Employment relationship after termination of employment contract

An employee's implied duty of trust and confidence in an employment relationship can extend beyond the termination of his/her employment. This duty includes obligations such as not using trade secrets or confidential information obtained during the employment for personal gain or to the detriment of the former employer.

Case authority defining such implied duty includes Kao Lee & Yip v Koo Hoi Yan [2003] 3 HKLRD 296, where Justice Ma stated that some fiduciary duties, such as the duty not to use trade secrets or confidential information, continue beyond the termination of employment. The judgment emphasized the "Non-Conflict Duty" and "Not to Profit Duty," which require a fiduciary not to place themselves in a position of conflict with the employer's interests and not to profit from their position without informed consent from the employer.

Additionally, in Greenwin International Group Ltd v. Jim Yeuk Chau [2007] HKDC 65, the court found that the defendant, a former employee, breached her fiduciary duties by diverting maturing business opportunities to her own company after termination. The court held that fiduciary duties extend beyond the termination of employment, particularly in cases involving trade secrets or confidential information actively pursued by the employer during the employment relationship.

Apart from the implied duty of trust and confidence, other fiduciary duties owed by an employee to his/her employer can extend beyond the termination of employment. 
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In AXA China Region Insurance Co Ltd v Pacific Century Insurance Co Ltd [2003] 3 HKC 1, the court held that fiduciary duties, such as the duty not to misuse confidential information or trade secrets, continue beyond the termination of employment. The judgment emphasized that fiduciary duties are rooted in the principle of fair and honorable dealing, and the obligation to protect trade secrets or highly confidential information does not cease merely because the employment relationship has ended.

Similarly, in Akihiro Oba v Kishimoto Sangyo Co Ltd - [1996] HKCA 581, the court recognized that fiduciary duties, including the duty not to divert maturing business opportunities, can extend beyond the termination of employment. However, the court clarified that the exploitation of accumulated knowledge, skill, and expertise for personal profit after termination does not necessarily constitute a breach of fiduciary duties unless it involves the misuse of confidential information or trade secrets during the maturation of a business opportunity.

These cases demonstrate that fiduciary duties, particularly those related to the protection of confidential information, trade secrets, and maturing business opportunities, can extend beyond the termination of employment, depending on the nature of the information and the circumstances of the case.

CASE AUTHORITIES
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(A) LAM SIU WAI V. EQUAL OPPORTUNITIES COMMISSION 
[2021] HKCFI 3092 / [2021] 5 HKLRD 30

This case involves an appeal by the Defendant, the Equal Opportunities Commission (EOC), against an Award made by the Labour Tribunal on December 4, 2020, in Claim No. 2371 of 2018, where the Claimant, Lam, had her claim upheld. 

Lam began her employment with the EOC in September 1996, with her last contract renewal in February 2016 for a three-year term. The terms of her employment were outlined in a letter of appointment and a Memorandum on Conditions of Service (MCS), which allowed for termination without cause with three months' notice or payment in lieu. On May 15, 2018, Lam was informed of her immediate termination, citing reasons related to her attitude and behavior, which the Tribunal later referred to as the 'Dismissal Reason.' 

The EOC made all necessary payments to Lam upon termination, including three months' wages in lieu of notice. Lam filed a claim in the Labour Tribunal on August 7, 2018, seeking reinstatement and damages for wrongful termination, which the Tribunal upheld, awarding her HK$1,294,783.06. The EOC appealed on four grounds, primarily questioning the Tribunal's interpretation of the implied duty of mutual trust and confidence in employment contracts. The Tribunal found that the EOC had breached this duty by failing to provide a valid reason for termination, leading to Lam's entitlement to damages.

The appeal was heard on October 15, 2021, and the judgment was delivered the same day.

Court held that the appeal is allowed, and the Tribunal award against EOC is set aside.

1. The Tribunal erred in determining that a valid reason for termination was necessary when the EOC terminated Lam's employment without cause, as per the employment contract and the Employment Ordinance.
2. The EOC had the right to terminate without cause and had fulfilled its contractual obligations.
3. The Tribunal incorrectly placed the onus on the EOC to prove a valid reason for termination.
4. The EOC was not required to provide a reason for termination under the Employment Ordinance.
5. The Tribunal's conclusion that the EOC breached the implied duty of mutual trust and confidence was flawed.
6. The duty does not override the EOC's express contractual right to terminate without cause.
7. The Tribunal's reasoning regarding the need for disciplinary procedures was irrelevant since the EOC did not terminate Lam for cause.
8. The EOC's actions were consistent with the terms of the MCS and the Employment Ordinance.

(B) PCCW - HKT TELEPHONE LTD AND ANOTHER V. DAVID MATTHEW MCDONALD AITKEN AND ANOTHER 
[2008] HKCA 326 / [2008] 5 HKLRD 673 / [2008] 5 HKC 10

The plaintiffs operated fixed telecommunications network services under a licence issued by the Telecommunications Authority. The first defendant was formerly employed by the plaintiffs in the field of regulatory compliance. In March 2008, the first defendant left the employment of the plaintiffs and joined the second defendant as its head of regulatory and corporate affairs. The second defendant, on the other hand, was a major operator of mobile network telecommunications services.

The change in employment came at a time when the telecommunications industry in Hong Kong was in transition to a new regulatory regime pursuant to the Telecommunications Authority’s initiative of fixed mobile convergence, which would have a significant effect on the fixed mobile interconnection charges (FMIC) payable by mobile telecommunications network services operators to fixed telecommunications services operators. The plaintiffs were concerned that the first defendant would, without sufficient and appropriate restraint, use information obtained by him in confidence during his time with the plaintiffs in relation to the incoming regulatory regime, particularly after the first defendant spoke at a press conference of the second defendant on FMIC matters and objecting to conduct of the plaintiffs.

The plaintiffs commenced proceedings against the defendants claiming damages for breach of contract, breach of fiduciary duty and breach of confidence and obtained ex parte injunctive relief requiring the first defendant to keep confidential and not to use any confidential information of the plaintiffs to which he was privy whether in relation to FMIC or otherwise. The plaintiffs sought thereafter to continue the injunctive relief by inter partes summons and the defendants sought, amongst other things, the discharge of the ex parte order.

A deputy judge of the Court of First Instance ordered, amongst other things, that the ex parte order be set aside but also acceded to an application by the plaintiffs for regrant of injunctive relief effectively restraining the first defendant from using for the benefit of the second defendant, stipulated categories of confidential information that the deputy judge considered as requiring protection. The plaintiffs then obtained from the Court of Appeal a temporary injunction pending a substantive appeal to the Court of Appeal from the order of the deputy judge, thus preserving the effect of the ex parte injunctive relief. At the hearing before the Court of Appeal the plaintiffs relied on Prince Jefri Bolkiah v KPMG (a firm)[1999] 2 AC 222, and contended, amongst other things, that the present case concerned the special species of confidential information that came within the rubric of legal professional privilege, which always was to be protected; that the first defendant was placed in possession of such information by virtue of his senior position in the plaintiffs and by reason of the fact that he had been in possession of confidential information imparted for the purposes of furthering litigation on diverse aspects of FMIC and in this connection, it mattered not that he was not a solicitor.

The defendants on the other hand contended that the present case was simply a particular type of ‘trade secrets’ case and fell to be decided upon usual principles relating to an employee’s duty of confidentiality outlined in Faccenda Chicken Ltd v Fowler [1987] Ch 117.
 

Court held that by a majority (Le Pichon JA dissenting), dismissing the appeal: ​

Per Stone J, Tang VP (majority decision) agreeing:

1. It was not seriously arguable that a person was always liable to be enjoined from disclosure of confidential information which also may be characterised as information subject to legal professional privilege. The House of Lords decision in Prince Jefri Bolkiah v KPMG (a firm) was no more than a recent manifestation of existing principle in terms of legal professional privilege, which was that the court would prevent solicitors from acting for client 2 if they previously had acted for client 1 and if they had obtained confidential information from client 1 and if client 1’s interests were adverse to those of client 2. 
   
   In so far as Lord Millett’s judgment in that case stated the principle in relation to ‘a solicitor or other person in possession of confidential and privileged information’, the phrase ‘or other person’ could only have been intended as a reference to a relationship between a client and an entity such as KPMG, which, if not a solicitor, was in an analogous position and thus was held to be treated in like manner as a formal solicitor-client relationship. It could not have been intended by the House of Lords that the remedial approach adopted in the particular circumstances of that case would, or should be regarded as, appropriate in respect of the employer/employee relationship. In any event, the first defendant was not in an ‘analogous relationship’ as KPMG was in that case. 
   
   Prince Jefri Bolkiah v KPMG (a firm)[1999] 2 AC 222 distinguished. Re a firm of Solicitors[1997] Ch 1; Ablitt v Mills & Reeve (a firm) & Anor (No 95 A 620, 24 October 1995, unreported) considered (paras 106-112, 114, 130-131). Per Le Pichon JA (minority), dissenting
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2. There was a serious triable issue as to whether,
3. 1. when information to which legal professional privilege attached was imparted to a person (such as a former employee of the client) who was not in a solicitor-client or analogous relationship with the client was nonetheless protectable by that privilege. There was also a serious triable issue on whether the remedy in Prince Jefri Bolkiah v KPMG (a firm), closing off all avenues of risk of disclosure, should be available in relation to privileged information. The remedy granted by the deputy judge was inadequate and relief ought also to have been granted in relation to other specified categories of information, except information that had come into the public arena by reason of an application for judicial review taken by the plaintiffs (paras 191-192, 203).
      
      
   2. Interlocutory Appeal: this was an appeal by the plaintiffs, PCCW-HKT Telephone Ltd and PCCW Services Ltd, on an expedited basis, from the judgment of Deputy Judge Au on 10 July 2008, where the deputy judge granted certain interlocutory injunctive relief against the defendants, David Matthew McDonald Aitken and Hong Kong CSL Ltd. The facts were stated in the judgment of Stone J.

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(C) GREENWIN INTERNATIONAL GROUP LTD V. JIM YEUK CHAU 
[2007] HKDC 65

In the case of Greenwin International Group Limited (the Plaintiff) versus Jim Yeuk Chau (the Defendant), the Plaintiff, a garment trader incorporated in Hong Kong, claims damages for loss suffered due to the Defendant's breach of her employment contract and fiduciary duties as a senior officer. The Defendant, who was employed as General Manager, had a fiduciary duty to the Plaintiff, which is acknowledged by both parties.

The Plaintiff alleges that in June 2004, it discovered that the Defendant had awarded garment orders to An-Gelo Company Limited, a company related to her, using confidential information obtained during her employment. The express terms of the Employment Contract included clauses prohibiting the Defendant from engaging in similar industries or contacting the Plaintiff's clients for six months post-termination, and from using confidential information for personal gain.

The Defendant's employment with the Plaintiff began on September 8, 2002, following her termination from a previous company, GGMG, due to its winding-up. The Plaintiff's case is supported by evidence that the Defendant was responsible for negotiations with clients L&F and Sonal Sportswear Inc. and that she had access to confidential information. The Defendant denies the allegations, claiming that the terms of the Employment Contract were not as stated by the Plaintiff and that she did not breach any duties. The court must determine whether the Defendant breached the express and implied terms of the Employment Contract and her fiduciary duties, and if so, the damages to be awarded to the Plaintiff. The court also considers the enforceability of the restraint of trade provisions in the contract, the legitimacy of the Plaintiff's interests, and whether the Defendant's actions constituted a breach of her fiduciary duties. The court ultimately finds that the Defendant breached her fiduciary duties and the Employment Contract, leading to a judgment in favor of the Plaintiff for nominal damages and an order for the Defendant to account for profits made from the breaches.

Held, the Defendant breached Clause 5 and Clause 10 of the written agreement, and is ordered to account for all profits made from the breach of fiduciary duty.

Issue 1: Breach of Employment Contract

1. The court found that the Defendant breached Clause 5 of the Employment Contract by engaging in the same industry and contacting the Plaintiff's clients within six months of termination.
2. The evidence showed that the Defendant had solicited orders from L&F and Sonal using confidential information.

Issue 2: Breach of Fiduciary Duty

1. The court determined that the Defendant, as a senior officer, owed fiduciary duties that extended beyond her employment.
2. (4) The Defendant's actions in diverting business opportunities to An-Gelo constituted a breach of her fiduciary duty.

Issue 3: Enforceability of Restraint of Trade

1. The court assessed whether the restraint of trade in Clause 5 was reasonable and enforceable.
2. The court found that the restraint was reasonable given the Plaintiff's legitimate interest in protecting its business.

Issue 4: Damages

1. The court concluded that the Plaintiff was entitled to nominal damages due to the breach of contract.
2. The court ordered the Defendant to account for profits made from the breaches, referencing the principles established in previous cases regarding fiduciary duties.