In AB Club Limited and Others v Chan Yin Ki Cubie and Others  HKCFI 2769, the Court of First Instance (the CFI) granted an interim injunction enjoining the former employees of a corporate group from soliciting clients and other employees but refused to grant the employers' application for a Springboard injunction.
The employers were companies forming part of a corporate group (the Group) and engaged in the business of marketing and selling overseas properties to Hong Kong buyers.
The employees were employed by various companies within the Group, and some were also shareholders and directors of a company within the Group. Except for one employee, the employment contracts for all other employees contained, among other things, the following term:
“For a period of one year from the date of termination of [the employment] agreement for whatsoever reason, you shall not directly or indirectly for yourself or any other person, firm or corporation by whom you may be employed or in which you may be interested or associated solicit the business of any persons who were employees or clients of [the employing group company] or any company within [the Group] at any time during the period of your employment” (the Clause).
Some of the employees incorporated companies before and after resignation from their respective group company employer. After the employees resigned from the Group, they joined these newly incorporated companies which were engaged in the business of marketing and selling overseas properties to buyers in Hong Kong in direct competition with the Group.
The employers commenced action in the CFI claiming breach of contractual duties and breach of fiduciary duties by employees who were also directors of the group companies. The employers also sought, among other things, against four employees an interim injunction restraining them from (a) soliciting clients and employees of their former employers for 12 months (the Non-solicitation Injunction) and (b) carrying on certain business for six months (the Non-compete or Springboard Injunction), from the date of termination of their employment.
The CFI granted the Non-solicitation Injunction but refused to grant the Springboard Injunction.
1. Non-compete/Springboard Injunction
The employers did not seek to rely on any express non-competition obligation under a contract of employment, presumably because the contract did not contain this clause. So, the employers sought a remedy available through the courts being a Springboard injunction. A Springboard injunction is a type of injunction that a court can grant to remove any advantage or head start an employee may have obtained through misuse of their employer's confidential information.
The parties' counsel did not disagree that the CFI should adopt an approach that creates the least risk of injustice to both parties.
The CFI held that the employers had delayed by some three weeks in seeking injunctive relief during which the newly incorporated companies were allowed to carry on business. This indicated that they had no urgency in putting a stop to the competing business pending a more substantive hearing of the employers' application for an injunction.
The CFI considered that damages are not necessarily difficult to assess in the factual context of this case. Information would be readily obtainable. There was also no suggestion that the employers would not be good for damages awarded against them.
In the circumstances, the CFI concluded that the risk of injustice is higher if it ordered the Springboard Injunction in the interim.
2. Non-solicitation Injunction
On the other hand, the CFI was satisfied that the employers established a good arguable case that three employees were in breach of their contractual duties of non-solicitation provided under the Clause. The CFI saw little prejudice (if any at all) to hold the three employees to their contractual non-solicitation obligations in the interim and granted the Non-solicitation Injunction.
Lessons for Employers
- Take action promptly and without delay. Generally, a delay of as short as two weeks may be a ground for the court to refuse interim relief. Employers should therefore act quickly if they want to apply for an injunction.
- Consider including express contractual non-competition restraint. In the case reported above, the employers presumably did not have a contractual non-competition clause and applied for a Springboard injunction. Employers should consider including an express non-competition clause in their contract of employment. An advantage of an express clause is that expectations of the employee are clearly set out but importantly, there are express contractual obligations that the employer can point to. A disadvantage is (depending on what is normal for the employer's industry) that it may make the terms of employment unattractive to a candidate. However, post-termination restrictive covenants like non-competition and non-solicitation restraints are unenforceable unless the employer can demonstrate they are reasonable in protecting a legitimate interest. So, employers should ensure that the geographical scope, area, duration and scope of activities of the restrictive covenants are reasonably necessary to protect their legitimate interests. These restraints should therefore be tailored to the particular circumstances of each employee.
- Review restrictive covenants regularly. Employers should review restrictive covenants regularly to take account of any promotions and changes in an employee's duties to maximise enforceability.
The judgment is available at the following link:
Visit us at www.mayerbrownjsm.com
Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.
© Copyright 2020. The Mayer Brown Practices. All rights reserved.
This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.