Employment contracts in Hong Kong

What constitutes an employment contract?

A contract of employment is any agreement, express or implied, whereby one person agrees to employ another and that other agrees to serve as an employee (rather than, for example, as an independent contractor). An employment relationship requires an obligation on the worker to provide work personally, mutuality of obligations between the worker and his/her employer and control (including as to where, what, when and how work has to be done).

The employment contract must also fulfil the common legal requirements regarding contracts such as capacity and consent of both parties.

Formal requirements

Oral or written contract: A contract of employment need not be in writing, although a written contract is preferable as it is can help avoid any future dispute as to the terms of the contract. Terms in other documents can be incorporated by reference.

Fixed term contract: A fixed term contract must provide for a specific stated term, which is either fixed or ascertainable at the time of entering into it. A fixed term contract automatically terminates at the end of the specified period, but it can be extended or renewed by agreement, and provisions allowing for early termination may also be included.

Part time contract: There is no statutory distinction between part time and full time employees, but only between those employed under a continuous contract (who work not less than 18 hours per week for not less than four weeks), and those that are not.

Implied terms

Sources of implied terms of employment contracts include the following:

• statute (for example, minimum notice of termination, the right to terminate on the making of a payment in lieu of notice, leave entitlements and severance and long service payments)
• common law (for example, the employee’s duties of fidelity and good faith, and the employer’s duty of trust and confidence)
• custom and practice, and 
• business efficacy.

Mandatory information

Employers have a statutory obligation to provide employees with particular information about wages, notice periods and any end of year payment (and must also advise employees of any changes to those conditions).

Trial periods

Employees can be employed on a probationary basis and there is no statutory limit on the length of probationary periods. During probation, employment may be terminated without notice or payment in lieu during the first month of employment, and thereafter on not less than seven days’ notice or the contractually agreed notice period, whichever is longer.

Confidentiality

Confidentiality clauses are commonly included in employment contracts, in order to define confidential information and protect employers from misuse of confidential information by ex-employees (current employees have an implied duty not to do so). Current and former employees are under an implied obligation not to use or disclose a ‘trade secret’ or information which is so highly confidential that it requires the same protection.

Post termination restrictions

General post termination provisions for the return of company property, resignation of directorships, and procedures with regard to post-termination statements and media communication may be desirable to include in employment contracts.

Post termination restrictions will only be enforced if the restriction is necessary for the protection of the employer’s legitimate business interest and is reasonable in scope and duration. These can include:

• Non compete covenants: These prevent an employee from working for a competitor within a certain period of termination of employment, but are subject to a strict test of reasonableness (in terms of both their temporal and geographical extent).
• Non solicitation/non poaching/non dealing: These prevent a former employee from soliciting or dealing with the former employer’s customers, or from offering employment to the former employer’s staff. Again, these restrictions must be reasonable and not excessive.

A garden leave clause allows an employer to prevent the employee from working during a certain period (including during a notice period). There are no restrictions on the length of garden leave periods, but these can be circumvented, as employees have a statutory right to terminate employment by making payment in lieu of notice at any time.

Other express terms to consider

The precise terms to be included in an individual’s contract of employment will depend upon the circumstances (including the seniority of the employee and the role being filled). They commonly include terms as to commencement, probation, duties, place and hours of work, remuneration (including bonus), leave and benefits and termination of employment.

General contractual terms

Terms which are common to every type of contract should be included in the contract of employment. This includes terms dealing with the severability of unenforceable terms, governing law and provisions detailing which terms are to prevail in the event of conflict.