The Enemy Within?

Protecting valuable assets such as the confidential information of a business is clearly critical. The most trusted employees and leaders of a business, who have access to highly confidential information, can do the most harm when they leave, often to work for a competitor. 

Confidential information is not just limited to strategic plans and big business decisions. Often an organisation’s internal workings and the details it would prefer to keep out of the public domain are more mundane – for example, individual shortcomings or evidence of fragmented relationships from poor decision-making. 

If such sensitive confidential information finds its way into the wrong hands, this can damage the reputation of both individuals and the organisation. 

The Protection

There are a number of ways the law can assist an employer to ensure its information remains confidential.

There are some implied legal protections that protect an employer during the employment relationship. These work reasonably well during employment, but are limited once the employment relationship ends. 

In the absence of an express provision binding the departed employee, only information that amounts to a trade secret will be considered confidential post-employment. 

Employees joining an organisation should have a clear understanding of the rules and expectations that apply not just throughout their employment, but also when they want to move on. Ensuring this is clearly documented and has been formally agreed by the employee is a crucial part of any strategy to protect confidential information, such as trade secrets, customer connections or a stable workforce, and goes no further than reasonably necessary to protect that legitimate business interest. 

Factors which the court may take into account when determining the enforceability of restrictive covenants include the position and responsibilities of the employee; the duration and geographical scope of the restrictions; and the prohibited activities. If a restrictive covenant is deemed to be too long in duration to be enforceable, the courts will not reduce the period of the restriction to make it enforceable, and will just strike it out in its entirety.

 The Garden Leave Option

Another legal defence mechanism is the option of placing an employee who is serving notice of termination on garden leave. While this is not nearly as popular in Hong Kong as in other jurisdictions, it is increasingly being used as a tool for very senior employee departures.

 Garden leave ensures that the individual remains on the payroll and in receipt of full pay and benefits, but is taken out of the workforce and restricted in the contact and dealings he or she may engage in for the period of their notice. 

The key benefit is that all express and implied terms of employment relating to confidentiality and fidelity remain enforceable throughout the period of garden leave. It also gives the employer some extra time to focus on its strategy to retain business and/or other employees while the employee is sidelined. 

One very unique challenge to Hong Kong is that employees have the right to buy out their notice period. If the new employer is prepared to pick up the cost of the notice period to get the employee on board sooner, then the option to put an employee on garden leave effectively disappears. It is vital that employers include an express provision for garden leave in every employment contract to avoid the challenges that arise from imposing a non-consensual garden leave period.

No business wants to solely rely on legal action to protect its confidential information. When hiring senior staff, little thought is often given to the fact that the hire may not work out or that the individual may contemplate harming the business in the future. However, some up-front planning and an honest and documented exchange with senior staff at the time of hiring is an essential part of protecting the business.

The information contained in this article should not be relied on as legal advice and should not be regarded as a substitute for detailed advice in individual cases. If advice concerning individual problems or other expert assistance is required, the service of a competent professional adviser should be sought.

Pattie Walsh is a partner and head of DLA Piper’s Asia-Pacific employment practice. She writes extensively for legal and HR publications, with a particular focus on multi-jurisdictional employment work.

DLA Piper is a global law firm with 4,200 lawyers located in more than 30 countries throughout the Americas, Asia, Europe and the Middle East.