Redundancy Laws in Hong Kong – What Employers Need to Know

Last December during the festive season, retail sales in Hong Kong saw a 21% year-on-year drop (Census and Statistics Department, Hong Kong). Looking at the 4th quarter alone, retail sales suffered a steep plunge of 24.1% compared to 2018.

2019 as a whole has been a low year for Hong Kong retail, with 11 consecutive months of downturn.  Much of this was due to the social movement around the city, resulting in protests on the streets, deterring customers and businesses alike.

Image Source: Trading Economics

2019 witnessed some of the lowest retail sales figures in years. The downturn in retail is in part due to disputes between protestors and the Hong Kong government, as well as the evolving trade tensions between the US and China.

Now, as we enter into the second month of 2020, Hong Kong faces yet another challenge with the outbreak of the Novel Coronavirus (2019-nCOV). In January 2020, according to the Land Registry, the value of all property transactions in the month saw a 17% drop. 

Q3 of last year, Hong Kong saw a record low GDP growth rate at -3%, lowest in the last 10 years. While many are optimistic as the novel coronavirus is said to likely be contained further in the year, businesses are still faced with tough sales figures in this season.

Image Source: Trading Economics

Hong Kong Labour Law: Redundancy, Severance Payment and Long Service Payment

As it stands, many companies may be affected by the slow down in Hong Kong economy.  In September of 2019, American fast-fashion retailer Forever 21 closed down its only store in Hong Kong.

At around the same time, Prada and now Louis Vuitton have also announced the decision to not renew their contracts for certain stores in light of prevailing market conditions. Hospitality is another industry that has been impacted heavily, as people hold off on travels in light of the outbreak.

With major corporations caving into the pressures of the market, we’re faced with the harsh reality of the times. For companies who may be looking to pull out of Hong Kong with as little legal repercussions as possible, here’s what you need to know about redundancy laws in Hong Kong.

What Is Dismissal by Reason of Redundancy?

For a dismissal to be considered by reason of redundancy, the employee dismissal must be made due to at least one of the following reasons:

  1. the employer closes or intends to close his business;
  2. the employer has ceased, or intends to cease, the business in the place where the employee was employed; or
  3. the requirement of the business for employees to carry out work of a particular kind, or for the employee to carry out work of a particular kind in the place where the employee was employed, ceases or diminishes or is expected to cease or diminish.

Is It Necessary to Pay Severance Payment to Employees Dismissed Due to Redundancy?

Employers are required to make a severance payment to employees dismissed on the basis of redundancy. According to the Employment Ordinance, severance payments need to be paid within 2 months following the receipt of a written notice claiming such payment from the employee.

As an Employer, Am I Required to Pay Both Severance Payment and Long Service Payment in the Case of Redundancy?

In Hong Kong, employees who have over 5 years of service under a continuous contract are eligible for long service payment. However, employers aren’t required to make a long service payment in the case of a redundancy dismissal and are only responsible for severance pay.

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Maintain Clear Communications With Employees

For a smooth redundancy process, employers should transparently communicate the line of procedures following the notice. By doing so, you mitigate the potential to run into misunderstanding which might occur along the way.

Gain a Thorough Understanding of What Is Required by Law

In the case of Hong Kong, it is important that employers are aware of and pay dismissed employees’ severance payments accordingly. 

Consider Using an Outplacement Service in the Case of Redundancy

Outplacement is a support service provided to redundant employees. Outplacement services are especially popular among corporations that have decided to cease business in a given location. 

Providing dismissed employees with outplacement support can help protect the company against potential backlash from wrongful termination lawsuits as well as preserve the overall brand on a higher level.

Want to learn more about our outplacement service support? Email us at frontdesk@linksinternational.com or get in touch with one of our local representatives today.

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