In a recent decision the Federal Court ordered an injunction until final hearing to restrain a former insurance account manager from soliciting the clients of his former employer, and to not use confidential client contacts and client lists that were obtained in the course of his employment.
The Facts
A heavy motor transport insurance broker, AEI Transport, employed Mr Martin as an account manager. In his position Mr Martin had access to client details, developed close relationships with clients, and was made aware of business opportunities. He was provided with a mobile phone and laptop computer and was able to log into AEI’s client management system. He was paid a relatively sizeable base salary.
His employment contract included a carefully worded clause restraining the employee from (amongst other things) soliciting the business of persons who had been AEI clients or customers in the 12 months before the employment ended and with whom he had dealings or influence over.
The contract provided for alternative restraint periods up to 12 months. It also included protections for AEI’s confidential information.
He resigned and eventually said he would be working for a competitor.
After his employment ended he sent text messages to former clients with whom he had dealt while employed, advising them of his new telephone number. He made introductions to other personnel at his new employer (the competitor). Some clients shifted their business to his new employer.
AEI commenced proceedings in the Federal Court seeking interlocutory restraining orders.
The Decision
The Court was satisfied, for the purpose of issuing the injunction, that Mr Martin had breached his employment contract by:
- either directly or indirectly approaching or dealing with clients of AEI with whom he had dealt while employed at AEI with a view to obtaining the business of that client for MA Insurance Brokers; and
- by using confidential information – client lists and contact details – which he obtained while employed at AEI, to the same end.
The Court said it was open to infer that even where someone else from his new company contacted the AEI client, that was done as a result of the actions of Mr Martin and was an indirect dealing or approach by him.
The Court was also satisfied that AEI had sufficient case for issuing an injunction, that the restraint clause it was relying upon was reasonable to protect its legitimate interests and therefore valid.
The Court found that damages was not an appropriate remedy because of the inherent difficulties in detecting breaches of restraint obligations and in calculating the amount of damages.
It also found that AEI would suffer a significant disadvantage if Mr Martin were not restrained from further breaches as the evidence established (prima facie) that it has already lost the business of a number of clients and the loss of clients may otherwise continue.
Implications for Employers and Employees
Crucially the employment contract included a properly written employment restraint clause that the Court was prepared to enforce. This was important because a Court may refuse to enforce a clause that is wider than is necessary to protect the employer’s legitimate interests.
Some implications for employers are:
- Employment restraint clauses can be very effective to protect the employer’s business, so long as they are worded properly.
- Properly worded restraint clauses are worth the paper they are written on!
Some implications for employees are:
- To fully understand the terms of their employment contract and any restraint clauses, before signing it.
- If the contract has already been signed, to understand the extent of any risks arising from a restraint clause, even after the employment has ended.
Many of the same considerations also apply to restraint clauses in contractor agreements.
Some more information is available here or you can book online for an initial no-obligation chat about reviewing an employment contract or contractor agreement.
* AEI Insurance Group Pty Ltd v Martin [2022] FCA 1384