Under Hong Kong law, restrictive covenants (e.g. non-compete and non-solicitation clauses) are prima facie unenforceable as they are restraints of trade and against public policy. However, the Courts have upheld certain restrictive covenants provided that the following requirements are satisfied:
(1) the covenants serve to protect the employer’s legitimate business interests (such as trade secrets, confidential information of equivalent status and trade connections) whilst being no wider than reasonably necessary to do so;
(2) the covenants are sufficiently clear and unambiguous;
(3) the employer is able to show by real and cogent evidence that the covenants are justified.
Each case will be fact specific and the legitimacy of the restrictive covenants will be determined by reference to the employer’s specific needs/interests.
The test of “reasonableness” requires an overall assessment by the court as to whether or not the restraint is no more than what is reasonable and necessary to protect a legitimate business interest. In particular, the Courts will consider the following three key factors:
(1) the duration of any restraint period – there are no fixed rules as to what is an acceptable period. An employee in a senior post who has access to confidential information of the employer may justify a longer restraint period. When faced with an application for an injunction excluding an employee from participation in any given activity / employment, the Court would consider the freedom of choice of occupation which individuals enjoy by virtue of the Hong Kong constitution (the Basic Law).
(2) the geographical area of restraint – again, there are no fixed rules as to what is reasonable. However, restrictive covenants that purported to apply throughout the world and all of Hong Kong have been held unenforceable by the Hong Kong Court as being too wide.
(3) the nature and scope of the restraint – depending on the interest to be protected, the Courts will not enforce any restraint which purports to go beyond the proper scope of the interest being protected. A restraint that purported to apply to both the employer and its subsidiaries was held unenforceable by the Hong Kong Court as going beyond the employer’s proprietary interest.
The Courts may consider other factors, including the position and duties of the employee, whether the employee has access to trade secrets and confidential information, and whether any benefits have been provided to the employee in return for the employee agreeing to the restrictions.
Clear and unambiguous
Restraints must be drafted clearly as to their duration, geographical area and scope, as the Hong Kong Court has said that it must be “satisfied on the totality of evidence that the covenants are no more than what is reasonably required to protect the legitimate interests of any employer”. Any ambiguity will be construed against the employer.
Last but not least, it should be noted that whilst the courts can edit (i.e. “blue-pencil”) restraint clauses to make them clearer if certain requirements are met, they will not revise, rewrite or rearrange restrictive covenants to make any defective covenants enforceable.