Leaving to Compete: Are Post-Termination Restrictions Enforceable in Hong Kong?

In our employment law practice, one of the most common scenarios we encounter involves senior executives resigning to join competitors.

For employers, such departures can raise legitimate concerns about confidential information, client relationships, deal pipelines, investor contacts and workforce stability.

For employees, restrictive covenants can significantly affect their ability to take up new opportunities.

The starting point under Hong Kong law is that post-termination restrictions (PTRs) are not automatically enforceable simply because they appear in an employment contract. Courts carefully scrutinise such provisions and will only enforce them where they go no further than reasonably necessary to protect legitimate business interests.

In this article, we outline the key principles governing PTRs in Hong Kong, the factors courts consider when assessing enforceability, the role of garden leave, the risks of injunction proceedings, and practical steps for employees, employers and new employers.

1. PTRs are not automatically enforceable. In Hong Kong, there is no specific legislation governing PTRs. Instead, the law has developed through judicial decisions over many years.

   PTRs are presumed to be void as restraints of trade. Employees are generally entitled to use their skills, experience and professional knowledge after leaving employment.

   The burden falls on the employer to demonstrate that the restriction is necessary to protect a legitimate business interest and goes no further than reasonably necessary.

2. Employers cannot simply seek protection from ordinary competition. The courts are not concerned with protecting an employer from ordinary competition. The courts will generally only recognise interests such as confidential information, customer or investor relationships, goodwill and workforce stability.
3. Reasonableness is everything. When assessing enforceability, the courts will examine:
   1. Duration, i.e., how long does the restriction last? The longer the restriction, the greater the scrutiny. While restrictions of three to six months are often easier to justify, longer periods may be upheld for very senior individuals who possess particularly sensitive information or strategic influence within the business.
   2. Geographical scope, i.e., where does the restriction apply? A worldwide restriction may be vulnerable to challenge unless it reflects the actual scope of the employee’s role and influence.
   3. Activities restricted, i.e., what exactly is the employee prevented from doing? The restriction must target specific risks. Broad prohibitions preventing a departing employee from working in an entire industry are significantly harder to enforce than carefully drafted restrictions directed at clients, investors, employees or confidential business opportunities.

   The broader the restriction, the greater the scrutiny.

4. Not all restrictive covenants are equal. Employers often include multiple forms of protection within employment contracts.

   Non-solicitation clauses preventing former employees from approaching clients, investors or employees are generally viewed more favourably than broad non-compete provisions.

   Some contracts go further by prohibiting dealings with certain clients or business contacts altogether, whether approached by the employee or not. While potentially enforceable, these clauses require careful drafting and reasonable limitations.

   Likewise, confidentiality obligations are often easier to enforce because they protect proprietary business information rather than restrict a person’s ability to earn a living.

   By contrast, non-compete clauses remain the most vulnerable to challenge unless they are carefully tailored to the employee’s seniority, influence and access to sensitive information.

5. Senior employees face greater risk. The more senior the employee, the easier it becomes for an employer to justify restrictions.

   A court is likely to view a Managing Director, Chief Executive, Portfolio Manager or senior rainmaker differently from a junior employee. Senior personnel often possess strategic information, maintain key relationships and have significant influence over clients or investors.

   Accordingly, restrictions of up to 12 months may sometimes be enforceable against very senior employees, although enforceability remains heavily dependent on the facts.

6. Garden leave can affect enforceability. Garden leave is frequently overlooked when assessing PTRs. During garden leave, the employee remains employed and bound by contractual duties while being kept away from clients, colleagues, investors and sensitive information.

   In practical terms, the employer is already receiving a period of protection before employment ends.

   This creates an important question. If an employer places an employee on three months’ garden leave and then seeks to enforce a further 12-month non-compete, the employee may argue that the overall period of restraint is excessive.

   While there is no automatic rule requiring garden leave to be set off against a PTR, courts may consider the cumulative effect of both restrictions when assessing whether the overall restraint is reasonable.

7. Injunctions are often the real commercial risk. The greatest immediate risk for departing senior employees is often not the eventual outcome of a trial but the prospect of urgent court proceedings. Employers often seek urgent injunctive relief shortly after learning of an employee’s proposed move to a competitor.

   In cases involving alleged misuse of confidential information, employee poaching or diversion of business opportunities, employers may also pursue a springboard injunction. These applications are designed to prevent an employee from gaining an unfair competitive advantage arising from prior misconduct.

   An injunction application can be disruptive, expensive and commercially damaging for both the departing employee and the new employer even where the ultimate enforceability of the covenant remains uncertain.

8. Courts will not rewrite poor drafting. Some employers assume that inserting a statement that a restriction is ‘reasonable’ guarantees enforceability. It does not.

   Similarly, although courts may in limited circumstances sever unreasonable wording while preserving the remainder using the ‘blue pencil’ test, they will not rewrite defective restrictions to make them enforceable.

9. Practical steps for employees, current employers and new employers.

   Employees considering a move to a competitor should:

   1. Review PTRs before resigning.
   2. Avoid retaining confidential information or company property.
   3. Refrain from approaching colleagues, clients and/or investors.
   4. Assess the impact of any garden leave provisions.
   5. Obtain legal advice early, particularly where a competitor move is involved.

   Employers seeking to protect their business interests should:

   1. Review restrictive covenants regularly.
   2. Consider garden leave where appropriate.
   3. Monitor for employee, client and investor solicitation.
   4. Act promptly if a breach is suspected.
   5. Obtain legal advice at an early stage.

   New employers hiring senior talent should:

   1. Review applicable restrictive covenants early.
   2. Understand the employee’s contractual obligations.
   3. Avoid requesting or receiving confidential information.
   4. Structure the role to minimise litigation risk.
   5. Seek independent legal advice where restrictive covenants may present a risk.

10. Final thoughts. PTRs sit at the intersection of two competing interests: an employer’s right to protect its business and an employee’s right to pursue future opportunities. The answer is rarely straightforward.

    Whether you are an employer seeking to protect your business, or an employee planning a move to a competitor, early legal advice can be critical in identifying risks, preserving negotiating leverage and avoiding disputes that may otherwise escalate into urgent court proceedings.

Our team regularly advises both employers and senior executives on restrictive covenants, garden leave, confidentiality obligations, team moves, injunction risks and negotiated exits.

If you require advice on post-termination restrictions or a proposed move to a competitor, please contact us for a confidential discussion.

Contact

Ashima Sood
+852 2555 9009
ashimasood@nanwanis.com