Confidential Information: What You Need to Know When Employees Leave

Preventing Employees from Competing

The extent to which an employer can prevent employees from competing varies, depending on whether it is during employment or post-employment. During employment, employees have a duty of fidelity and good faith not to act in conflict with the interest of their employer. This includes not engaging in a competing business. Outside employment that is not related to and/or not inconsistent with the current employer can only be bound by express contractual provisions. The duty of fidelity will also extend to keeping company information confidential and not soliciting/inducing customers or clients to cease using the employer’s service.

Post-employment, non-compete provisions are enforceable only if they are reasonable in duration, scope, and geographical area for protecting the legitimate interest of the employer. There is no requirement to make payment during the restricted period, but payment of some consideration throughout the restricted period would go towards showing reasonableness. Case law has indicated that any restriction longer than six months will be enforced only in extreme cases.

Non-dealing or non-solicitation provisions are generally enforceable, but collecting evidence for this purpose sometimes can be difficult. Many employers therefore now impose non-competes as conditions for bonuses and long-term incentive plans.

Seeking an injunction to stop the infringing conduct is possible, but it would only be a practical step if the employer’s interests are significantly at risk, the situation is dire, and the employer has a very strong case (because court injunctions are extremely difficult to obtain). Other remedies may include a claim for damages.

Available Remedies

An aggrieved employer can seek equitable relief (injunction) or damages. An action will have to be taken in a court of law and not Labour Tribunal if seeking equitable relief. The obligation to maintain confidential information does not automatically survive the post-employment period. Instead, there needs to be a contractual obligation. The employer’s position is slightly better if the confidential information amounts to trade secrets, but it is recommended in any case that the employer impose an express contractual obligation on the employee to ensure adequate protection.

As with many other jurisdictions, the employer must be able to show with evidence that the employee acted in breach of his or her confidential obligation in order to obtain any remedies. If the breach of confidential information involves an infringement of intellectual property, the employer may seek remedies, including an injunction or, if it can prove a loss has been suffered, damages.

Cross-Border Breaches

When there is a post-employment breach involving cross-border, the main consideration is the enforceability of remedies.

An injunctive relief obtained in Hong Kong will likely not be enforceable elsewhere, including the PRC. On the other hand, an award for damages may be enforceable in another jurisdiction if there is a reciprocal agreement subject to condition, such as jurisdiction clauses.

This article also appears in Hong Kong Lawyer.

Key Contacts

Cynthia Chung

Partner | Corporate Commercial | Employment and Pensions

Email or call +852 2825 9297