With one new year just over, it's time for another. Yes, Chinese New Year is only a week away. Traditionally, this is a time for giving lai see and spending time with the family. However, it's also the time of the thirteen month bonus and of job hunting.
IT professionals are notoriously frequent job movers and although dot-coms have been laying off employees in recent months, highly skilled IT employees still appear to be very much in demand. Although it's hard to predict what the new year will bring in the longer term there will doubtless be a flurry of resignations and transfers of IT employees shortly after Chinese New Year.
In a highly competitive market place it is inevitable that the departure of some employees will trigger a reaction from their former employers, particularly in the case of a key employee who joins a competitor or continues to work with his or her former employer's clients. Accordingly, it is common place for employers to include terms in their employees' contracts which purport to restrict them after the end of their employment from working for the employer's competitors, from poaching other employees and, depending on the company's business, from taking advantage of the employee's client contacts.
However, what employers often don't realise is that such "restrictive covenants" are only enforceable in very limited circumstances and they often require very careful drafting. Particular points to note are:
* that the starting point the Hong Kong courts take in considering restrictive covenants is that people should not be prevented from earning a living in their field of expertise and, accordingly, such covenants are unenforceable, unless the employer can convince the court otherwise;
* that any ambiguous wording in a restrictive covenant will be interpreted in favour of the employee; and
* that a restrictive covenant is only enforceable if it protects a legitimate business interest of the employer.
The legitimacy of an employer's interests depends on the nature of its business and the position of the relevant employee. Accordingly, although it is tempting to use a standard form of restrictive covenant which covers all employees, such covenants should be tailored for each category of employee. The "borrowing" of terms from employment contracts from other companies should also be avoided as the change of context may well render them unenforceable.
It is often said by legal commentators that if a restrictive covenant is to protect the legitimate interests of an employer, it must be reasonable in terms of its duration, the scope of the activities restricted and, in almost all cases, its geography. This is a sensible rule to follow. For example, where an employee has been handling client accounts, a clause which prohibits the employee from working for those clients for x months after departure is likely to be enforceable if the "x" is only so long as it would take the employer to get a new employee in place and acquainted with the client contacts.
The use of restrictive covenants can help employers minimise the damage from the departure of a key employee. This is not to say that such covenants are essential, as certain restrictions will always apply to departing employees (for example, from disclosing the former employer's trade secrets). However, restrictive covenants can increase the scope of the employer's protection, provided that they are carefully drafted so as only to protect the employer's interests.
First published in SCMP Technology Post on 16 January 2001.