Employment Contracts and Restrictive Covenants in Hong Kong

Introduction

In Hong Kong, the employment contract is the central legal document between employer and employee. It sets out working conditions, salary, benefits, hours, duties, termination terms, and post-termination restrictive covenants (PTRCs).

The principal source of Hong Kong employment law is the Employment Ordinance (EO) — which sets statutory minimum standards; where a contract's terms fall below the EO, the EO prevails. Contracts may establish terms more favourable than the EO minimum (under freedom of contract).

The Employment (Amendment) Ordinance 2025 — which took effect on 18 January 2026 — made a significant change to the "continuous contract" threshold, replacing the former "418 rule" with a new "417 rule" and an alternative "468 rule". This change expands the range of employees entitled to the full suite of EO statutory benefits and is practically significant to every Hong Kong employer and employee.

This article describes, in general terms: the principal terms of an employment contract, the new continuous-contract rules, probation, notice periods, and the enforceability framework for post-termination restrictive covenants. It does not replace solicitor advice on a specific employment contract.

Principal Terms of an Employment Contract

The Employment Ordinance requires the employer to provide the employee, before the employment starts, with a written contract (or letter of engagement) setting out:

• Work location, position, and duties
• Remuneration (amount, basis of calculation, period of payment)
• Working hours and working days
• Termination notice period
• Termination payments (long service payment, severance, and so on — depending on whether the employment meets the "continuous contract" threshold)
• Probation period (if any)

In practice, most Hong Kong employment contracts also cover (though not statutorily required):

• Leave — annual leave, sick leave, public holidays, marriage leave, bereavement leave, maternity/paternity leave (statutory minimums)
• Benefits — medical insurance, MPF, allowances, calculation of bonus/commission
• Employee duties — confidentiality, conflicts-of-interest declarations, diligent work
• Intellectual property — ownership of IP created during employment
• Restrictive covenants (see below)
• Governing law and dispute resolution — typically Hong Kong law, with disputes handled by the Labour Tribunal or the courts

Continuous Contract: The New "417/468 Rule"

Continuous contract is the EO concept that triggers a wide range of statutory benefits — paid annual leave, statutory holiday pay, sickness allowance, severance payment, long service payment.

The Old "418 Rule" (before 18 January 2026)

The employee had to work: at least 18 hours per week, for 4 or more consecutive weeks, to qualify for continuous contract status.

The New "417 Rule" and "468 Rule" (from 18 January 2026)

The Employment (Amendment) Ordinance 2025 took effect on 18 January 2026, lowering the threshold:

• "417 rule": the employee works at least 17 hours each week (down from 18), for 4 or more consecutive weeks; or
• "468 rule" (new alternative): even where the employee worked less than 17 hours in a particular week, if the employee has worked an aggregate of 68 hours or more across any rolling 4-week period (that week plus the preceding 3), continuous contract status is satisfied

Impact

The amendment brings more part-time and irregular-hours employees into the scope of continuous contract status and the full suite of EO benefits. Employers need to review their employment arrangements — especially casual, part-time, and irregular-hours workers — ensuring accurate recording of hours, and providing corresponding benefits to employees who now qualify.

Transition: the amendment took effect on 18 January 2026 — meaning hour-counting from that date onwards applies the new threshold. Pre-18-January hours remain calculated on the old 418 rule.

Probation

No statutory probation — probation is optional under freedom of contract. If it is included:

• Length: market practice is 3 months; can be longer or shorter. No statutory cap
• Significance: during probation, shorter notice periods apply — for example, the first month typically allows termination without notice; thereafter as the contract provides (often 1 week's notice through the balance of probation)
• After probation: the notice period reverts to the standard contractual term
• Can probation be extended: the contract commonly permits extension — requiring mutual agreement and written confirmation

Notice Periods

Notice periods for termination:

During probation

• First month: no notice is generally required (either party)
• From the 2nd month of probation: per the contract; if the contract is silent, a minimum of 7 days applies

After probation / for contracts without probation

• Per the contract — commonly 1 month, 2 months, or 3 months depending on seniority
• If the contract is silent: the EO provides for not less than 1 month (for continuous contract employees)
• Payment in lieu of notice (PILON): either party may elect to pay the wages for the notice period and terminate immediately

Summary dismissal

An employer may summarily dismiss (without notice or PILON) where the employee has committed serious misconduct — for example, wilful disobedience, fraud, serious breach of duty. The standard is high — the employer must be able to prove the serious breach. If insufficiently evidenced, the dismissal may be found to be "unreasonable" or "unlawful" (see unreasonable-vs-unlawful-dismissal-hong-kong).

An employee may resign without notice where the employer has committed a serious breach — for example, unpaid wages, non-payment of MPF, serious harassment. The employee's resignation in such circumstances may be treated as constructive dismissal — in substance, being forced out by the employer.

Post-Termination Restrictive Covenants (PTRCs)

Hong Kong employment contracts commonly include post-termination restrictive covenants — restricting the employee's conduct for a specified period, area, and activity after leaving. The four main types:

1. Non-Compete

Prohibits the former employee from working in competing businesses for a specified period — for example, not joining a competitor within 6 months of leaving.

2. Non-Solicitation of Clients

Prohibits the former employee from approaching or soliciting the former employer's clients — in some drafting, even where the client initiates contact the restriction applies (depending on the language).

3. Non-Solicitation / Non-Enticement of Employees

Prohibits the former employee from poaching the former employer's staff — preventing the former employee from inducing former colleagues to join their new company.

4. Confidentiality

Protects trade secrets, client information, financial data, product designs, and so on. Confidentiality obligations may be perpetual (unlike the other PTRCs, which typically have a fixed term).

Enforceability of Restrictive Covenants: The Common-Law Framework

Hong Kong applies a strict scrutiny framework to PTRC enforceability. Basic principle: all clauses restraining the former employee's freedom to trade are prima facie void ("restraint of trade"), unless the employer can demonstrate that the clause:

• Is designed to protect a legitimate business interest of the employer — limited to:

- Trade secrets / confidential information

- Customer connections (influence the employee has built with customers through the role)

- Workforce stability (preventing the poaching of whole teams)

- Protecting against unfair exploitation only, not protection from competition per se

• Is reasonable in scope — in terms of:

- Scope of activity — restricted only to activities genuinely connected with the former role

- Geographic scope — restricted to a reasonable geographic area (dependent on the business's nature)

- Duration — reflecting the employee's position, the client relationship cycle, and industry practice

• Goes no wider than is reasonably necessary to protect the legitimate interest

Court's review factors

In each PTRC case, the court considers:

• The employee's position and duties — the more senior and the more direct contact with clients or confidential information, the more likely the restriction is upheld
• The employer's business model and geographic market — a 12-month worldwide restriction in a purely local service industry is hard to sustain
• The type/scope of confidential information the employee had access to
• The duration and geographic scope of the restriction — the longer and wider, the harder to enforce
• Reasonableness at the date the contract was made (not at the date of leaving) — the court assesses from the contract's signing perspective

The court will not rewrite unreasonable clauses

Hong Kong courts will not themselves redraw "12 months" as "6 months" to save the clause. If a clause is found unreasonable, it is void in its entirety — the employer has no protection. This is a serious consequence.

In limited cases, the court may apply the "blue pencil" rule — striking out specific words to leave the balance of the clause standing. But this is narrow — the court strikes out, it does not rewrite.

Recent Trend

A February 2026 Court of First Instance judgment — Pando Finance Limited v Ng Ean Kiam — the court declined to grant an interlocutory injunction enforcing a 12-month non-compete against a departing crypto-asset fund manager who joined a competitor. The case reminds employers: even where the contract clause appears reasonable on its face, the court may decline enforcement on the specific facts — particularly where (i) the claimed "legitimate business interest" is vague or over-extended; (ii) granting the injunction would effectively amount to final relief (because the restriction period would expire before trial); (iii) damages would be an adequate remedy; (iv) the balance of convenience favours non-enforcement.

This trend does not mean Hong Kong courts decline to enforce PTRCs — earlier cases (for example, the 2024 Segantii/BFAM case, 2024 Moxie Communications v Lai Cheuk Lok) show the courts enforce PTRCs where the evidence supports them. The touchstones are reasonableness, precise scope, and legitimate interest.

Practical Considerations for Employers Drafting PTRCs

• Tier PTRCs by seniority — a single template applied to all staff may be over-restrictive for junior staff and under-protective for senior staff
• Reasonable durations — 3 to 12 months is common in the local market; beyond 12 months requires strong justification
• Narrow geographic scope — limited to areas of genuine business presence
• Precise activity definition — define "competition" narrowly, avoiding ambiguity
• Pair with garden leave — paying during notice without requiring the employee to work effectively extends the practical period of non-competition. Garden leave is not a substitute for PTRCs; both should be considered together
• Draft each PTRC independently — so if one is found unreasonable, the others stand

Practical Considerations for Employees Facing PTRCs

• Read PTRCs carefully before signing — consider actual impact on future career mobility
• Negotiation room: senior-role PTRCs often have negotiation scope — shorter period, narrower activity, restricted geography can be requested
• Existing PTRCs carrying over: if you already have a PTRC from a current role, disclose to the prospective employer and consider litigation risk
• On leaving: seek solicitor advice before changing jobs — assessing the PTRC's enforceability, the risk of challenge, and the practical impact on your career
• Solicitor's letters: employers sometimes send solicitor's letters when employees leave, reminding of PTRCs. This does not automatically mean litigation is coming, but should be taken seriously and discussed with a solicitor

Common Practical Issues

"The contract says 'any competing business is restricted' — is that enforceable?" Almost certainly not — "any competing business" is too broad, capturing activities unconnected to the former role, and violates the "no wider than necessary" principle. An enforceable non-compete should specifically identify the restricted business types.

"Can the geography be 'worldwide'?" Rarely supportable — unless the employer's business is genuinely global (a multinational financial institution), "worldwide" fails the "minimum scope" test. Local businesses should restrict to the local area, perhaps even a specific district.

"Is a 2-year post-termination restriction reasonable?" Depends on the facts. For ordinary mid-level employees, generally too long. For very senior employees (with core secrets, deep customer relationships) or sale-of-business or M&A contexts (where a selling shareholder undertakes non-compete to the buyer), 2 years may be supportable. For ordinary employment, 6 to 12 months is the common and more easily supportable range.

"What remedies does the employer typically have if a PTRC is breached?" Possible remedies: injunction (restraining continued breach); damages (compensation for losses — but losses are hard to prove); disclosure orders; compelled transfer of poached clients or employees (very rare). In practice, injunctions are the most common sought remedy — but the threshold for granting them is high (as Pando Finance illustrates).