Articles for Employers, Articles for Professionals, Uncategorized

The Basics on Restraint of Trade

Taurus-Leagal-Blog-Banner

I’ve heard a few horror stories of Trainers leaving an employer and taking a number of clients with them. It’s always a financial hit to the employer and on more than one occasion has threatened the future of the business. This guest post by Alex Martin of Taurus Legal Management, gives us a better understanding of how Restraint of Trade works for both employers and professionals…

Employment contracts can stop Trainers from contacting clients after they have resigned.

A properly drafted ‘restraint of trade’ clause can impact Trainers long after they have changed jobs.

What type of employment restraint might be included?

  • Confidentiality: an employee may be restrained from disclosing any secret or confidential information obtained during the course of employment. What is categorised as ‘confidential information’ will generally include the employer’s clients (and potential clients), suppliers, financials, systems, processes and trade secrets.
  • Non-Solicitation: the employer may prohibit the employee from approaching the customers, suppliers or employees of the company
  • Non-Competition: in some circumstances the employer may even be able to prohibit employees from working for competitors or in the same industry.

The most important restraint of trade in the fitness industry is non-solicitation.

Can a Personal Trainer who leaves their employment with a gym, take their clients to a new gym?

The first thing to consider is whether the personal trainer is an independent contractor or employee of the gym. The classification is important if there is no agreement between the parties, as an employee may be bound by an implied term of non-solicitation, whereas an independent contractor may argue that they are not.

An independent contractor may also have more power to negotiate these clauses with the employer.

Complying with a Non-Solicitation Clause

A non-solicitation clause will generally require the employee not to: “directly or indirectly, without the prior consent of the employer, solicit, canvass or secure the custom of any person who is the employer’s client”.

This means upon resigning from the gym, the personal trainer cannot approach any clients of the gym in order to sign them up to the new gym without prior consent.

Case Study: Planet Fitness Pty Ltd v Brooke Dunlop & Ors (2012)

In this case, the Personal Trainer, Ms Dunlop was an independent contractor with Planet Fitness before moving to a Genesis facility. Ms Dunlop’s agreement with Planet Fitness contained a non-solicitation clause, similar to the one above, restricting her from soliciting, canvassing or securing the work of Planet Fitness’ clients.

Ms Dunlop then posted special deals on Facebook, including a discount to existing clients (including those of Planet Fitness) to train at Genesis.

It was shown that several existing clients of Planet Fitness had seen Ms Dunlop’s Facebook posts and moved to Genesis gyms. Based on this evidence, the Court held that the Facebook posts were attempts to solicit, canvass or secure the work of Planet Fitness’ clients.

This case demonstrates the importance of complying with any express non-solicitation clause and knowing the exact limits imposed.

(The Court did note that the non-solicitation clause did not contemplate the situation where a client of Planet Fitness contacted Ms Dunlop without her encouraging them to).

Are Restraints always enforceable? 

If drafted correctly, yes.

When enforcing an employment restraint, the Court will consider the extent that it is ‘reasonably necessary’ to protect the employee’s legitimate interests. What is ‘reasonably necessary’ will depend on the wording of the clause and the facts of each situation.

When enforcing an employment restraint, the Court will consider:

  • The duration of the restraint. Generally, the shorter the restraint period, the more likely it will be enforceable;
  • The geographical location of the restraint. If the location of the restraint covers a large area (for example, all of Australia or the world), the Court will be less likely to consider the restraint reasonable;
  • Whether the parties negotiated the restraint clause and whether they had equal bargaining power; and
  • The nature of the employer’s business and the employee’s role. The Court will be more likely to enforce a harsher restraint where the employee was senior or if the employee was also an owner of the business.

If I am an Independent Contractor, What can I do?

If you are an independent contractor, we recommend negotiating any non-solicitation clauses as you are likely to have more bargaining power than an employee. You should press to be able to take any clients with you on termination of the agreement. If the other party insists on a non-solicitation clause, consider negotiating the length of time you are prohibited from contacting those clients.

If I am an Employer, What can I do?

The first place to start is to make sure the restraint clause itself is drafted correctly. You can also make sure that you regularly assess the needs of your company and what you reasonably need to protect it.

Should you need to dismiss an employee, you should take the opportunity to remind them of their employment restraints and their obligations post-termination. If the employee subsequently breaches their employment restraints, you should act quickly to demand that they cease.

For further information regarding employment restraints, please contact Alex Martin and the Taurus Legal Management team on (03) 9481 2000.

Standard

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s