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Employment ties that bind

Published on Friday, 22 Jul 2011
Illustration: Bay Leung
Toby Brown
Partner, Kennedys
Photo: Jonathan Wong

Like a bad marriage, a broken employment agreement can be a nightmare, especially if one party is fiercely guarding its turf. A clear pre-employment agreement can help clear the clouds, particularly those involving sensitive issues, such as post-termination restrictions.  

Take the case of the so-called garden leave, the practice of putting an employee on paid leave during his notice period before termination. This is usually done because his contract bars him from working for the competition for a specified period after leaving the firm.

But current case law - which covers Hong Kong - suggests employers should give credit for garden leave and reduce periods of post-termination employment prohibitions accordingly, says Toby Brown, partner at law firm Kennedys, at a Robert Walters presentation. 

While garden leave was rarely discounted in post-termination employment restrictions before, there has been a trend towards its inclusion in the past four years, Brown says. This means that if an employee is restricted from working for a competitor for six months after leaving, and that person has also been put on garden leave for three months, his post-termination employment period should be reduced to three months, he adds.

Brown pinpoints two other growing trends in post-termination restrictions: the inclusion of monthly compensation during periods of enforced non-employment, and the extension of post- termination restrictions to protect the interests of group companies.

Departing employees who have signed restrictive post-termination employment clauses are increasingly receiving a basic monthly salary during the non-compete period, Brown says. But such handouts are more than a show of compassion, as non-compete clauses are sometimes unenforceable in court when held up against the litmus tests of legitimate interest and reasonableness.

The extension of protection to group companies is also on the rise. Such clauses are enforceable if the employee has dealings with group companies and has access to their confidential information during the course of employment.

In effect, post-termination restrictions are the prenuptial agreements between employer and employee - from top-tier management to line workers. These clauses are inserted into employment contracts by organisations to protect their sensitive information. Should the relationship fail, the restrictions specify who the employee cannot work for, where they cannot work, and what they cannot do that may hurt the employer's business interests. These include non-dealing with clients and non-poaching of talent. 

While the principles of such restrictions are relatively simple, application is often difficult. The law takes the view of public policy - that once someone has left an organisation, that person is no longer the organisation's servant and should be free to go wherever he wants, and the market should not be restricted from approaching the best talent. However, the law also recognises the importance of protecting an employer's legitimate business interests.

According to Brown, these include maintaining the stability of the workforce, protecting the goodwill of clients, suppliers and customers, and safeguarding confidential information. 

Finally, there is the "fluffy" test of reasonableness, where the court considers the employer's interests, the employee's position, and that of the public at large. "It has to be reasonable. If there is only one doctor in the village and the clause prohibits him from working there, then it is not reasonable to the public's interest," says Brown.

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