Employment Restrictive Covenants in Hong Kong: Non-Compete and Non-Solicitation Clauses

What Are Employment Restrictive Covenants?

Employment restrictive covenants are contractual clauses that restrict an employee's activities during or after their employment. They typically include non-compete clauses (preventing the employee from joining a competitor or setting up a competing business), non-solicitation clauses (preventing solicitation of the employer's clients or customers), non-dealing clauses (preventing the employee from conducting business with clients regardless of who initiates contact), and non-poaching clauses (preventing the employee from recruiting former colleagues).

These covenants serve a legitimate purpose: protecting the employer's investment in its business, client relationships, and confidential information from being exploited by departing employees for the benefit of competitors. However, Hong Kong courts are careful to ensure that restrictive covenants do not impose unreasonable restraints on employees' freedom to work.

The Legal Test for Enforceability

A restrictive covenant in an employment contract is enforceable in Hong Kong only if it satisfies two conditions:

First, the employer must have a legitimate business interest to protect. The courts recognise two categories of legitimate interest: (1) trade secrets and confidential information, and (2) client relationships (where the employee has had sufficient contact with clients to have built a personal relationship that the employer can legitimately protect). A bare interest in preventing competition is not a legitimate interest.

Second, the covenant must be reasonable in scope. Reasonableness is assessed by reference to the duration of the restriction, its geographic scope, and the range of activities restricted. A non-compete clause that extends for two years, covers the whole world, and prohibits the employee from working in any capacity in any business that competes with any part of the employer's business is likely to be too wide and unenforceable.

Courts assess reasonableness at the time the covenant was entered into, not at the time of enforcement. A covenant that was reasonable when signed but has become unreasonable through changes in the employer's business is assessed as of the date of execution.

Duration

Courts in Hong Kong have upheld non-compete clauses of six to twelve months in duration for senior employees with access to confidential information and key client relationships. Clauses of two years or more face a significantly higher bar and must be justified by the particular seniority of the employee and the nature of the business interest at stake. Garden leave provisions — requiring the employee to serve out their notice period away from the business — can effectively extend the protection period without increasing the post-termination restriction.

Geographic Scope

A non-compete restriction should be limited to the geographic areas in which the employer actually competes and in which the employee's activities are relevant. For a regional employer, a Hong Kong-only restriction may suffice. For a global employer, a broader geographic restriction may be justifiable, but it must still be proportionate to the employer's actual competitive footprint and the employee's role.

Activity Restriction

The restricted activities must match the legitimate interest being protected. A non-compete clause that prevents the employee from working in any capacity for any competitor is likely to be wider than necessary. A more targeted restriction — prohibiting the employee from working in a specific role or division that directly competes with the employer's core business — is more likely to be enforceable.

Non-Solicitation vs Non-Dealing Clauses

Non-solicitation clauses (which prohibit the employee from approaching clients to solicit their business) are generally more readily enforceable than non-dealing clauses (which prohibit any business dealings with clients regardless of who makes the initial contact). Courts view non-solicitation clauses as targeting active competitive conduct, while non-dealing clauses may catch innocent, unsolicited approaches from former clients. Both should be limited to clients with whom the employee had personal dealing during a defined period before termination.

Blue-Pencilling

Where a restrictive covenant is too wide to be enforced in its entirety, Hong Kong courts may “blue-pencil” the clause — striking out the offending words while leaving the remainder intact — if the surviving provisions make grammatical and commercial sense. However, courts will not rewrite or add to the covenant. Employers should draft restrictive covenants with multiple, alternative provisions covering different geographic scopes or durations, each designed to be enforceable in the alternative.

How Alan Wong LLP Can Help

Alan Wong LLP advises employers and employees on the drafting, negotiation, and enforcement of employment restrictive covenants in Hong Kong. For employers, we design appropriate and enforceable restrictive covenant frameworks tailored to the specific business and employment context. For employees, we advise on the enforceability of covenants they have signed and on strategies for managing post-employment restrictions. We also assist with urgent applications for injunctive relief where a breach of covenant has occurred or is threatened. Contact us for experienced employment law advice on restrictive covenants.