Skin wars a warning to all franchisees

By Nick Hall | 31 Jan 2019 View comments

Experts are calling the bitter legal dispute between a Queensland-based skin technician and her former employer a stern warning of the importance of franchisee protection and enforceable restraints.

On Monday, The Courier Mail reported that North Lakes Australian Skin Clinics (ASC) franchisee Joe Chih-Tsai Yang had filed a claim in the Supreme Court against former employee and cosmetic nurse Susan Kent.

According to the report, Chih-Tsai Yang alleged that her former employee had assured her that she would not work for a competing business after tendering her resignation, however began employment with rival franchise Laser Clinics Australia (LCA) within three weeks.

To make matters worse, Kent’s new workplace is located in the same Westfield North Lakes complex.

Chih-Tsai Yang claims that Mrs Kent’s contract barred her from soliciting former clients, however The Courier Mail report suggests a breach was made when Kent contacted them via text-message, offering them appointments.

While the situation is unique in circumstance, Brenton Allen from MST Lawyers said issues relating to restraint clauses, such as those seen in Mrs Kent’s contract were indeed a common problem faced by many franchise owners.

“A restraint clause is a common feature in employment agreements prepared by HR/employment lawfirms. Typically, they aim to prevent an employee from carrying out certain activities (e.g. working for a competitor, soliciting clients or poaching employees) during and after the cessation of employment,” Allen told Inside Franchise Business.

“The criticism often faced by employers trying to enforce a restraint relates to its temporal and geographical parameters (if any) and the definition of a ‘client’. Often, we see non-competition clauses that are worded so broadly they have the effect of preventing a Melbourne-based employee from working in the same profession in a different country indefinitely. As a general rule – the narrower the restraint, the more likely it is to be enforceable.”

Robert Toth, partner at Marsh & Maher Richmond Bennison agreed, stating an increase in accessible information made the task of protecting client bases all the more difficult.

“It is a difficult issue for business generally these days due to the ease employees can access that information,” Toth said.

“It raises all sorts of issues such as employee’s breach of their fiduciary duties and their contract whilst an employee.”

Toth also revealed that the concerns don’t lie singularly with the former employer, suggesting all employers and franchisees should take careful consideration of a worker’s clientele during the onboarding process, or risk penalty.

“If they have taken and used confidential information of their previous employer and provided it to their new employer, the new employer may be sued for damages,” he said.

“The former employer could seek injunctive orders as well as seeking “Anton Pillar” orders (injunctive orders) to enter the new employers premises and take the confidential information. It can also amount to a breach of copyright if the employee has taken for example the training manuals of the previous employer.”

Client-base concerns are preventable however, with Allen providing four key preventative measures franchisees can undertake to protect their clientele.

“Firstly, engage a specialist employment lawyer to draft an employment agreement containing meticulous restraint of trade provisions. These should be tailored to the circumstances of each individual employee,” Allen said.

“Secondly, consider what IT security systems are in place to trace access to your client information and to trace deletion of materials. For instance, monitor cloud activity (e.g. Dropbox), external device activity (e.g. USB), printing and emails such that if there are any suspicious activities (e.g. copying of clients’ information to an USB), you are able to identify the user. It will also be useful as evidence at a court proceeding.”

“Thirdly, when the employee ceases employment, you should send a letter to remind the employee of his/her continuing obligations despite cessation of employment (e.g. obligation not to solicit clients). Additionally, you should send a letter to the new employer (if known) to notify them of the former employee’s continuing obligations and to put them on notice of the legal ramifications that may arise if the new employer assists the former employee to breach their obligations.”

“Finally, if the former employee and/or the new employer continue to solicit clients, legal proceedings may be an option.”

Both Toth and Allen agreed that extensive legal advice, both from the franchisor and from an independent legal representative was critical in remaining compliant and protected throughout operation.

Neither LCA or ASC were available for comment on the impending legal proceedings, which is set to appear before the courts later this year.