Dr Jones has a keen interest in skin cancer and would like to focus on this area of general practice. A new skin cancer clinic has recently opened about two kilometres away from where he currently works. Dr Jones approaches the owner of the clinic about working there and is delighted to be offered a position. He checks his contract to see how much notice he has to give to terminate his current contract. In doing so, he finds a clause which prevents him from working within a five-kilometre radius of his current practice. He is concerned about what might happen if he accepts work at the new practice.
‘Restraint of trade’ clause categories
Avant often receives calls from doctors seeking advice on ‘restraint of trade’ clauses and we have assisted doctors to respond to allegations that they have breached a restraint of trade clause. In recent years, there have also been a number of cases in our courts about the enforceability of restraint of trade clauses in medical services agreements. While each case is decided on its own specific facts, some broad principles can be drawn from the cases.
‘Restraint of trade’ clauses fall broadly into two categories:
- non-competition clauses which seek to prevent a doctor from providing services at another practice within a defined area, both during their engagement and for a period after their engagement ends; and
- non-solicitation clauses which seek to prevent a doctor from soliciting staff, patients or suppliers of their practice.
Often restraint clauses are written on an alternative or cascading basis with a number of time periods and geographical locations specified in case the previous restraints are found to be unreasonable.
Factors considered when enforcing ‘restraint of trade’ clauses
A court will not enforce a restraint of trade clause unless it is satisfied that the practice has a legitimate business interest to protect and the clause goes no further than is reasonable or necessary to protect that business interest.
While each case turns on its own facts, courts have generally determined that a medical practice has a legitimate interest to protect with confidential information and consumer connection.
In considering whether a clause is reasonable or necessary to protect a business interest, the court will consider the:
- scope of the restraint (in terms of area and time)
- extent of the activities restrained
- particular circumstances of the practice and doctor, including the nature and type of the relationship, and the doctor’s role in the practice.
Recent case law suggests that, in considering whether to enforce the restraint, a court will also consider factors such as:
- the respective bargaining position of the parties
- the size of the market
- the nature of the relationship between the doctor and patients of the practice (for example, it may be reasonable to restrain a doctor from seeing patients the doctor personally treated, but not all the practice’s patients)
- whether the practice acted promptly once it became aware of the breach of the restraint clause
- any dishonesty on the part of the doctor
- whether the doctor has other opportunities to work during the restraint period (for example, locum work or surgical assisting).
A practice may seek an interlocutory injunction to prevent a doctor commencing work at the new practice or from continuing to work in a new practice in breach of the restraint clause. These applications are usually heard quickly by the courts and a decision is made before a full hearing of the matter.
If necessary, the practice may commence proceedings seeking a final injunction or damages for breach of contract. At that stage, if the court finds the restraint is reasonable, it may order the doctor to cease working at the new practice or pay damages to the former practice for breaching the restraint.
In Dr Jones’s case, he should carefully consider whether or not he can work in contravention of the restraint of trade clause. He should seek legal advice before making a decision as even if a court ultimately finds the clause is not enforceable, he may still be required to defend legal proceedings that are commenced by the practice. Read our article ‘Avoiding contract disputes’.
- Carefully consider the terms of the restraint of trade clause in any contract that you are asked to sign.
- If you have signed a contract with a restraint of trade clause and you wish to work in contravention of it, you should appreciate the risks you may face. These include legal proceedings and in some cases having to pay damages for breach of the restraint of trade clause.
If you need advice regarding an employment issue, please contact our Medico-legal Advisory Service on 1800 128 268.
Share your view
We welcome your feedback on this article – email the Editor at: firstname.lastname@example.org