Navigating Non-Compete Clauses: Enforcement, Compliance, and Best Practices for Medical and Allied Health Practices in Australia
Non-compete clauses can be a vital mechanism for Australian businesses seeking to protect their confidential information, client relationships, and competitive position. However, their enforceability is not always straightforward, particularly in the health industry. Courts carefully scrutinise such clauses to ensure they are reasonable and necessary to protect legitimate business interests. Medical and health practices must be strategic when drafting, enforcing, and following up on non-competes to ensure compliance while mitigating legal risks.
Understanding Non-Compete Clauses in Australia
A non-compete clause, which is a type of restraint of trade clause, is a contractual provision that restricts a former worker from engaging in competing activities for a specified period and within a designated geographical area. These clauses aim to prevent workers from leveraging specific knowledge or relationships (e.g. with patients or staff) to benefit a competitor or establish their own competing business. This may be during the engagement and after it ends. For example, it might seek to restrict a GP from taking all of their patients and the practice’s staff to a nearby medical practice.
However, under Australian law, non-compete clauses are not automatically enforceable. The law also differs between each state (particularly in New South Wales for example). The courts assess these clauses on a case-by-case basis under the doctrine of restraint of trade, which generally presumes such restrictions are void unless a practice can demonstrate they are reasonable and necessary.
Key Factors in Enforceability
For a non-compete clause to be enforceable, it must generally be:
Certain in its terms – The clause must make sense and be capable of being understood.
Reasonable in Duration – A restraint period should not exceed what is necessary to protect business interests. Generally, short-term restrictions (e.g., 3–12 months) are more likely to be upheld, whereas lengthy restrictions may be considered excessive.
Limited in Geographical Scope – The restriction should be confined to areas where the business operates or where the worker had significant influence (for example, within a specific radius of the practice). The reasonableness of the geographical scope may depend on whether it is an urban or rural location for example.
Proportional to the Worker’s Role – Senior executives with access to trade secrets and sensitive business information may face stricter restraints than junior employees with minimal strategic knowledge.
Justifiable for Business Interests – The practice must demonstrate that the restriction is necessary to prevent unfair competition rather than merely limiting job opportunities for former workers. For example, it would not be reasonable for a practice to seek to prevent a worker from practising medicine anywhere (e.g. from hospitals), but it might be to a competitive nearby practice, especially where that doctor has been a business owner of the former practice.
Drafting Effective Non-Compete Clauses
To enhance enforceability, practices should:
Clearly define prohibited activities – Specify whether the restriction applies to working for direct competitors, establishing a competing business, or engaging with former patients or clients (e.g. by also including a non-solicitation clause for example).
Use cascading clauses – Include alternative restrictions of varying lengths and geographical scopes (e.g., 6, 12, or 24 months, or 10km, 5km or 2.5km), allowing courts to enforce the most reasonable option if required.
Tailor restrictions to the industry – Avoid overly broad or generic clauses that may be deemed excessive and unenforceable by the court. For example, medical professionals who practice as private practitioners have their own requirements as businesses to comply with the Competition and Consumer Act 2010. You can find out more details about this here .
Ensure workers acknowledge the clause – Workers should sign agreements explicitly acknowledging their post-termination obligations.
Enforcing Non-Compete Clauses
If a practice believes a former employee has breached a non-compete clause, they should consider taking the following steps:
Re-read the signed Agreement – what does the clause actually seek to prohibit?
Conduct an Internal Review – Gather evidence of the breach, such as the employee’s new job role, business activities, or patient/client interactions. Consider this against the words of the contract and give some thought to the impact this is actually having on your practice. Weigh this up against the further costs and inconvenience of further action.
Seek legal advice – As we have discussed, these clauses can be very difficult to enforce. You can reach out to a legal professional who can advise you on the best course of action, including the advantages and disadvantages of different approaches. Potential next steps may include for example:
(a) Sending a Cease and Desist Letter – This involves formally notifying the former worker of the suspected breach and requesting compliance with the contract.
(b) Engaging in Mediation – Where possible, resolving disputes through negotiation.
(c) Seeking further Legal Action – If necessary, a practice may wish to apply for an injunction to prevent further breaches or claim damages for financial losses caused by the breach.
Practices must act promptly when attempting to enforce non-compete clauses, as delays can weaken legal claims. Additionally, litigation should be a last resort, as courts may modify or void unreasonable clauses rather than enforce them entirely.
Implementing Proper Exit Processes
A well-structured exit strategy can significantly reduce the risk of non-compete breaches. Practices should consider the following steps:
Conduct Exit Interviews – Reinforce the worker’s obligations and remind them of the non-compete terms.
Reclaim Company Assets – Ensure all confidential documents, electronic devices, and proprietary materials are returned. It is important to consider how the relevant contract addresses this.
Terminate System Access – Immediately revoke access to company email, internal databases, and trade secrets, in accordance with the terms of the contract.
Monitor Compliance – Track the worker’s post-departure activities where legally permissible, such as reviewing LinkedIn updates or industry announcements.
Maintain Communication – Keeping lines of communication open can prevent misunderstandings and foster goodwill.
Non-Compete Clauses and Changing Regulatory Landscape
The use of non-compete clauses in Australia has come under increasing scrutiny. Concerns have been raised about their impact on employee mobility and competition. In 2023, the Australian Competition and Consumer Commission (ACCC) was asked to investigate whether non-compete clauses should be regulated more strictly.
If new regulations emerge, practices may need to adapt by:
exploring alternative, or strengthening existing, protections, such as confidentiality agreements and intellectual property protections;
narrowing the scope of non-compete clauses to ensure they remain enforceable; and
strengthening non-solicitation and non-disclosure agreements as alternative safeguards.
A Note on Independent Contractors
Non-compete clauses may be even more difficult to enforce with respect to independent contractors. It can also increase the risk faced by the practice, as these clauses are typical features of employment contracts. We do not recommend including such restraints at all in independent contractor or service agreements.
Final Thoughts
Non-compete clauses are a valuable tool for businesses but require careful drafting and enforcement to remain effective. Practices should regularly review their contracts, implement structured exit procedures, and stay informed of legal developments to ensure compliance with evolving laws. By taking proactive measures, businesses can protect their interests while fostering fair competition and upholding legal standards.
If you need expert guidance on drafting, enforcing, or reviewing your agreements, our team at You Legal is here to help. Reach out to us today for tailored legal advice and strategic solutions. Contact us to safeguard your business with confidence.