Legal opinion: Is it easier to dismiss employees under employment law in Asia?

When it comes to firing an employee, Asia has a reputation for being an employer-friendly hub, oriented to termination at will. This is a myth. Termination in Asia is often far from straightforward, explains Celia Yuen, practice leader at Freehills Employee Relations Asia.

The myth

For some global or regional HR managers who have dealt with terminations in various countries across Europe and America, there may be a view that if it all goes belly-up, it’s much easier to fire someone in Asia. In fact, this is rarely the case.

The reality

Here is an example of what can happen. Your senior manager in Jakarta has been caught red-handed embezzling millions. However, in-house legal tell you that you can’t sack him until you get the Industrial Relations Court’s “prior approval”, which could take many months. And you have to keep paying the employee in the meantime.

In Indonesia, even if you have the most carefully worded termination clauses in the employment contract, these will be trumped by mandatory rules which apply on the ground, and you are looking at a cumbersome court procedure, not to mention compulsory negotiation with the employee and the unions.

Surely it’s all a question of coming to a mutually agreeable separation? There is some truth in this but its success requires that the parties are agreeable. Many employees know this and will demand a high price for their agreement. Otherwise, this arduous approval process remains your only option and often with a very “employee-friendly” court hearing the case at the final hurdle.

Hong Kong and Singapore

So where did this myth of it being easy to sack staff in Asia spring from? It is true that, in Singapore and Hong Kong, the concept of summary dismissal and termination on notice (or payment in lieu) as per the contract are recognised in employment law.

It is also true that the legal restrictions on termination in these jurisdictions are less onerous than they are in the UK. In Singapore, for example, unfair dismissal laws do not apply to those who fall within the managerial or executive position exception. In Hong Kong, employees must have 24 months’ service before they can claim “unreasonable dismissal”.

Unlawful terminations on grounds of discrimination are also limited by comparison to the UK. Hong Kong does have some discrimination laws (but not on grounds of age or religion). Singapore has no specific discrimination law, although very limited protections do exist on grounds of age, maternity and union status.

On the other hand, there are certain circumstances where a blanket prohibition on termination applies. For example, in Hong Kong, an employee cannot be fired if they are pregnant or on recognised statutory sick leave.

While regulation might be sparse compared to the UK, neither jurisdiction can be described as permitting termination “at will”.

Japan

Don’t let Hong Kong and Singapore sway you. Take Japan. While it is possible to terminate on notice (or with payment in lieu) there must be a legally recognised, justifiable reason and these are very narrowly defined. Japanese law expects employers to exhaust all possible avenues to save the employment relationship.

Terminating an employee is the last resort in the most extreme of cases, reflecting a cultural notion of “lifelong employment”. Out of this has arisen a prevalence of negotiated separation arrangements in preference to unilateral terminations. These arrangements generally involve a payment to the employee that is generous by UK standards.

China and Vietnam

In China and Vietnam the letter of the law is king. China does make provision for termination with or without notice, and also by mutual consent, but there is very little margin for error outside of the prescriptive rules.

In Vietnam, an employer is required to discuss and attempt to reach an agreement with the local trade union before it can unilaterally terminate employment and even then there are lengthy notice periods which must be observed.

Malaysia

It is tempting to think that Malaysia might be like Singapore and Hong Kong, all being common law jurisdictions with British heritage. However, this is far from accurate. Employees in Malaysia can make a claim of dismissal “without just cause or excuse” and the Industrial Court has a reputation for being employee-friendly in its decisions.

Conclusion

Terminating employment in Asia is not simple and one size does not fit all. The recognised grounds for termination and the procedures that must be followed vary wildly. Global HR must come to grips with this reality to avoid being confronted by a difficult legal situation.

Celia Yuen, practice leader of the Employee Relations Asia practice of the Australian international law firm Freehills, with Lucy Twomey and Christopher Cheung, members of the Freehills Employee Relations Asia team

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