Termination of Employment

The Employment Ordinance (Cap. 57) (“the Ordinance”) governs employment relationships and the terms of employment contracts. It imposes certain prohibitions against termination of employment by employers. There are four types of termination:

  1. Termination by notice (by employers or employees),
  2. Termination by payment to replace notice (by employers or employees),
  3. Termination without notice (by employers), and
  4. Termination without notice (by employees).

To prohibit the leaving employee from doing certain things after the termination of employment, employers may add provisions in the contract such as non-disclosure/confidentiality clause, non-competition clause, and non-solicitation clause. For the restrictions to be legally effective, they must be clear, reasonable and necessary to protect the employer’s interest.

Prohibitions against termination of employment by employers

The employer may commit criminal offences if s/he terminates employment when the employee:

  • is pregnant and has served notice of her pregnancy, unless the pregnant employee is on probation during the first 12 weeks and that the dismissal is for reason other than the pregnancy;
  • is on paid sick leave;
  • has given information to the authorities that may be against the employer;
  • is injured without an agreement with the employee for employee’s compensation or a certificate of assessment and/or
  • engages in trade union activities.

Employers should also follow the anti-discrimination legislation, namely the Sex Discrimination Ordinance (Cap. 480), the Disability Discrimination Ordinance (Cap. 487), the Family Status Ordinance (Cap. 527), and the Race Discrimination (Cap. 602). Dismissal of employees must not be because of discrimination against the employee’s race, sex, marital status, pregnancy, disability or family status.

Termination by notice (by employers or employees)

Probation

During the first month of probation, either the employer or employee has the freedom to terminate the employment contract at any time without notice or payment to replace notice, even if the employment contract provides a notice period.

However, after the first month of probation, either party must give notice to the other party following the notice period in the employment contract. If the contract does not provide one, the notice period must be not less than 7 days.

After probation

Either the employer or employee may at any time terminate the contract by giving to the other party notice (oral or written). The parties are free to set the notice period in the employment contract but it must be not less than 7 days. If the contract does not provide one, the default notice period is not less than 1 month.

“Garden leave”

“Garden leave” provisions in an employment contract restrict an employee from performing his/her tasks during the notice period. The restrictions should not be longer than the notice period. They must be reasonable and necessary to protect the employer’s interests in order to be legally effective. For example, the employer may restrict the leaving employee from:

  • accessing the work computer or any databases containing sensitive information,
  • contacting clients, customers, suppliers or other business associates,
  • contacting colleagues for work purposes,
  • not holding themselves as a representative of the employer,
  • accessing the office, etc.

If “garden leave” provisions are not in the contract, the employee’s consent is needed to change the contract. Below are some factors:

  • the role and job duties of the employee,
  • the remuneration and benefits package the employee is entitled to,
  • the industry landscape (e.g. whether competing business is common),
  • the length of notice period, etc.

Termination by payment to replace notice (by employers or employees)

Probation

During the first month of probation, termination does not require notice so no payment is required.

After the first month of probation, either party may terminate the contract without notice by paying the amount the employee would have earned for the notice period to the other party. The amount is the daily average wages earned by the employee (any maternity/paternity leave, rest day, sickness day, holiday or annual leave must not be counted) times the number of days of the notice period.

After probation

Either the employer or employee may at any time terminate the contract without notice by paying the amount the employee would have earned for the notice period. The amount is the daily average wages earned by the employee (any maternity/paternity leave, rest day, sickness day, holiday or annual leave must not be counted) times the number of days of the notice period.

Termination without notice (by employers)

An employer may terminate an employment contract without notice or payment to replace notice if an employee:

  • intentionally disobeys a lawful and reasonable order;
  • behaves improperly and the misconduct is inconsistent with his/her duties;
  • is guilty of fraud or dishonesty; and/or
  • is regularly careless in his/her duties.

However, terminaition without notice by employers should only be used in very serious matters. An employee may claim against an employer for unreasonable and/or unlawful dismissal. The Labour Tribunal may order to either resume the employment or payment to the employee by the employer.

Termination without notice (by employees)

An employee may terminate an employment contract without notice or payment to replace notice if:

  • s/he reasonably fears physical danger by violence or disease not expressed or implied in the employment contract;
  • s/he is proved by a medical practitioner as being permanently unfit for a particular type of work and s/he has been employed under the contract for not less than 5 years;
  • s/he is badly treated by the employer; and/or
  • any wages are not paid within one month from the due date.

Non-disclosure/Confidentiality clause

The employment contract should state confidentiality obligations of the employee during employment and after termination. For example, the employee must:

  • keep the confidential information secret,
  • use the confidential information only for the performance of his/her job duties (which should be defined in another clause),
  • ensure that no person gets access to confidential information unless authorized by the employer, and
  • not to directly or indirectly make available the confidential information to any person or make copies of such.

The clauses should define “confidential information”. It should cover all written and oral information, whether in visual or electronic form, or on tape or disk. Secondary information generated such as charts, graphs, data, emails and communications relating to the confidential subject should also be covered.

Common exceptions for confidential information should be included in the contract and may include situations where the information has become public, the employer has agreed that certain information is not confidential, and disclosure of the confidential information is lawfully required.

The clauses must state how long it affects the ex-employee after termination of employment. They may further require the return of confidential information upon termination of the employment, such as the return of all work documents and copies, account information for security access to computer databases and other important documents such as client contacts. The employer may also require the employee to sign an agreement that all confidential information has been returned upon termination of the contract.

Non-competition clause

Employers may add provisions in the employment contract to prohibit the ex-employee from joining a competing new employer or setting up a competing business. Below are some factors:

  • Duration: It is common to have a 3-month restriction, but longer prohibition may also be legally effective if the employer can give explanations. For example, a 12-month restraint period may be lawful for a senior broker.
  • Type of restricted activity: The clauses must identify what type of business in which industry the ex-employee is prohibited from joining or setting up. The nature of business and the industry landscape should be considered.
  • Geographical scope: The clauses must specify the geographical scope for the restrictions according to the scale of the employers’ business. A provision which prohibits the ex-employee from engaging in competing business worldwide is likely to be illegal.
  • The seniority and expertise of the ex-employee
  • The likely existence of competing employers, etc.

Non-solicitation clause

Non-solicitation clauses prevent the ex-employee from taking away clients or other employees after termination. They are important if the ex-employee occupies a role of seniority, has close connections with clients, important business associates or other employees, or is influential in the company. Below are some factors:

  • Protected groups:  The non-solicitation restrictions should be limited to an identified group of employees, clients, customers or other individuals and companies whom the ex-employee may have close business relationships with within a certain amount of time from the ex-employee’s termination.
  • Scope of restriction: The clause should specify the conduct of the ex-employee subject to the non-solicitation restriction, such as not to canvass, solicit, interfere with or entice away any person from the protected groups. Overly simple terms like “not to contact other employees” should be avoided.
  • Duration: It depends on the circumstances, e.g. how specifically the protected groups are identified, how influential and significant the ex-employee is to existing employees and other customers, and whether the employer relies on a few suppliers or major customers for its business.
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