A Step-by-Step Guide to Conducting Legally Compliant Redundancy Exercises in Hong Kong

Running a redundancy exercise in Hong Kong feels a bit like walking a tightrope while juggling employment law. One misstep can lead to costly claims at the Labour Tribunal, reputational damage, and a lot of sleepless nights. The good news? With the right framework, you can handle layoffs fairly, legally, and with a human touch. This guide walks you through every critical step, from establishing a genuine redundancy situation to calculating severance payments correctly. Let’s break it down.

What Actually Counts as a Genuine Redundancy?

Before you do anything else, confirm that the situation meets the legal definition under the Employment Ordinance. A redundancy situation exists when:

• The employer stops or intends to stop carrying on the business.
• The employer stops or intends to stop carrying on the business in the location where the employee was employed.
• The need for employees to carry out work of a particular kind has diminished or is expected to diminish.

This last point covers most corporate restructures, departmental closures, and technology-driven role eliminations. If your business is simply replacing one person with another for the same role, that is not a genuine redundancy. That is a dismissal, and it opens the door to unfair dismissal claims.

Step 1: Plan Ahead and Document Everything

Start building your paper trail the moment you consider redundancies. This is not about covering your tracks. It is about showing a tribunal, if it ever comes to that, that you acted reasonably.

1. Identify the business rationale. Write down exactly why the role is redundant. Use data. Show declining revenue in a specific department, a merger of two teams, or the adoption of new software that automates a task.
2. Map your workforce. List all employees in the affected area, including their length of service, job titles, and any relevant performance records.
3. Check your contracts. Look for any contractual redundancy policies or enhanced severance terms. Some Hong Kong employment contracts include obligations beyond the statutory minimum.
4. Assess the pool for selection. If you need to let go of three people from a team of ten, you must decide how to select them fairly.

Selection Criteria That Hold Up in Court

Your selection matrix is your best defense. Use objective, measurable factors. Avoid anything that could be seen as discriminatory, such as age, gender, race, or marital status.

Fair Criterion	Risky Criterion
Length of service	Age
Performance appraisals (last 2 years)	Personal relationship with manager
Skills and qualifications	Part-time vs full-time status
Disciplinary record	Pregnancy or family status
Attendance record	Willingness to accept lower pay

Expert advice: “Always apply your selection criteria consistently across the entire pool. If you deviate for one employee, be prepared to explain exactly why. Tribunals look for a rational, non-discriminatory reason for every decision.” — Employment Law Partner at a Hong Kong firm

Step 2: Consult with Affected Employees

Consultation is not just a nice-to-have. It is a critical part of a fair process. Even if Hong Kong law does not mandate a specific consultation period for individual redundancies (unlike collective redundancy rules in some other jurisdictions), failing to consult can make a dismissal procedurally unfair.

• Inform employees of the proposed redundancy in a private meeting.
• Explain the business reasons clearly.
• Share the selection criteria and how they were applied to the individual.
• Listen to their views. Consider alternatives like redeployment, reduced hours, or voluntary redundancy.
• Document each consultation meeting. Take notes on what was discussed and any alternatives proposed.

Handling Voluntary Redundancy Requests

Sometimes employees will volunteer to be made redundant. This can reduce conflict, but be careful. You still need to ensure the selection is fair and that you are not inadvertently targeting a protected group. If you accept a volunteer, document why their departure makes business sense.

Step 3: Calculate and Pay Statutory Severance Correctly

This is where many employers slip up. The calculation for severance pay under Hong Kong’s Employment Ordinance depends on the employee’s length of service, age, and gross weekly or monthly pay.

The basic formula for severance pay:

For each year of service, the employee is entitled to:

• One week’s pay (for each year) if the employee is under 41.
• Two weeks’ pay (for each year) if the employee is 41 or older.

The maximum number of years that can be counted is 20. The weekly pay is capped at a statutory maximum, which is reviewed annually. For 2026, make sure you check the latest cap from the Labour Department.

A few things to remember:

• Severance pay is separate from any notice pay or wages in lieu of notice.
• You can offset any contractual redundancy payment against the statutory entitlement, but only if the contractual payment is at least as generous.
• The payment must be made within the timeframes set out in the Employment Ordinance, usually by the next pay day or within a month of termination.

Common Pitfalls in Severance Calculations

• Forgetting to include certain allowances and commissions in the definition of “pay.”
• Miscalculating the service period, especially for employees who have had breaks in service.
• Not applying the age-related multiplier correctly.
• Using the wrong cap for weekly pay.

For a deeper look at this area, check out our guide on navigating redundancy and severance pay requirements under Hong Kong Employment Ordinance.

Step 4: Manage the Termination Meeting with Respect

The meeting itself matters. It sets the tone for how the employee leaves and how the remaining team perceives the company.

• Hold the meeting in a private, neutral space.
• Have a witness present, ideally from HR or another manager.
• Keep the meeting focused and factual.
• Explain the decision, the severance package, and the next steps.
• Allow the employee to ask questions.
• Do not argue or get defensive. Listen and acknowledge their feelings.
• Provide a written termination letter confirming the details, including the reason for redundancy and the severance amount.

Step 5: Handle Post-Termination Obligations

Your responsibilities do not end when the employee walks out the door.

• Provide a certificate of employment within 14 days of the request.
• Settle all outstanding wages, annual leave, and any other contractual entitlements in the final pay.
• Handle MPF issues. You need to complete the relevant MPF forms and notify the trustee.
• Consider offering outplacement support. It is not a legal requirement, but it is a sign of a good employer. It can also reduce the risk of claims.

What Happens If You Get It Wrong?

The consequences of a flawed redundancy exercise can be serious. Employees can bring claims for:

• Unfair dismissal (if they have at least two years of continuous service).
• Wrongful dismissal (if you breach the contract terms).
• Discrimination under the amended anti-discrimination laws.
• Breach of contract for failing to pay the correct severance.

The Labour Tribunal can award compensation, reinstatement, or re-engagement. The financial and reputational cost of losing a case often far exceeds the cost of doing the process correctly from the start.

A Quick Reference Checklist

• [ ] Confirm a genuine redundancy situation exists.
• [ ] Define the selection pool and criteria.
• [ ] Apply criteria objectively and document the scores.
• [ ] Consult individually with each affected employee.
• [ ] Consider alternatives (redeployment, voluntary redundancy).
• [ ] Calculate statutory severance pay accurately.
• [ ] Hold a respectful termination meeting.
• [ ] Provide written confirmation and all final payments.
• [ ] Complete MPF and other administrative tasks.
• [ ] Offer outplacement support if possible.

Building a Trusted HR Community Through Tough Conversations

Redundancies are never easy. They test your company’s values and your team’s resilience. But when you handle them with transparency, fairness, and a solid legal foundation, you protect your business and preserve the trust of the people who stay. The goal is not just to avoid a lawsuit. It is to lead with integrity during one of the hardest moments in an HR professional’s calendar.

If you are facing a complex redundancy situation, especially one involving multiple departments or layers of management, consider bringing in legal counsel early. A small investment upfront can save you from a much larger problem later. And remember, you are not alone in this. Our community of HR practitioners across Hong Kong is here to share insights and support each other through these challenges. Keep learning, keep asking questions, and keep putting people first.

For more on building a supportive workplace culture, read about building psychological safety in Hong Kong’s high-pressure work culture.