Paul Harris, director at Goodman Grant Solicitors, explains how you can protect yourself from ex-associates
Associates come and go but what can you do when your former trusted associate decides to join a neighbouring practice?
This is where awareness of the common law principle of restraint of trade would stand you in good stead. It pertains to the enforceability of contractual obligations between an employer and employee (or between a buyer and seller of a business), with the intention of restricting the employee or seller from engaging in a similar business within a specified geographical radius and for a specific length of time.
Such contractual obligations, typically set out in Associate Agreements, are likely to be held unenforceable by the courts unless the party looking to enforce the restriction can show that:
1. It is reasonable in both distance and duration;
2. It is necessary to protect legitimate business interests; and
3. The duration and distance is no longer than is required to protect the legitimate interests of the business.
What is reasonable will depend on a variety of factors and will be dealt with on a case- by-case basis. For example, a restriction of 10 miles from a practice that is based in a remote area of the country could be deemed reasonable, whereas stipulating a one mile restriction from a Harley Street practice could be judged unreasonable. Consideration must also be given to the role of an individual. For example, it may be appropriate for a long-standing associate at the practice, who had access to a wealth of confidential information, to be subject to heavier restrictions, as opposed to a newly hired associate.
It’s also crucial to understand how the distance will be determined. For instance, the Associate Agreement stipulates a distance of two miles, and Google Maps shows 2.3 miles. It is important to note that when the courts look at the proposed restriction, they base their determination on a radius circle from the given location, not on what Google Maps confirms the distance is. The reason it is not based on the route from a particular location is because it would definitely open it up to challenge e.g. there could be arguments as to a given route or the need to take a longer route due to unforeseen circumstances. In contrast, there can be no question over the application of the radius circle.
As mentioned above, the general position with restraint of trade clauses is that they are void on public policy (anti-competition) grounds unless they protect a legitimate business interest. Although not an exhaustive list, areas that an employer or buyer are typically seeking to protect, in the context of the dental industry, are patient databases, confidential information, poaching of staff, NHS contract tendering and the practice name.
Unfortunately, restraint of trade clauses are often inserted in legal documents with no consideration as to their actual application. This is why it is imperative that you have a specialist dental lawyer With more than 100 years of legal expertise in the dental profession, Goodman Graft can draft your Associate Agreement (or Business Sale Agreement) to ensure that not only can restrictions be imposed, but they are also sufficient to protect the interests of your business.