Dextra China Ltd & Anor v. Lam Wing Kit [2014] HKCU 1039

In brief:

The Defendant employee was summarily dismissed on 16 October 2009, as a direct result of multiple breaches of his employment agreement and for misconduct including:

  • the establishment of or efforts to establish a PRC enterprise called “Agility” designed to compete directly with Dextra;
  • conspiring with current and former employees to poach employees to staff Agility and to create distrust and animosity amongst employees;
  • working on establishing and developing Agility during Dextra working hours and using Dextra’s resources;
  • theft and misuse of Dextra’s intellectual property and confidential information; and
  • diversion of Dextra’s sales and potential sales.

The court found that the Defendant acted in breach of the various duties owed under his employment, including the dissemination of confidential information. Dextra was entitled to summarily terminate the Defendant’s employment. Dextra was awarded approximately HKD 5 million damages and an injunction restraining the Defendant from further use of the confidential information.

Background:

Dextra and Dextra Building Products (Guangdong) Limited (“DBPG”) alleged that, from April to October 2009, the Defendant masterminded the setting up and operation of Agility, a competing business, assisted by other employees of Dextra/DBPG or its sales agents. Dextra also alleged that the Defendant had solicited Dextra’s employees and misappropriated Dextra’s confidential information and that the Defendant was summarily dismissed as a consequence.

The Defendant denied any wrongdoing and claimed wrongful dismissal.

On a full analysis of the facts, the court found:

  • During his employment with Dextra, the Defendant was significantly involved, over a number months and on an ongoing basis, in a very senior role with Agility - he was to be a substantial owner and his management experience was vital to it.
  • It was irrelevant that the Defendant was doing some genuine work for Dextra at the same time.
  • The Defendant acted in breach of these duties and Dextra was entitled to summarily terminate the Defendant’s employment.

Take away points:

This case underscores the importance of taking precautions to safeguard confidential information and proprietary interests. Employers are reminded to conduct regular reviews to ensure confidential information is adequately protected, through the use of passwords; restricted access or access on a “need-to-know” basis; and clearly marking confidential documents. Employment contracts should also include tailored non-solicitation, non-competition and confidential information clauses.

Policies for handling confidential information should be checked to ensure that they include instructions to employees to take precautions to keep sensitive information confidential; provide the right to conduct employee monitoring and any breaches of the policy should be dealt with by applying the disciplinary procedure in a consistent manner.

If an employee is suspected of misappropriating confidential information or setting up a rival business, immediate steps should be taken to contain the situation and carry out an investigation. As the burden of proof lies with the employer to show that the employee has taken confidential information, it is recommended that computer forensic specialists are engaged to assist with the investigation and preserve the integrity of the evidence.