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RESTRAINTS OF TRADE IN THE FITNESS INDUSTRY – WHAT YOU NEED TO KNOW
Erin Prout explains the important must-knows for fitpros around restraints of trade in the fitness industry.
Did you know that employment and contractor agreements can impact Trainers long after they have changed jobs? Trainers are often prohibited from contacting clients and staff, or even working for a competing gym. These prohibitions are called ‘restraints’ and the main categories of restraints are:
- Non-solicitation: the business may prohibit the Trainer from approaching their customers, suppliers or employees.
- Non-competition: in some circumstances the business may be able to prohibit Trainers from working for competitors or in the same industry.
Federal court bans employee from starting new role
In 2021, the Federal Court prohibited an ex-employee for working for a competitor. The ban was for a lengthy 12 months!
Liberty Finance sought an injunction – that is a fast-tracked legal proceeding which seeks an urgent order. At the injunction hearing, the Court did not merely award compensation for the breach of the employment contract, they actually prevented the employee from taking up the new position. The orders were made very quickly to ensure Liberty’s business was protected.
The Federal Court made a preliminary finding that the restraints in the employee’s contract were enforceable. The restraints were drafted in a ‘cascading fashion’.
Which restraints are actually enforceable?
Restraints are enforceable if drafted correctly. The best way to ensure that restraints are enforceable is for them to be drafted in a ‘cascading fashion’, as Liberty did. This requires the restraint to apply for different periods of time and different geographical locations. Having options for both time and location, allows the Courts to assess the most severe option and if unenforceable, drop down to the next restraint which is longest in time and widest in location.
The Courts will consider whether the restraint is ‘reasonably necessary’ to protect the business’ legitimate interests. If it is, it will be enforceable. What is ‘reasonably necessary’ depends on a range of factors, including:
- The duration of the restraint: the shorter the restraint period, the more likely it will be enforceable.
- The geographical location of the restraint: the wider the location, for example all of Australia or the world, the less likely it will be enforceable.
- Whether the geographical location of the restraint matches the location the Personal Trainer was working in.
- Whether the parties negotiated the restraint clause and whether they had equal bargaining power.
- The nature of the Trainer's role: the Courts will be more likely to enforce a harsher restraint where the Trainer was senior or an owner of the business.
- Whether the Trainer was an employee or a contractor. The Courts will be more likely to enforce a harsher restraint where the Trainer is an employee. This is because a contracting arrangement should allow free agency.
Court ruling on restraints in the fitness industry
The leading case in the fitness industry is Planet Fitness Pty Ltd v Brooke Dunlop & Ors [2012] NSWSC 1425.
In this case, the Personal Trainer, Ms Dunlop was an independent contractor with Planet Fitness before moving to Genesis. Ms Dunlop’s agreement with Planet Fitness contained a non-solicitation clause, restricting her from soliciting, canvassing or working with Planet Fitness’ clients.
Ms Dunlop posted special deals on Facebook, offering a discount to existing clients (including those of Planet Fitness) to train at Genesis.
Planet Fitness were able to prove that several of their clients had moved to Genesis after seeing Ms Dunlop’s Facebook posts.
The question for the Court was whether the Facebook posts solicited, canvassed or secured work from any Planet Fitness clients. The Court held:
- That the posts did solicit, canvas or secure work from Planet Fitness clients.
- Ms Dunlop would not have breached her contract if clients of Planet Fitness contacted her out of the blue, without her encouraging them to.
In a more recent case, the New South Wales Supreme Court considered restraints from a franchise agreement. The franchise agreement prohibited Mr Reddington from being directly or indirectly engaged in or having an interest in a similar business to World Gym Facilities for one year. The geographical area of the restraint was 10km from the gym or within 10km of any other then-existing World Gym facility.
The Court found that on the face of it, the restraint was enforceable. Whilst the Court did not specifically enforce the restraint during the injunction hearing, it made an order for the franchisor to step-in and become the manager of Mr Reddington’s gym. This order is significant for the fitness industry and shows the substantial steps a Court can take to protect a gym owner.
If you are an independent contractor, what can you do?
If you are an employer, what can you do?
The first place to start is to make sure the restraint clause itself is drafted correctly. This includes having it drafted in a cascading fashion and not having a one-size-fits-all approach. The restraint must be tailored for each of your Personal Trainers based on location, level of seniority and access to client contact details. You can also make sure that you regularly assess the needs of your business and what you reasonably need to protect it.
If you need to terminate an employee, take that opportunity to remind them of their employment restraints and their obligations.
For further information regarding employment restraints and issues, you can book in a free consultation here and download our free employment law checklists.
Erin Prout
Erin is an Associate at Taurus Legal Management, and an experienced litigator with a specialty in contractual disputes. Her clients range from small to medium-sized businesses through to ASX-listed companies.
