The Background

It is often said that Hong Kong employment law is relatively easy and less complex than other jurisdictions like the mainland and Japan. In some respects this is true. Leaving aside those areas which are complex (and there are quite a number), a key and valid basis for this view is the relative ease of terminating employment contracts here.

Put simply, as long as the employer is happy to pay all that is due under the employment contract and the relatively low sums prescribed by local legislation, it can terminate an employee's employment with little risk of legal exposure. This does pre-suppose that there are no other complicating factors, for example, discriminatory conduct or the decision being implemented when the employee is on maternity leave or sick leave.

It is therefore generally easy to give notice, make the necessary payments and have an uncontroversial exit. In Hong Kong, the exit is then frequently described as a "resignation" by the employee.

However, one issue that seems to be coming up more and more frequently is the issue of employees who are found to have engaged in serious misconduct. With ever-increasing compliance and regulatory obligations, it is perhaps inevitable that more employees will be found to have breached such obligations.

The question is: should Hong Kong employers take the easy option when employees misbehave?

The Legal Position

The legal principles in Hong Kong are fundamentally the same as in the other common law jurisdictions. Any employer has the right to terminate an employee's contract with immediate effect in cases of serious misconduct. In such cases, the contract can be brought to an end and the employee does not have to be paid the usual termination payments.

However, although the law is the same in principle, in our experience there is a key difference in practice in Hong Kong. The approach adopted by the Labour Tribunal, and confirmed in local case law, is that a very high degree of misbehaviour is required to justify summary termination of an employment contract. The decision to terminate for gross misconduct is seen as an exceedingly serious step to take and is viewed as a "capital punishment".

Our own experience is that behaviour that would be seen as sufficiently serious to justify the immediate termination of an employment contract in other jurisdictions has not been accepted as such justification in Hong Kong.

Given the availability of a low-key termination with little risk and the very high threshold to establish grounds for summary termination, it is perhaps unsurprising that employers choose the path of least resistance. This occurs even in cases of clearly established and serious misconduct.

However, the decision may not always be the right one for the business. Sometimes, the local desire to discretely exit the employee on agreed terms and move on with the least fuss can have unintended consequences.

When making a decision about how to respond to an employee's established gross misconduct, several questions might come to mind. How realistic is it that the exit terms can be kept confidential? If the agreed terms become widely known, how would this have an impact on both the credibility of the organisation and its commitment to compliance? Would the handling of this exit have any adverse impact on the organisation's values and culture?

Also, are there any risks that the handling of this situation might have an adverse impact in any future litigation or regulatory process? Consider, for example, if the individual concerned is responsible for sanctioned activity - how would it look if the employer is shown to have given them a generous exit payment?

The Resolution

Every situation is different and depends on its facts. However, deals paid to employees, especially senior ones who leave in dubious circumstances, are unlikely to find favour with staff and other stakeholders.

Of course, investigating allegations of wrong-doing takes time and money and diverts precious resources. But the cost of not taking the difficult decision to investigate, and then potentially firing a senior employee, may have a bigger impact on culture and reputation than was anticipated.

DLA Piper is a global law firm with 4,200 lawyers located in more than 30 countries throughout the Americas, Asia, Europe and the Middle East. Pattie Walsh is a partner and head of DLA Piper’s Asia-Pacific employment practice. She writes extensively for legal and HR publications, with a particular focus on multi-jurisdictional employment work.

The information contained in this article should not be relied on as legal advice and should not be regarded as a substitute for detailed advice in individual cases. If advice concerning individual problems or other expert assistance is required, the service of a competent professional adviser should be sought.