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Ask DSC: Participants following workers out of an organisation

A provider wants to prevent its workers leaving and taking their clients with them. Rob discusses the legality - and morality - of restraint clauses in contracts.

By Rob Woolley

Updated 15 Apr 202410 Mar 2023

Dear Ask DSC: Over the last two years, many of our support workers have resigned to set up as sole traders. We employ these workers, train them, support them, and give them supervision, but there seems to be nothing stopping their leaving and often taking many clients with them! Our board members are pulling their hair out and demanding we act. They suggest adding a restraint of trade clause to all our employment contracts with support workers, something that says, “If you leave, you can’t take clients with you or start up a competing business”. I have no idea if clauses like these are even legal. What can we do?

You are not alone! We get this question a lot. Many providers are going through this problem, and a lot of managers are in the same position as you: stuck between a rock and a hard place. The board is understandably concerned about the viability of the business if employees leave and start competing businesses, while workers are understandably not that fussed. Let’s unpack all the pieces.

Please note: to the ongoing disappointment of my father, I am not a lawyer. This is general advice, and you should seek legal advice for specific and technical enquiries.

Restraint clauses

The clauses your board is talking about are often called “restraint of trade clauses”. They aim to do exactly that – restrain how a former employee can work in the future. I remember seeing these semi-regularly in the very early days of the NDIS, as providers grappled with how to operate in an environment where there was little to no security of funds. Sometimes I would even see one in a service agreement, trying to restrain the participant from engaging former or current employees. We all scratched our heads about exactly how that would be enforced. These clauses have become less common as the Scheme has evolved but may see a resurgence as more workers and participants explore the potential benefits of going independent.

Think about this from the worker’s perspective. If you could effectively double your pay in exchange for taking on some back-office obligations, you and most other people would be pretty tempted. I vividly remember being a support worker and struggling to pay rent. If a participant had offered to hire me as an independent, then covering my bills would have trumped loyalty to a company almost every time. I think sometimes boards can be insulated from the reality of life as a frontline worker, but this is a no-blame zone (although some education about why a worker would set up an independent sole trader may help them understand the context).

One of the reasons these clauses have become less common is because it’s not as simple as putting the clause into an employment contract and then boom! The employee is restrained.

Types of restraint clauses

There are different types of restraint clauses, including (but not limited to):

  • Non-compete clause: This is where an employee is prevented from working for or starting a similar organisation or operating in direct competition with the former employer.
  • Non-solicitation clause: This is where an employee is prevented from enticing clients away from the former employer.
  • Non-recruitment clause: This is where an employee is prevented from recruiting workers from the employer.

Are you willing to go to court?

The majority of claims where one party breaks the terms of a contract are only enforceable in a civil court. Nobody is breaking a criminal law by going against the terms in an employment contract.

Therefore, the onus is on the employer to prove that any restraint clauses are reasonable, and the default legal position is that any restraint clause is null and void (this applies even if the employee has accepted the terms). So, before putting a restraint clause into employment contracts, providers have to do ask, “Are we willing to take this employee to court, prove the clause is reasonable, and demonstrate our current and potential future financial losses?” Spoiler alert: not many providers are willing to do that. There is no assurance of success, and it will be very expensive. The only people who will really come out on top are the lawyers.

Specific terms have to be reasonable

Widespread or unlimited restraint clauses are unenforceable. Unless you’re a former defence minister hoping to consult for an antagonistic foreign power on missile design, the days of never being able to work in the industry again once you leave a specific employer are long gone. Clauses have to be specific to a geographical area, amount of time, and types of services and activities.

Some of the things that will be considered are:

  • For how long does the restraint apply?
  • In what locations?
  • For what specific services?
  • How is it reasonably necessary to protect the employer’s business?
  • Does the employee have any specific or unique knowledge or skills?
  • How senior was the employee? How long had they been with the employer?
  • What specific damages can the employer claim the business incurred because of the actions of the employee in breaching the clause (particularly considering NDIS participants can move providers whenever they like)?
  • What is the nature of the business the employer is providing? We are in a market founded on choice and control for participants, so any clause that attempts to restrain that is not going to work in the provider’s favour.

Modern legal precedent indicates that excessive clauses or any ambiguity will likely lead to the employer’s defeat in court. Is your board willing to spend tens and possibly hundreds of thousands of dollars to fight a legal battle that has a limited chance of success?

Impact on culture

However, forget the legal fees for a second. I think the biggest consideration for providers seeking to include these kinds of clauses in employment contracts is: who will want to come work for them if there’s a chance that they will be sued when they leave? It would be fatal to underestimate the impact on culture that these kinds of restraints have, and most support workers are not short of options for providers to work for!

Don’t get me wrong – I can see why your board is proposing this. Desperate times call for desperate measures. Some employers include these clauses with no intention of enforcing them but include them purely to intimidate ex-workers (or people thinking about becoming ex-workers). Legal threats can be a powerful tool, but we would never advise including a clause in an employment contract that has the primary aim of frightening workers into a particular course of action. It’s short-termism on steroids. Is a worker on the receiving end of menacing legal letters going to tell everyone how great it was to be at your organisation? How would existing staff feel if their former colleague (who is still their friend) is being pursued in court or being pressured into closing their new, exciting venture?

And – most importantly – workers and participants talk. Your current clients and your prospective clients talk. The relationship between worker and participant is crucial. If you include restraint clauses in your employment contracts, how do you think the people your organisation is supporting will react? Will they recommend you to other people? 

Plant an attractive garden

If this sounds like a very sticky problem, that’s because it is. Providers are expected to recruit, support, train, and supervise employees while running the risk that a worker will leave and a stack of clients might follow them to boot. The best advice I can give is to eliminate the reasons for an employee to leave.

Before you say it – yes, I know that is easier said than done! There are lots of things that aren’t within your control, like NDIS pricing caps. But there are a couple of practical things you can do:

  • Get a tight grip on the things that you can control and use them to your advantage: job design, other benefits (financial and otherwise), promotion pathways, development opportunities, contemporary training, internal support networks, flexible working arrangements, reward and incentive programs, additional responsibilities, reviewing your communications, matching tasks to worker preferences, and so on.
  • Do some analysis to compare the actual cost to the business of workers going independent versus the impact on finances and culture of including restraint clauses. It may be that the costs of including such clauses actually outweigh the benefits.
  • If your board insists on going down the restraint clause path, obtain a range of qualified legal opinions about the likely success of any future enforcement action. Don’t rely on any one opinion (including mine).
  • Have leadership focus on making the organisation an attractive place to work. This should cover operations, processes, and especially culture. Then, focus more on culture. Then, focus even more on culture.
  • Finally, your board may simply need to accept that employees can leave (and perhaps some clients might follow them) in the same way that they accept other organisational risks.

There will always be some employees who want to take that leap and set up their own provider. I wager that if you go back far enough, that might even be how your organisation started. It’s natural to hold on tighter when we feel something slipping away, but restraint of trade clauses are rarely a long-term answer.

Thank you to this week’s questioner. If you have a burning question send it to our NDIS whizkids. Select questions will appear in our popular Ask DSC column.

PS. We’ll be discussing workforce issues in more detail at DSC’s Annual NDIS Conference. Make sure you don’t miss out on your ticket!

Authors

Rob Woolley

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