Cantor Fitzgerald (the bond traders) instituted proceedings against four of its former senior employees (three brokers and one Chief Economist and Strategist) who left the Hong Kong office to join a competitor.
The Court of First Instance (Reyes J) held:
- the duty to inform an employer of an intention to resign or having been approached by a competitor can only arise from the express terms in an employment contract;
- the right to terminate employment with notice or by agreeing to make payment in lieu of notice (section 6 and 7 of Employment Ordinance (“EO”)) form part of the mandatory employment laws of Hong Kong, irrespective of the relevant governing law of the employment contract, hence either party may give notice to terminate a contract at any time, irrespective of any provision in the employment contract which stated otherwise;
- restrictive covenants are unenforceable if there is no evidence to justify the length or scope of the restraint.
Some important implications from the judgment:
Governing law and payment in lieu of notice
Cantor Fitzgerald alleged that, in breach of the agreed governing English law, one of the former employees wrongfully terminated his English law contract by way of payment in lieu of notice. The question before the Court was whether sections 6 and 7 of the EO were applicable to an employee who is employed but subject to an employment contract governed by the laws of another jurisdiction.
The Court found that section 70 of EO nullifies any contractual term which purports to extinguish or reduce any right or protection conferred on an employee by the Ordinance. Sections 6, 7 and 70 must be treated as over-riding provisions (provisions paramount) which overrode the relevant provisions under English law.
The case illustrates that parties cannot attempt to avoid the protection afforded by the EO to an employee through the expedient of choosing a foreign law.
Employers should thus ensure that the terms of their employment contracts are in accordance with the EO, and note that if an employee is employed in Hong Kong under a foreign law governing contract, the employee is nevertheless entitled to the same benefits and protections that other employees are entitled to under the Ordinance.
Enforceability of Restrictive Covenants
The restrictive covenants in the employees’ contracts, including a 12-month non-poaching clause, a 6-month and a 3-month non-dealing clauses, were all considered by the Court to be unenforceable, on the basis that these covenants were too wide and the employer failed to justify on what basis the length of the restraint was reasonably necessary for the protection of the employer’s interests.
Of note is that cases in the past few years have suggested that one year of restraint is reasonable. The present case thus suggests that the Court has become more restrictive in construction and reasonableness of restrictive covenants.
These clauses must be drafted narrowly and be sufficiently clear as to the duration and subject of the restraint. It should be noted that the Court must be “satisfied on the totality of evidence that the covenants are no more than what is reasonably required to protect the legitimate interests of any employer”. This can be readily achieved if the covenants are tailored to a particular employee in terms of the relevant role and responsibilities held within the company.