Employment and employee benefits in Hong Kong: overview
A Q&A guide to employment and employee benefits law in Hong Kong.
The Q&A gives a high level overview of the key practical issues including: employment status; background checks; permissions to work; contractual and implied terms of employment; minimum wages; restrictions on working time; illness and injury; rights of parents and carers; data protection; discrimination and harassment; dismissals; redundancies; taxation; employer and parent company liability; employee representation and consultation; consequence of business transfers; intellectual property; restraint of trade agreements and proposals for reform.
To compare answers across multiple jurisdictions, visit the Employment and Employee Benefits Country Q&A tool.
The Q&A is part of the Multi-jurisdictional Guide to Employment and Employee Benefits law. For a full list of jurisdictional Q&As visit www.practicallaw.com/employment-mjg.
Scope of employment regulation
Foreign nationals working in your jurisdiction?
Nationals of your jurisdiction working abroad?
Laws applicable to foreign nationals
The Employment Ordinance (EO) is the main employment legislation in Hong Kong. It guarantees certain minimum benefits, including:
Paid annual leave.
Paid sick leave.
Paid maternity leave.
Minimum notice of termination and a right to make a payment in lieu of notice.
Subject to limited exceptions, the EO applies to all employees working in Hong Kong, regardless of their nationality. Observing the terms of the EO is generally considered to be mandatory, although it is not specifically expressed to be an overriding statute.
Employees who are employed by foreign employers and seconded to Hong Kong are often employed under contracts expressed to be governed by foreign laws. There are currently conflicting High Court decisions on whether a non-Hong Kong choice of law clause in an employment contract can validly exclude the application of the EO. In HSBC Bank PLC v Stephen Wallace (HCA 2422/2007) it was held that the EO did not apply to an employee seconded from the UK to work in Hong Kong under an employment contract governed by English law. The Court in Cantor Fitzgerald Europe & Ors v Boyer & Ors (HCA 1160/2011) did not agree with the decision in HSBC, and held that an employee seconded to work in Hong Kong from the UK under an employment contract governed by English law "save for any mandatory employment laws of Hong Kong" was subject to the EO. It is therefore currently unclear whether an employment contract for an employee working in Hong Kong can exclude the application of the EO, particularly where the terms of the EO are more generous than the terms of the contract.
Other mandatory laws that are likely to apply to an employment relationship, regardless of the contractual choice of legal provisions are the:
Personal Data (Privacy) Ordinance (PDPO). This ordinance regulates an employer's collection or surveillance, use and disclosure of an employee's personal data (including personal data contained in e-mails and phone calls).
Mandatory Provident Fund Schemes Ordinance (MPFSO). Subject to very limited exceptions, this ordinance requires employers in Hong Kong to enrol employees in a Mandatory Provident Fund (MPF) Scheme (that is, a retirement scheme), to which the employer and employee must make certain contributions. Foreign nationals are exempt if they are posted in Hong Kong to work for a period not exceeding 13 months or belong to a retirement scheme outside of Hong Kong. In certain cases, a Hong Kong national working outside of Hong Kong may still be subject to this ordinance if the employment has sufficient connection with Hong Kong.
Occupational Safety and Health Ordinance (OSHO). This ordinance imposes a duty on all employers, as far as is reasonably practical, to ensure the safety and health in the workplace of its employees. The OSHO covers most industrial and non-industrial workplaces in Hong Kong (see Question 25).
Employees' Compensation Ordinance (ECO). If an employee suffers injury arising out of and in the course of employment in Hong Kong (or overseas, if the travel is authorised by the employer), the employer is usually liable to compensate the employee under the ECO. Eligible family members of an employee killed in an accident at work can also be entitled to compensation. If an employer carries on business in Hong Kong, its employees are protected under the ordinance. (An employee can work outside Hong Kong but his employment contract must have been entered into in Hong Kong.) All employers must maintain valid employees' compensation insurance policies to cover their liabilities under the ordinance and at common law.
Companies Ordinance. Protects employees of a Hong Kong company (including a Hong Kong subsidiary of a foreign company) in relation to wages and other entitlements if the company is wound up. The employees become preferential creditors in the winding-up.
Sex Discrimination Ordinance (SDO), Disability Discrimination Ordinance (DDO), Family Status Discrimination Ordinance (FSDO) and Race Discrimination Ordinance (RDO). All legislate against various forms of discrimination (see Question 17).
Basic Law and the Hong Kong Bill of Rights Ordinance. These safeguard certain rights of individuals, although they have limited application in the context of employment law.
Labour Tribunal Ordinance. This ordinance empowers the Labour Tribunal to hear and resolve disputes relating to employment contracts as well as alleged breaches of the EO. It potentially covers disputes involving foreign nationals or Hong Kong residents working abroad (see below, Laws applicable to nationals working abroad).
Prevention of Bribery Ordinance (POBO). The POBO applies to employees, particularly to those who receive or solicit bribes from third parties (for example, an employee who receives bribes from a supplier of goods in return for placing orders with that supplier). In some cases, employees may also be subject to anti-corruption legislation in other jurisdictions.
Laws applicable to nationals working abroad
Hong Kong employment law only applies to nationals working abroad if the employee's employment contract is expressly governed by Hong Kong law or has a substantial connection with Hong Kong. Factors in determining substantial connection include the:
Currency of pay.
Residency of the employee's family.
Location of the management.
Location where the contract was concluded.
The Contracts for Employment Outside Hong Kong Ordinance (CEOHKO) applies to Hong Kong nationals who are recruited by an employer that is neither based in Hong Kong nor undertakes any business in Hong Kong.
Categories of worker
In Hong Kong, the key distinction in employment law is between 'continuous' and 'non-continuous' employment. To qualify as a continuous employee, the employee must have worked for the same employer during each of the previous four weeks for at least 18 hours in each of those weeks. It does not matter if the employment relationship was governed by separate, successive employment contracts, only that the employee works the requisite number of hours in each of the weeks.
Entitlement to statutory employment rights
All employees (whether they are continuously employed or not), are entitled to a basic level of protection. Basic statutory rights include:
Protection from discrimination.
Entitlement to statutory holidays.
Payment of salary.
Continuous employees are entitled to a greater level of statutory employment rights. For example, continuous employees are entitled to:
Paid annual leave.
Severance or long service pay (where other necessary conditions are satisfied).
Hong Kong employees need to have worked for the same employer during each of the previous four weeks for at least 18 hours in each of those weeks, to qualify for additional employment rights under the EO.
There are no maximum engagement periods.
Grants or incentives
There are certain grants, for example, if an employer employs a:
Person aged between 15 and 24 without a university degree under the Youth Work Experience and Training Scheme, the employer can be entitled to a monthly training subsidy of HK$2,000 per trainee.
Worker over the age of 40 under the Employment Programme for the Middle-aged (EPM), the employer can be entitled to a monthly allowance. From June 2013, if the monthly salary of the employee is:
HK$6,000 or more, the monthly training allowance is HK$3,000.
Less than HK$6,000, the monthly training allowance is HK$1,000.
The EPM generally lasts for three months but can be extended up to a maximum period of six months, subject to the prior approval of the Labour Department.
Person under the Work Trial Scheme, the employer can be entitled to an allowance of HK$6,400 per month, on satisfactory completion of a one month work trial.
Form IR56E needs to be filed with the Inland Revenue within three months of the employee starting his employment.
Prospective employers must always obtain an applicant's consent in order to use the applicant's personal data (for example, name, address, date of birth) to conduct background checks. This includes informing the applicant on or before collecting the personal data of both the:
Purpose for which the personal data is being collected.
Classes of persons to whom the personal data will be transferred.
Personal data regarding an applicant that is collected from public sources must not be used to conduct background checks in the absence of the applicant's consent.
Prospective employers must also be mindful of any applicable discrimination laws.
Employers can contact an applicant's former employer for a reference.
Permission to work
Unless a person is a Hong Kong permanent resident, he generally requires a visa to enter Hong Kong for employment purposes. An application for a visa to work can be made under the General Employment Policy (GEP). The GEP does not apply to residents of the People's Republic of China (China).
A non-Hong Kong employee who obtained a degree or higher qualification in a full-time and Hong Kong-accredited programme can apply under the Immigration Arrangements for Non-Local Graduates to work in Hong Kong. This application is relatively straightforward. The processing time under this scheme is around two weeks.
An overseas Chinese national holding a Chinese passport who meets the GEP criteria may apply under the GEP if he both:
Has permanent residence overseas; and
Had been residing overseas for at least one year immediately before the submission of the application.
Other Chinese nationals may apply under the Admission Scheme for Mainland Talents and Professionals (ASMT). The criteria and mode of application under the ASMT are broadly the same as those under the GEP (see below).
Procedure for obtaining approval. A visa under the GEP can be obtained by application to the Hong Kong Immigration Department, or through a Chinese embassy abroad, before the employee or prospective employee enters Hong Kong. The employer must demonstrate that:
possesses special skills, knowledge or experience of value which is not readily available in Hong Kong;
has no known criminal record;
has a good educational background in the relevant field; and
has a confirmed offer of employment and is employed in a job relevant to that employee's skills, which cannot be readily taken up by the local workforce.
There is a genuine job vacancy.
The remuneration package is broadly commensurate with the prevailing market level for professionals in Hong Kong.
The relevant application forms can be downloaded from the website of the Hong Kong Immigration Department. Completed application forms, together with the relevant supporting documents, can be submitted in person or by post. Each application must also be supported by a sponsor, which is generally the Hong Kong based employer.
The visa can be renewed. The employee does not need to leave the country to apply for a renewal.
There is no requirement in Hong Kong to obtain a work permit as well as a visa.
Cost. The cost of a GEP work visa application is currently HK$160.
Time frame. The processing time for a GEP work visa is usually around four weeks from receipt of all relevant documents.
Restrictions on managers and directors
Regulation of the employment relationship
Written employment contract
The law does not require an employment contract to be in writing, so it is possible to have an oral employment contract.
The EO and the common law imply a number of terms into employment contracts. Certain statutory entitlements apply to all employment contracts (whether written or oral). The statutory benefits conferred on employees cannot be reduced or excluded by the terms of an employment contract, and a contract term purporting to do so is void. Common law entitlements can generally be varied or excluded entirely by agreement.
Some of the key terms implied by the EO that cannot be contracted out of concern:
The right to pay wages in lieu of notice of termination.
Restrictions on the employer's right to suspend the employee.
The employee's entitlement to rest days, statutory holidays, annual leave and sick leave.
Some terms implied by the common law are the employee's duty:
To obey lawful orders within the scope of employment.
Of good faith towards the employer.
Not to disclose trade secrets or confidential information.
Terms may also be implied into an employment contract through industry practice or prior conduct.
Collective agreements are rare in Hong Kong, due to the low incidence of trade union membership among employees.
The law does not recognise the automatic right of the employer to unilaterally vary the employment contract. If the employer unilaterally varies a term of the employment contract without the express right to do so, it is in breach of the contract. If the variation amounts to a serious breach of contract, the employee can terminate the employment contract without notice and seek compensation from the employer for constructive dismissal.
An employee who has been constructively dismissed is entitled to all applicable statutory benefits (see Question 19, Severance payments) including a:
Long service payment (if conditions are satisfied).
Accrued annual leave.
Proportional end of year payment.
The employee may also be able to claim common law damages (for example, for loss of notice pay) but the employee must be able to prove this loss and must take all reasonably practicable steps to minimise the loss.
If there is no valid reason for the variation of the terms and conditions of employment, an employee employed continuously may also make a claim for unreasonable dismissal (see Question 20, Protection against dismissal).
The Minimum Wage Ordinance (MWO) came into effect on 1 May 2011. The initial statutory minimum wage (SMW) rate was set at HK$28 per hour and is reviewed every two years. On 1 May 2013, the SMW was increased to HK$30 per hour.
The SMW applies to most employees (regardless of age, whether they are full-time, part-time or casual employees). The SMW does not apply to live-in domestic workers, student interns or work experience students. The MWO also includes special arrangements for disabled employees, including that they can opt to be paid less than the SMW in accordance with an assessment of their productivity.
Restrictions on working time
There are generally no restrictions on working hours, except for employees who are between 15 and 18 years old and work in an industrial environment. In this case, the maximum working period is usually eight hours per day, 48 hours per week and six working days per week.
There are currently proposals to introduce a standard working hours policy in Hong Kong. These proposals were opened for public consultation in January 2014.
Employees continuously employed for at least 18 hours in each of four consecutive weeks are entitled to at least one rest day per week. This is in addition to annual leave and statutory holidays (see Question 11).
There are no special restrictions applicable to the working hours or rest breaks for shift workers.
Minimum holiday entitlement
The EO prescribes certain minimum holiday entitlements.
In addition to rest days, statutory holidays, sick leave and maternity leave, employees who have been employed under a continuous contract for one year have a right to paid annual leave. The amount of leave depends on the length of service, from seven days after one year's employment up to a maximum of 14 days for nine years' service.
The EO specifies 12 statutory holidays that must be granted to all employees who have been employed continuously for three months and who work at least 18 hours a week. These include Christmas, Easter, Lunar New Year and HKSAR Day (when Hong Kong celebrates the handover to Chinese sovereignty). There are five additional general holidays specified in the General Holidays Ordinance, which are only guaranteed to certain employees (such as civil servants). However, many employers treat these as paid holidays.
Illness and injury of employees
Entitlement to time off
The EO provides that employees that are employed continuously, accumulate sick leave in the form of a sickness allowance at the rate of two paid sick days a month worked in the first year of employment and four paid sick days each month after this. The maximum sickness allowance that can be accumulated is 120 days. Special rules apply for access to paid sick days for female employees who are pregnant or have recently given birth.
Entitlement to paid time off
Employees are entitled to 80% of their average daily wages (as calculated over the previous 12 months) provided they are off sick for four consecutive days and have accrued enough sick days to cover the period in question. The EO defines what types of remuneration constitute wages. Many employers pay employees their full salary during any sick leave. An employee who is on paid sick leave cannot be lawfully dismissed except in very limited circumstances.
Recovery of sick pay from the state
Employers are not able to recover sickness allowance from the state.
Statutory rights of parents and carers
Parents (including maternity, paternity, surrogacy, adoption and parental rights, where applicable)?
Carers (including those of disabled children and adult dependants)?
A female employee who has been employed continuously for at least 40 weeks before the expected date of birth and who has given notice of her intention to take maternity leave is entitled to ten weeks' paid maternity leave, and an additional period of not more than four weeks on the grounds of illness or disability resulting from the pregnancy (EO). The remuneration payable is 80% of the employee's average monthly wages calculated over the previous 12 months. Maternity leave can begin between two and four weeks before the expected date of birth of the child.
An employee who is pregnant and who has given notice of her pregnancy to her employer cannot generally be lawfully dismissed from the date on which she is confirmed pregnant by a medical certificate until the expiry of her maternity leave. Wrongful termination results in liability for compensation and amounts to an offence. If a pregnant employee is dismissed by her employer before she notifies the employer of her pregnancy, the employer must withdraw the dismissal if she gives such notice immediately thereafter.
It is unlawful to discriminate against an employee because of pregnancy (see Question 17).
Male government employees employed under a continuous employment contract are eligible to take five days paternity leave on full pay on the birth of each child.
Male private sector employees may soon become entitled to paternity leave if the Employment (Amendment) Bill 2014, which was gazetted on 28 February 2014, is passed. As it currently stands, the Bill entitles employees to:
Three days of unpaid paternity leave if they are employed under a continuous employment contract for at least four weeks (with more than 18 working hours per week) prior to the date of leave; and
Three days of paid paternity leave if they are employed under a continuous employment contract for at least 40 weeks (with more than 18 working hours per week) prior to the date of leave. The rate of payment is 80% of the daily average of the wages earned by the employee during the 12 months preceding the commencement of the leave.
Continuous periods of employment
Continuous employment confers certain benefits on employees (see Question 2, Employment status). For example:
Rest days, paid annual leave, sickness allowance and seven days' minimum notice of termination apply once an employee has been continuously employed by the same employer for four weeks or more, with at least 18 hours worked in each of those weeks.
Pro rata, end-of-year payments apply once an employee has been continuously employed by the same employer for four weeks or more, with at least 18 hours worked in each of those weeks and has worked for at least three months (excluding probation) in the relevant bonus year.
Maternity leave applies once there has been continuous employment for 40 weeks.
Severance payment on redundancy applies once there has been continuous employment for two years.
Long service payment on termination applies once there has been continuous employment for five years.
An employee is not entitled to receive both severance and long service pay.
Continuous employment is broken if the employee works less than 18 hours in four consecutive weeks, unless the absence is due to:
Sickness or injury.
Strikes and lock-outs.
The nature of the employment.
Consequences of a transfer of employee
A change in ownership of a business normally ends the employee's employment. However, the EO provides for a procedure under which, if the employee is employed by the new owner, the employee's continuity of employment is effectively preserved and the period of service with the original employer counts as service with the new employer. There is a similar procedure for retaining continuity in situations where employees become employees of associated companies (see Question 24, Harmonisation of employment terms).
Fixed term, part-time and agency workers
Temporary employees have the same protections under the labour laws in Hong Kong as permanent employees provided they satisfy the minimum requirements (see Question 14, Benefits created).
Provided they satisfy the minimum requirements, the cost of terminating the employment of a fixed term employee is the same as a permanent employee (see Question 14, Benefits created and Question 19).
There are no specific laws relating to protections for agency workers in Hong Kong. Agency workers will receive the same protections as permanent employees, provided they satisfy the minimum requirements (see Question 14, Benefits created).
Contractors who do not amount to employees, do not have the same protections as employees under the labour laws. In the event that a contractor is deemed to be an employee, this may lead to a claim by the individual for unpaid entitlements, for example paid annual leave entitlements and employer MPF contributions.
The collection and use of personal data in Kong Kong is governed by the PDPO (see Question 1, Laws applicable to foreign nationals). The PDPO applies to personal data (that is, any data that relates to, and identifies a living individual, and is in a form which is reasonably practical to access and/or process). It:
Regulates the way in which personal data collected by employers can be used.
Regulates the monitoring of employee e-mails and phone calls at work.
Gives employees the right to access their personal data held by an employer.
The PDPO prohibits an employer from acting or engaging in a practice that contravenes a data protection principle unless the act or practice is allowed under the ordinance. The principles govern:
The means of data collection.
The data's accuracy.
The data's usage.
The data's security in relation to unauthorised access.
Openness of policies and practice of data users.
Access to data.
Discrimination and harassment
Protection from discrimination
The DDO, SDO, FSDO and RDO (see Question 1, Laws applicable to foreign nationals) prohibit an employer from discriminating against any employee or an apprentice by reason of the employee's gender, marital status, pregnancy, disability, family status, race, descent, colour and national or ethnic origin. There are, however, several exceptions. For example:
For employment that is likely to be performed outside Hong Kong, the SDO allows a gender to be specified where that particular job requires a man or a woman because local laws or customs dictate that the job cannot be performed by the opposite gender.
The RDO allows a race to be specified in the context of recruitment where the essential nature of the job calls for a person of a particular race for reasons of physiology or, in dramatic performances (or other entertainment), for reasons of authenticity.
These Ordinances apply throughout the recruitment process and so it is also unlawful for a prospective employer to discriminate against job applicants on these prohibited grounds. An employer can be vicariously liable for an employee's action that breaches discrimination legislation.
Anyone who believes that they may have been discriminated against in contravention of the provisions of the SDO, DDO and FSDO or RDO has two options to bring a formal complaint:
Lodge a complaint with the Equal Opportunities Commission (EOC).
Commence proceedings in the district court against the employer.
Once a complaint is lodged with the EOC, the EOC has the power to conduct an investigation into the complaint, issue a report into its findings regarding the complaint and encourage the parties to settle the complaint by way of conciliation. The EOC is also empowered to offer legal assistance to persons who have lodged complaints with the EOC where conciliation has failed.
There is no formal time limit for issuing a complaint to the EOC but the EOC may decide not to conduct an investigation if more than 12 months has elapsed since the alleged discriminatory act.
It is not necessary for a complainant to lodge a complaint with the EOC first before commencing proceedings in the district court but in practice most actions are commenced by complaint to the EOC.
The district court has broad powers to award remedies including:
Making an order that the employer not repeat or continue the discriminatory act or conduct.
Making an order for employment, re-employment or promotion of the employee.
Making an order that the employer pays damages for loss and injury to feelings.
The time limit for bringing a claim in the district court under the SDO, DDO, FSDO or RDO is within 24 months from the latest of either:
The date of the discriminatory act.
The date a report is issued by the EOC in relation to the discriminatory act.
Protection from harassment
The above ordinances also protect employees against:
Sexual, disability and racial harassment.
A whistleblowing employee may be exempt from, or protected against breaches of confidentiality in the following circumstances:
An employee may have a right to disclose wrongdoing at common law if it is in the public interest to do so. Depending on the circumstances, the employee may have to report not only to a director, but to the full board of the employing company.
An employee may be protected if the disclosure is made according to official directives, for example, a court order, or under the directive of a statutory inspector or the Independent Commission Against Corruption (ICAC).
An employee may also be protected by certain statutory provisions if the disclosure is made under a statute. For example, disclosure of suspected money laundering or other crimes under the Organised and Serious Crimes Ordinance, the Drug Trafficking (Recovery of Proceeds) Ordinance, and the United Nations (Anti Terrorism) Ordinance is not regarded as a breach of restrictions imposed by contract, enactment or rules.
If an employee is a licensed person under the SFC, that employee may have specific obligations to report certain breaches of laws, rules, regulations or codes administered by the SFC.
Section 72B of the EO also prohibits the discrimination or dismissal of an employee who has given evidence in any employment-related proceedings.
Some operations in Hong Kong may be subject to the US Foreign Corrupt Practices Act (FCPA). An employee of such an operation does not have an express obligation under the FCPA to report or disclose FCPA violations to any regulatory authority. However, any voluntary disclosures made in this context may be protected.
Termination of employment
The EO stipulates minimum notice periods for various situations where a termination of employment occurs, however, the parties can agree to longer notice periods. In each case, either of the parties can make a payment to the other of wages in lieu of notice (that is, a payment equal to the wages that would have accrued during the relevant notice period). On summary dismissal (where one or more of the grounds for summary dismissal in the EO is satisfied), no notice or payment in lieu of notice is required.
During probation. During the first month of probation either party can terminate the employment without notice or payment in lieu of notice.
After probation. After the probation period (if any), either party can terminate by giving the agreed period of notice, but this must not be less than seven days. If there is no agreed notice period, one month's notice is required for employees who are employed for at least 18 hours a week for four weeks.
Employees who work less than 18 hours a week for four weeks have no minimum notice period if there is no agreed notice period.
Summary dismissal. Under the EO, an employer is entitled to dismiss an employee summarily (without notice), where the employee:
Wilfully disobeys lawful and reasonable order.
Is guilty of misconduct.
Is guilty of fraud or dishonesty; or
Is habitually neglectful in his duties.
Certain employees are protected from dismissal (see Question 20, Protected employees).
The term severance payment has a specific meaning in the EO (see below). The payments due on termination to continuous employees include the following:
Accrued wages. On termination of employment, employees are entitled to any wages owed for work performed up to the date of termination.
A payment in lieu of notice. This is payable if the employment relationship is terminated by either the employer or employee 'buying out' their notice period in circumstances where notice is required.
A payment for any accrued annual leave (relating to a completed leave year) that is untaken. This includes both statutory minimum leave and any additional leave to which the employee is entitled under the employment contract.
A payment for any pro rata unaccrued annual leave. This is annual leave that relates to the current leave year in which the employee's contract is terminated and for which annual leave has not yet accrued (provided that the employee has worked for more than three months in the leave year).
Any accrued end-of-year payment. This is payable on a pro rata basis, provided the employee has worked for more than three months of the year in relation to which the bonus is payable and has not been summarily dismissed. The employee is also entitled to be paid for a bonus which accrued in respect of the previous bonus year but which remained unpaid at the date of dismissal (regardless of the reason for dismissal).
A severance payment. This is payable to employees who are made redundant after having been employed continuously for at least two years. The amount is calculated using a statutory formula by reference to the employee's monthly wages and the period of continuous employment. Monthly wages above HK$22,500 are disregarded for the purposes of this calculation, and the maximum payment is HK$390,000. The severance payment can be reduced by gratuities based on length of service paid to the employee, and employee benefits accrued in an MPF or ORSO scheme attributable to contributions that the employer has made to the scheme to the extent that they relate to the employee's years of service for which the severance payment is payable. A severance payment may not be payable in certain cases if the employee who is made redundant unreasonably refuses a re-employment offer or has their contract of employment terminated, without notice or payment in lieu of notice in circumstances that justified summary dismissal.
A long service payment. This is payable to employees who are dismissed after having been employed continuously for at least five years (and in some limited situations where the employee terminates the employment, including on retirement at the age of 65 years). The formula for calculating a long service payment is the same as the formula for calculating a severance payment. No long service payment is payable if the employee is entitled to a severance payment, unreasonably refuses a re-employment offer in certain cases, or has their contract of employment terminated, without notice or payment in lieu of notice in circumstances that justified summary dismissal.
An employer must pay all sums due to the employee on termination as soon as is practical (and in any event within seven days) after dismissal. This includes long service payments. However, a severance payment must be made within two months after the employee claims it, although most employers pay the severance payment at the same time as other termination payments.
Procedural requirements for dismissal
Other than the requirement to give the relevant notice of termination, there are no formal procedures that must be observed to dismiss an employee lawfully. However, a 2013 Court of Final Appeal decision highlighted the importance of procedural fairness for employees in the processes leading up to summary dismissals. This includes conducting a comprehensive disciplinary investigation into any allegations of misconduct.
There is no requirement for the notice of termination to be in writing, but most employers give notice in writing and employment contracts often require written notice. The employer must provide a written statement of the employee's severance payment or long service payment (this is generally, but not invariably, included in the notice of termination).
It is not necessary to give an employee any reasons for dismissal. If employees have been employed continuously for two years, the employer must show a valid reason under the EO for terminating the employee's employment (see Question 20).
Employers must notify the Inland Revenue Department either one month before the dismissal or as soon as possible after the dismissal. If an employee's working visa is sponsored by the employer, the employer must also notify the Immigration Department of the dismissal.
Protection against dismissal
The EO enables any employee who has been employed continuously for two years and who is dismissed or whose contract is varied without his consent to make a claim for unreasonable dismissal to the Labour Tribunal. Once this claim is made, the employer must produce a valid reason for the dismissal or variation. Valid reasons include:
Capability or qualifications.
The remedies available to the employee for unreasonable dismissal are relatively limited. The Labour Tribunal can only make an order for re-instatement or re-engagement if the parties agree. Otherwise, the Labour Tribunal may only make an award for Terminal Payments which are, in effect, the unpaid statutory and contractual entitlements which the employer should have paid on termination.
There are a limited number of situations in which employers are prohibited from dismissing employees, including:
A female employee who has given notice of her pregnancy cannot be dismissed unless it is for a summary dismissal reason or if the employee is on probation (as long as the dismissal is not for a pregnancy-related reason) (see Question 13, Maternity rights).
An employee on statutory sick leave cannot be dismissed unless it is for a summary dismissal reason.
An employee who has suffered incapacity within the meaning of the ECO, before the appropriate claim has been resolved in accordance with the ECO, unless the Commission for Labour's specific approval is obtained (see Question 12).
Employees must not be dismissed for any of the following reasons:
co-operating in an inquiry of their employer (for example, in relation to safety at work);
being involved in trade union activity;
doing jury service;
being involved in strike action;
discriminatory reasons (see Question 17).
Definition of redundancy/layoff
Redundancy is defined in the EO as one of the following:
An employer has ceased (or intends to cease) to carry on business for the purpose for which the employee was employed by him.
An employer has ceased (or intends to cease) to carry on business in the place where the employee was so employed.
The requirements of the business for employees to carry out work of a particular kind either generally or in the place where the employee was employed have ceased, diminished or are expected to cease or diminish.
The statutory regulation of redundancies in Hong Kong is limited to an employee's entitlement to receive a statutory severance payment (see Question 19, Severance payments). There are no specific procedural rules in relation to consultation requirements or any other procedures in relation to collective redundancies.
Employee representation and consultation
Employees are not entitled to management representation on the board of Hong Kong companies.
Share sales. Employers are not required to consult with employees before transactions such as acquisitions, disposals or joint ventures.
Asset sales. In a transaction that involves a transfer of business, the employer should consider consulting with the employees whose employment is to be transferred to the new owner. This is because the employees can only be transferred to the new owner if the employees accept the employment offer from the new owner (see Question 24, Harmonisation of employment terms).
However, this consultation is not a legal requirement.
Employers are not required to consult with employees about major transactions.
Consequences of a business transfer
Automatic transfer of employees
Employees are not transferred automatically on a business transfer. If there is a change of ownership of a business, the employment contracts between the seller and his affected employees remains in place unless the employees:
Accept an offer of employment with the buyer.
Choose to resign; or
Are terminated by the seller on grounds of redundancy.
Where a seller's employee accepts an offer of employment with the buyer, the EO provides that the employee's preceding period of employment with the seller will count as a period of employment with the buyer(that is, the business transfer will not break the employee's continuity of employment).
Protection against dismissal
If an employee's employment is automatically terminated on the transfer of a business, that employee is entitled to claim for unreasonable dismissal (see Question 20, Protection against dismissal) and can be entitled to a severance payment (see Question 19, Severance payments).
The employee cannot make a claim for severance payment if the buyer makes a re-employment offer which is unreasonably refused by the employee. For the re-employment offer to be valid, it must comply with all of the following:
Be made not less than seven days before the termination by the seller.
Comprise terms of employment that are no less favourable to the employee than those in force immediately before the termination.
Take effect on or before the date of termination.
Harmonisation of employment terms
The new owner of the business usually wishes to employ any employees of the newly acquired business on the same terms as its existing employees. The new owner can offer the incoming employees terms that are different to their existing terms, and ensure uniformity. However, if the terms offered are less favourable than the existing terms, the employees:
Can refuse to accept them.
May be able to claim a severance payment if they are dismissed by the seller.
Therefore, many employers who acquire employees of a business through a transfer continue to employ them on their previous terms.
Employer and parent company liability
An employer can be liable for the acts of its employees?
A parent company can be liable for the acts of a subsidiary company's employees?
In general, the employer can be vicariously liable for all torts committed by the employee in the course of employment, whether or not the employer has obtained any benefit from it.
An employee is generally held to have committed a wrongful act in the course of employment if it is either:
A wrongful act authorised by the employer.
A wrongful and unauthorised manner of doing some act authorised by the employer.
The following must be established before the evidential burden shifts to the employer to show that the act was one for which the employer was not responsible:
That the employee was doing something in working hours, on the employer's premises; or
That the act had a close connection with the work that the employee was employed to do.
Vicarious liability does not imply that the employer has full liability for the employee's act. The court can apportion the damages between the employer and the employee if it is just and equitable to do so. This can happen if, for example, the employee did not act reasonably during employment.
Parent company liability
A parent company has no direct employment relationship with its subsidiary company's employees. Therefore, a parent company cannot be held vicariously liable - instead the subsidiary company is vicariously liable for the employee's actions.
Employees can apply to receive an ex-gratia payment from the Protection of Wages on Insolvency Fund (Fund), on the insolvency of an employer. The Fund is serviced by an annual levy of HK$250 on each business registration certificate issued. It covers:
Wages owed in respect of services rendered to the insolvent employer during the four months leading up to the employee's last day of service.
Pay for untaken annual leave and untaken statutory holidays.
Wages in lieu of notice.
Severance payments payable in accordance with the EO.
The following statutory caps apply to the amounts that employees can recover from the Fund:
Wages: must not exceed HK$36,000.
Wages in lieu of notice: must not exceed the lesser of:
the equivalent of one month's wages; or
Severance payment: must not exceed an aggregate of HK$50,000.
Wages in lieu of notice and severance payments must not have become due more than six months prior to the date of the application.
Health and safety obligations
Employers must take reasonable care for the health and safety of their employees, including providing first aid equipment and conducting fire drills (OSHO). The OSHO covers all conceivable workplaces, with a few exceptions such as aircraft or vessels in public places, and places where self-employed persons work.
In addition, employers must comply with the Factories and Industrial Undertakings Ordinance (FIUO) and the ECO. For example:
Under the FIUO, the proprietor and the employees must ensure the safety of certain industrial worksites, including factories, construction sites and repair workshops. Subsidiary legislation under the FIUO caters for hazardous activities on different worksites.
The ECO requires employers to provide compensation to employees who were injured in accidents arising out of or during the course of employment (see Question 1, Laws applicable to foreign nationals: Employees' Compensation Ordinance (ECO)).
Taxation of employment income
Foreign nationals working in your jurisdiction?
Nationals of your jurisdiction working abroad?
Foreign nationals working in Hong Kong are subject to Hong Kong salaries tax, if their employment income is derived from Hong Kong. Income is generally derived from Hong Kong if the employee has a Hong Kong employment. Some of the factors that will be taken into account in determining whether the employee has a Hong Kong employment are:
The employment contract was negotiated, entered into, and is enforceable in Hong Kong.
The employer is resident in Hong Kong.
The employee is remunerated in Hong Kong.
If the employee has a Hong Kong employment, but parts of the duties are performed outside Hong Kong, certain year-by-year relief or exemptions may apply. For example:
If the employee mainly works outside Hong Kong and only visits Hong Kong for 60 days or less in the relevant year, the employee is exempt from tax on his employment income.
Where the employee works outside Hong Kong, the employee is exempt from salaries tax on any income which is taxable outside Hong Kong of substantially the same nature as salaries tax, as a result of the employee's provision of services in the country imposing the tax.
If the foreign national continues to be employed by an overseas employer and is assigned to work in Hong Kong for a few years, he is likely to continue to be a non-Hong Kong employee and only income attributable to services provided in Hong Kong is subject to salaries tax.
Nationals working abroad
Nationals working abroad will be subject to salaries tax on their employment income if they have a Hong Kong employment. If the employee has a Hong Kong employment, but mainly works outside Hong Kong and only visits Hong Kong for 60 days or less in the relevant year, the employee is exempt from tax on his employment income. In addition, where the employee works outside Hong Kong, the employee is exempt from salaries tax on any income chargeable to tax outside Hong Kong of substantially the same nature as salaries tax, as a result of the employee's provision of services in the country imposing the tax.
If the national is seconded to, and becomes an employee of, an overseas employer, he is likely to become a non-Hong Kong employee, with only income attributable to services provided in Hong Kong subject to salaries tax.
Rate of taxation on employment income
Salaries tax is calculated on the employees' net chargeable income, that is, assessable income after deductions and allowances. In the tax year 2013/2014, the net chargeable income is charged at progressive rates of up to 17%. However, the total amount taxed is subject to a ceiling of 15% of the net total income, which is assessable income after deductions but before allowances.
Social security contributions
Both the employer and employee must make contributions under the MPF scheme.
In Hong Kong, an annual bonus for employees is common. As it is paid around the Lunar New Year, it is known as a "13th month payment", "Chinese New Year bonus", "double pay" or "end-of-year payment". This is common even among relatively senior employees in many business sectors, although high level employees in some sectors (such as investment banking) are more likely to be paid a bonus calculated by reference to their performance and/or the employer's financial performance. As bonuses can be substantial and are often an important incentive for employees, they are one of the most frequent causes of employment disputes.
The EO applies to the payment of a bonus that is "non-discretionary". However in practice most bonuses including "discretionary" bonuses will be regarded as "non-discretionary" for the purposes of the EO. There is no restriction on the:
Size of the bonus (which may comprise other elements, such as share options).
Method of calculation.
Time for payment.
Pursuant to the EO, upon termination of employment, an employee is entitled to be paid their:
Bonus for the previous bonus year if that bonus is unpaid at the date of termination.
Bonus on a pro rata basis for the bonus year in which the termination of employment took place. This is provided that the employee had been employed for at least three months of that bonus year and did not resign and was not summarily dismissed.
Bonus payments are usually payable along with the employee's other termination payments (see Question 19, Severance payments) regardless of any contractual provision in relation to payment.
Intellectual property (IP)
If an employee creates IP rights in the course of employment, the employer is generally the first owner of those rights, unless expressly agreed otherwise. If an employee creates a protectable work outside of the terms of employment, but in breach of a duty owed to the employer, the employer may be entitled in equity to the copyright, and can call for its assignment. The scope of employment should be carefully defined, as this is the basis on which the right automatically vests with the employer.
In any event, if IP rights are important to an employer, these rights should be expressly dealt with in the employment agreement.
Restraint of trade
Restriction of activities
It is possible to restrict an employee's activities during employment and after termination.
During employment, employees owe various implied duties to their employer, including:
A duty of loyalty, which requires an employee to act in the employer's best interest at all times.
A duty to keep confidential sensitive business information such as trade secrets and so on (subject to whistleblowing rules (see Question 18)).
An employer can also reinforce the implied duties by express contractual provisions. For example, an employer can expressly prohibit an employee from being involved with other businesses or similar occupations during employment.
Post-employment restrictive covenants
Restrictions on an employee's conduct may be extended beyond the term of employment by contract. Such restraints can be in relation to the misuse of property belonging to the employer, including certain customer connections, goodwill, and proprietary information such as confidential information and trade secrets or trade lists.
However, the courts have been reluctant to uphold any attempt to restrict the use of an employee's "ordinary stock of information" gained in the course of employment. What amounts to an ordinary stock of information can be information as to the general practice, business dealings or affairs of the employer or of its customers. Any attempt on the part of the employer to protect itself against mere competition is also generally unenforceable.
Employers also commonly seek to prevent an employee enticing other employees to leave, or going to work for a competitor for a period of time.
Post-employment restraints are often difficult to enforce. Generally speaking, they must do no more than is necessary to protect the legitimate proprietary interests of the employer. The restrictions must also be reasonable in scope, duration and geographical boundaries. Reasonableness is a matter of fact to be assessed on a case-by-case basis.
It is not necessary to provide any remuneration to an ex-employee who is subject to post-employment restrictions.
Proposals for reform
The Labour Advisory Board has recommended that private sector male employees (both married and unmarried), should be entitled to three days of statutory paternity leave at the same level of allowance as maternity pay (80% of the daily average of the wages earned in the 12 months prior to the start of the paternity leave). A bill to enact this provision is currently being drafted, but it is not yet known when the changes are expected to come into force.
Amendments have been proposed to allow the Labour Tribunal to order the reinstatement or re-engagement of an employee found to have been dismissed unlawfully and without a valid reason without the employer's consent. The current position is that the employer's consent is required in order for the employee to be reinstated.
There are also current proposals to introduce a "standard working hours" policy in Hong Kong. Public consultation on this subject commenced in January 2014.
Department of Justice Bilingual Laws Information System
Description. This website is an electronic database of the legislation of Hong Kong. It is established and updated by the Department of Justice.
Gareth Thomas, Partner
Herbert Smith Freehills
Professional qualifications. England and Wales, 1993; Hong Kong, 1998
Areas of practice. Employment; commercial litigation; insurance.
- Advising one of the world's largest container shipping companies on a complex cross-border High Court claim bought by a former employee (a managing director) over his dismissal and counterclaim against the employee for breach of fiduciary duties.
- Advising one of the largest Asia-based independent private equity firms on a dispute involving the dismissal of a senior partner. Advising on negotiations and drafting complex termination documents.
- Advising a global recruitment company seeking to restrain a team of ex-employees who resigned to start up a competing business in breach of their restrictive covenants.
- Advising a global manufacturing company on a Labour Tribunal claim arising from the termination of the employee's employment for gross misconduct (making unauthorised payments to state owned entities in the PRC).
- Assisting numerous clients with updating and standardising their employment documentation (including employment contracts restrictive covenants and share schemes).
- Drafting service agreements, updating staff handbooks and negotiating employment terminations.
Herbert Smith Freehills
Professional qualifications. Western Australia, 2007
Areas of practice. Employment.
- Advising an international logistics company in relation to the on-boarding of its most senior regional executive.
- Advising an international knowledge management service provider to negotiate the resignation of a senior executive.
- Advising an international bank in relation to the termination of and litigation threatened by one of its employees.
- Assisting a large international mining company with the day to day management of numerous workplace grievances and issues.
- Advising in relation to a large corporate restructure, including transfers of employment, avoiding redundancy claims and merging of workplace policies and procedures.
- Assisting in the management of equal opportunity and discrimination claims.