Wrongful Dismissal and Executive Employment Claims in Hong Kong
The termination of employment can have significant financial and professional consequences, particularly for senior executives, bankers, regulated professionals and employees whose compensation includes bonuses, share awards or other long-term incentive arrangements.
While Hong Kong law generally permits employers to terminate employment on notice or by making a payment in lieu of notice, employees are not without protection. In many cases, a dismissal can give rise to claims for unpaid contractual entitlements, deferred compensation, incentive awards or other benefits. The position is often more complex than it initially appears.
This article provides a high-level overview of employee rights following termination and highlights how David Cameron Law Office (DCLO) can assist.
What Is an Employee Entitled to Following Termination?
An employee's entitlements following termination depend on both the Employment Ordinance (Cap. 57); and the terms of the relevant employment contract and any related bonus, share award or incentive plans.
The Employment Ordinance establishes the statutory minimum entitlements. These commonly include:
outstanding wages and other contractual remuneration;
accrued but untaken annual leave;
outstanding Mandatory Provident Fund (MPF) contributions;
payment in lieu of notice (where applicable);
pro rata annual leave for the current leave year;
severance payments in redundancy situations (subject to statutory requirements); and
long service payments where the relevant eligibility criteria are met.
In addition to statutory rights, employees may have valuable contractual claims arising under their employment agreement. Depending on the circumstances, these may include:
annual or deferred bonuses;
guaranteed bonus arrangements;
share options and restricted stock awards;
carried interest or profit-sharing arrangements;
long-term incentive plans;
pension benefits; and
other contractual benefits.
The value of contractual claims often exceeds the statutory amounts payable under the Employment Ordinance, particularly for senior employees.
Protection Against Dismissal
In Hong Kong, an employer is generally not required to establish a particular reason for terminating employment, provided the employment contract and statutory requirements are complied with.
However, employees benefit from important statutory protections. For example, an employer is generally prohibited from dismissing an employee during:
a period of statutory paid sick leave; or
pregnancy and maternity leave protections.
Employers who breach these protections may face statutory liability, regardless of what is provided in the employment contract.
Common Issues For Senior Executives and Financial Services Professionals
Although every situation is different, certain issues arise repeatedly for senior executives and financial services professionals.
Deferred Bonuses and Incentive Awards
Many senior employees receive a substantial portion of their compensation through deferred cash bonuses, restricted shares or other incentive arrangements which vest over time.
Employers frequently contend that unvested awards are forfeited upon departure. Whether this position is correct depends on the contractual documentation, incentive plan rules and the circumstances surrounding the termination.
Share Awards, Options and Equity Compensation
The treatment of equity compensation is often one of the most valuable aspects of a departure.
Questions commonly arise regarding:
vesting of outstanding awards;
treatment of "good leaver" and "bad leaver" provisions;
accelerated vesting rights;
forfeiture provisions; and
post-termination restrictions attached to awards.
Restrictive Covenants and Garden Leave
Employment contracts frequently contain provisions designed to restrict an employee's activities following departure. These may include:
non-compete restrictions;
non-solicitation provisions;
non-dealing clauses;
confidentiality obligations; and
garden leave requirements.
The enforceability of these restrictions depends on the specific facts and drafting and should not be assumed.
Regulatory Notifications
For licensed individuals working in regulated industries, dismissal may have implications extending beyond the employment relationship itself.
Employers may be required to notify regulators such as the Securities and Futures Commission (SFC) or Hong Kong Monetary Authority (HKMA) when certain employees depart. The manner in which a departure is characterised can have significant implications for future employment opportunities and regulatory standing.
Frequently Asked Questions
What makes DCLO well placed to act for employees?
DCLO regularly advises on complex commercial disputes, regulatory matters, private equity transactions, fund structures and executive compensation arrangements.
This broader commercial and regulatory experience can be particularly valuable where employment disputes involve:
bonus and incentive arrangements;
carried interest interests;
equity compensation;
team moves;
restrictive covenants;
private equity and fund structures; or
regulatory and licensing issues.
As an independent Hong Kong law firm, DCLO may also be able to avoid conflicts of interest that can arise at larger firms. This can be particularly important where a claim is being pursued against a large financial institution, multinational group or other major corporate employer.
How does DCLO charge for employment disputes?
DCLO typically works on a fixed-fee basis wherever appropriate. Fixed fees provide greater certainty regarding legal costs and allow clients to understand the likely cost of each stage of a matter before work is undertaken.
Can I claim an unpaid bonus if it is described as discretionary?
Potentially. The fact that a bonus is described as "discretionary" does not automatically mean it cannot be challenged.
The answer depends on the wording of the contract, bonus plan rules, employer practices and the circumstances of the termination.
What happens to my shares, options or deferred compensation when I leave?
This depends on the relevant plan rules, award documentation and employment contract. The position is often more nuanced than employers initially suggest and requires careful review of the relevant documents.
Can my employer terminate me shortly before a bonus or share award vests?
Potentially. However, whether doing so affects your entitlement will depend on the contractual arrangements and surrounding circumstances. Early legal advice is often important in preserving potential claims.
Can DCLO negotiate with my employer without commencing proceedings?
Yes.
Formal proceedings are often not the first step. In many cases, disputes can be resolved through strategic pre-action correspondence and negotiation.
DCLO can review the relevant employment documents, assess potential claims, prepare correspondence to the employer and seek to negotiate a commercial resolution. Court or Labour Tribunal proceedings are generally commenced only where the dispute cannot be resolved through negotiation.
For many senior employees, the most valuable claims following termination are not statutory claims under the Employment Ordinance, but claims relating to bonuses, deferred compensation, equity incentives and post-termination restrictions. Obtaining legal advice at an early stage can help ensure that valuable rights are identified and preserved before decisions are made or agreements are signed.
Matthew Love, Partner
Matthew advises private capital firms, funds and companies on general corporate matters, M&A transactions, joint ventures, exits, restructurings and portfolio company matters. He has a proven track record and his work spans a variety of sectors. Learn more about Matthew.
