Employment Settlement Agreement (Hong Kong)

An Employment Settlement Agreement in Hong Kong records the terms the parties accept and the commitments each makes to the other.

Hong Kong's Labour Tribunal, administered under the Labour Tribunal Ordinance (Cap. 25), provides an accessible forum for employment disputes up to HK$500,000. Legal representation is not permitted without leave, making the Tribunal suitable for self-represented employees. The Labour Department's conciliation service under Section 76 of Cap. 57 provides a free, voluntary pre-tribunal conciliation process supportd by Labour Relations Division officers. Many employment disputes are resolved at the conciliation stage without the need for tribunal proceedings. A settlement reached through the Labour Department's Section 76 conciliation process and signed by both parties can validly compromise statutory entitlements under Cap. 57 — overriding the general prohibition in Section 70 on private waivers of Cap. 57 rights. This makes the conciliation pathway critical for employers seeking a full release of all claims.

Beyond Cap. 57, Hong Kong's four anti-discrimination ordinances — the Sex Discrimination Ordinance (Cap. 480), Disability Discrimination Ordinance (Cap. 487), Family Status Discrimination Ordinance (Cap. 527), and Race Discrimination Ordinance (Cap. 602) — create additional causes of action that may be settled through an employment settlement agreement. Discrimination complaints are handled by the Equal Opportunities Commission (EOC), which provides a separate free conciliation service. The Mandatory Provident Fund Schemes Ordinance (Cap. 485) governs the employer's MPF contribution obligations and the offsetting of those contributions against severance payment and long service payment, creating an important interface between MPF records and the settlement calculation.

A key structural feature of Hong Kong employment settlement agreements is the payment breakdown. Statute requires that certain entitlements be paid in full — they cannot be waived privately without conciliation or tribunal approval. established procedures is to itemise each component separately: statutory notice pay (calculated under Section 7 of Cap. 57), accrued but untaken annual leave pay (calculated under Section 41 of Cap. 57), severance payment or long service payment (calculated under Sections 31 and 31AA respectively, net of any MPF employer contribution offset), and any contractual payments above the statutory floor. The additional settlement sum — representing a compromise of contractual and common law claims (wrongful dismissal, breach of contract, discrimination) — is then documented separately, with an express statement that all statutory entitlements have been paid in full.

All settlement payments in Hong Kong are made in Hong Kong Dollars (HKD). Statutory severance payment and long service payment are generally exempt from salaries tax under the Inland Revenue Ordinance (Cap. 112) up to the statutory formula amounts. Additional ex gratia or contractual settlement payments may be subject to salaries tax depending on their characterisation — the IRD's guidance on terminal payments and severance payments should be consulted. Employees receiving significant settlement payments should obtain independent tax advice from a Hong Kong Certified Public Accountant (CPA) registered with the Hong Kong Institute of Certified Public Accountants (HKICPA).

An Employment Settlement Agreement in Hong Kong is needed whenever an employer and employee — or former employee — wish to resolve an employment dispute by compromise rather than through Labour Tribunal proceedings, civil court litigation, or Equal Opportunities Commission adjudication.

An Employment Settlement Agreement is needed when an employee is dismissed or made redundant. Dismissal — whether by termination with notice, summary dismissal under Section 9 of Cap. 57 for serious misconduct, or redundancy — frequently gives rise to disputes about the correctness of the employer's characterisation, the amount of statutory entitlements payable, and any additional contractual or common law claims. A written settlement agreement documents the agreed payment, itemises each component, and extinguishes all claims on both sides.

An Employment Settlement Agreement is needed when an employee resigns in disputed circumstances. Where an employee resigns and claims constructive dismissal — arguing that the employer's conduct was so unreasonable as to constitute a repudiation of the employment contract — the employer may wish to settle the constructive dismissal claim rather than face Labour Tribunal or District Court proceedings. The settlement agreement should expressly address the constructive dismissal claim and confirm its release.

An Employment Settlement Agreement is needed when wages or statutory payments are in dispute. Underpayment of wages, failure to pay overtime, incorrect calculation of annual leave pay or sickness allowance, and non-payment of end-of-year payment are common disputes in Hong Kong. The Labour Department's conciliation service handles these disputes efficiently. A settlement agreement reached through conciliation provides a clean, enforceable resolution with a valid waiver of statutory claims.

An Employment Settlement Agreement is needed when a discrimination complaint has been made. Complaints under the Sex Discrimination Ordinance (Cap. 480), Disability Discrimination Ordinance (Cap. 487), Family Status Discrimination Ordinance (Cap. 527), or Race Discrimination Ordinance (Cap. 602) may be settled through the EOC's conciliation service or through private negotiation before or during District Court proceedings. The settlement agreement should specify the discrimination ordinance and claims being released, address damages for injury to feelings, and include confidentiality and non-disparagement provisions.

An Employment Settlement Agreement is needed when a senior employee's departure is being negotiated. Senior executives, professionals, and key employees leaving Hong Kong employers often have significant contractual entitlements — enhanced notice pay, deferred compensation, share options, non-compete obligations — that require careful negotiation. A well-drafted settlement agreement addresses contractual entitlements, waives non-compete or non-solicitation obligations where appropriate, documents agreed reference terms, and provides the employer with certainty about the former employee's post-departure obligations.

An Employment Settlement Agreement is also needed when an employer is restructuring or downsizing. A mass redundancy programme involving multiple employees requires consistent, legally compliant settlement agreements for each affected employee. Each agreement should comply with Cap. 57's redundancy payment provisions, address MPF offset calculations under Cap. 485, and include appropriate confidentiality provisions to manage the information flow during the restructuring process.

A Hong Kong Employment Settlement Agreement should include the following key elements to be legally effective, to comply with the Employment Ordinance (Cap. 57), and to provide both parties with certainty and finality.

Parties and Employment Details: Full legal names of the employer (company registration number) and the employee (HKID number), the job title and department, the employment commencement date, and the termination or last working date. These details are essential for calculating statutory entitlements under Cap. 57.

Reason for Departure: A brief statement of the reason for the termination of employment — redundancy (triggering severance payment eligibility), dismissal for cause (which may affect statutory payment obligations), mutual agreement, or resignation. The reason affects the employee's entitlement to statutory payments and the employer's ability to claim MPF offset under Sections 31E and 31P of Cap. 57.

Statutory Payment Schedule: An itemised schedule of all statutory payments being made under Cap. 57, calculated at the correct rates: (a) notice pay under Section 7 (or pay in lieu of notice), calculated on the employee's average daily wages over the preceding 12 months; (b) accrued but untaken annual leave pay under Section 41, calculated at the daily wage rate; (c) pro-rata annual leave pay for the incomplete leave year under Section 41A; (d) severance payment under Section 31 or long service payment under Section 31AA, calculated on two-thirds of the last month's wages (or HK$22,500, whichever is less) per year of service, subject to the HK$390,000 cap, net of any MPF employer contribution offset; (e) any other statutory payments owing (sickness allowance, maternity pay, end-of-year payment).

MPF Offset Statement: A calculation of the employer's MPF contribution offset under Cap. 485, showing the total employer MPF contributions, the amount being offset against severance or long service payment, and the net statutory payment after offset. The MPF offset regime is being phased out under the Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Ordinance 2022, with the phase-out commencing in May 2025 for new severance and long service payment obligations.

Additional Settlement Sum: The ex gratia or contractual payment above statutory entitlements representing the compromise of all other claims — wrongful dismissal, breach of contract, discrimination claims, contractual bonuses, commissions, or other contractual benefits. This amount should be clearly separated from statutory payments and identified as an additional settlement sum paid in full and final settlement of all non-statutory claims.

Total Payment and Method: The total settlement amount in HKD, the payment date, and the payment method (bank transfer to a named account). A schedule of instalments if payment is to be made in stages, with default provisions if an instalment is missed.

Mutual Release: A thorough release by the employee of all claims against the employer arising from the employment relationship and its termination — including statutory claims (to the extent validly released under Cap. 57 through conciliation or tribunal approval), contractual claims, common law claims for wrongful dismissal, and discrimination claims under Cap. 480, Cap. 487, Cap. 527, and Cap. 602. A corresponding release by the employer of any claims against the employee (e.g., recovery of overpaid salary, breach of restrictive covenants, proprietary claims). The release should specify whether it covers unknown claims.

Confidentiality and Non-Disparagement: Mutual obligations to keep the terms and amount of the settlement confidential, with standard carve-outs for legal advisers, the IRD, and court orders. Non-disparagement obligations preventing each party from making negative statements about the other to third parties, the media, or on social media.

Reference: The agreed terms of any reference the employer will provide to future employers — whether a standard factual reference (dates of employment and job title only) or a more detailed agreed reference attached as a schedule. The employer's spokesperson for reference enquiries should be identified.

Post-Employment Obligations: Confirmation of the employee's ongoing obligations — return of company property, continuation of confidentiality obligations under the employment contract, and any agreed modification of non-compete or non-solicitation restrictions. Where the employer is releasing the employee from a non-compete obligation in exchange for the settlement, this should be documented expressly.

Governing Law and Dispute Resolution: The laws of the Hong Kong SAR as governing law, with jurisdiction of the Labour Tribunal (for statutory claims up to HK$500,000) or the District Court (for larger or mixed claims). The forms-legal.com Employment Settlement Agreement template includes all standard provisions and is suitable for use across all levels of seniority and all industry sectors in Hong Kong.