In a recent District Court decision,1 the court refused to enforce a restrictive covenant against a security guard because the employer property management company failed to demonstrate any legitimate business interests requiring protection.
Background
The Plaintiff is a property management company and the Defendant is its former employee. The Defendant had been assigned to work as a security guard at Tai Foo House since 2017. In 2021, after learning that the Incorporated Owners of Tai Foo House would cease engaging the Plaintiff as the property manager, the Defendant served notice to terminate his employment and joined the new property management company of Tai Foo House. The Plaintiff subsequently commenced proceedings to enforce the restrictive covenant contained in the Defendant’s employment contract, which prohibited the Defendant, for a period of 12 months following termination of employment, from working in any building to which he had been assigned during his employment with the Plaintiff.
The legal principles
To be enforceable, a covenant in restraint of trade must be reasonable. When assessing reasonableness, the court applies a three-stage approach:
- the court will first determine the proper construction of the restrictive covenant;
- the court will then determine whether the employer has any legitimate business interests that require protection; and
- lastly, the covenant must be no wider than is reasonably necessary for the protection of these interests.
Factors which the court will take into account include:
- the seniority of the employee;
- the geographical scope and duration of the restriction; and
- the nature of the restricted activity.
In general, it is more difficult to justify a lengthy and broad restrictive covenant where the employee is junior and the restriction extends beyond the kind of activities undertaken by the employee during the course of employment.
The decision
In this particular case, the court held that the Plaintiff failed at the second stage – it failed to show any legitimate business interests which warranted protection by the restrictive covenant. As a general rule, only trade secrets and customer connections are recognised as legitimate business interests. In this case, the Plaintiff failed to adduce any evidence to show that the Defendant had obtained trade secrets or confidential information during his employment. Accordingly, the restrictive covenant was unreasonable and thus unenforceable.
For completeness, the court also proceeded to the third stage and decided that the restrictive covenant was in any event wider than necessary. In reaching this conclusion, the court noted that:
- the Defendant was a junior employee earning a monthly salary of HK$12,000 and subject to a notice period of only 15 days. A 12-month post-termination restriction is in principle excessive and the Plaintiff did not provide any evidence to justify the duration; and
- the covenant prohibited the Defendant from working in any buildings to which he had previously been assigned, without any geographical limit. The Plaintiff likewise failed to justify the breadth of this restriction.
Key takeaways
Employers cannot prevent competition per se, they must be able to identify with precision the legitimate business interests they are seeking to protect by restraining a former employee and such restraint must be no wider than necessary for the protection of the said legitimate business interests. Post-termination restrictive covenants are not boilerplate clauses, they cannot be applied across the board to the entire workforce. Instead, they must be drafted bespoke for particular employees taking into account their role, experience, seniority, remuneration and other relevant factors.
Acknowledgements to Trainee Solicitor Alexa Loong for research and contribution to this article.
For further information, please contact :
Richard Keady, Partner, Dentons
- Harbourfield Property Management Limited v Ng Wing Chi [2026] HKDC 1421.↩
