Speak Out low res October 2016

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October 2016 Speak Out 31
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
the case of an employer, they have
a genuine and legitimate interest
to protect their clients from being
serviced by the former employees;
• 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
confidential information, customer
connections, which the employer
has expended time, money and
resources.
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
Restraint of trade:
Protecting your income stream
Professional practice