When is your restraint of trade clause unenforceable?
The restraint of trade clause is a very old legal concept relating to the right of individuals to do business, or pursue a trade or profession, freely, without restraint. The general rule is that a restraint of trade is contrary to public policy and void, unless it can be shown that the restraint is reasonable.
When is a restraint of trade clause unenforceable?
It is generally more difficult to enforce a restraint if it is drafted in broad and unreasonable terms. Grounds on which a restraint might be held unenforceable could include where:
- The clause goes further than is reasonably necessary to protect a party’s business interests
- The clause would deprive the restrained person from earning a living
- The restrained activity is not defined with specificity
- The restraint period and area are unreasonably wide.
In some contracts, the area and period of a restraint may be expressed in a ‘cascading’ fashion to avoid the risk of having a Court strike down the whole restraint. For example, a restraint might be stated as applying within a 5km radius or (if that is not enforceable) a 3km or 1km radius; and similarly, for a period of 2 years or (if that is not enforceable) 1 year or 6 months. It should be noted that the analysis of a restraint is highly fact specific.
A 2014 Queensland Case
By way of illustration, in a 2014 Queensland case, the Court upheld a 15km radius and 18-month restraint for an experienced ophthalmologist; while in an earlier case, the same Court held that a 12-month restraint on a doctor was not enforceable because only 3 – 4 months were needed to find their replacement.
What are the consequences of breaching a restraint? Typical remedies for breach of a restraint could include:
- Damages and compensation for loss suffered as a result of the breach
- An injunction to prevent the restrained party from acting in breach of their restraint.
Usually this will not be ordered if damages are an adequate remedy. Restraints can be a complex area. When including restraints in a dentist’s contract, practice owners should seek advice and/or use properly drafted restraint provisions. Conversely, dentists who are agreeing to a restraint or are already subject to a restraint should seek advice if ever unsure of the effect of that restraint.
Medical Indemnity Insurance can assist
Tego Insurance is one of the most successful Australian medical indemnity insurance providers. We cover individual medical insurance, practice indemnity insurance, medical malpractice insurance, medical practice insurance, doctors indemnity insurance, GP medical indemnity insurance, and much more. If you are a medical practitioner with Tego, we offer 24/7 medico-legal advice and can assist your organisation with any new developments when dealing with a myriad of legal issues surrounding your practice.
This publication is general in nature and is not comprehensive or constitutes legal or medical advice. You should seek legal, medical or other professional advice before relying on any content, and practice proper clinical decision making with regard to individual circumstances. Persons implementing any recommendations contained in this publication must exercise their own independent skill or judgment or seek appropriate professional advice relevant to their own particular practice. Compliance with any recommendations will not in any way guarantee discharge of the duty of care owed to patients and others coming into contact with the health professional or practice. Tego Insurance Pty Ltd is not responsible to you or anyone else for any loss suffered in connection with the use of this information.
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