|Does an employer have any remedy against its employees who resigned and signed contracts to join its “competitor” on the same day?|
The freedom of choice of occupation is a right recognized at common law and guaranteed by the Basic Law of Hong Kong. However, in the process of making a move, employees are still under an implied duty of fidelity towards the employer (e.g. to act in good faith and in the best interest of the employer). Moreover, subject to the requirement of reasonableness, they may be subject to certain contractual post employment restriction which restricts them from working for the employer’s “competitors” for a certain period of time.
It may be difficult to draw the line as to what may amount to a breach of duty of fidelity and what kind of post employment restriction will be regarded as reasonable and enforceable by the Court.
The above issues were considered in a recent decision of the High Court of Hong Kong in Cantor Fitzgerald Europe and Others v Jason Jon Boyer and Others (HCA 1160 of 2011). It showed that in certain circumstances, employees may not be in breach of their duties of fidelity even if they resigned on the same day and joined another company which is doing similar business as their employer.
Facts of the Case
1. The 1st Plaintiff, Cantor Fitzgerald Europe (“CFE”) is a private UK company which provides various kinds of financial services.
2. The 2nd Plaintiff, Cantor Fitzgerald (Hong Kong) Capital Markets Limited (“Cantor HK”) is a Hong Kong company which deals in and advises on securities and futures.
3. The 1st and 2nd Plaintiff are members of the Cantor Fitzgerald Group (“CF Group”) which is a very well established capital markets investment bank that has offices and trading desks in major financial centres throughout the world.
4. The 1st Defendant was an employee of CFE who was seconded to Cantor HK to work as a director.
5. The 2nd and the 3rd Defendant were the Managing Directors of the Cash Equities Desk of Cantor HK.
6. The 4th Defendant was the Managing Director, Chief Economist and Strategist (Asia) in the Asian Equities Division of Cantor HK.
7. In May 2010, the 1st, 3rd and 4th Defendants were involved (on behalf of CF Group) in the negotiation with a Mr. Johnson Ko (“Mr Ko”) (a Hong Kong businessman) in relation to a possible “rescue” and restructuring of Asia Telemedia Limited (“ATL”) which was under liquidation.
8. In August 2010, CF Group’s negotiation with Mr.Ko in relation to ATL broke down.
9. On 30th May 2011, all the 4 Defendants resigned from their respective employments in the CF Group and signed the employment contracts with Mansion House Financial Holdings Limited (“Mansion House”) which is a company within the ATL group (as restructured by Mr. Ko).
10. All the Defendants started to work for Mansion House on various dates in September and October 2011.
Breach of duties of fidelity by procuring other Defendants to resign?
The Court held that the employees had not breached their duties of fidelity for the following reasons:
1. There is no evidence to show that the Defendants had persuaded or encouraged each other to resign though they were fully aware that the other Defendants were thinking of leaving the CF Group.
2. There is no evidence that the interviews of the Defendants by the head-hunter in April 2011 and ATL’s liquidators on various dates in May 2011 were not genuine.
3. The Defendants had engaged the same law firm to review their employment contracts with Mansion House but it was reasonable for them to do so in order to save legal costs.
4. The Defendants were not acting in concert or conspired together as the 3rd Defendant (who used to be a subordinate of the 1st Defendant) was appointed by Mansion House to be the superior of the 1st Defendant.
5. Each Defendant had negotiated with Mansion House and made up their mind independently.
6. There is no package deal for the Defendants.
Employee’s obligation to disclose the approaches for employment by the employer’s competitor?
One of the Defendants’ contract contained provisions which obliged the employee to disclose to the employer if the employee was “invited or approached to take up employment ……with a ‘competitor’” and to disclose that fact immediately in writing.
The Court held that the word “competitor” is a vague expression. Moreover, as Mansion House was only a little more than a “start-up” company and emerging from the insolvency of its parent company, it cannot be regarded as a competitor of the CF Group which is a leading and long-established global enterprise. Therefore, the Defendants had not been in breach of that provision.
Employee’s obligation to disclose his own intention and other Defendants’ intention to join a competitor?
The Court also commented that “as an employee cannot be forced to work where one is unwilling, it will be difficult to establish damage upon the breach of the obligation to disclose the approach by another company to leave the employment. Moreover, as an employee is free to make up one’s mind whether to stay or leave an employment, there may not be a duty on other employees at law or at equity to try to persuade an employee not to leave when the former learn that the latter is thinking of resigning.”
Enforceability of restrictive covenants
The employment contract of one of the Defendants contained provisions which restricts him from poaching certain employee of the CF Group for a period of 12 months and forbids him to commence employment with certain classes of person in “a business……in competition” with the CF Group for 12 months.
A restrictive covenant is enforceable when it is no wider than is reasonably necessary to protect the interests of an employer. The Court took the view that the period of 12 months is unreasonable, especially when the Plaintiffs could not produce evidence to justify that period of restriction. The Court also commented that there is ambiguity as to precisely what constitutes “a business……in competition.” Therefore, such restrictive covenant is not enforceable.
The outcome of the Cantor Fitzgerald case in relation to breach of duty of fidelity was very much a result of its specific facts. However, the case had reconfirmed that the scope of a restrictive covenant must be clearly defined and the duration of the restriction must be reasonable (supported by the relevant evidence) in order to be enforceable. Therefore, one must take great care when drafting such provisions.
The law and procedure on this subject are very specialized and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.
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Published by ONC Lawyers © 2012