very severe circumstances. This usually happens if the employee engages in serious misconduct.


The Right to Go on Strike

Employees have the right to go on strike in Hong Kong. Their rights to unionised are protected and they cannot be terminated for going on strike without notice.


Termination or Retrenchment Restrictions

In Hong Kong, an employer cannot terminate an employee for the following reasons:

  • Paid sick leave
  • Maternity leave
  • Work-related injury
  • Trade Union activities
  • Providing information to the relevant authorities

Any employer violating these restrictions can face up to HK$100,000 in fines.


Types of Payment

Besides severance payments, all payments relating to dismissing an employee in Hong Kong must be paid as soon as possible. Any employer who fails to do it within seven days must pay interest on the outstanding sum. The types of payment applicable to a dismissed employee are:

  • Payment in lieu of notice
  • Outstanding wages
  • Payment for untaken annual leave
  • Pro-rata end of year payment
  • Another remuneration is stated within the employment contract. This could include provident fund contributions or commissions.

Guide to Terminating or Retrenching Employees in Hong Kong