[Restaurant Owners] Right Way to Lay Off Employees

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As COVID-19 persists, businesses around the world remain partly operational. Restaurants in particular were very affected by the pandemic, opting to cater take-outs and deliveries more than dine-ins. In Hong Kong, the government banned dine-in services for most of 2020 and only eased up on it when Chinese New Year in 2021 rolled around. Even then, however, restaurants were only allowed to seat a limited number of people with social distancing measures.

Some restaurants, however, have been forced to downsize. Pizza Hut, an international chain of restaurants, has recently filed for bankruptcy. The brand is set to close down 300 branches in the US as part of a deal between Pizza Hut’s parent company Yum Brands and NPC International, its largest US franchisee. 

Hong Kong’s labor force statistics showed that the unemployment rate of 5.9% in May 2020 rose to 6.2% in June the same year. Later in 2020, Dr. Law Chi Kwong, Secretary for Labor and Welfare of the HKSAR government, pointed out that Hong Kong’s unemployment rate has hit 6.6%, the lowest it has ever been in 16 years.  In particular, the unemployment rate of the consumption and tourism sectors (such as food services and accommodation businesses) combined totaled to 10.7% in April-June 2020. This is the highest rate of unemployment in these sectors since August-October 2003, which was when the SARS virus was at its peak. 

Restaurants and SMEs are pressured to make quick decisions as the pandemic remains in the air. Though they might have considered simply putting employees on unpaid leaves first, the sudden changes in each person’s situation today have prompted employers to make faster and harsher decisions to save the business—this is why some restaurants remained open, while some were forced to lay off employees or completely close shop.

However, is there a proper and improper way to lay off employees?

Dismissal without notice

According to Hong Kong’s Employment Ordinance, employers are not allowed to terminate a contract without notice unless the employee has wilfully committed a grave misconduct. Some of the noted acts of misconduct stated in the ordinance are as follows:

  • Wilfully disobeying a lawful and reasonable order
  • Committing acts of fraud and dishonesty
  • Habitually neglecting job duties (strike is excluded)
  • Continuously ignoring warnings about acts of misconduct 

Redundancy 

Should the business suddenly close down or change its operations due to redundancy, the employers should still give a notice to the employees. Redundancy, as per the Ordinance, has a wide definition. Generally, it is described as any situation wherein:

  • An employer decides to shut down their business due to unforeseen circumstances,
  • A certain department or area of the business will cease operations or;
  • An employee’s work in a certain business or field is no longer needed by the company. 

If an employer dismisses an employee without prior notice but said employee has not done anything to warrant it, the employer may be apprehended.

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Severance pay

Additionally, employers who dismiss employees without proper pay are also considered to break the law. 

Hong Kong’s EO states that if an employee who has been with the employer for at least 24 hours is to be suddenly dismissed because of redundancy, the employer shall pay them a severance payment of no more than HKD$390,000. Employees who have been laid off and/or have contracts expiring due to redundancy are qualified for severance pay as well.

The pay will be computed based on the date one is dismissed, and how long they have been employed. If they are a monthly-paid employee, their pay is calculated by using two-thirds of their last full month’s wages, or two-thirds of HKD$22,500, whichever is less, for every year served. On the other hand, for other payment schemes that aren’t on a monthly basis, the severance pay is computed by using 18 days’ wages based on any 18 days they choose out of their last 30 working days, or two-thirds of HKD$22,500, whichever is less, for every year worked.

Termination Payments

The items and amount of payments payable to an employee on termination of employment or expiry of the contract depend on a number of factors such as the length of service, the terms of employment contract and the reason for termination of 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. 

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Before dismissal 

In a time like ours now where businesses are being forced to shut down or let go of employees, termination payment is more important than ever. Finding out how much to give their employees upon dismissal should be the first thing on employers’ minds. 

Computing termination payments can be quite the task, especially in the restaurant industry where there is a lot of traffic and business. In order to avoid any possible dispute over it, employers can choose to use Workstem. The final pay calculator of Workstem can help restaurant owners with this as it will also consider the employee’s attendance, leaves, and allowance in its computation. 

Though it can’t be helped that some businesses might have to close down, it is important employers and employees part on a good note, and well within the law’s provisions. This applies not only to restaurant owners but everyone in a business as a whole.



(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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