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In recent years, the Hong Kong government has introduced measures to attract mainland enterprises and talent to the region. Mainland businesses must pay attention to differences in employment laws between the two jurisdictions. This article compares and analyses the legal requirements for employee dismissal in both regions.

Grounds for termination

In mainland China, employee dismissal must be based on statutory grounds, with arbitrary termination prohibited. The Labour Contract Law outlines valid grounds for unilateral termination including serious misconduct, gross negligence, incompetence, inability to work after a medical treatment period, and large-scale layoffs because of business or economic circumstances.

Hong Kong follows the common law principle of freedom of contract, allowing employers and employees to freely enter into or terminate employment agreements. Termination typically requires verbal or written notice, subject to specific restrictions under the Employment Ordinance. These include prohibitions on dismissing employees during pregnancy or paid sick leave, or for participating in a trade union or its activities. Similar provisions are found in article 42 of mainland China¡¯s Labour Contract Law.

Notice and payment in lieu

In mainland China, the notice period is set by law. An employee may be dismissed without prior notice in cases of the employee¡¯s misconduct such as serious offences or gross negligence. For terminations under article 40 of the Labour Contract Law ¨C on the grounds of the employee¡¯s incompetence, inability to work after medical leave or significant changes in the circumstances ¨C the employer must give 30-day notice or pay one month¡¯s wage in lieu of notice.

In Hong Kong, the notice period can be mutually agreed upon, provided the minimum requirements under the ordinance are met. During the first month of probation, either party may terminate the employment contract without prior notice. After the first month, termination requires notice as agreed, but not less than seven days. Without a specified duration, a default of seven days applies.

In the case of a continuous contract with no probation period, or after the probation period has passed, where an employee has worked for the same employer for at least four weeks with a minimum of 18 hours per week, notice must be given as per the contract, but not less than seven days. If no notice period is stipulated, one month¡¯s notice is required at minimum. The employer may also opt to pay wages in lieu of notice for the required notice period.

As in mainland China, however, a Hong Kong employer may summarily dismiss an employee without notice or payment in lieu of notice for the employee¡¯s following malpractice: (1) wilful disobedience of lawful and reasonable orders; (2) misconduct; (3) fraud or dishonesty; or (4) habitual neglect of duties.

Termination payouts

In mainland China, except for dismissing an employee for misconduct, employers are generally required to pay a severance. The statutory standard of severance pay is one month¡¯s wage for each year of the employee¡¯s service, based on the employee¡¯s average monthly wage over the 12 months preceding termination.

In Hong Kong, similar payouts include the severance payment and the long-service payment. Workers employed for a certain period and meeting specific conditions are entitled to either payout, except employees dismissed for serious misconduct.

Workers employed under a continuous contract for at least 24 months and dismissed for redundancy are entitled to severance payment. Redundancy constitutes a statutory ground for dismissal under the ordinance. Dismissal is considered redundancy if it results from: (1) the employer¡¯s ceasing or planning to cease operating; (2) the employer¡¯s ceasing or planning to cease operating at the employee¡¯s workplace; or (3) the employer¡¯s business no longer requiring, or anticipating a reduction in the need for, the employee¡¯s role.

Workers employed under continuous contract for at least five years are entitled to long-service payment if dismissed for reasons other than redundancy, resign because of permanent unfitness for their current role as certified by a doctor, or resign at the age of 65 or above.

An employee is entitled to either the severance payment or the long-service payment, but not both, for the same period of employment.

The amount of a severance payment or long-service payment is calculated by allowing two-thirds of the employee¡¯s monthly wage or two-thirds of HKD22,500 (USD2,893), whichever is less, for every year (and pro rata for an incomplete year) of employment under a continuous contract.

As in mainland China, an employer in Hong Kong must promptly pay a dismissed employee outstanding wages, bonuses, payment in lieu of notice, compensation for untaken annual leave and other related payments, in addition to severance payment or long-service payment mentioned above.

Unreasonable, unlawful dismissal

In mainland China, there is no judicial recognition of unreasonable dismissal. If an employer is found to have unlawfully terminated an employee, the employer may be ordered to reinstate the employment or pay compensation equivalent to twice the statutory severance due in lawful termination.

Hong Kong law differentiates between unreasonable dismissal and dismissal that is both unreasonable and unlawful. Valid reasons for termination include: (1) the employee¡¯s conduct; (2) capability or qualifications required for the role; and (3) redundancy or other genuine operational needs of the business. Unlawful dismissals cover: (1) terminating an employee who is pregnant, on paid sick leave or injured at work; and (2) retaliation for co-operating with official investigations or joining a trade union.

Someone employed under a continuous contract for at least 24 months may make a claim for remedies for unreasonable dismissal if terminated without a valid reason under the ordinance. The tribunal may order reinstatement or re-engagement (subject to mutual consent), or an award of terminal payments against the employer.

If an employee is dismissed without a valid reason under the ordinance and the dismissal is unlawful, the employee may make a claim for remedies. The tribunal may order reinstatement or re-engagement of the employee (without the employer¡¯s consent), or an award of terminal payments against the employer. A further compensation up to HKD150,000 may also apply.

Tracy Liu is a partner and Larry Lian is a counsel at Jingtian & Gongcheng