Can Employers Terminate Employees for Taking on Secondary Employment with a Competitor?

In a recent decision, the Fair Work Commission (FWC) ruled that World Gym Prospect (WGP) unfairly dismissed fitness instructor Mr Michael Franklin after he accepted secondary employment at a competing World Gym franchise. The FWC found that WGP’s decision to reduce Mr Franklin’s shifts in response to his new role did not constitute a valid reason for termination, and the dismissal was deemed harsh, unjust, and unreasonable.

Facts

WGP is part of the World Gym Australia franchise network, which offers gym memberships and fitness classes.

Mr Franklin began working at WGP on 24 August 2020. He was hired to deliver various group fitness classes.

In March 2024, Mr Franklin was approached by a new World Gym franchise located about 10 kilometres away from WGP, offering him the opportunity to teach back-to-back double classes on Wednesdays and Saturdays. Mr Franklin accepted the offer, as he was only teaching single classes on Wednesdays and Saturday at WGP (as well as three classes on Mondays). He stated that had WGP offered him similar back-to-back double classes, he would not have accepted the competing franchise's offer.

When Mr Franklin informed WGP of his new role with the competitor, he notified them that he would no longer be able to teach on Wednesdays and Saturdays at WGP but expressed his willingness to continue his Monday evening classes.

Mr Franklin provided that it was common in the fitness industry for instructors to work across multiple gyms, and Mr Franklin did so during his time at WGP, teaching at four other gyms.

However, WGP was dissatisfied with his decision to take on work at a competitor and decided to stop offering him any classes at all, effectively ending his employment. As a result, Mr Franklin filed an unfair dismissal claim with the FWC.

Mr Franklin also made social media posts which were critical of WGP’s conduct.

WGP initially raised a jurisdictional objection, arguing that Mr Franklin was an independent contractor rather than an employee, but this objection was rejected in an earlier decision of the FWC.

Decision

The FWC acknowledged that WGP was permitted to adjust its timetable, which could result in a reduction of Mr Franklin’s classes.

The WGP Club Manager, Mr White, gave evidence that he used the opportunity of Mr Franklin relinquishing the Wednesday and Saturday classes to replace the classes with other classes that did not attract as high a licence fee, which Mr Franklin was not qualified to teach. It was within WGP's rights to make such changes under the terms of their arrangements.

Rather, the issue arose when WGP decided not to retain Mr Franklin’s services, particularly after he took on the new role at the competing franchise. Mr White expressed concerns that WGP members might transfer to the new franchise, where Mr Franklin was now teaching on Wednesdays and Saturdays. While a number of members did indeed transfer, there was no evidence to suggest that it was Mr Franklin’s employment at the new franchise that led to this shift in membership. It was just as likely that the new location was more convenient for members than WGP’s location.

The FWC observed that Mr White’s sensitivity to the competing World Gym franchise opening 10 kilometres away from WGP seemed to stem from a belief that the two businesses were direct competitors. While it was understandable for Mr White to be concerned, this was not a valid reason to dismiss Mr Franklin, particularly since it was common practice in the industry for fitness instructors to work across multiple gyms and there was no clause in Mr Franklin’s contract prohibiting him from working for a competing franchise.

The FWC was also critical of the decision to dismiss Mr Franklin because:

• WGP did not consider alternatives to dismissal before reducing Mr Franklin’s shifts;
• Mr Franklin was not made aware that working for a competing franchise could lead to dismissal; and
• The dismissal had a harsh impact on Mr Franklin, both financially and professionally.

Accordingly, the dismissal was found to be unfair and WGP was ordered to pay Mr Franklin the gross sum of $1,760 plus superannuation.

Take Home Messages

It is common and understandable for employers to be concerned about employees working multiple jobs for a range of reasons, including the risks to the employee’s health and safety, and the security of confidential information and intellectual property. There are, however, many industries where this is the norm, including the fitness industry.

Employers who are concerned about employees holding secondary employment should consider including restrictions in employment agreements and/or introducing secondary employment policies requiring, for example, the disclosure of additional jobs and ensure that those employees are monitored, to ensure the secondary employment is not impacting upon the primary employment.

This case also serves as a clear reminder to employers about the importance of ensuring that decisions regarding employee termination are based on valid reasons, handled with procedural fairness, and thoroughly considered before taking such actions.

Should you wish to discuss the matters raised in this article, please contact Lincoln Smith on +61 8 8210 1203 or lsmith@normans.com.au, Annabelle Narayan on +61 8 8210 1292 or anarayan@normans.com.au, or Shivani Gandhi on +61 8 8210 1227 or sgandhi@normans.com.au.