Essential Employment Agreements and Policies for Startups and SMEs in Hong Kong: A Guide To Navigating Legality and Success

In the dynamic and fast-paced business ecosystem of Hong Kong, startups and SMEs are key players, employing over 1.2 million people, which equates to about 45% of the private sector workforce as of 2021. Establishing comprehensive employment agreements and policies is crucial for these businesses to ensure legal compliance and foster harmonious employment relationships. This article explores the essential employment agreements and policies that every startup and SME in Hong Kong should consider implementing to stay abreast of the law while fostering growth.

The Anatomy of an Employment Agreement

Under Hong Kong law, an employment agreement serves as a legally binding contract that serves as the bedrock of the employer-employee relationship. When drafting an employment agreement, it is important to include the following elements:

a) Job Description and Title

Clearly define the role, responsibilities, and reporting structure to avoid any ambiguity or misunderstanding (Hiring for Startups and SMEs in Hong Kong: The ‘No Tears’ Approach).

b) Remuneration and Benefits

Specify the salary, payment frequency, and details of additional benefits, such as annual leave, sick leave, medical benefits, and MPF contributions.

c) Working Hours and Rest Days

Comply with the statutory requirements regarding maximum working hours, rest day entitlements, and rest day substitution.

d) Confidentiality and Non-Disclosure

Include provisions to protect confidential information and trade secrets, prohibiting employees from disclosing such information to unauthorized parties. For more details, please refer to below.

e) Intellectual Property (IP) Rights

Clarify the ownership of any intellectual property created during employment, ensuring that the employer retains the rights and ownership to relevant inventions, designs, new software code, design of a unique product, or even a novel business strategy software developed by an employee during their employment.

f) Non-Compete and Non-Solicitation

Protect your business interests by preventing employees from starting a competing business or poaching clients both during and post-employment. For more details, please refer to below.

g) Termination and Notice Periods

Define the conditions under which either party may terminate the contract, including notice periods and any statutory requirements for severance payments or long-service payments.

Approaches to Implementing Non-Compete and Non-Solicitation Clauses

There is a prevalent misconception among employers that the stricter the clauses, the better. In actuality, the law requires these restrictive covenants to be reasonable or otherwise it may be considered a restraint of trade and could be declared unenforceable by a court. When implementing a non-compete and non-solicitation clause, certain strategies should be employed to ensure that these clauses are enforceable and protect the company’s interests without infringing the rights of the employees. Here are some key tactics:

Tailored Restrictions

The restrictions should be specific to the role and industry. A software engineer, for example, should not be prevented from working in any technical field, but perhaps only from developing a similar type of software for a certain period.

Reasonable Limitations

The restrictions must be reasonable in scope, duration, and geography. Excessive constraints could render the clause unenforceable. For example, a non-compete clause preventing a manager from working in a similar industry in the same city for one year may be seen as reasonable, but prohibiting the same manager from working in any related industry across the country for five years may not.

Employee Acceptance

The employees should understand and accept the clauses. It’s important that the clauses are clearly explained to the employees and they are given ample opportunity to ask questions or seek independent legal advice before signing the agreement.

When it comes to writing non-compete and non-solicitation clauses, consider the following elements:

Specificity

Clearly define the activities that the employee is prohibited from engaging in. This could include starting a similar business, working for a direct competitor, or soliciting clients or employees of the company which the leaving employee has contacted with during his course of employment.

Duration

Specify the length of time for which the restrictions apply after the termination of employment. This should be reasonable and justifiable.

Geographic Scope

Define the geographic area where the restrictions apply. This should be as specific as possible and justifiable given the nature of the business and the role of the employee.

Consequences

State the consequences of breaching the clause, which could include legal action and potential damages.

Strategies for Sharing Confidential Information and Crafting Effective Confidentiality Clauses

When it comes to sharing confidential information with employees, it’s important to implement certain strategies to maintain the integrity of this information and to ensure that it remains confidential. Here are a few tactics:

Need-to-Know Basis

Limit access to confidential information to only those employees who need it to perform their job duties. This reduces the number of people who have access to sensitive information, thereby reducing the chance of a breach.

Training and Awareness

Educate employees about the importance of confidentiality and train them on best practices for handling sensitive information. This could include things like secure storage and disposal of confidential documents, using secure communication channels, and immediately reporting any suspected breaches.

Exit Interviews

During exit interviews with departing employees, remind them of their obligations under the confidentiality agreement, including what information is considered confidential and the potential consequences of breaching the agreement.

When it comes to writing the confidentiality clause in an employment agreement, here are some guidelines to follow:

Specificity

A widespread misconception exists that any and all business information can be classified as ‘confidential’. Simply slapping a ‘confidential’ tag on all information, such as a restaurant declaring its menu as confidential, may not stand up in court, as such items as menus are typically considered public knowledge. Employer shall clearly define the term “Confidential Information”. This may include trade secrets, customer databases, marketing strategies, proprietary technology, etc. Vagueness or overbreadth could lead to non-enforceability of the clause.

Exclusions

State what is not considered confidential. This could include information that is already in the public domain or information that the employee lawfully obtained from a third party.

Obligations

Outline the employee’s obligations, such as not disclosing the confidential information to anyone outside the company, not using the information for their own gain, and returning all confidential material upon termination of employment.

Duration

Specify the duration of the confidentiality obligation. This is typically for as long as the information remains confidential, but in some cases, it could extend a certain number of years post-employment.

Consequences

Clearly state the consequences of breach, which may include disciplinary action, termination of employment, legal action, and potential damages.

The Employee Handbook: An Indispensable Tool

In Hong Kong, an employee handbook acts as a useful reference for both employers and employees. It should cover essential policies and guidelines, taking into account the following aspects:

a) Code of Conduct

Clearly outline expected standards of behaviour, emphasizing anti-discrimination, anti-harassment, and anti-bullying policies in compliance with the Employment Ordinance and other applicable legislation.

b) Leave Entitlements

Provide detailed information about annual leave, sickness allowance, maternity leave, paternity leave, and other statutory leave entitlements.

c) Grievance Handling

Establish a clear procedure for employees to raise concerns or complaints and ensure a fair and impartial mechanism for resolving such issues.

d) Disciplinary Procedures

Clearly stating the disciplinary procedures for non-compliance with company policies helps maintain order and respect in the workplace. It not only underscores the seriousness of adhering to the rules but also ensures that all employees understand the consequences of their actions, promoting fairness and consistency.

e) Occupational Health and Safety

Comply with the requirements of the Occupational Safety and Health Ordinance (Cap. 509 of the Laws of Hong Kong), providing guidelines for maintaining a safe work environment, including risk assessments, accident reporting, and employee responsibilities.

f) Privacy and Personal Data Protection

Develop a data protection policy that aligns with the Personal Data (Privacy) Ordinance (the “PDPO”), addressing the collection, use, retention, and security of personal data.

Having comprehensive employment agreements and policies is essential to comply with the labour laws and establishing a productive work environment. It is advisable to seek legal advice to ensure compliance with the latest laws and regulations in Hong Kong. Subscription to OLN Online will give you access to customizable employment agreements and policies, and legal support from experienced lawyers. This assistance can help you navigate negotiations with potential employees and guarantee a positive future work environment.