Non-competition clause in contract

Closed Thread
Page 1 of 3 1 2 3 LastLast
  1. #1

    Join Date
    Jul 2008
    Location
    Hong Kong side
    Posts
    1,824

    Non-competition clause in contract

    Hoping someone in legal/ HR field can give me some advice

    My present employment contract has a clause that if i resign i am not able to engage in any similar employment with any other company within an X mile radius to my present work location

    basically they dont want their clients following me to another company

    nb this "non-compete" clause seems to be common in my field

    my questions ;
    are these clauses enforceable? ;
    what action could my company take against me/penalties? ;
    if enforceable anything i can do to prevent enforcement of the clause if i wish to work within close proximity to my present job?
    are they likely to sue for damages /lost business? etc (as clients will definately follow me away from them)

    i definately do not have the funds or the inclination for a legal fight(they are a listed company i am without substantial funds) so could i just ignore/bin any lawyers warning letters etc without risk

    thanks in advance for any advice


  2. #2

    Join Date
    May 2006
    Location
    Pampanga, Philippines
    Posts
    29,764

    Not sure about HK. My brother many many years ago managed to fight a similar case in the UK and got a ruling that they were unenforceable (basically once you no longer work for them the contract does not apply so how can that clause be enforceable?). However it took ages and the company had an injunction against him while it went through different levels of courts. Many companies still have the clause in their contracts though.


  3. #3

    Join Date
    May 2006
    Location
    Pampanga, Philippines
    Posts
    29,764

    Lifted from a website - again it is UK though.

    Enforcing non-competition clauses (as opposed to non-solicitation) is quite tough (and expensive if going for an injunction). If you had no dealing with clients with your former employer and therefore no knowledge of them it is highly unlikely that the non-compete would succeed. See below for a legal opinion that I use as a reference:

    In summary, a post-termination restriction will only be in restraint of trade to the extent it goes further than absolutely necessary to protect an employer's legitimate business interests. Such interests include, trade connections and trade secret information as you say, but have also been deemed to include a stable trained workforce - which is why non-poaching covenants have also been upheld.

    Restrictions must be carefully crafted and reasonable in terms of length of time and area. In terms of time periods, restrictions of 6-12 months are acceptable where the former employer can show the employee has connections and influence which he/she has gained through their former employer and that the employer needs to keep them out of the market for that period of time to redress the commercial advantage. A wide area may be acceptable where the employer's business is not confined to one particular area (say, the City) but is a country wide, or even world wide business.

    A restrictive covenant that is arguably enforceable, usually has the following qualities:
    it is not excessive in time
    it is not excessive in area (depending on the employer's geographical business)
    it is limited activities carried out for a competing business
    it is limited to activities in which the employee was involved
    non solicitation/dealing is limited to clients with whom the employee had contact in the last 12 months of employment
    non-poaching is limited to key employees with whom the employee had contact in the last 12 months of employment

    If a new employer knowingly takes on a new employee who is subject to restrictive covenants and assists them (or turns a blind eye) in any breach of the restrictions then that employer may also be liable for inciting a breach. In fact, most companies will go after the new employer (they are generally worth suing and it can really damage relations with the new hire so has a nuisance value too).

    Most non-poaching covenants (in common with the other restrictions) state that the employee should not "directly or indirectly" poach former colleagues. Hiring a head hunter to approach former colleagues is a form of indirectly poaching. It is difficult to police, however, a court is allowed to draw an inference and, if the matter came to court, any instructions would be discoverable as part of the process and the head-hunter is likely to be called to give evidence.


  4. #4

    Join Date
    Oct 2006
    Location
    Hong Kong
    Posts
    15,557

    Sorry, don't have time for a full post, but some quick thoughts.

    Could be seen as a restraint on trade.

    Lots of variables involved, such as how senior you are, the type of work you do, industry you are in, etc etc.

    Also stuff like notice period, gardening leave, etc will also come into play.

    Do you also have a clause saying you can't take clients with you?


  5. #5

    Join Date
    Oct 2006
    Location
    Sarcasm - because beating the crap out of people is illegal
    Posts
    14,622

    A couple of (HK) court judgments to browse through might be informational are IBM v Knight (2008) and HSBC v Wallace (2007).


  6. #6

    Join Date
    Jun 2005
    Location
    Hong Kong
    Posts
    23,205

    A quick Google throws up a number of recent cases where this issue has gone to the courts in HK, including cases of senior employees with PCCW and HSBC.

    A quick skimming of the judgement in the HSBC case (the one Claire mentions above) says to me that such covenants are certainly enforceable if they meet criteria broadly along the lines of those that hullexile listed in post #3. HSBC got the covenants upheld in this case.

    Specifically, you would need to be extremely careful with any confidential information to which you are privy, and it seems that having a load of clients follow you straight over to the new company would be deemed by the courts (should it come to that) as something that your old company could reasonably try to stop you from doing. (This point was specifically mentioned in the HSBC case - see particularly paragraphs 53ff.)


  7. #7

    Join Date
    Jul 2009
    Posts
    1,362

    In addition to the legal precedents stated above, from experience, it is common to take "gardening leave" in Hong Kong. It's enforceability will depend on the circumstances, and in your case it might be well worth while to seek the advice of a good employment lawyer.


  8. #8

    Join Date
    May 2007
    Location
    In a little burrow
    Posts
    943

    My enthusiasm for the continued existence of the human race has just diminished by another tiny quantum.


  9. #9

    Join Date
    Feb 2009
    Location
    Hong Kong
    Posts
    2,495

    Hmm, not sure about HK, but I have friends who've been going through this recently in the UK. A lot of it does depend on how senior you are. My very first employer when I was a graduate had this clause as standard in their contract. I was worried about signing it but a solicitor told me not to worry as it would be unenforceable at my level - the reasoning being that it's totally unreasonable to forbid me from earning a living in my profession!

    With my friends however, who held senior executive positions, it was enforceable - but it was the degree to which it was enforceable that was debated by lawyers. The original contract basically would have stopped my friends working in the same industry within several hundred miles of the former employer. This was agreed to be unreasonable, and it was reduced to a smaller radius, shorter timescale, and enabled my friends to hold different roles to what they were doing before, but within the same industry. Thereby enabling them to keep a roof over their heads!

    I know many people who have clauses such as yours in their contract, it's normally got round by taking gardening leave for the period the clause covers.


  10. #10

    Join Date
    May 2006
    Location
    Pampanga, Philippines
    Posts
    29,764
    Quote Originally Posted by ray98:
    In addition to the legal precedents stated above, from experience, it is common to take "gardening leave" in Hong Kong. It's enforceability will depend on the circumstances, and in your case it might be well worth while to seek the advice of a good employment lawyer.
    I've often thought that the term "gardening leave" is not really appropriate to the high rise living of Hong Kong. Perhaps they should call it "renovating leave" instead. I mean how long does it take to deal with a few pot plants on your balcony?

Closed Thread
Page 1 of 3 1 2 3 LastLast