The Hong Kong Court of First Instance (CFI) recently granted a rare interlocutory (temporary) injunction enforcing a non-compete covenant (NCC) against a former employee. This was among only a handful of court decisions in Hong Kong dealing with non-competition contract clauses – with even fewer granting the employer interlocutory relief. As such, this recent case provides good lessons on what should be done to maximise an employer's prospects of obtaining interlocutory relief to enforce an NCC.

Case Facts

The plaintiff company provides fund management services, managing assets and capital for institutional investors. Their former employee was a technology professional specialising in software architecture, security and leadership. He commenced employment on 11 February 2019, initially on a one-year fixed term contract which contained post-termination restrictions, including (1) a six-month NCC (the terms of which can be found in paragraph 25 of the judgment), (2) a six-month non-solicitation and non-dealing restriction relating to clients and prospective clients, (3) a six-month non-solicitation of employees restriction, and (4) a six-month non-poaching of employees restriction. 

That fixed-term contract was subsequently varied to a permanent contract, with a change in title but otherwise on the same terms. In March 2020 the employee was given additional duties when his supervisor fell ill. On 22 February 2021, the employee tendered his resignation, giving three months' notice. By the end of April 2021 the employee had completed his handover of matters and was placed on ‘garden’ leave. He was reminded of his post-termination restrictions; and told he would be paid his monthly salary during the six-month restriction.

On 24 May 2021, the employee joined a competitor. The plaintiff applied for an interlocutory injunction to enforce the NCC until 31 October 2021. That application was heard, with injunction granted on 6 September 2021. Reasons for deciding to grant the injunction were handed down on 30 September 2021. 

CFI Findings

In granting the injunction, the court found that: 

  • It is well-established that covenants in restraint of trade are unenforceable unless they can be shown to be reasonable in the interests of the parties and in the public interest. The legitimate interest sought to be protected by the NCC was the plaintiff's confidential information. The plaintiff had adduced sufficiently cogent evidence, with particulars, to identify confidential information which the 1st defendant-former employee had access to – and can legitimately claim protection for. Notably, from March 2020 to May 2021, the new responsibilities allowed the 1st defendant-former employee to acquire confidential information regarding the plaintiff’s proprietary technology, as well as highly confidential and sensitive information about the plaintiff’s trading strategies across all asset classes, and products in which it trades. Approximately 85% of the plaintiff’s technological strategy development workload was reported directly to the employee.
  • Even if the former employee may have forgotten details of the confidential information he had access to, a general impression of the information would be damaging, justifying the plaintiff to seek protection. Although the time to ascertain reasonableness of a restrictive covenant is when the contract was signed, it does not follow that the court cannot take into account events that happened after the contract signing to understand what the parties contemplated regarding the NCC – particularly the fact that the former employee may be promoted. This finding was helped by evidence that the plaintiff had communicated to the former employee regarding his possible career advancement to a higher position. Thus, whilst the former employee had no access to confidential information when he first joined the plaintiff, the reasonableness of the NCC was upheld as it was assessed against his later promotion. 
  • The presence of other clauses, in particular a confidentiality clause, did not undermine the legitimacy of the NCC. The court noted the two key difficulties of enforcing a confidentiality clause – the challenge to factually prove a breach of the clause, and to ascertain coverage of “confidential information”. The Court held that the NCC went no further than was reasonably necessary to protect the plaintiff’s legitimate interest. 
  • In weighing up the balance of convenience, the Court considered that the former employee would suffer little prejudice if the NCC was enforced; because the plaintiff offered to pay him his former base salary during the restrictive period. There was no suggestion that the former employee's livelihood would be unduly affected if the injunction was granted.
  • It took the plaintiff 19 days from discovering the former employee had commenced employment with the competitor to commencing proceedings. The court did not consider this amounted to undue delay by the plaintiff. 
  • The Court held that on the basis of available evidence adduced and submissions advanced by the parties, the plaintiff demonstrated better prospects of success than the 1st defendant-former employee on whether the NCC would ultimately be enforceable. The Court also found that granting the injunction carried the lowest risk of injustice, causing the least irremediable prejudice. 

Key Lessons for Employers

This case provides some important lessons to be learned and reminders for employers on enforcing NCCs.

  1. Employers should ensure they can clearly identify the legitimate interest they are seeking to protect with the NCC, which typically will be protection of confidential information. To achieve this, employers should be able to identify the confidential information being protected that the employee had access to.
  2. NCCs are interpreted at the time they are entered into. As such, if an employee is (for example) promoted – and thereby granted access to more sensitive confidential information in their new position – they should be asked to sign a new NCC to reflect the change in circumstances at that time. 
  3. Don't delay taking enforcement action. Even though an employer may otherwise have good prospects of success, delay will be fatal to an injunction application.
  4. For an employer to have a reasonable attempt at enforcing an NCC, draft the NCC so it only restricts the employee so far as is reasonably necessary to protect the employer's legitimate interest. Some employers may only intend to use the NCC for deterrent effect and stretch its coverage, which is fine for that intended purpose. However, if you would intend to apply to Court to enforce it, then limit the restraint as much as you can live with.
  5. Making a payment during the restraint period (although not a must in all cases) will help reduce the adverse impact of the NCC when the Court assesses the balance of convenience.