Felda Yeung: Hong Kong is too small to ban non-competes
Main image
Felda Yeung
John van der Luit-Drummond, Editor

“Unfortunately, it is redundancies right now,” says Felda Yeung, a partner in Hong Kong disputes boutique Gall, when asked about the key trends in the city during the first quarter of 2023.

“The bigger banks have been cutting a lot of people – and it’s not just junior or middle management, they’re cutting very senior people as well,” she adds. “We’re advising quite regularly on those matters.”

Goldman Sachs, Morgan Stanley, HSBC, Bank of America, Citigroup, and Nomura have all trimmed headcounts since the turn of the year as China dealmaking slowed. This has led to a boom in restructuring work for big law firms and disputes specialists, like Gall.

“In a mass redundancy situation, there’s always going to be mistakes made just because of the scale of it,” says Yeung. “I’ve seen situations where there could, potentially, be claims for wrongful termination because the employee is still on maternity leave or they were made redundant as opposed to other people potentially because of discrimination.”

From the employee side, redundancy news can be very traumatic, she admits. “Most of the time, people don’t see it coming. They can be very high management being made redundant after 20-plus years at the company. We help them to either negotiate with the employer or commence proceedings. But our general advice is that no one wants to be in litigation for three, four years if a reasonable settlement can be negotiated.”

Post-termination agreements

Joining Gall as a trainee solicitor in 2011, Yeung became the firm’s first home-grown partner in August 2022. With founding partner Nick Gall, she now co-leads the firm’s employment practice, acting for both employers and employees on complex cross-border matters and urgent injunctions before the Hong Kong courts.

Of particular interest to Yeung is contentious team moves, allegations of breach of post-termination restrictions, and transfer of confidential information by former employees to their new employer or newly launched competitor business.

“A lot of my work involves post-termination restrictions being enforced. Even though you don’t see many court cases on them, there’s a lot of background negotiation between the employer, their new employee, and the old employer. There’s strong demand for separation agreements to be written down,” she says.

“The cases that are litigated are normally rivalries within the field. In one case, I acted for an entire team that moved to a competitor. The former employer was not happy and sued everyone, from the managing director all the way down to even the secretaries.”

It is these kinds of cases that underline the importance of seeking advice on post-termination restrictions and how they may be interpreted. “An employee might read their restrictions quite differently than how a lawyer reads them. There might be some grey area, such as enforceability, which we can advise on,” she says.

“The maximum restrictive period in Hong Kong is two years, but that’s very rarely enforced by the court. Whether it’s six months or one year, a reasonable period really depends on the industry.”

Complicating matters further is the potential removal of proprietary information or, arguably worse, the solicitation of clients and customers by outgoing staff.

“A lot of people, especially higher level executives, feel that they own the connections they’ve made with clients; that they’ve developed those relationships so when they leave they can take those clients with them. But that’s not always the case,” says Yeung.

“You may potentially reach out to the clients depending on the contractual terms, but you definitely cannot take away the client list from the old employer and migrate that into the competitor you’re moving to or the new business you're starting,” she continues.

“Once you insert confidential information into the competitor’s or new employer’s system, it becomes very difficult to box that out. You’re really creating more problems for your new employer than had you just gone over and started there fresh after your post-termination restriction periods are over.”

Even as US regulators and UK lawmakers move to ban or limit non-competes, Yeung believes such clauses will remain a staple of employment contracts in Hong Kong for years to come.

“Non-competes are essential in Hong Kong because the city is so small,” she says. “In Hong Kong, everyone’s basically in the central district area. There’s only so many clients out there. So I don’t see non-competes going away in Hong Kong.”

Competitive market

With around 11,000 practising solicitors and barristers, Hong Kong remains a competitive legal market, despite concerns about its decline in the post-covid era.

Latest data from the Hong Kong Law Society shows there are 935 local law firms and 75 foreign firms, including more than half of the Global 100 legal businesses, operating in the city. Of particular note is the more than 1,400 registered foreign lawyers from 33 jurisdictions practising in the city.

Given the competition from small local firms to foreign giants, how does Gall’s employment team stand out from the crowd? “From the employee side, having someone who’s not only able to provide legal advice but also be able to guide them through the process in an empathetic way is really important,” Yeung replies.

“And then, from the employer point of view, we want to make this as painless as possible. We appreciate that management would much rather be focused on building a business than be involved in litigation,” she adds.

“When I act for [Securities and Futures Commission] SFC-licensed entities or larger corporations, what I’m focused on is taking up as little of their time as possible while still running the case in a manner that will reach a good outcome for them.”

Asked what advice she would give other young lawyers looking to make partner in Hong Kong, Yeung replies: Be eager to learn and always have integrity in your work.”

“Over the last few months I’ve gradually taken on more and more responsibilities while running my cases,” she adds. “So in that sense, making partner has not been a shock to the system. At the same time, it’s very exciting that, with Nick, I can now plan for the future and think of ways to grow the practice.”