It’s time to say goodbye – Key points to note when terminating an employment
Introduction
“All good things must come to an end”. This applies to employment as
well. Some of our clients and friends have requested us to write a piece on
termination of employment contract. This article sets out the main points.
Termination of
contract of employment
Generally speaking, a contract of employment may be terminated by the
employer or the employee by (1) giving a notice of termination, (2) payment in
lieu of notice or (3) a combination of both.
For example, if the employment contract provides that either party may
terminate the contract by giving the other one-month notice, then the employer
may terminate the employment by:
1.
Giving the employee one-month notice: This means the employee will need
to work for another month and then the employment will come to an end.
2.
Payment in lieu of notice: The employer pays the employee wages that he
would have earned during the one-month notice period (as if the contract were
terminated by notice) and the employment terminates immediately.
3.
A combination of (1) and (2): Say, if the employer only wants the
employee to work for two more weeks and then leave, the employer may serve
notice on the employee and at the end of the two weeks, terminates the
employment immediate by payment in lieu of the remaining two weeks.
Employment protection
Part VIA (Employment Protection) of the Employment Ordinance (Cap. 57)
(“EO”) provides certain protection
to employees from being dismissed by their employers so that employers may not evade
their liabilities under the EO.
Unreasonable dismissal may become relevant if an employee has been
employed under a continuous contract for not less than 2 years and is dismissed
by the employer other than for a valid reason specified in the EO. Valid
reasons under the EO include:
1.
the conduct of the employee;
2.
the capability or qualification to perform work;
3.
redundancy or other genuine operational requirements of the business;
4.
statutory requirements; or
5.
other substantial reasons.
Where an employee raises a claim of unreasonable dismissal, the employer
is presumed to have terminated the employee with an intention to extinguish or
reduce a right, benefit or protection that the employee has under the EO. It is
then up to the employer to show a valid reason. In other words, the employer
has the burden of proving on the balance of probability that he has a statutory
valid reason to do so.
Unlawful dismissal
An employee is unlawfully dismissed if he/she is dismissed:
1.
during pregnancy and maternity leave;
2.
during paid sick leave;
3.
after work-related injury and before determination/settlement and/or
payment of compensation under the Employees’ Compensation Ordinance (Cap. 282)
(“ECO”);
4.
by reason of the employee exercising trade union rights; or
5.
by reason of the employee giving evidence for the enforcement of
relevant labour legislation.
Save for the exceptions provided by the EO or ECO (as the case may be),
it is a criminal offence for an employer to unlawfully dismiss an employee.
Terminal payments
Upon termination of an employment contract, there are terminal payments
that an employer may be required to pay to the employee. They may
include:
1.
wages for work performed up to the date of termination;
2.
payment in lieu of any untaken annual leave, and any pro rata annual
leave pay for the current leave year;
3.
any outstanding sum of end of year payment or annual bonus, and pro rata
end of year payment or annual bonus for the current payment period;
4.
payment in lieu of notice, if any; and
5.
other payments undertaken in the employment contract.
Under the EO, an employer shall pay all the terminal payments to the
employee as soon as practicable and in any case not later than 7 days after the
date of termination or expiry of contract. Failure to do so is a criminal
offence.
Separation agreement
If the employer is minded to make any additional payment (i.e. extra
payment in addition to what the employee would have been entitled to under the
employment contract and the EO), it is advisable for the employer to enter into
a “separation agreement” with the employee setting out the terms of the
separation and any other post-employment restrictions or obligations.
The separation agreement should contain a settlement clause, where the
employee agrees to waive and release all claims that he has or may have against
the employer company, its directors, officers, etc. The additional payment will
serve as “consideration” for the contract, in order to avoid any subsequent
challenge that the settlement agreement is void for lack of consideration.
The separation agreement may also cover other related issues and have
provisions relating to non-disclosure, post-employment confidentiality, not to
make disparaging remarks against the employer or its officers, future
cooperation with the employer, etc. as the case may be.
Takeaway
Termination of employment can be straightforward if the employment
contract is properly drafted, proper notice of termination is served in
accordance with the contract, the separation process is handled tactfully, and
the employer properly pays what is due to the employee. We have covered the
main points regarding the termination of an employment contract above.
However, in our experience, it may not be easy to terminate the
employment of a disgruntled employee, who is willing to make claims that are
unsubstantiated (or even false) against the employer. For example, a long-serving
senior employee who sensed that the employer may be about to give him notice of
termination and, before the employer does so, presents the employer with
medical certificates in support of certain mental sickness and starts taking
sick leaves that he has accumulated over the years.
Termination of employment of (potentially) troublesome employees often
requires carefully planning and coordination between HR officers, the
supervisors of the employee concerned and legal advisors. It is recommended
that legal advice should be obtained. If in doubt, it is always prudent to
speak to an employment lawyer.
For enquiries,
please feel free to contact us at: |
E: employment@onc.hk T: (852) 2810
1212 19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong
Kong |
Important: The law and procedure on
this subject are very specialised and
complicated. This article is just a very general outline for reference and
cannot be relied upon as legal advice in any individual case. If any advice
or assistance is needed, please contact our solicitors. |
Published by ONC Lawyers © 2022 |