Under what circumstances do I have to pay severance payment and long service payment? Definition of “layoff” and “lockdown” in the Employment Ordinance

For the severance payment and the long service payment in the Hong Kong labor law, even senior personnel department colleagues may confuse, and it is also a topic that many employers are puzzled by.

Under what circumstances do I need to pay severance payment and long service payment? How are the Employment Ordinance and the Employees’ Compensation Ordinance defined? This article will introduce the eligibility for severance payment and long service payment, and related matters needing attention.

When is severance payment required?

Severance Payment (Severance Payment), is compensation when an employee is laid off or the company closes. According to Chapter 57 of the Employment Ordinance, it is only applicable to employees who have been employed for not less than 24 months (i.e. two years), and they must meet one of the following conditions to be eligible for severance payment:

• Employee dismissal due to redundancy (“dismissal” will be defined below);

• The employee is not renewed due to redundancy reasons after the expiry of the fixed-term employment contract;

• An employee is suspended from work (“lockout” will be defined below).

When is long service payment required?

According to the Employment Ordinance, the compensation item of Long Service Payment is applicable to employees who have been employed on a continuous contract for 5 years. Likewise, they must meet one of the following conditions to claim LSP:

• Employee dismissed by the employer (but not summarily dismissed or laid off for gross negligence);

• The employee is not renewed after the fixed-term employment contract expires;

• the employee dies while in service;

• The employee has been certified by a registered medical practitioner or registered Chinese medicine practitioner that he is permanently unsuitable for his current job and resigns;

• Employee aged 65 or older resigns due to old age.

The definition of “layoff” in the Employment Ordinance

Under the Employment Ordinance, if an employer dismisses an employee for the following reasons, it can be regarded as a “layoff”:

• the employer dismisses the employee for closing or preparing to close the business;

• The employee’s workplace has ceased or is about to cease operation and the employee is fired;

• Employers fire employees when there is a reduction in the demand for the employee’s work or in anticipation of a reduction.

The definition of “lockout” in the Employment Ordinance

According to the Employment Ordinance, with reference to the remuneration and conditions of the employment contract, an employee can be deemed to be “suspended from work” as long as the following conditions occur:

• For 4 consecutive weeks, the number of days without an employer assignment and without pay exceeds half of the total number of normal working days;

• For 26 consecutive weeks, the number of days without assignment and without pay exceeds one-third of the total number of normal working days.

(Normal working days: excluding closed factories, rest days, annual leave and statutory holidays, etc.)

Considerations for severance and long-service payments

It should be noted that, among the protections of the Employment Ordinance and the Employees’ Compensation Ordinance, an employee can only enjoy either severance payment or long service payment compensation at the same time.

Also, once an employee is re-employed within 7 days of the termination or expiry of the contract, and the employee unreasonably refuses, they will not be entitled to severance or long-service payments.

The above information is for reference only. We welcome your inquiries if you have any questions about accounting, the Employment Ordinance, and labor laws.