Page 48 - Print21 Magazine March April 2021

Legal Issues
Restraint of Trade
necessary for you
How do printers prevent staff from walking off with their customers and starting a rival business? Legal eagle Wal Abramowicz says a restraint of trade clause is essential in employment contracts.
Restraint of trade clauses are regularly included in franchise and employment contracts to prevent former staff
and associates from stealing clients and staff. These clauses protect important knowledge and secure the long-term success of a business, particularly in industries where technical knowledge and close connections are required.
A 1970s United Kingdom legal case shows the value of restraint
of trade clauses in the printing industry. A nationwide printing company, Prontaprint, which specialised in high-speed printing and copying entered into a franchise agreement with a Dr Landon, who had no experience in the industry. Prontaprint set up the franchise business for Dr Landon, providing technical advice, the equipment required and industry best practices. As part of the franchise agreement, Dr Landon was subject to a restraint of trade clause. This stopped him from working in the printing industry within three miles of any other Prontaprint franchises for
a period of three years after the franchise agreement ended.
Dr Landon’s franchise business succeeded. Dr Landon saw substantial growth. When the franchise agreement was due to
be renewed, Dr Landon wrote to Prontaprint stating that he would not renew the agreement. He said
he was retiring. After the franchise agreement expired, the signage for the shop changed from Prontaprint to Laserprint. A large sign was placed in the street front saying: “Same Team, New Name”. Dr Landon ran that business.
There was another Prontaprint franchise within three miles of Laserprint. Prontaprint sued Dr Landon for breaching the restraint of trade clause. Prontaprint argued that Dr Landon enjoyed all the benefits of a Prontaprint franchise, including the
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expert knowledge gained. Directories such as yellow pages still listed the premises as Prontaprint. Prontaprint claimed that it would lose loyal clients who would go to Dr Landon’s premises. The same people and services were offered as a Prontaprint franchise. Prontaprint argued that
if Dr Landon could not be stopped from continuing to trade after the franchise agreement expired, the entire franchise model would become unworkable, as other franchisees would be incentivised to simply let their franchise agreements expire.
Dr Landon argued that the restriction was unreasonable. According to Dr Landon, the franchise agreement only covered trademarks and the initial establishment of the business. He claimed that he alone had built up the business, and Prontaprint had been duly paid through an annual five per cent royalty.
Wal Abramowicz, managing director, Fox & Stanliland
The Court agreed with Prontaprint and issued an order preventing Dr Landon from working in the printing business.
This case shows the important role a restraint of trade clause can have in protecting your business. By having clear restraint of trade clauses,
you can protect your business
and its specialised and unique characteristics from being exploited by former employees or associates.
Remember, a restraint of trade clause is only useful if it has been properly drafted. Clauses that are too wide, unreasonable or against public policy will not be enforced by courts. Always seek legal advice when considering drafting an effective restraint of trade clause. 21
For more information contact Wal at Fox & Staniland Lawyers, Gordon, NSW tel 02 9440 1202. Email: wal@foxstaniland.com.au