Tuesday, 13 October 2015

“Not now, I’m tied up!” – Are Your Contractual Restraints Valid?

Epichealth Pty Ltd v Yang*

The Facts

A doctor was engaged by a medical Clinic in Langwarrin, Victoria, to provide up to 40 hours consulting services a week, under a 2013 contractor agreement.

In early 2015 the doctor began to reduce his hours, and on 28 April 2015, gave 6 months’ notice of termination according to his agreement.

The agreement also required him to not engage in conflicts of interests, or to provide GP services within 10 km of the Clinic, for 3 months or more after his engagement ended.

Unknown to the Clinic, in 2014 the doctor had bought a property 6km away in Carrum Downs, which he refurbished as a medical practice over the first half of 2015. According to a Facebook page set up to promote it, the practice opened for business on 1 August 2015.

Initially in July 2015, the Clinic discovered that the doctor had a Medicare provider number for a clinic in Carrum Downs. When confronted by the Clinic, the doctor explained that he had been asked to help at a practice run by a ‘close family friend’, which was short-staffed, and which needed his help in establishing an after-hours service.

Based on his assurance that he would not poach its patients, and other conditions designed to protect its business, the Clinic allowed him to continue providing after-hours support during his notice period.

By late August, however, the doctor had refused to perform work for the Clinic. At about the same time, the Clinic discovered his full role in setting up the new practice, and identified that the Clinic had lost 9 patients to it over the last few weeks.

What the Court Found

The Clinic commenced proceedings in the Victorian Supreme Court, seeking a temporary injunction preventing the doctor from providing services within a 10km radius of the Clinic, for the rest of his notice period and for 3 months after that until 27 January 2016.

The Court granted the injunction, finding that the Clinic had a “strong” argument that the restraint was reasonable and enforceable, and that it had been breached by the doctor working for the new practice.

Although enforcing the term was likely to cause some financial hardship, the doctor had opened his business with “full knowledge” of his restraint. The Clinic, for its part, had made a “significant capital investment” in its business, and was heavily dependent on maintaining its patient base.

In the circumstances, the Court accepted that it would have been unjust for the Clinic to be “permanently deprived” of the protection contained in its restraint terms – which would occur if the injunction was not imposed.

Interestingly, the Court made no comment that the restraint should not be enforced because it was contained in a contractor agreement.

What this means for businesses

This is another example that Courts are willing to apply restraint clauses to protect the legitimate interests of businesses – in the right cases.

Clearly, no orders would have been possible if there had been no contract containing properly drafted terms protecting the Clinic’s goodwill, and preventing unjustified competition.

The Clinic was also helped by its longer-than-normal notice clause, which operated in tandem with the restraint clause to protect the business.

All businesses wishing to protect their investment in clients, IP and confidential information should review their workplace agreements, and make sure that they contain appropriate terms dealing with poaching, protection of information, and non-competition.

If you have any questions regarding your agreements, do not hesitate to contact an HR Legal adviser on the details below.

*Epichealth Pty Ltd v Yang [2015] VSC 516


This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.

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