Restraint of trade clauses - Are they fair?

Anita Filleti

Claims & Legal Services at MIGA

Anita Filleti, Claims & Legal Services at MIGA discusses why Doctors need to fully consider the ramifications of clauses in their employment contract and negotiate changes before they sign them.

Key issue

Employment contracts for medical practitioners that include restraint of trade clauses are becoming increasingly common.

Key takeaway

Doctors need to fully consider the ramifications of clauses in their employment contract and negotiate changes before they sign them.

An increasing number of health practitioners are seeking our advice regarding the validity of restraint of trade clauses included in their employment contracts. Unfortunately, our advice is often sought under circumstances where the clause has already been breached by the health practitioner. Accordingly, MIGA strongly encourages our members to carefully consider the terms and conditions of proposed employment contracts before accepting them as a failure to do so may have career consequences.

What does a restraint of trade clause look like?

It is now common place for larger medical practices to require a health practitioner to accept a restraint of trade clause before being permitted to work at the practice. A typical restraint of trade clause might state:

“The Doctor acknowledges and agrees that upon termination of this contract, he or she will not, without the prior written consent of the Medical Centre, be directly or indirectly involved in any other medical centre and shall not attempt to entice or obtain any patients to another medical centre within a radius of 15km and for a period of 12 months from the date of termination of this contract”.

Is the restraint of trade clause in my contract unfair?

Whether or not a restraint of trade clause is fair and enforceable is ultimately determined on a case by case basis, however the following general matters are likely to be considered by a Court making this assessment:

  1. Whether the geographical distance and period of time prescribed is required for the reasonable protection of the employer’s legitimate interest.In a medical setting, the legitimate interest of the employer is likely to include preserving the confidentiality of its patients’ information.
  2. Whether the geographical distance and period of time prescribed is reasonable based on the location of the employer and the nature of the business. For a medical practice based in a metropolitan area, a Court may consider a restraint in excess of 15km and 12 months to be unrealistic and therefore unreasonable.
  3. Whether the parties voluntarily accepted the restraint of trade clause at the time of entering into the contract. It will be difficult for a health practitioner to later claim that the clause is unreasonable if he or she voluntarily agreed to it before commencing employment.

What might happen if I have already breached the restraint of trade clause in my contract?

The following remedies are available in the event of a breach of a restraint of trade clause:

  1. A Court ordered injunction. An injunction might restrain the health practitioner from working at another medical practice for a certain period of time. The period of time set by the Court might be equal to the amount originally envisaged by the employer (i.e. 12 months).
  2. A Court ordered monetary award that is payable by the health practitioner in favour of the medical practice. The amount of the award as determined by the Court is likely to be an amount that is sufficient to compensate the employer for any financial loss incurred as a result of the breach (i.e. the loss of patients to another medical practice during the period of the breach).

What can I do if I think the restraint of trade clause is unfair?

MIGA encourages our clients to engage in open and transparent communications with their potential employers prior to entering into any employment contract and engaging in any activity that may constitute a breach of a restraint of trade clause.

It is open to both parties to negotiate the terms of a proposed contract prior to and during the term of employment. We recommend documenting such negotiations in writing to protect both parties in the unfortunate event of a future dispute. This process is often facilitated by other terms in the employment contract which set out alternative dispute resolution processes for the parties (i.e. in the event of a disagreement or dispute regarding the terms of the contract).

If you suspect that you may have already breached a restraint of trade clause in your employment contract, we suggest that you contact your medical indemnity insurer for further advice and support.

Guidance such as that provided in this article is just one of the many ways MIGA helps its insured clients.  We offer superior cover complemented by expert medico-legal support that is available 24/7.  If you are not insured with us, give us a call to see if MIGA can offer you more value and better protection.  At MIGA, we are always here for you.

 

Insurance policies available through MIGA are issued by Medical Insurance Australia Pty Ltd.  MIGA has not taken into account your personal objectives or situation.  Before you make any decisions about our policies, please read our Product Disclosure Statement and Policy Wording and consider your own needs.  Call MIGA for a copy on 1800 777 156 or visit our website at www.miga.com.au.  The information contained in this document is of a general nature only and does not purport to take into account, or be relevant to your personal circumstances. This information is not intended to be nor should it be relied upon as a legal or any other type of professional advice.

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Risk management resources

MIGA has helpful risk management resources specific to this topic which are available to clients, or by contacting their Risk Management team on 1800 777 156. In addition to their industry-leading risk management education, MIGA offers superior cover and expert medico-legal support 24/7. If you are not insured with MIGA, give them a call to see if they can offer you more value and better protection. Or please contact us if you would like an introduction to Marie-Clare Elder.

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