Non-disparagement Clauses in Employment Contracts – Enforceable or not?

What are non-disparagement clauses?

In general, a non-disparagement clause restricts individuals from taking any action, including making comments, that negatively impacts an organization, its reputation, products, service or employees.

Non-disparagement clauses are increasingly common in employment contracts, and they are frequently present in settlement or severance agreements which are entered into between an employer and employee when employment relations turn sour. The rationale for this is simple: employers do not want to be disparaged by their existing or ex-employees.

Are non-disparagement clauses enforceable in Hong Kong?

The Employment Ordinance (Cap.57) is silent on whether non-disparagement clauses are enforceable, although general principles of contract law allow parties to freely enter into agreements that are binding between them, provided consideration is given.

Until the recent case of City University of Hong Kong v Hans Richard Mahncke [2015] HKCU 1786, the Hong Kong Court has not confirmed whether non-disparagement clauses which are used in an employment context are enforceable in Hong Kong.

City University of Hong Kong v Hans Richard Mahncke [2015] HKCU 1786

Mr. Mahncke bought various defamation claims against members of the University in 2013 and the matter was settled out of court by way of a settlement agreement entered into between Mr. Mahncke and the University at that time.

As part of this settlement agreement, the University paid Mr. Mahncke a settlement sum in return for a mutual release of all claims that the parties might bring against each other. Mr. Mahncke also agreed to release all claims against a host of people related to the University. Despite this, Mr. Mahncke was said to have made disparaging claims about various ex-colleagues in 2013 and 2014 in emails and in legal proceedings. As a result, the University applied for declaratory and injunctive relief against Mr. Mahncke for breach of the settlement agreement.

The Honourable Justice L. Chan ruled by way of his judgment dated 30 July 2015 that:-

1. the settlement agreement was valid and binding on Mr. Mahncke; and
2. multiple injunctions should be granted to restrain Mr. Mahncke from (i) making disparaging statements about the University, including any officer, employee, agent or council member (both past and present) of the University and (ii) pursuing any of the claims made against some of the officers of the University.

Mr. Mahnke, who was absent from the hearing, was ordered to pay costs amounting to HK$225,000.

Conclusion

The City University of Hong Kong v Hans Richard Mahncke decision brings comfort to employers by confirming that non-disparagement clauses are valid and enforceable in Hong Kong and goes to show that the court will go so far as to grant injunction orders against individuals who fail to abide by these clauses in settlement agreements.

Key Contacts

Richard Hudson

Partner | Litigation and Dispute Resolution

Email or call +852 2825 9680