Protecting your practice

25 September 2018 | Lucy Charlesworth, B.A (Hons), GDL, LPC, Senior Solicitor, Avant Law, VIC

Sarah is a practice manager at a GP practice and has recently interviewed a doctor who she would like to engage as a contractor. She wants to protect the practice as the last GP she engaged recently left and set up a clinic less than a kilometre away. A number of patients have now signed up to the new clinic and a couple of the reception staff have started working there, at a significant loss to the business. After seeking legal advice, Sarah was told she could not stop the doctor doing this as there were no post-termination restraints in his contract.

Drafting an enforceable contract

Including post-termination restraints in a contractor and/or employment agreement is an important factor in trying to protect a practice in case a doctor leaves. However, Sarah should carefully consider the parameters and wording of those restraints, to make them as enforceable as possible, if required.

It’s always advisable to seek legal advice before drafting or finalising a contract and, specifically when considering post-termination restrictions given the individual circumstances pertaining to each case which will ultimately impact on the enforceability of the terms. Some of the main factors to consider when drafting post-termination restraints are set out below:

Legitimate protection of business

Whether or not post-termination restraints are enforceable will be fact and case specific. However, a court, if asked to decide on enforceability, will always consider if there is a legitimate business interest being protected by the practice and/or if the rights of the doctor to earn a livelihood are being unfairly fettered, when reviewing the relevant restraint clauses.

Five areas to consider when drafting post-termination restraints include:

1. The business interest to be protected  

For example, the restraint may apply to the provision of GP services, rather than the wider provision of any medical services or generally working in the medical field, which would be significantly more restrictive and not necessarily relevant to the practice.

2. Restraint scope  

This may involve an agreement that the doctor will not do the following after termination:

  • Provide GP services at a competing practice.
  • Solicit or attempt to solicit other staff members to provide services.
  • Solicit or attempt to solicit current patients they have recently treated.

Consideration should be given to which restraints are actually needed to protect the practice, rather than including a blanket restraint that may not be relevant.

3. Geographical scope  

This is likely to be quite a small radius for a GP practice, given it would usually attract/have registered patients from the immediately local area. However, if the practice was nationally renowned for Botox treatments for example, and could show a core national client base it needed to protect, then the relevant wider area could fall within a legitimate protection of business interests. Often these clauses are drafted on a “cascading” basis, to allow for different locations to be included as alternatives, if one is found to be unenforceable.

4. Duration of the restraint  

This should be long enough to allow the practice to protect its business, but not too long to be deemed as trying to stop the doctor from legitimately earning a living. Cascading time limits may again be specified, setting out alternative and shorter time durations if one is found to be unenforceable.

5. Confidential information  

A contract should also include a clause which defines information that is confidential to the practice (for example, client lists, pricing, market data) and requires the doctor to keep such information confidential during and beyond the termination of the relationship.

Steps to take upon termination

Drafting reasonable post-termination restraints will provide the practice with a good basis to protect its business if the GP leaves in the future. The practice can write to the GP upon termination to remind them of their on-going obligations and the restraints they agreed to.

If the practice believes the doctor is breaching these obligations, it can write to request that the doctor stop acting in breach and/or consider commencing proceedings, either by seeking an injunction to stop the doctor’s actions or through damages for breach of contract. However, this should be a last resort, as it is usually costly and time consuming.

Ideally, a good restraint clause makes it clear what the doctor is restrained from doing after the termination of the contract for a reasonable time period and to legitimately protect the business, without unfairly stopping them from earning a living.

Key lessons

  • Post-termination restraint clauses are an effective way of protecting a practice when they are reasonably drafted and considered likely to be enforceable.
  • Always consider the scope of post-termination restraints on a case-by-case basis.
  • Consider the business interest you are seeking to protect and tailor the restraints accordingly.

More information

For expert advice contact Avant’s Medico-legal Advisory Service (MLAS) via email: nca@avant.org.au or call 1800 128 268, available 24/7 for emergency advice.

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