Employee Non-Compete and Restrictive Covenants in Hong Kong: Enforcement and Drafting

Introduction

Restrictive covenants in employment contracts — commonly known as non-compete or non-solicitation clauses — are widely used by Hong Kong employers to protect legitimate business interests when an employee departs. However, these clauses operate against the common law principle that restraints of trade are prima facie void unless they can be justified as reasonable. Courts will not enforce a non-compete clause simply because it was agreed to: the employer must demonstrate that the restriction is no wider than reasonably necessary to protect a legitimate interest.

Types of Restrictive Covenants

Non-Compete Clauses

A non-compete clause restricts a former employee from working for competitors or establishing a competing business for a defined period after leaving. These are the most heavily scrutinised type of restrictive covenant because they restrict the employee's ability to earn a living.

Non-Solicitation Clauses

Non-solicitation clauses restrict a former employee from soliciting the employer's clients or customers. These are generally more favourably viewed by courts than outright non-compete restrictions because they target specific conduct rather than broadly prohibiting employment.

Non-Dealing Clauses

Non-dealing clauses go further than non-solicitation clauses: they prohibit the former employee from dealing with former clients even if approached by the client. These are less common and attract more scrutiny.

Non-Poaching Clauses

Non-poaching (or non-recruitment) clauses restrict the former employee from recruiting former colleagues. Courts generally take a more sympathetic view of non-poaching clauses, particularly where the restriction is directed at senior or specialist employees.

Confidentiality Obligations

Even without an express clause, Hong Kong law imposes an implied duty of confidentiality on employees during employment. Post-employment, implied confidentiality protects genuinely confidential information (trade secrets) but not merely confidential information that has become part of the employee's general skill and knowledge. Employers commonly include express post-employment confidentiality obligations to protect a broader range of information.

The Test for Enforceability

Under Hong Kong law, a restrictive covenant will only be enforceable if:

1. The employer has a legitimate proprietary interest that deserves protection (e.g., trade secrets, customer connections, or the stability of a trained workforce)
2. The restriction is reasonable as between the parties — meaning it is no wider than necessary to protect that interest in terms of scope, duration, and geography
3. The restriction is not contrary to the public interest

Courts will not "blue-pencil" (rewrite) an overly broad covenant to make it enforceable; they will simply declare it void if it exceeds what is reasonable. However, courts can sever unreasonable provisions and enforce the remainder if the remaining terms are capable of standing independently.

Common Pitfalls in Drafting

• Excessive duration: Restrictions of six to twelve months are generally more defensible than longer periods. Very long restrictions (two years or more) rarely survive scrutiny except for the most senior employees
• Overly broad geographic scope: A restriction that covers the entire world when the employee only worked in Hong Kong will likely fail
• Vague or catch-all definitions: Undefined terms like "competition" or "similar business" reduce enforceability
• One-size-fits-all clauses: Applying the same restrictive covenant to all employees regardless of role or seniority weakens the employer's case

Garden Leave

A garden leave clause allows the employer to require the employee to serve out their notice period at home, away from the workplace and clients, while remaining on payroll. Courts have held that garden leave can be taken into account when assessing the reasonableness of post-employment restrictions: a lengthy garden leave period may justify a shorter post-employment restriction, and vice versa.

Enforcement Remedies

Where a restrictive covenant is breached, the employer may seek:

• An injunction to restrain the breach (typically urgent interim relief)
• Damages for losses caused by the breach
• An account of profits in certain circumstances

The ex-employer bears the burden of demonstrating that the covenant is reasonable. Courts will weigh the balance of convenience when deciding whether to grant interim injunctive relief.

How Alan Wong LLP Can Assist

Alan Wong LLP advises both employers and employees on restrictive covenant matters. For employers, we draft enforceable covenants tailored to the specific role and the legitimate interests to be protected, and advise on enforcement strategy when a former employee breaches their obligations. For employees, we advise on the enforceability of restrictions and options for challenging or negotiating departure terms. Early legal advice on both sides is essential given the urgency of injunction applications.