Post-Termination Geographic Non-Compete Restriction Upheld
Susan Kendall and Rashi Narayan, Baker & McKenzie, Hong Kong
A geographic non-compete injunction was granted by the Court of First Instance ("CFI") on the basis that the restriction was justified for the loss of a key employee whom other staff and existing customers may follow.1 The CFI held that it was not an unreasonable restraint on competition or an unreasonable limitation of employment opportunities in light of the skills and reputation the employee had acquired as a result of his previous employment.
Pure International HK Limited ("HK Limited") successfully applied to the CFI for an injunction to uphold a six-month restriction preventing Mr. Kenneth Lo ("Lo") from taking employment in the same activity within a radius of 1,000 metres of the principal location of the Plaintiff's business.
The courts in Hong Kong typically take a hard line on post termination restrictions and in many cases they are struck out for being too widely drafted in terms of scope, duration or geographical area. In this case, the restriction in question was found by the CFI to be sufficiently tailored to the nature of Lo's role and the industry in which the parties operated and was no more than reasonably necessary to protect HK Limited's legitimate interests.
HK Limited operates a number of fitness centres in Hong Kong. Lo was employed as a personal trainer at one of these centres from 2004. Lo submitted a letter of resignation in February 2013 giving one month's notice, which he served in full. Two days prior to the expiry of the notice, Lo participated in an online interview with a competitor of HK Limited, Ultimate Performance. During the interview, Lo made it clear that he was joining Ultimate Performance and he promoted the company to HK Limited's detriment and in breach of the implied term of trust and confidence which he owed under his employment contract.
Lo joined Ultimate Performance in breach of the post termination restriction in April 2013 and HK Limited issued proceedings in June 2013 following an investigation into the situation and an analysis of the damage caused.
Factors Leading to Injunction Being Granted
(i) Reasonable restriction
The restriction was reasonable on the basis that it was sufficiently tailored and limited in scope and duration. Deputy High Court Judge Seagroatt held that the period of six months was "eminently reasonable and could hardly have been less." The area covered by the radius of 1000 metres left Lo with numerous options for alternative employment at other fitness centres either in an employed or self-employed capacity. The CFI held that HK Limited would suffer considerable harm in the short term without this restraint and it was a sensible means of reducing its loss of investment and goodwill.
(ii) Investment by HK Limited in Lo
The court observed that HK Limited had trained Lo to be one of its leading fitness trainers. HK Limited had invested in Lo over a number of years by sending him on courses enabling him to build up skills, expertise and reputation. Lo argued that his skills and expertise were self-generated, as was the goodwill that he alleged that he created. The court disagreed and held that the goodwill belonged to HK Limited which had provided the environment, facilities and fitness programmes and had invested in training the instructors to ensure their expertise.
(iii) Reminder of restrictions prior to departure
HK Limited reminded Lo of his contractual obligations during a meeting the day before he left employment. The court held that Lo was under no illusions or misapprehension of his contractual obligations and had acknowledged the limitations imposed upon him.
(iv) Lo's conduct
The court held that any doubt about the need to protect HK Limited's legitimate interests or the reasonableness of the covenant was entirely eliminated by Lo's participation in a promotional interview for his new employer whilst still employed by HK Limited.
1Pure International HK Limited v. Lo Yan Chak Kenneth (HCA 975/2013)