Chapter 9: Termination of Contract of Employment

Termination of Employment Contract by Notice or Payment in lieu of Notice

A contract of employment may be terminated by the employer or employee through
giving the other party due notice or payment in lieu of notice. The length of notice or
the amount of payment in lieu of notice required are:

Table 1
Employment Condition Length of Payment
notice in lieu of
notice

During within the first month of probation not required not required
Probation
Period
after the Where contract makes as per
first month provision for the required agreement, Table 2
of length of notice but not less
probation than 7 days

Where contract does not not less than

make provision for the 7 days notice Table 2
required length of notice

For a where contract makes provision for the as per

continuous required length of notice agreement, Table 2
contract* with but not less
no / after than 7 days
probation not less than Table 2
where contract does not make
period 1 month
provision for the required length of
notice

* For a non-continuous contract with no / after probation period, the length of notice
shall be the agreed period; please refer to Table 2 for the corresponding payment
in lieu of notice.
 Table 2

Average daily wages

earned by an
employee Number of days in the
Notice period Payment
in the 12-month notice period for which
expressed in wages would normally in lieu of
period preceding the X =
days or weeks be payable to the notice
day when a notice of employee
termination of
contract is given*

Average monthly
wages earned by an
employee
Notice period Payment
in the 12-month Number of months
expressed in specified in the notice in lieu of
period preceding the X =
months period notice
day when a notice of
termination of
contract is given**

*In case a notice has not been given, one shall adopt the average daily wages of the
employee in the 12-month period preceding “the day when the contract is
terminated”.

**In case a notice has not been given, one shall adopt the average monthly wages of
the employee in the 12-month period preceding “the day when the contract is
terminated”.

NOTE: In calculating the average daily / monthly wages, (i) the periods for which an
employee is not paid his wages or full wages, including rest day, statutory holiday,
annual leave, sickness day, maternity leave, paternity leave, sick leave due to work
injuries or leave taken with the agreement of the employer, and any normal working
day on which the employee is not provided by the employer with work; together with
(ii) the sum paid to the employee for such periods, should be excluded. (see Appendix
1 for details)
Termination of Employment Contract Without Notice or Payment in lieu of
Notice
An employer may summarily dismiss an employee without notice or payment in lieu
of notice if the employee, in relation to his employment:

1. wilfully disobeys a lawful and reasonable order;

2. misconducts himself;
3. is guilty of fraud or dishonesty; or
4. is habitually neglectful in his duties.

Taking part by an employee in a strike is not a lawful ground for an employer to

terminate the employee's contract of employment without notice or payment in lieu.

NOTE: Summary dismissal is a serious disciplinary action. It only applies to

cases where an employee has committed very serious misconduct or
fails to improve himself after the employer's repeated warnings.

An employee may terminate his employment contract without notice or payment in

lieu of notice if:

1. he reasonably fears physical danger by violence or disease;

2. he is subjected to ill-treatment by the employer; or
3. he has been employed for not less than five years and is certified by registered
medical practitioner or a registered Chinese medicine practitioner as being
permanently unfit for the type of work he is being engaged (see Chapter 11).
Statutory Restrictions on Termination of Employment Contract
An employer shall not dismiss an employee under the following circumstances:

Maternity protection An employer shall not dismiss a female employee

who has been confirmed pregnant and has served a
notice of pregnancy.

Paid sick leave An employer shall not dismiss an employee whilst

the employee is on paid sick leave.

Giving evidence or An employer shall not dismiss an employee by

information to the reason of his giving of evidence or information in any
authorities proceedings or inquiry in connection with the
enforcement of the Employment Ordinance, work
accidents or breach of work safety legislation.

Trade union activities An employer shall not dismiss an employee for trade
union membership and activities.

Injury at work An employer shall not dismiss an injured employee

before having entered into an agreement with the
employee for employee's compensation or before
the issue of a certificate of assessment.

Offences and Penalties

An employer dismissing an employee under the above circumstances is liable to
prosecution and, upon conviction, to a fine of $100,000.
Termination Payments
The items and amount of payments payable to an employee on termination of
employment or expiry of the contract depend on a number of factors such as the
length of service, the terms of employment contract and the reason for termination
of contract. For quick reference, termination payments usually include:

• outstanding wages;
• payment in lieu of notice, if any;
• payment in lieu of any untaken annual leave, and any pro rata annual leave
pay for the current leave year;
• any outstanding sum of end of year payment, and pro rata end of year
payment for the current payment period;
• where appropriate, long service payment or severance payment;
• other payments under the employment contract, such as gratuity based on the
length of service, provident fund, etc.

Time of Making Termination Payments

An employer shall pay all the termination payments, except for severance
payment, to the employee as soon as practicable and in any case not later than
seven days after the date of termination or expiry of contract.

For severance payment, an employer shall make payment not later than
two months from the receipt of a notice from an employee claiming for severance
payment.

Offences and Penalties

An employer is required to pay interest on the outstanding wages due to the
employee if he fails to pay wages to the employee within seven days after the
termination or expiry of contract.

An employer who wilfully and without reasonable excuse fails to pay termination
payments when they become due is liable to prosecution and, upon conviction, to
a fine of $350,000 and to imprisonment for three years.