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It’s time to say goodbye – Key points to note when terminating an employment

2022-11-28

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
W:
www.onc.hk                                                                    F: (852) 2804 6311

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


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