Are the restraints in your medical practice’s employment agreements enforceable?

As a medical practice owner or practice manager, you may be wondering whether the restraints in your employment agreements are enforceable or if they are simply just words on a page.

It’s a great thing to be wondering about…

The answer is, as I often say… it depends. Why? Well, I’m glad you asked.

Employment restraints of trade, also known as non-compete clauses, are commonly used in employment contracts to restrict employees from working for competitors or starting their own businesses in the same industry for a certain period of time after leaving their current employer.

These clauses are often included to protect the employer’s business interests, including their confidential information, patient relationships, and other trade secrets. However, the use of these clauses has been a controversial topic, with some arguing that they can limit an employee’s ability to earn a living and restrict competition in the industry. Due to this confusion in the industry, we will use this article to examine the use of employment restraints of trade in the medical and health industry in Australia.

Health is Highly Regulated

The medical and health industry in Australia is highly regulated, with stringent requirements for qualifications, registration, and licensing. This has created a highly skilled and competitive workforce with a strong demand for specialised skills and expertise. As a result, many employers in this industry use employment restraints of trade to protect their investment in the training and development of their employees, as well as their business interests. These clauses are often included in contracts for doctors, nurses, allied health professionals, and other healthcare workers.

The use of employment restraints of trade in the medical and health industry is subject to the same legal principles as in other industries. The enforceability of these clauses is determined by the courts on a case-by-case basis, taking into account the specific circumstances of each case. The courts will consider:

• The reasonableness of the clause;

• The nature of the employee’s role;

• The duration and geographic scope of the restraint; and

• The impact of the clause on the employee’s ability to earn a living.

Cascading Clauses

You may have noticed that restraint clauses in some employment agreements (and other agreements too) can be drafted as cascading clauses. A cascading clause is one that starts with a very wide and broad description of something but then goes on to make that description very narrow or limited.

Restraints of trade are very tricky clauses, as they can essentially prevent the employee, or person subject to the clause, from working or earning a living. The courts recognise that this is not always appropriate or reasonable and will often rule the clause as being ‘unenforceable’. One of the fundamental principles of contract law is that if the clause is unenforceable, it will be rendered void and struck out entirely from the contract.

The issue with this is the medical practice seeking to enforce the restraint clearly doesn’t want to lose the entire benefit of the clause. To avoid this, we make the clause “cascade down”.

It will start very broad.... upon the termination of this agreement; the employee may not work for a competitor for one year.

If one year is too long, the employee may not work for a competitor for 6 months.

and so on, ...... if six months is too long, the employee may not work for a competitor for 3 months.

In this way, the clause starts from a very broad proposition, and if the court considers that one part of the clause is unreasonable, the employer can still rely on the rest of the clause. Hence, if a one-year restraint is deemed too long, then that part of the clause will be rendered void, but the employer can still attempt to rely on the second part of the clause. If that part of the clause is still considered unreasonable by the court, it will also be struck out. We then continue to reduce the time until we reach a proposition that the court considers reasonable without the whole contract being rendered voidable.

What the court considers reasonable will depend on the individual facts of the case and could include a whole range of factors, such as the specific role, the industry, geographic location and even the current economic climate. Because these factors vary so significantly from case to case, we make sure we cascade the clause to ensure the maximum possible benefit under the contract.

The Approach of the Courts

In general, the courts have been reluctant to enforce broad and restrictive employment restraints of trade in the medical and health industry. This is because of the potential impact on patient care and access to healthcare services. For example, a doctor who is subject to a restrictive non-compete clause may not be able to provide medical services to patients in a particular geographic area, potentially limiting access to care. Similarly, a nurse or allied health professional who is subject to a restrictive clause may not be able to work in a particular speciality area, limiting their ability to develop their skills and expertise.

However, the courts have recognised that there are legitimate business interests that can be protected by employment restraints in the medical and health industry. For example, a specialist medical practice may require its doctors to sign a non-compete clause to protect its investment in specialised equipment and facilities and, depending on the arrangement with the doctors, to maintain patient relationships. Similarly, a hospital may require its nurses and allied health professionals to sign a clause to protect its investment in training and development of its staff and to ensure continuity of care for patients.

Too Restrictive?

In recent years, there has been growing concern about the use of broad and restrictive non-compete clauses in the medical and health industry. This has led to calls for reform of the law to provide greater protection for employees while still allowing employers to protect their legitimate business interests. Some of the proposed reforms include limiting the duration and geographic scope of the restraint, requiring employers to pay compensation to employees subject to the restraint, and providing greater transparency and clarity in the drafting of the clause.

Leverage an Expert

Whether you have had someone leave or join your practice, it is important for you to understand that the use of employment restraints in the medical and health industry in Australia is a complex issue and requires careful consideration of the competing interests of employers and employees.

While these clauses can be an important tool for protecting business interests, there is also a need to balance the protection of those interests against the potential impact on an employee’s ability to earn a living and to consider the effect it will have on competition in the industry. Accordingly, the courts have recognised this potential impact on patient care and access to healthcare services and have been reluctant to enforce broad and restrictive clauses. Growing concerns about the use of these clauses suggest there may be a need for reform to provide greater protection for employees while still allowing employers to protect their interests.

We suggest seeking professional advice on these issues.  If you have any questions about restraints, or about how a restraint might apply in particular circumstances, or anything else, feel free to contact us here.

Interested in purchasing an Employment Agreement or a Confidentiality and Non-Compete Deed? You can find our online fast-track solutions here.