Think before signing your life away

Kate Hodgkinson

Kate Hodgkinson, Solicitor – Claims and Legal Services at MIGA discusses the potential implications of certain clauses in employment contracts, addressing some of the more common clauses such as restraint of trade, indemnity and termination. 

Key issue

Employment agreements often contain clauses which can create problems for practitioners.

Key takeaway

It is important to carefully review and consider the implications of clauses in a contract before you sign it, or seek professional advice. We discuss some common employment contract clauses below.

Often as a practitioner plans their next career move, they realise the restrictions imposed by an existing Employment Agreement. The importance of reading, understanding and negotiating acceptable terms of an Agreement before signing cannot be overstated. Once the Agreement is signed, it is very likely to be binding.

A member recently requested our assistance after a breakdown in the relationship with their employer. They had resigned and wanted to move immediately to a nearby practice to continue treating their current patients.

Unfortunately, the Employment Agreement they had signed 3 years prior prevented this. The Agreement required 4 weeks’ written notice of termination and provided that, upon termination, they could not work within a 5 kilometre radius of the practice for 1 year and could not treat existing patients of the practice. This prevented the member from pursuing the position they wanted, and meant they had to move to a practice away from the area and “their” existing patients. The member conceded not having read or sought advice about the Agreement before signing.

Restraint of trade clauses

Restraint of trade clauses are used to protect a genuine business interest. Such a clause usually prohibits the practitioner from working in a particular geographical area for a specific period of time after the Agreement is terminated. It can also prohibit the practitioner from “taking” patients or employees of the practice when they go.

The laws governing restraint of trade clauses vary between states, however they will only be enforced to the extent that they are reasonable. The Courts have upheld restraint of trade clauses and each case is determined based on its unique facts. In the case Dr Angel-Honnibal v Idameneo (No 123) Pty Ltd1, the Court upheld a restraint of trade clause preventing the doctor from practising within an 8 kilometre radius of her former practice for a period of 5 years. The doctor was required to pay approximately $58,000 in damages.

Our recommendation

Before signing an Agreement, check the restraint of trade clause. Consider whether you are likely to want to stay in the area once the Agreement comes to an end and, if so, consider whether the proposed clause might limit your options. If you think it could, you should negotiate this term before signing the Agreement. For example, you may be comfortable agreeing to a 1 kilometre restriction for 3 years, but not a 5 kilometre restriction for 1 year. 

Indemnity clause

Be wary of indemnity clauses which require you to indemnify another party.  We sometimes see agreements which attempt to extend the practitioner’s liability to include liability arising from acts and omissions of the other party, or their employees. These contractually assumed liabilities will not necessarily be covered by your MIGA policy and could leave you personally exposed.

Our recommendation

Ordinarily, you are liable for your own acts and omissions, not those of another entity.  You should carefully review any indemnity clause and contact MIGA if you are in any doubt as to whether your insurance with us will cover your liability under the clause.

Termination clause

Termination clauses govern the way in which an Agreement can be ended, including whether written notice is required, length of any notice period and under what circumstances the other party can end the Agreement. Often Agreements are drafted to give the health company or employer broader powers to terminate the Agreement than the practitioner.

Our recommendation

If you are signing a fixed term Agreement, it is particularly important to pay attention to the termination clause to ensure it is reasonable and that there is a way for you to end the Agreement if you need to before the term is complete.

The Agreement provided to you is a starting point and should be open to negotiation. It needs to work for both you and your employer. Once signed, it is binding and it could leave you in a disadvantaged position if it is not read, understood and negotiated appropriately upfront.

If you have concerns about certain clauses in your employment contract, please contact your medical indemnity insurer.  If you are insured with MIGA, we may be able to provide you with preliminary advice or refer you to someone who can assist you on a private basis.  Where an issue arises concerning your employment, and your policy with us provides cover, please contact us early so we can advise and assist you in managing the situation. 

If you have concerns about certain clauses in your employment contract, please contact your medical indemnity insurer.  If you are insured with MIGA, we may be able to provide you with preliminary advice or refer you to someone who can assist you on a private basis.  Where an issue arises concerning your employment, and your policy with us provides cover, please contact us early so we can advise and assist you in managing the situation. 

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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