Employee guilty of breaching contract

By Kate Tilley

The Federal Court has found an account manager guilty of breaching their employment contract after they moved to a rival insurance brokerage.

Craig Martin, a former account manager at AEI Insurance Group, who spent 11 years with AEI before defecting to a rival broker, was ordered to pay $500,000 in damages for breaching a non-solicitation clause.

Justice Thomas Thawley said Mr Martin was employed by heavy vehicle insurance broker AEI from July 2011 to September 2022 to grow the business in Queensland.

He said Mr Martin was “adept at assisting clients when their vehicles were involved in accidents, in arranging repairs and in assisting with claims”.

Although he had no formal insurance broking qualifications, Mr Martin understood clients’ needs and was “in practical terms the face of AEI’s business in the Queensland market”.

Post-employment constraints

Mr Martin resigned in August 2022 and eventually told AEI he was moving to a direct competitor, Brisbane-based MA Insurance Brokers Pty Ltd.

By 5 September 2022, AEI learned that Mr Martin had sent an SMS to at least one of its clients informing them of his new phone number. AEI wrote to Mr Martin requesting that he comply with the post-employment restraints in his written employment contract, return all AEI property, and delete all AEI client contact details.

On 8 November 2022, AEI launched Federal Court proceedings and the next day an interlocutory injunction was granted that restrained Mr Martin from soliciting AEI’s clients.

Justice Thawley said AEI’s income in the year to 28 August 2022 from 45 AEI clients that moved to MA Brokers was $752,978.07.

He said much of AEI’s case about its ex-clients was circumstantial and it “encountered significant challenges” in securing evidence to establish its case.

AEI sought to obtain information from Mr Martin’s mobile phones but, when it obtained an Oppo AX5 that had been issued to him, it had been reset and water damaged so no information could be retrieved from it.

Messages deleted

A second phone Mr Martin bought on 31 August 2022, “met with the unhappy fate of being run over by a lawn mower on 4 December 2022, five days after the court had made an order for discovery”.

A third mobile phone was eventually discovered, but call logs and messages from before 24 February 2023 had been deleted.

Mr Martin’s contract included that he return a mobile phone and not copy any business-related or confidential information from it if he ceased employment. The 12-month restraint clause said he could not engage in any business or activity the same or similar to or in competition with AEI. Nor could be “solicit, canvass, deal with or approach or accept any approach from any” AEI clients.

Mr Martin did not give evidence in the trial, but his affidavit said he got a new mobile phone because he was concerned family and friends could not contact him in an emergency and he had informed them of his new number via a text message on 1 September 2022.

Justice Thawley said he inferred that the message went only to AEI clients as there was no evidence it went to AEI employees or Mr Martin’s personal contacts.

There was evidence some of the ex-AEI clients’ letters of appointment for MA Brokers were in Mr Martin’s handwriting.

Justice Thawley said Mr Martin’s actions in destroying or hiding evidence “reflects incredibly poorly” on his credit.

File notes admitted

He rejected AEI’s bid to include a Microsoft Word table showing responses from ex-clients about their decision to change brokers because it was obviously prepared in contemplation of the court action.

However, he admitted into evidence AEI’s file notes made after they contacted clients who had signed letters of authority with alternative brokers, including MA.

Justice Thawley said it was “more likely than not that Mr Martin solicited each of these clients, either directly or by procuring MA Brokers to solicit the clients”.

There was no evidence clients were motivated to move for any reason apart from contact from Mr Martin, and some had been with AEI for many years.

Justice Thawley said the stream of AEI clients moving to MA Brokers suggested larger clients were targeted first.
“AEI is not entitled to be protected against mere competition from Mr Martin. In particular, Mr Martin is entitled to use to the full his personal skill and experience.

“However, AEI is entitled to be protected against unfair competition based on the use by Mr Martin, after his resignation, of aspects of the customer connection he developed for AEI during his employment. The principal interest AEI sought to protect was its customer connections. This was a legitimate interest for protection.”

Damages assessed

Justice Thawley said 12 months was “a reasonable restraint” and not contrary to public policy”.

He calculated AEI’s upper limit of losses for the 45 clients over 12 months at $617,282.

He assessed damages at $500,000 because some clients that moved may not have been solicited by Mr Martin; the retention rate across the 45 clients may not have been as high as 97.5%; and it was impossible to know which clients may have left regardless.

Justice Thawley made no award for ongoing or future losses. After 12 months, Mr Martin would be free to solicit AEI’s clients and there was no evidence AEI employed a person with Mr Martin’s “quite specific and somewhat unusual set of skills”.

In a commentary on the case, Colin Biggers & Paisley (CBP) Lawyers said the decision reinforced the current legal approach to non-solicitation clauses, but the ground may be shifting.

On 4 April 2024, the Australian Government's Competition Taskforce released an issues paper, Non-competes and other restraints: understanding the impacts on jobs, business and productivity.

CBP said the decision reinforced established principles but could be “the last gasp of an outdated approach”.

AEI Insurance Group Pty Ltd v Martin [2024] FCA 1110 (24 Sept 2024)