An increasing number of health practitioners are seeking our assistance regarding the validity of restraint of trade clauses included in their employment contracts. Unfortunately, our assistance 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 or tribunal when making its assessment:
- 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.
- 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 or tribunal may consider a restraint in excess of 15km and 12 months to be unrealistic and therefore unreasonable.
- 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:
- A court or tribunal 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 or tribunal might be equal to the amount originally envisaged by the employer (i.e. 12 months).
- 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 members to engage in open and transparent communications with their potential employers prior to entering into any employment contract and avoiding 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 our claims and legal services team for further advice and support.