Understanding Employment Termination in Hong Kong: A Comprehensive Guide
Updated: Aug 11
Employment termination in Hong Kong follows specific regulations and practices designed to protect both employers and employees. An employment contract can be terminated in two ways:
Termination by notice
Immediate termination
Immediate Termination
An employer may terminate the contract without notice if the employee commits:
Willful disobedience of a lawful and reasonable order
Misconduct
Fraud or dishonesty
Habitual neglect of duties
During the first month of a probation period (if agreed upon), no notice is required for termination. An employee may terminate the contract without notice if there is:
Reasonable fear of physical danger by violence or disease
Ill-treatment by the employer
Permanent unfitness for the type of work engaged in, as judged by a medical practitioner
Termination by Notice or Payment in Lieu of Notice
Either party can terminate an employment contract by giving notice or providing payment in place of notice. The default notice period is seven days during probation and one month afterward. Parties may agree to shorter notice, but it must be at least seven days. If termination occurs within the first month of the probation period, neither notice nor payment is required.
Calculation for Payment in Lieu of Notice
The payment is calculated based on the employee's average daily or monthly wages earned in the 12 months preceding the notice of termination or the actual termination date if no notice is given.
Notice and Payment Requirements
Employment Condition | Length of Notice | Payment in Lieu of Notice |
During probation period | ||
Within the first month of probation | Not required | Not required |
After the first month of probation | As per agreement, but not less than 7 days | |
Continuous contract with no/after probation period | ||
Contract specifies notice period | As per agreement, but not less than 7 days | |
Contract does not specify notice period | Not less than 1 month |
Calculating Payment in Lieu of Notice
Notice Period Expressed in Days or Weeks
Table 1: Employment Condition, Length of Notice, and Payment in Lieu of Notice
Employment Condition | Length of Notice | Payment in Lieu of Notice |
During probation period | ||
Within the first month of probation | Not required | Not required |
After the first month of probation | ||
Where the contract makes provision for the required length of notice | As per agreement, but not less than 7 days | Refer to Table 2 |
Where the contract does not make provision for the required length of notice | Not less than 7 days | Refer to Table 2 |
For a continuous contract* with no/after probation period | ||
Where the contract makes provision for the required length of notice | As per agreement, but not less than 7 days | Refer to Table 2 |
Where the contract does not make provision for the required length of notice | Not less than 1 month | Refer to Table 2 |
*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: Calculation of Payment in Lieu of Notice
Notice Period Expressed in Days or Weeks | |
Average daily wages earned by an employee | |
in the 12-month period preceding the day when a notice of termination of contract is given** | x |
Number of days in the notice period for which wages would normally be payable to the employee | = Payment in lieu of notice |
Notice Period Expressed in Months | |
Average monthly wages earned by an employee | |
in the 12-month period preceding the day when a notice of termination of contract is given** | x |
Number of months specified in the notice period | = Payment in lieu of notice |
**Note: In calculating average daily/monthly wages, exclude periods when employees are not paid or not paid in full, such as rest days, statutory holidays, annual leave, sickness days, maternity leave, paternity leave, and any day when the employer does not provide work.
Termination Prohibition
An employee cannot be terminated in the following cases:
Confirmed pregnancy after submitting a pregnancy notice
While on paid sick leave
For giving evidence or information related to court proceedings or an employment law inquiry
For trade union membership or activities
After being injured at work without an agreement on compensation or before the issue of a certificate of assessment
Termination Payments
The amount payable to an employee upon termination depends on several factors, including the length of service, terms of the employment contract, and the reason for termination. Termination payments usually include:
Outstanding wages
Wages in lieu of notice, if applicable
Payment in lieu of untaken leave
Any outstanding sum of end-of-year payment and pro-rata end-of-year payment for the current period
Severance payment or long service payment, where appropriate
Other payments under the employment contract, such as gratuity, provident fund, etc.
Severance Payment
Employees who have worked for at least 24 months under a continuous contract are eligible for a severance payment if dismissed due to redundancy, non-renewal of contract, or layoff.
Severance Payment Calculation
Payment Type | Formula |
Monthly-paid employee | 2/3 of the last full month's wages × accountable service years |
Daily-rated/piece-rated employee | 18 days’ wages (chosen by the employee from the last 30 normal working days) × accountable service years |
The sum should not exceed 2/3 of HK$22,500 (US$2,879). The total entitlement is subject to a maximum payment of HK$390,000 (US$49,908). Severance payment must be made within two months of receiving a notice of claim from the employee.
Long Service Payment
Employees employed under a continuous contract for at least five years are entitled to long service payment if:
Terminated for reasons other than serious misconduct or redundancy
Contract expires and is not renewed
Employee dies (payment goes to spouse, children, or parents)
Employee is certified permanently unfit for the job and resigns
Employee resigns on grounds of old age (above 65)
Long Service Payment Calculation
The formula is the same as for severance payment, with a maximum entitlement of HK$390,000 (US$49,908). Part of the retirement scheme payment due to employer contributions may be deducted from the long service payment. Payment must be made within seven days of termination.
Dismissal Without a Valid Reason and Discrimination Risk
An employer's freedom to end a contract is not unlimited. The reason for a dismissal should be checked against the discrimination legislation first: sex, race, pregnancy, marital status, family status and disability are all protected grounds, and there is no qualifying period of service before an employee can bring a discrimination claim. Separately, an employee with 24 months of continuous service may claim that a dismissal was made without a valid reason. Such a dismissal is treated as unreasonable unless the employer can show it was for conduct, capability, redundancy, compliance with the law or another substantial reason. Claims of this kind are uncommon in practice and the remedies are limited, being reinstatement or re-engagement only where both sides agree, or a terminal payment that would usually have been due in any event. The practical safeguard is documentation: a recorded reason and a consistent process are what make a dismissal defensible.
Mutual Agreement, Settlement and Constructive Dismissal
Not every departure is a dismissal by the employer. A contract can also end by resignation, by the expiry of a fixed term, or by mutual agreement, and where the parting is negotiated it is usually recorded in a settlement agreement so that both sides have finality on outstanding payments and future claims; Hong Kong imposes no particular formalities for such an agreement to be valid. Employees have their own exit route as well. An employee who leaves because of a reasonable fear of physical danger, ill treatment, permanent unfitness for the work after five years of service, or wages left unpaid for more than one month is treated as having been dismissed, which means payment in lieu of notice and the usual termination entitlements follow. Two points matter when the final sums are calculated: an employee cannot receive both severance payment and long service payment, and the part of a retirement scheme benefit attributable to employer contributions can be offset against either.
This comprehensive guide aims to provide clarity on the processes and regulations surrounding employment termination in Hong Kong. For specific details and updates, always refer to the latest guidelines from the Hong Kong Labour Department.
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