Employment Update, Hong Kong - June 2007

28 June 2007

Luke Ryan, Ruby Chong

New Legislation

Statutory benefits

The Employment (Amendment) Ordinance 2007 (“EAO”) will come into operation on 13 July 2007.

The main change pursuant to the EAO will be the impact on the calculation of certain employee statutory entitlements.

Currently, statutory entitlements such as the payment of wages in lieu of notice, sickness leave or maternity leave are paid pursuant to formulas using the employee’s previous month’s wage. These calculations will now be made by reference to the employee’s average wage over the previous 12 months (disregarding any period where the employee was not receiving full wages).

Where it is not possible to calculate the daily/monthly average of the employee’s wage, then the amount may be calculated by reference to the wages earned by a person who is in the same trade/occupation, engaging in the same type of work and in the same district during the relevant 12 month period.

The new legislation extends the period that employers are to retain wage and employment records from 6 months to 12 months. This provision will not come into effect until 13 January 2008.

Case Update

High Court upholds 12-month post termination restriction

Fimat Hong Kong Ltd (“Fimat”) is an international equity broking company in Hong Kong. Two of its senior brokers resigned and left to work for a direct competitor.

As is common in the industry, the brokers were subject to restrictive covenants pursuant to their respective contracts. The restrictive covenants in the contracts included a prohibition on them working for a competitor of Fimat in Hong Kong for a period of 12 months after termination. Fimat sought to obtain interlocutory injunctions to restrain the brokers from breaching this covenant.

A key issue in the case was Fimat’s contention that it would take a significant period of time to recruit replacements for the two brokers, particularly as many of Fimat’s clients were French, and the replacement brokers would need to be French speakers.

In Fimat Hong Kong Ltd v Tubiana Frederic Antoine & Others [2006] HKEC 341, the Court held that the length of time it would take to replace the brokers was directly relevant to the reasonableness of the length of the post termination restriction imposed. It was also significant that as broking was such a relationship driven industry, any new replacement would require time to establish relationships with the clients of Fimat with whom the two brokers had been dealing. Hence the Court held that the restraint period needed to be not only of sufficient time for Fimat to find a replacement broker, but also for a period sufficient to enable the replacement to establish the relevant business connections.

The Court held that 12 months was not an unreasonable period and granted the interlocutory injunctions.