A decision of the Federal Court of Australia (the Court) early last year has provided support to employers who find themselves in the unfortunate position of suffering loss and damage as a result of an employee’s breach of their post-employment restraints.
In the decision of AEI Insurance Group Pty Ltd v Martin (No 4) [2024] FCA1110, AEI Insurance Group Pty Ltd (the Employer) was successful in its claim for damages against a former account manager who acted in breach of his employment agreement, which contained a number of post-employment restraints and obligations.
The Employer was an insurance broker focusing on heavy vehicle insurance and employed the employee in the position of account manager for over eleven years.
One of the employee’s key duties was to grow the Employer’s business in Queensland. In this regard, he was responsible for assisting the Employer with new business growth opportunities and the retention of current clients. He was also a key contact person for clients who had suffered collisions/incidents and where assistance was required outside business hours. In order to perform these duties, the employee’s mobile phone number (the property of the Employer) also acted as the Employer’s 24/7 emergency assistance number.
The employee’s employment agreement contained a number of post-employment restraints and obligations, including but not limited to:
On 29 August 2022, the employee provided notice of his resignation which was to take effect on 29 September 2022.
The employee initially refused to disclose his new employer but ultimately did so after the Employer took steps to revoke the employee’s access to its computer systems and divert his email address and phone number.
In response, the employee obtained a new mobile phone and number and sent a message to the contacts on his previous phone, ostensibly as he was concerned that his family and friends could not contact him in the event of an emergency.
The Court accepted the Employer’s submission that the message was actually sent only to the Employer’s clients. It accepted this submission based on direct evidence that at least three clients had received the message and in the absence of any other direct evidence that the employee’s personal contacts or other employees of the Employer had received the message.
Ultimately, the employee’s employment ended on 2 September 2022.
When the Employer became aware of the text message after the employee’s employment had ended, it wrote to the employee seeking confirmation that he would comply with his post-employment restraints. The employee’s response was that there was no basis to assert that he had been non-complaint.
From November 2022, the Employer started receiving notifications that a number of its clients had appointed a new broker – specifically, the employee’s new employer.
The Employer then took steps to write to the employee again about its concerns that he was acting in breach of his post-employment restraints and obligations. Ultimately it obtained an urgent interlocutory injunction restraining the employee from soliciting or dealing with the Employer’s clients.
Despite this, the Employer continued to lose clients as they moved to the new broker. At the final hearing of the matter, the Employer sought damages arising out of the loss of 45 clients.
On review of the evidence before it, the Court found that the majority of those clients had moved to the new broker as a result of the employee acting in breach of the non-solicitation restraints in his employment agreement. In this regard, the Court noted the following:
The Court was also prepared to come to this conclusion in light of its findings that the employee had destroyed two mobile phones after initially resisting their production at all. The Court considered this conduct in the context of the proceedings, where the employee knew that the content of such phones would provide valuable evidence, specifically of his contact with the Employer’s clients. In particular, the Court heard expert evidence that one phone had been damaged by water, another had been run over by a lawn mower and a third had been reset or had information deleted.
As to the question of whether the restraint was reasonable in all of the circumstances, the Court considered that it was reasonable. In this regard, it noted that insurance books and policies generally had a twelve-month duration and this period would have been critical for the Employer to secure its client connection following the employee’s departure. This was particularly so in circumstances where the employee was largely responsible for the growth and development of the Brisbane business and he was the person whose phone was linked to the emergency assistance line.
Ultimately, the Court assessed that damages in the amount of $500,000 would be appropriate and made orders accordingly.
The circumstances of this case highlight the importance of careful and considered drafting when it comes to employment contracts – specifically when it comes to the handling of an employer’s information and property and post-employment restraints.
Employers should ensure that such documents have adequate measures in place to protect their legitimate business interests so that they can be relied on with comfort if an employer founds itself in the unfortunate position of having to recoup loss and damage following a key employee’s departure.
It also highlights the need for prompt action to be taken by an employer when it suspects that there has been a breach of contractual obligations.
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