Speak Out October 2016

Professional practice

Restraint of trade: Protecting your income stream

• Time period – the restraint should not be for a time period that is longer than necessary to protect that interest; • Geographic area – the restraint should not cover a geographical area that is larger than necessary to protect that interest. For example, for a business that operates in a particular suburb it would not be reasonable to restrict the former employee from operating in a particular state; • For employees – take particular care to ensure that the restraint is not so broad as to prevent the employee from working at all. Therefore, it is critical to identify and be specific as to what interest needs to be protected and in what geographical area and for what time period. There is a need to be wary of so-called “standard” clauses, and assess the specific circumstances to reduce the likelihood that the clause becomes void and unable to be enforced. There is no point having an agreement in place if you cannot enforce it when necessary. Courts are willing to hold employees to their contractual promises and enforce restraint of trade clauses that are reasonable. Other considerations the court takes into account to enforce a restraint of trade clause include: • the interests of the employee in being able to earn a living using his or her legitimately obtained skill, experience and knowledge; • the public interest in being able to obtain the services of the employee and the freedom of trade; • the employer’s interest in protecting

How can you protect your business? As a business owner or employer you should: • ensure your staff employment contract and contract agreements are up to date and have reasonable confidentiality and restraint of trade clauses; • ensure that the restraint of trade clauses sufficiently protect the company’s legitimate interests and are tailored to suit the individual employee’s circumstances; • for staff/contractors who are leaving the business, conduct an exit interview with these people and remind them of their contractual obligations in reference to restraint of trade/confidentiality clauses; • if you become aware that a former employee/contractor may be breaching their restraint obligations, act quickly to put them on notice that their conduct is unacceptable. WorkPlacePLUS can support and assist you with all your human resources obligations. This includes the development of customised employment contracts that include reasonable restraint of trade and confidentiality clauses. For more information please contact Anna Pannuzzo on 0419 533 434 or email anna.pannuzzo@workplaceplus.com.au

As a private practice/business owner you have invested time, money and resources into establishing your business to service your existing and potential clients. Your business sustainability is directly related to your clients as they provide your income and cash flow streams. Therefore, protecting this key asset should be high on your risk radar. As the practice owner, the key risk to this asset arises from your staff or contractors if they choose to no longer work for you. During their time working in your practice, they establish a close relationship with your clients. Those clients often wish to continue working with the departing employee or contractor. Therefore, in order to protect your client base, businesses will often include a restraint of trade clause in their staff employment and contractor agreements. What is a restraint of trade clause? This is where the employer prevents the departing employees or contractor from taking clients from the practice for a period of time after they leave. This is very important particularly for service businesses where client relationships are very important. Are restraint of trade clauses enforceable? Courts will usually only enforce restraint clauses if they are “reasonable” from the point of view of time period and geographic area. What is reasonable? Courts will look at whether the restraint protects a genuine interest of the employer and whether the time period and geographical area are no greater than required to protect this interest. The restraint clause needs to consider: • Genuine interest – for example, in

confidential information, customer connections, which the employer has expended time, money and resources.

the case of an employer, they have a genuine and legitimate interest to protect their clients from being serviced by the former employees;

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October 2016 www.speechpathologyaustralia.org.au

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