How to Legally Terminate Employees When the Business is Slumping?

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Recently, I saw a post on the Internet, saying as the outbreak of the COVID-19, a business owner in a small-sized company was seriously affected by the epidemic. In order to save money, he wanted to dismiss some employees summarily. What the employer wanted to ask was “how can I not get involved in a lawsuit when dismissing employees?”.

When dismissing employees, we really need to be cautious. If we do not understand the Employment Ordinance(EO) and summarily dismiss employees, it will easily break the law. Therefore, before fire employees, we need to think of the following conditions:

  1. Is an employee still within the first month of probation?

If an employee is employed under a continuous contract and he is within the first month of probation, an employer does not need to give employee notice or payment in lieu of notice. After the first month of probation where a contract makes provision for the required length of notice, as per the agreement, but not less than 7 days.

  1.  Can an employer summarily dismiss an employee?

When terminated the employment contract, an employer cannot summarily dismiss an employee if he hasn’t committed very serious misconduct. An employer may summarily dismiss an employee without notice or payment in lieu of notice if the employee, in relation to his employment, in relation to his employment: 

  • wilfully disobeys a lawful and reasonable order; 
  • misconducts himself; 
  • is guilty of fraud or dishonesty; or 
  • is habitually neglectful in his duties (exclude taking part in a strike)

Note: Summary dismissal is a serious disciplinary action. It only applies to cases where an employee has committed very serious misconduct or fails to improve himself after the employer’s repeated warnings.

Moreover, employers are not allowed to dismiss an employee who is confirmed pregnant, on paid sick leave, giving evidence or information to the authorities, in trade union activities, and injury at work.

3. Termination Payment

The items and amount of payments payable to an employee on termination of employment depend on a number of factors such as the length of service, the terms of employment contract, and the reason for termination of the contract. For quick reference, termination payments usually include: 

  • outstanding wages;
  • payment in lieu of notice, if any; 
  • payment in lieu of any untaken annual leave, and any pro rata annual leave pay for the current leave year; 
  • any outstanding sum of end of year payment, and pro rata end of year payment for the current payment period; 
  • where appropriate, long service payment or severance payment; 
  • other payments under the employment contract, such as gratuity, provident fund, etc. 


Severance Payment and Long Service Payment 

Under Chapter 11 of the EO, an employee will not be simultaneously entitled to both long service payment and severance payment. Generally, severance payment applies to the employee who is dismissed by reason of redundancy. If the company’s business slumps and employees need to be dismissed, it is necessary to clearly understand whether the dismissal is by reason of “redundancy”. The calculation method and compensation method for different reasons are also different.

Meaning of Redundancy 

  • the employer closes or intends to close his business;  
  • the employer has ceased, or intends to cease, the business in the place where the employee was employed; or  
  • 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. 

Read more: As Layoffs Spread, How to Calculate Severance Payment or Long Service Payment to Employees?


In the current social situation, the rate of employee turnover is relatively high. There are often cases of employees being dismissed or leaving on their own initiative. However, in any case, the time and reason for employees’ leaving will be related to their final payment and the form IR56F. If you calculate the wrong amount, you might engage in a lawsuit!

Human resource management system —— Workstem, the function of the termination payment calculation will help you to finish all the final payments at once. It can also export IR56F with one click, saving you the time of searching data from those spreadsheets!

Payrun – Final Pay:

Setting of Tax Form – IR56F:



(The article on this website is intended to be for reference and general information purposes only. Workstem does not warrant or represent that such information is complete, accurate or up to date. It should not be treated as a complete and authoritative statement of law or court practice, or a substitute for professional legal advice.)

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