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When Employees Leave: What Employers in Asia Need to Know about Protecting Company Rights and
Confidential Information – South Asia/Pacific
Wednesday, March 11, 2015
Richard Emmerson, Senior Advisor Soewito Suhardiman Eddymurthy Kardono (SSEK) Jakarta, Indonesia [email protected] Atul Gupta, Partner Trilegal Bangalore, India [email protected]
Speakers
3
Phillipa Muir, Partner Simpson Grierson Auckland, New Zealand [email protected]
Siva Nadarajah, Partner Shearn Delamore & Co. Kuala Lumpur, Malaysia [email protected]
Speakers
4
Sameer Sattar, Partner Sattar and Co. Dhaka, Bangladesh [email protected]
Wei Na Sim, Partner Rajah & Tann Singapore [email protected]
Speakers
5
Is it possible to prevent
employees from competing?
If there is a post-termination non-compete, what are the remedies?
Are injunctions permitted? 7
• Garden leave • Restraint of trade
– Non-competition – Non-solicitation
• Enforceable only if reasonable and necessary – Scope, duration, geographical area – Genuine proprietary interest – Consideration – Modification
New Zealand
8
• Injunction order / compliance order • Damages for the losses incurred as a result
of the breach • Inciting, instigating, aiding or abetting
breaches of employment agreement – up to $10,000 (NZD) for an individual
New Zealand
9
• Terminated employees can be prevented from competing with former employer by way of a valid restraint of trade clause.
• Construction of the restraint clause is critical – a narrow interpretation of the scope of a restraint will be preferred to a broader construction where both are available.
• The clause must be constructed in specific terms with respect to prohibiting a former employee from performing services for a competitor business.
Australia
10
• Restraint of trade is contrary to public policy and void, unless the restriction is reasonable having regard to the interests of the parties concerned and the interests of the public.
• Reasonable = only to the extent that it affords no more than adequate protection to the legitimate business interests of the party to be protected
• Remedies for breach includes an injunction to prevent the former employee from doing something contrary to valid restraint.
• Compensatory damages are also available.
Australia
11
• Under Section 27 of the Indian Contract Act, 1872, any agreement that restrains a person from exercising a lawful trade, profession or business is not enforceable.
• During employment – non-compete provisions are valid unless they are wholly one-sided or unreasonable.
• Post-employment – non-compete provisions are unenforceable. The law does not even permit “reasonable” non-compete provisions if they extend beyond the term of the contract, irrespective of the duration and geographical scope of the restriction.
India
12
• While employers can approach civil courts for injunctive relief, Indian courts do not normally grant injunctions restraining employees from taking up new employment.
• Alternate approaches: Companies tend to build in longer notice periods and garden leave provisions, during which employees remain on payroll and are therefore prohibited from joining competition.
India
13
• Non-compete – Non-compete clauses and/or agreements
may not be allowed, as they restrain lawful trade, business or profession.
– Section 27 of The Contract Act 1872 states:
“Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind is, to that extent, void.”
Bangladesh
14
• In practice, non-compete clauses during the course of employment are not considered void.
• However, when the employment comes to an end, the non-compete clause restraining the departing employee from any lawful profession or business is considered void unless the stated exception of goodwill applies.
• This makes non-compete clauses against a departing employee after termination of employment very difficult for employers to enforce.
Bangladesh
15
• Non-solicitation – Usually a non-solicitation clause can be
inserted as part of an employment contract, but it can also be a separate contract. A non-solicitation agreement can be introduced at any stage of the employment relationship.
Bangladesh
16
• Enforcement and remedies – Obligations under employment agreement can be
enforced by litigation or arbitration. – If the employment agreement expressly includes a
provision to settle a dispute by arbitration, the parties can proceed accordingly to settle the dispute. In Bangladesh, arbitration is mainly governed by the Arbitration Act 2001.
– Parties can proceed to settle their disputes by litigation if arbitration fails or where there is no arbitration clause.
Bangladesh
17
• Enforcement and remedy – According to Section 73 of the Contract Act 1872, the
party who has suffered (due to breach of the contract) is entitled to seek compensation for loss or damage suffered, provided that it arose naturally in the usual course of business and is not too remote.
– When damages are inadequate, relief can also be sought by way of specific performance of the contract or an injunction. Section 12 of the Specific Relief Act 1877 states that specific performance or injunction is enforceable at the discretion of the Court for situations when pecuniary compensation for its non-performance is not an adequate remedy.
Bangladesh
18
• During employment: impose contractual non-compete and duty not to act in conflict with interest of employer – no statutory duty
Indonesia
19
• Post-employment: not expressly regulated • Considerations:
– Restraint of trade issue – Lack of jurisprudence – Vague constitutional right to work – Recommend limited scope, duration,
geographical area with consideration
• Injunctions not available • Damages for direct losses
Indonesia
20
• PTR clauses are frequently used • Enforceability is very fact specific
– Requirements: legitimate proprietary interest, reasonableness of the term, not against public interest
– Assessment of reasonableness: time of entry into the contract
• Possibility of severing unreasonable parts of PTR clause – “blue pencil test”
Singapore
21
• Remedies against employee: injunctions / damages
• Interlocutory injunctions are often critical – Employer has to give an undertaking as to
damages – Ex-parte applications are permitted – duty of full
and frank disclosure • Types of injunctions
– Garden leave, enforcement of PTR, springboard relief
Singapore
22
• During employment, employees are expected not to act in conflict with the interests of their employer. This would extend to being engaged, either directly or indirectly, in any other activity, business or occupation without the prior written consent of the employer, whether or not such activity, business or occupation is of a competing business.
• Post-employment, Section 28 of the Contracts Act of 1950 operates to render a non-compete provision an illegal restraint on trade: – "Every agreement by which anyone is restrained from
exercising a lawful profession, trade, or business of any kind, is to that extent void."
Malaysia
23
• There are three exceptions to the general rule of restraint: – The first applies where a party who has sold the goodwill
of a business, may be refrained from carrying on a similar business, within specified local limits, as long as the buyer or any person deriving title to the goodwill from him carries on a like business therein.
– The second applies to a situation where partner may upon or in anticipation of a dissolution of the partnership, agree that some or all of them will not carry on a business similar to that of the partnership within such local limits that are reasonable, having regard to the nature of the business.
Malaysia
24
• There are three exceptions to the general rule of restraint (cont’d): – The last exception is applies where partners of a firm may
agree that someone or all of them will not carry on any business, other than that of the partnership, during the continuance of the partnership.
Post-employment, any anti-competition clause that prevents a former employee from working for a competitor or setting up a competitor company or firm in absolute terms would be caught by Section 28, and the Malaysian Courts will deem such a clause to be void and unenforceable.
Malaysia
25
What remedies are possible for a breach of a confidentiality obligation and IP rights?
26
• Employers could approach courts to obtain – Damages for the breach – Injunctive relief for breach or threatened breach – Specific performance of specific clauses such as
assignment of copyright.
• Copyright infringement is also punishable with imprisonment under the Copyright Act in India.
• Evidence plays a critical role in any legal proceedings to claim breach of confidentiality or IP rights. Employer must be able to demonstrate that an employee acted in breach of his/her obligations.
India
27
• Enforcement and remedy – The laws in Bangladesh governing IPR are Trademarks Act
2009, Copyright Act 2000 and The Patents and Designs Act,1911. The IPR has to be registered in Bangladesh for the company to seek a remedy under the relevant acts.
– The company may also contractually protect its information from the departing employee by inserting clauses related to IPR or confidentiality (e.g., restrict terminated employees from using trademarks belonging to the company and/or put departing employees under obligation not to share or use confidential information related to the company in other business or employment work).
Bangladesh
28
• Enforcement and remedy – A return-of-property clause in an employment agreement
puts the departing employee under an obligation to return the company’s properties, both tangible and intangible.
– On or before the termination date of employment or resignation, the employee is obliged to return data, records, lists, proposals, correspondence, blueprints and other such documents or properties belonging to the company.
– The clauses can vary from one contract to another. Violation of such clauses would entitle the company to seek damages or specific relief such as injunction or specific performance.
Bangladesh
29
• Statutory right to terminate employee for breach of confidentiality obligations under Labor Law No. 13 of 2003
• Trade Secrets Law No. 30 of 2000 – Trade Secrets: in the field of technology or business,
economic value, unknown to the public, steps taken to protect secrecy
– Direct and foreseeable damages – Injunction – Criminal sanctions: 2 years’ imprisonment / IDR 300
million fine
Indonesia
30
• Civil remedies – Breach of employment contract: damages – Breach of confidence as a tort: damages – Breach of Copyright Act (Cap. 63) / Patents
Act (Cap. 221) / Trade Marks Act (Cap. 332) (“IP Statutes”): damages, statutory damages, account of profits
– Possibility of interlocutory relief: search order or injunction
Singapore
31
• Criminal offences • Offences in IP statutes • Computer Misuse and Cybersecurity Act
(Cap. 50A) – Section 3: Unauthorised access to computer
material – Section 4: Access with intent to commit or
facilitate the commission of offence
Singapore
32
• Malaysian Courts will act to prevent the exploitation of trade secrets learned by the employee in the course of his employment. The obligation to maintain confidential information survives the post-employment period. This is the case even in the absence of any contractual obligations to do so.
• Where the company can show that a former employee had acted in breach of his confidentiality obligations, the company can obtain a court order to prevent the former employee from using/disclosing such information, including obtaining injunctive relief.
Malaysia
33
• Undertakings • Proceedings in the Employment Relations
Authority: – Search orders – Compliance order / interim injunction – Account of profits / damages – Declaration (e.g., ownership of IP) – Breach of confidence – (also available in the High
Court)
New Zealand
34
• An employer is protected against unauthorised disclosure of confidential information during or after an employment relationship, communicated to or acquired by an employee in the course of employment.
• Employees’ obligations with respect to confidentiality can be derived from: – An express provision in a contract of employment; – An implied term in a contract of employment; – An obligation recognised in the exclusive jurisdiction of
equity.
Australia
35
• A restrictive covenant will also protect an employer’s confidential information after the termination of employment.
• The restraint will be considered reasonable if the information is – Truly confidential; and – No more than necessary to protect to
employer’s legitimate business interests.
Australia
36
• An employer whose confidential information has been misused is entitled to the following remedies: – Damages for breach of express or implied contractual obligations; – Equitable compensation for breach of equitable duty; – An account of profits; – Injunctive relief.
• The court may order the delivery up and destruction of documents containing the confidential information.
• Third parties to which confidential information has been disclosed may also be restrained against using or further disclosing the information if they are aware information is confidential.
Australia
37
What are the considerations if the breach involves
cross-border?
38
• Where to sue? Service of process? – Jurisdiction clause in employment contract – Service of originating process overseas
(Rules of Court, Order 11 requirements)
• Use of contempt of court proceedings in Singapore – Useful if the employee has personal
connections with and intends to return
Singapore
39
• Enforcement of foreign judgments in S’pore – Statutory route for a limited number of gazetted
countries (mostly Commonwealth) – Common law action to enforce a money judgment – Interlocutory injunction order of foreign court is
not enforceable in Singapore
• Enforcement of S’pore judgments abroad depends on the law of the country of enforcement
Singapore
40
Malaysia
41
• Post-employment, there is no remedy for employers whose former employees have crossed an international border.
• What is the proper governing law of the contract? – Should we set out in employment agreement?
• Forum conveniens – where is the most appropriate jurisdiction?
• Most real and substantial connection • Where the breach occurs • Effective service
New Zealand
42
• Enforcement of Australia judgments in other Australian jurisdictions – An Australian court sitting in a State or Territory is
obliged to give full faith and credit to the judgments of courts in other Australian States and Territories. As such, any order made with respect to a breach of confidentiality may be enforced in a different State or Territory to that where the order was made.
Australia
43
• Enforcement of Australian judgments outside Australia – The Foreign Judgments Act 1991 sets out a
framework for recognition of foreign judgments in Australia on the basis of reciprocal recognition of Australian judgments in those foreign jurisdictions.
– The operation of the Act is based on agreements between Australia and the relevant foreign jurisdictions and is supported by a series of regulations.
Australia
44
• For breach of confidential obligation and IP rights in a cross border scenario, the employer can either: – File appropriate legal proceedings before an
Indian court for injunctive relief and damages. This would be enforceable only in a foreign country with whom India has a reciprocity agreement. But, such enforcement is likely to take time, during which the confidential information could be compromised.
India
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– File appropriate legal proceedings before the appropriate forum in the jurisdiction where employee currently resides, provided the law of that jurisdiction allows the same. This may not be entirely feasible considering the costs of litigation and the possible conflict(s) that may arise in the laws of both jurisdictions.
India
46
• No reciprocal enforcement of judgments treaty
• No effective remedy for employers whose former employee has crossed an international border
Indonesia
47
Please contact any of the speakers for more information
Cynthia Chung (Hong Kong) – [email protected] Richard Emmerson (Indonesia) – [email protected] Atul Gupta (India) – [email protected] Phillipa Muir (New Zealand) – [email protected] Siva Nadarajah (Malaysia) – [email protected] Sameer Sattar (Bangladesh) – [email protected] Wei Na Sim (Singapore) – [email protected] John Tuck (Australia) – [email protected]
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