Doctors and Restraint of Trade Clauses

The days of your local medical clinic being owned, run and serviced by the actual doctor a patient consults with are long gone.  These days, especially for local GP practices, a corporate body will often own the practice itself and the GP’s working within the practice will either be employed, or contractually engaged to work from the GP Clinic as an independent contractor.

The basic setup is usually that the GP clinic, rooms, furniture, computers, phones, nurses, management systems, billing and support staff are all supplied and managed by the business for the doctor.  However, the doctor supplies the medical treatment or consult to the patient.  Its a fee for service arrangement like any other and the GP clinic collects the fee from the patient (and/or the rebate) on behalf of the doctor.   The GP clinic then pays itself for its services to the doctor and distributes the remaining balance to the doctor.

Usually, all parties are happy with the harmonious arrangement, the GP Clinic can concentrate on business and the doctor can concentrate on providing patient care.

However, should the doctor want to leave, the business owners will sometimes bring up a clause within the employment agreement or independent contractor agreement, called a restraint of trade.

What does Restraint of Trade mean?

There is no general obligation in law to restrain yourself from competing with another person’s trade.  Quite the opposite in fact, as such an obligation would be anti-competitive and such unreasonable restraints on trade are prohibited on public policy grounds (See Quadramain Pty Ltd v Sevestapol Investments Pty Ltd (1976) 133 CLR 390 generally for authority on that proposition).

As such, a restraint of trade is a feature of consensual agreement between two parties that seeks to restrict one (or both) from their liberty in the future to trade with third parties (See Petrofina (Gt Britain) Ltd v Martin [1966] 1 All ER 126, at 180 for the full definition by Diplock LJ).

In the medical context, that means that a doctor is specifically agreeing with the GP clinic they currently work from to not provide their services to patients if they leave and work at another GP clinic.

That is usually done by providing a cascading level of restraints for both time and distance or geographical area.  For example: 3 years or if void 2 years or if void 1 year.  By further example: within a 500km radius of the GP clinic or if void within 200km radius of the GP Clinic or if void within 50km of the GP clinic.

Are Restraint of Trade Clauses enforceable?

As a starting point, a restraint of trade clause is void unless the restraint can be justified as a reasonable measure in the interests of both parties such that it provides no more than adequate protection to the beneficiary of the restraint whilst at the same time, not being injurious to the public (See Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 for authority on the proposition of how to assess reasonableness of a restraint).

Therefore, restraint of trade clauses are presumed void (even when agreed to), unless that presumption is rebutted because special circumstances arise that make the restraint reasonable.

In the medical context, the GP clinic will also hold the burden of proving the restraint is reasonable by providing sufficient evidence of such.

Assessing reasonableness and the enforceability of restraint of trade clauses is not easy and has rarely been successful in the medical sector.  In the GP context, showing special circumstances is difficult for the GP clinic because the only services they provide are to the doctor, those services are not special, unique or confidential.  Each GP clinic in the country likely operates in the same manner.

It is the doctors that are the ones providing the unique service, by providing their skill, expertise and special knowledge to the care of the patient.  Any restraint placed upon a doctor to practice within a reasonable distance from the current GP clinic and treat patients has the very undesirable effect of forcing an existing patient to choose another doctor or travel great distances to ensure they receive continuity of care from their treating doctor.

If it isn’t clear, such an undesirable effect is a significant public policy reason not to enforce restraint of trade clauses for doctors regularly treating patients.

However, there have been occasions were a court has upheld a restraint of trade clause against doctors and other health professionals.

However, it ought to be noted that in those cases there were always an element of ‘business’ involved in that the doctors not only worked as a medical doctor but set up their own GP clinic to compete with their old GP clinic they used to work for.

The concept to understand here is that the patient is doing business with the doctor – as is Medicare – not the GP clinic.  So if a patient follows the doctor to another GP clinic, there is no business loss to the GP clinic as such.

I am generally of the view that in an ordinary scenario of a doctor merely moving from one GP clinic to another GP clinic nearby (without any business interest) would attract any protection by way of a restraint of trade clause.

What happens if a Doctor breaches the Restraint

You’ll likely receive a cease and desist letter demanding you cease trading and reminding you of your obligations under the restraint of trade.  Such a letter normally requires you to provide written and signed undertakings you will cease trading.

The first court relief that will be sought by the GP clinic is an interim injunction to immediately restrain the doctor from practising within the confines of the alleged restraint.  They are usually heard on an urgent basis and will be given if the balance of convenience favours the interim injunction and the GP clinic provides an undertaking as to damages.

An undertaking as to damages is a serious matter and means that if the GP clinic is given the injunction on an interim basis and they then fail to be successful during he final hearing, they undertake to pay the doctor damages they have sustained as a result (which may be substantial).

In addition, the GP clinic will seek monetary compensation for damages sustained by them for the restraint.

Remember, the restraint is not to stop a doctor from working at all, but an attempt to stop the doctor taking business away from the GP clinic.  That is where many claims for restraint fail as it is difficult to prove or get the court to accept that the GP clinic will suffer damages if a doctor works out their notice period because the GP clinic could just replace the doctor with another.

How to Handle a Demand to Cease Trading

Firstly, don’t just ignore it and hope it goes away.  If a GP clinic has bothered to make a demand it is likely because they have realised they have just lost hundreds of thousands of dollars of revenue and are unlikely to forget about it without a fight.

Assessing the validity of a restraint of trade clause for a doctor comes down to 3 things in my view:

  • Ambiguity – Can the restraint of trade clause be clearly understood as to its meaning and effect. For instance, is the geographical area easily identifiable or can it be interpreted in a number of ways.
  • Proportionality – Is the restraint of trade clause proportionate to the interest of the business for which it is designed to protect, or does it go too far.  For instance, is the purpose of the restraint of trade clause to protect the business generally (its goodwill) rather than a specific facet of the business seeking protection.
  • Public Expectation – Regardless of a clear and proportionate restraint of trade clause, is it in the public interest to restrain the person from engaging in trade within the confines of the restraint sought.  For instance, is it preferable that a patient be free to choose and consult with the doctor they wish, rather than be forced to seek alternative help just to assist a private business.

Once you have evaluated those 3 things it’s time to think about your particular and specific circumstances of your business arrangement with the GP clinic to check it is akin to ’employment’ rather than ‘business’.

If you are being asked to sign any further document, deed, agreement, undertaking or the like, seek legal advice before signing anything.  Often those types of documents look innocuous but provide hidden admissions about your conduct that may later be used against you.

Lastly, it generally pays to be pragmatic.  Whilst the GP clinic might not have an enforceable undertaking, a court fight about it might be more costly, time consuming and damaging than reaching an early, negotiated and consensual agreement about how the doctor and GP clinic will handle their separation. So, it may be suitable to find a common ground and avoid court.

How can we help?

We only deal with civil claims and therefore deal with competing liabilities and exposure to risks day in day out. If you find yourself in a potential restraint of trade scenario, then we can help interpret your rights and the enforceability or otherwise of the restraint.

Feel free to call us or make an appointment to talk about your issues and find out why you might want to choose us to help you with your legal issues.


DISCLAIMER:  The above article was written at a specific point in time in the past and is provided as general guidance only.  It is not intended to be specific legal advice to any person’s particular circumstances who may be reading it.  We do not recommend you use this article as a replacement for obtaining proper legal advice on your issue and encourage anyone reading the article to obtain legal advice to ensure the above information and guidance remains valid and suits your particular circumstance.  In our experience, there is no ‘one size fits all’ to legal problems!