The Federal Court of Australia has ordered a former insurance account manager to pay $500,000 in damages for breaching a non-solicitation clause. Craig Martin (Martin), a former account manager at AEI Insurance Group (AEI), was found to have breached the clause after leaving the company. This decision, which upheld a 12-month non-solicitation clause as enforceable, comes as the Australian Government reviews the impact of such restraints on job mobility and innovation.

The Federal Court of Australia has recently handed down a decision that ordered a former insurance account manager to pay $500,000 in damages for breaching a non-solicitation clause. The case, AEI Insurance Group Pty Ltd v Martin [2024] FCA 1110, comes at a crucial time as the Australian Government continues to consider whether non-compete clauses might be restricting workers from switching to better-paying jobs and hampering job mobility and innovation. 

At the heart of the case was a 12-month non-solicitation clause in Martin's employment contract. Justice Thawley ruled that the clause was enforceable, emphasising that while AEI isn't entitled to protection against mere competition, it does have a right to shield itself from unfair competition based on customer connections developed during employment.

This decision aligns with established principles in Australian law. In Dean Reeves [2006] NSWSC 449, the court recognised an employer's legitimate interest in maintaining customer relationships when a particular face of the enterprise moves companies. Similarly, in Wilson Parking Australia 1992 Pty Ltd [2008] FCA 1601, a restraint was enforced to protect confidential customer information.

Craig Martin, described as the "face" of AEI Insurance Group's Queensland business, resigned in August 2022 after 11 years with the company. Within days of his departure to competitor MA Brokers, Martin sent text messages to AEI clients with his new contact details. What followed was a mass exodus of clients, with 45 eventually moving their business to MA Brokers.

AEI's attempts to gather evidence were met with a series of unfortunate events. One of Martin's phones was unfortunately "immersed in water," another " was run over by a lawn mower," and a third suspiciously had no logs or messages retained on it. The court concluded that these steps were undertaken with a view of frustrating AEI in its attempts to obtain information from the mobile telephones.

The court's approach to non-solicitation clauses hinges on several key factors:

1. Legitimate business interest: As seen in this case and others like Miles v Genesys Wealth Advisers Ltd [2009] NSWCA 25, courts will uphold clauses that protect genuine business interests such as customer connections or confidential information. The clause must be drafted in a way that reflects this.

2. Reasonableness: The restraint must be reasonable in scope, duration, and geographic area. The 12-month period in Martin's case was deemed appropriate given the nature of the insurance industry.

3. Customer connections: Employers can protect relationships with customers, but not ownership of customers themselves. This principle was highlighted in Wallis Nominees (Computing) Pty Ltd v Pickett [2013] VSCA 24.

4. Employee's role: The court considers the employee's position and level of influence over customers. Martin's role as the "face" of the Queensland business was significant, echoing the "human face" concept discussed in Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717.

5. Evidence of solicitation: Direct evidence isn't always necessary. The court can draw inferences from circumstances, as it did with Martin's suspicious phone issues and handwriting on client transfer documents. This approach is consistent with Barrett v Ecco Personnel Pty Ltd [1998] NSWCA 30, where solicitation was found to extend to circumstances where a client initiates contact, provided the employee is the primary "mover" for the action.

While AEI v Martin reinforces the current legal approach to non-solicitation clauses, the ground may be shifting. 

On 4 April 2024, the Australian Government's Competition Taskforce released an Issues Paper titled "Non-competes and other restraints: understanding the impacts on jobs, business and productivity" as part of its Competition Review.

This Issue Paper sought feedback on various aspects of employment restraints, including non-solicitation clauses, and their effects on the Australian economy. It raises questions about whether the current common law approach strikes the right balance between business interests, worker mobility, and overall economic dynamism.

The review also explores international approaches, such as bans or strict limitations on these clauses in some countries, as potential models for reform in Australia. This global perspective reflects growing concerns about the impact of restrictive covenants on labour market flexibility and innovation.

As the debate continues, both employers and employees should consider restraints in their contracts and should stay up to date with reforms in this area.

AEI v Martin serves as a reminder for employees of the potential consequences of breaching non-solicitation clauses. 

For employers, this underscores the importance of carefully drafting these clauses to ensure they are enforceable. 

With the Australian Government's review underway, the future of non-solicitation clauses in Australia remains uncertain. 

As Australia grapples with balancing business protection and economic dynamism, the $500,000 lesson for the former employee serves as a compelling reminder of what's at stake. Whether it represents the reinforcement of established principles or the last gasp of an outdated approach remains to be seen. One thing is certain: the debate over non-solicitation clauses is far from over.