Lecture 10 Dr Lone.pdf - Lecture 10(LW2903 Employment Law...

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Lecture 10 (LW2903) Employment Law - Restrictive Covenants in Employment Contracts Dr Fozia Lone
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Restraint of Trade Or Restrictive Covenant (1) A restrictive covenant is a clause in a contract which: prohibits an employee from competing with his ex-employer for a certain period after cessation of his/her employment, or prevents the ex-employee from soliciting or dealing with customers of the business by using knowledge of those customers gained during his prior employment.
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Restraint of Trade Or Restrictive Covenant (2) The basic rule is that all interference with individual liberty of action in trading, and all restraints of trade, are contrary to public policy and therefore void. This is because in Hong Kong, restrictive covenants in employment contracts which imply to restrict an employee's right of freedom of choice of employment are not enforceable because they are contrary to the Basic Law: Article 33 (Hong Kong residents shall have freedom of choice of occupation) Article 41 (Persons in the Hong Kong Special Administrative Region other than Hong Kong residents shall, in accordance with law, enjoy the rights and freedoms of Hong Kong residents prescribed in this Chapter) (Chapter III of Basic Law)
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Restraint of Trade Or Restrictive Covenant (3) The exceptions to this rule that a court is only willing to impose the restraints against an employee if those restraints are reasonable i.e. a restrictive covenant may be enforceable if the employer is able to show that the covenant:- (a) protects a legitimate business interest (the three principal types of business interests commonly recognized are: trade secrets and confidential information, client or customer connections and stability of workforce); (b) extends no further than is reasonably necessary to protect such interests; and (c) is not contrary to the public policy in Hong Kong. In other words, if the restraints are so harsh that they go beyond reasonable protection of the legitimate interests of an employer, the employer may run the risk of not having those restraints enforceable. The original intention of having protection will vanish.
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Rever (AMA) Salon Ltd vs Kung Wai for Danny (No 2) [2003] 2 HKC 268 In this case the proprietor of a hair salon employed a number of hair stylists. When they were employed, all were requested to sign an employment contract which said that for one year after leaving the hair salon, they could not: (i) solicit the hair salon's clients with a view to providing services for them; (ii) cause services to be given to the hair salon's clients; (iii) work within three quarters of a mile of the hair salon's premises in Tsim Sha Tsui; or (iv) entice anyone employed by the hair salon to leave. A group of seven hair stylists left the hair salon. Not surprisingly, all of them committed acts which were prohibited by the restraint of trade covenants.
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