Like many legal agreements, employment contracts may be drafted in a way that is “unbalanced”, to favour one party. Generally speaking, the employer being in a position of power is able to dictate the terms of the agreement between the parties.

However, it is not commonly known that some employment contract provisions are either difficult to enforce or completely unenforceable. This article provides some examples of potentially unenforceable employment contract provisions and explains what you can do to protect your business interests.

1. Restraint of Trade Clauses

Employers will commonly have circumstances where a past employee has confidential information regarding their business, is employed by a competing business or creates their own competing business. In these circumstances an employer may seek to rely on a restraint of trade clause (i.e. a clause which prevents an employee from working for or conducting a competing business within a specified location for a particular period of time).

Confidential information such as client lists and industry specific know-how can be very important information for a business to protect from spreading to rival businesses.

What may be unknown to many employers is that restraint of trade clauses are, generally speaking, unenforceable, unless they are in the reasonable interests of the parties and the public generally.

Whilst restrictions may be placed on employees who have confidential information and/or direct contact with customers, a restriction on the employee’s ability to work for a different business or to prevent competition from a competing business will not be enforceable.

Tips moving forward:

• Do not assume that a restraint of trade clause can be relied upon unless you have received professional advice prior to the employer/employee relationship being created;
• Ensure a “cascade” clause is inserted in the restraint of trade clause with reasonable restraint periods and distances to give your business a better chance of relying on the restraint clause;
• A restraint of trade clause is, generally speaking, more likely to be enforceable depending on circumstances such as:
  1. Whether the employer has a legitimate interest to protect;
  2. The area and time for the restraint;
  3. The effect the employee leaving has on the employer’s business; and
  4. The nature of the employee’s role means that they hold particular information or influence.
• Even where a restraint of trade clause is enforceable it can be costly to enforce;
• Include confidentiality clauses in your employment contract which survive termination of the agreement so that there are alternative avenues for protection of confidential information than a restraint of trade clause.

2. Employee to Reimburse Employer for Training or Equipment

It can be very frustrating for employers to purchase equipment for an employee or have employees attend expensive training sessions at the employer’s cost, only to move business or create a competing business.

It is increasingly common for employment contracts to provide that an employee is required to reimburse an employer for training or expensive equipment, particularly where the employee discontinues employment within a certain time after completing the training or receiving the equipment.

However, section 326(1) of the Fair Work Act 2009 (Cth) essentially provides that a term requiring an employee to make a payment to the employer or another person must be “reasonable” in the circumstances to be valid.

Although employers may see reimbursement for such expenses as “reasonable”; the law has historically favoured employees in this regard.

A reimbursement for equipment or training is more likely to be considered “reasonable” where:

• The employee benefits wholly or substantially from the equipment or training, compared to the employer;
• The reimbursement amount is reasonable;
• The value of the benefit of the equipment/training to the employee is high; and
• The ability of the employee to decide whether they receive the equipment or training.

In addition, according to section 324 of the Fair Work Act the employer is required to meet further requirements when deducting an amount from monies payable to an employee as opposed to an arrangement where the employee must pay money to the employer.

An example of a permitted deduction would be a salary sacrifice arrangement (provided that other legal requirements are adhered to), whereby the employee forgoes a portion of their pay to receive a particular benefit.

Specifically, the Employer is only able to make a deduction from monies payable to an employee if one of the following applies:

• The deduction is authorised in writing by the employee and is principally for the employee’s benefit; or
• The deduction is authorised by the employee in accordance with an enterprise agreement; or
• The deduction is authorised by or under a modern award or an Fair Work Commission order; or
• The deduction is authorised by or under a law or an order of a court.

Furthermore, where the deduction is authorised by an employee in writing, the authorisation must specify the amount of the deduction and may be withdrawn or varied in writing by the employee at any time.

Tips moving forward:

• Ensure that you check any Modern Award, EBA etc. for provisions regarding who is responsible for the payment of training and equipment;
• Don’t assume that you are entitled to be reimbursed under an employment contract for training and/or equipment if your employee leaves your business;
• If you have specific equipment or training for which you wish to make an employee responsible, ensure you seek professional advice, preferably prior to executing any employment contract;
• Ensure that the deduction is permitted under the Fair Work Act;
• If a deduction is permitted under the Fair Work Act, ensure that the formal processes are followed, such as specifying the amount of the deduction in writing if the employee is authorising the deduction.

3. Conclusion:

It can be costly to assume that all employment contract provisions can be relied upon and enforced.

We recommend that you contact us for advice regarding drafting and implementing employment contracts to give you the best chance of enforcing your contractual rights.

Fred Coben is the owner of a very successful coffee shop business. Back in 1995 he came up with the idea of setting up a coffee shop called “Cobean Coffee Shop” in Morningside in Brisbane. The name was obviously a play on his name and he felt that it was different enough from other businesses that sold coffee to be unique. Fred developed his business into a thriving business and had started other businesses in locations all around the local area, West End, Caboolture, Burpengary, Redland Bay, Loganholme etc. Fred was in Phase 7 – Expansion/Franchising and Licensing Phase of the Business Legal Lifecycle.

Cobean Coffee Shop had become a local institution wherever it was located. Fred was constantly amazed at how his coffee shop was doing so well when other local businesses failed all around him. People enjoyed the brand of his coffee and the way that he brought a personal touch back to the dry coffee shop scene. Customers would often comment that when they were in other parts of the city they would seek out Cobean Coffee Shops because they knew what they were getting, a great personal experience with a great cup of coffee.

Often Fred would be approached by other people that would want to take on his model and for 20 years Fred did not want to lose control of his business.

In 2016 Fred decided that he wanted to develop an exit strategy for his business, he had developed the business into a thriving profit making machine but he wanted to do something else. Fred was 50 years old and knew that he could not continue to operate these businesses for the rest of his life. He decided that he would set up a franchise model for his stores with a view to taking on other franchisees and then to sell the franchise business to a larger coffee chain or investor.

When Fred approached his lawyer the lawyer went through his plans and advised Fred of what he needed to do. Fred found out that he had a number of things to do before he could franchise his business:

1. Firstly he needed to put together a product to sell, what was the product? well the product was the manual on how the business was operated so that the people buying the franchise could operate it the way he wanted it operated;
2. Secondly he needed to approach a marketing company that could market his franchise to prospective franchisees and speak to the people that had previously approached him about becoming franchises;
3. Thirdly he needed to work out how he was going to train the franchisees and their staff to make sure that they had all of the requirements that he wanted to protect his brand; and
4. Finally he needed to protect his intellectual property including the name and brand of the business as this was part of the package that was very attractive to buyers.

Critical to Fred’s plans was to establish a trademark for the well known name of the business. He had not done it before as whilst he was making great money from the business he did not want to go to the expense of trademarking his business name and skipped Phase 5 of the Business Legal Lifecycle, Protecting Intellectual Property.

The lawyer did a quick google search of the business name “Cobean Coffee Shop” and was surprised to discover a number of other businesses in the Brisbane named “Cobean Coffee Emporium” and other ones in Sydney and Melbourne named “Cobean Coffee”. Whilst their logos were different it was clear to Fred that his name was not as unique as he thought. The solicitor then undertook a search of the trademark register for the word “Cobean” to Fred’s surprise the words “Cobean Coffee” had been trademarked by a large coffee conglomerate business in Sydney and they were the ones operating the business in Sydney and Melbourne, and had been operating since 1997.

Fred was devastated, the brand that he thought was his, the brand that he thought was unique and special was not and that many of the people that were coming to his store were actually mistaking the business as being related to the coffee shops in Sydney and Melbourne.

What this meant for Fred was that before he could start selling his franchise business he had to spend time and money rebranding all of his stores, social media and advertising. This expense was well over $100,000.00 all of which could have been saved if he had spent a few thousands of dollars early on to make sure that his trademark was unique and he was protected through registration.

This story, unfortunately is not all too uncommon in businesses around Australia. Often when people start a business they do not have the money or knowledge to protect their intellectual property. In developing the Business Legal Lifecycle we realised that this was one of the main impediments for business owners in taking this step. Under the Business Legal Lifecycle, registering a trademark falls into Phase 5 – Protecting Intellectual Property. This is done for the deliberate reason that often whist it is not feasible for a business owner in Phase 1 – Conception, or Phase 2 – Startup for a business owner to register a trademark for their business by the time they get to Phase 5, after having gone through Phase 3 – Initial Clients and Phase 4 Bringing on Employees, there is something to protect in registering the trademark. Spending the money at this point in time to register their business’s trademark is when we have seen successful businesses thrive and really build their business.

Also this does not just apply to businesses as large as Fred’s, even if Fred had one coffee shop, if the larger business had found out that he was using their name then Fred would have forced him to stop, even though he was trading first as they had a registered trademark.

If you would like to know more about Protecting Intellectual Property or the Business Legal Lifecycle in general please contact our office on 07 3667 8966 or email us at info@smslaw.com.au.

There is great news for businesses looking at registering their trademarks in Australia. In October 2016 IP Australia the government agency that looks after registration of trademarks announced that they were changing the process of registering a trademark to make it a more simple process.

The process of registering a trademark is generally as follows:

1. An application is made to IP Australia, where fees are paid,
2. Then it will go through an examination phase where an examiner at IP Australia will give preliminary approval or otherwise to a trademark;
3. The is trademark is advertised in the Journal to ensure that no third party says that it should own the trademark; and
4. Once that period is passed the owner is then given the option to pay for registration of the trademark with that registration lasting for 10 years.

Under the changes when you apply for a trademark you will now automatically pay one fee that will include the registration fee. The actual cost is only an increase of $200 per trademark (as at the time of applying for the trademark making it $330.00 per class that you want to register your trademark in) which is less than the fees that were in place previously for application and then registration (which were approximately $200.00 for the application and $300.00 for the registration).

It is important to note that the fees for ongoing registration have also increased by $100.00 per class.

All of this means that it is now cheaper to register a trademark but keeping it for a long time may result in larger costs over the lifetime of your trademark. It will also eliminate the process whereby business owners would go through the process and then decide not to register the trademark, ensuring that IP Australia are compensated for their work up front.

Many business owners believe that they can register their trademark themselves. However the process is more complicated then you think and making sure that it is done correctly is now more vital than ever, as if you incorrectly register your trademark and have to reapply you will lose a lot more money.

At Streten Masons we have expensive experience in assisting businesses to protect their trademark through registration in Australia and in other countries. If you would like to know more about how we can help you please contact our team on 07 3667 8966 or info@smslaw.com.au.

Do you want to lose your intellectual property should something happen to your business? Usually your intellectual property, such as, the name of your business, how you do things in your business, any patents or other intangible items of value will be lost if you lose your business. This can be a disaster for your business and all of your years of hard work could be obliterated in a heart beat.

However there are steps that you can take to protect your intellectual property. There is no point in waiting until something happens to your business that forces your hand, these steps need to be taken early on in your business. Whilst many would assume that Protecting your Intellectual Property should be in Phase 2 – Startup of the Business Legal Lifecycle what we have found is that often business owners do not want to spend the money that needs to be spent until they have a viable business.

What we are talking about here is having a separate entity own your intellectual property, your business name, trademark and the other intangibles that make your business what it is. Every business no matter what field you trade under has its own intellectual property, it is unique to that business as every person, every entrepreneur and every business owner is different. Protecting what you have built is one of the key parts of Phase 5 of the Business Legal Lifecycle.

When you undertake this step at this Phase there may be some small tax consequences however what we have found is that unless you have a large business from the start (which is the exception rather than the rule) then you do not need to undertake this step until this Phase of the Business Legal Lifecycle.

At Streten Masons we have expensive experience in assisting businesses to protect their intellectual property through a variety of different mechanisms. If you would like to know more about how we can help you please contact our team on 07 3667 8966 or info@smslaw.com.au.

The government has introduced legislation that will affect you as a small business from 12 November 2016.

The changes relate to what is considered unfair terms in standard form contracts entered into on or after the commencement date of 12 November 2016.

What is a small business?

Small business is defined for the purposes of this legislation to be a business that employs less than 20 people (including casual employees).

The new legislation will apply if any one of the parties to the contract is a small business and:

• The contract is for the supply of goods or services or the sale or grant of an interest in land; and
• The upfront price payable under the contract is no more than $300,000.00 or $1 million if the contract is for more than 12 months.

Standard form contracts

The new rules will apply to a standard form contract entered into or renewed on or after 12 November 2016 and not for existing contracts.  A standard form contract is one that has been prepared by one party to the contract, normally with little or no opportunity for the buyer to negotiate the terms.

What contracts and terms that are not effected?

• Contracts entered into before 12 November 2016 (unless renewed on or after this date)
• Certain insurance contracts
• Terms that define the subject matter of the contract, the upfront price payable and that are required or expressly permitted by a law (eg under the franchising code)

Examples of contracts which may be affected include:

• Franchise agreements;
• Manufacturing and distribution agreements;
• Business terms and conditions;
• Licence agreements;
• Service agreements; and
• Leases

What may be considered unfair?

The following terms may be considered unfair:

• Where one party (but not another) can avoid or limit their obligations under the contract;
• A term that enables one party (but not another) to terminate the contract;
• Terms that penalise one party (but not another) for breaching or terminating the contract;
• The contract can be varied by one party (but not another).

If a term is found to be unfair what happens?

The unfair term is void however the contract may continue to bind the parties provided the contract can operate clearly without the void term.

What can I do now?

It is not too late to review your contracts and think about the clauses that may be considered unfair.  Amendments can be made now for any future contracts you may enter into.  The number of employees for either your own business or business you are interacting with must now be front of mind to determine whether the party is a small business.

Now is the time to review your current contracts to ensure that any future agreements do not contain unfair terms.  If you are unsure if a term is unfair or if you have any other questions about your contract or another party’s contract that you about to enter into please contact Streten Masons Lawyers on (07) 3667 8966