Ex-employee Sets up in Competition to Coffee Roaster

Caffe Coffee (NZ) Ltd argued in the Employment Relations Authority (ERA) that its ex-employee Sune Farrimond breached the terms of his employment agreement by setting up a competing coffee roasting business. Caffe also said Farrimond had removed confidential commercial information.

In March 2014, Mr Farrimond tendered his resignation from Caffe by email. He advised “I intend on staying in the same industry, but return to a smaller boutique style of coffee roasting business.”

While still employed, Mr Farrimond incorporated a company and is one of its directors. He also purchased a coffee roaster which was not delivered until well after Mr Farrimond had left Caffe in June 2014.

In October 2014 Caffe issued a letter to Mr Farrimond telling him to “immediately cease and desist” contacting its customers or suppliers, comply with confidentiality obligations and return its records obtained while Mr Farrimond was an employee.

There was no restraint of trade in Mr Farrimond’s employment agreement to prevent him from setting up a coffee manufacturing business. Therefore Caffe relied on the employee’s implied duty of fidelity to not compete with it.

ERA member Mr Tetitaha said the law has not reached a point that the duty of fidelity includes disclosing one’s intention to simply leave and compete.

Mr Tetitaha also said he was surprised no risk assessment was undertaken about Mr Farrimond’s resignation given that he was a senior employee and that he said in his resignation he would be involved in the coffee roasting business. Mr Tetitaha took this to infer there was little or no objection to the proposed competition.

It was accepted Mr Farrimond took preparatory competitive steps with the incorporation of his company however purchasing the coffee roaster could not have triggered any competition or damage to Caffe’s business because the coffee roaster did not arrive until months after Mr Farrimond’s departure from Caffe.

Mr Farrimond was found not to have obtained commercially sensitive information or to have undercut Caffe in its dealings.

When deciding on a penalty with regard to Mr Farrimond setting up a coffee roasting company while still an employee, Mr Tetitaha considered that a penalty should only be imposed for the purpose of punishment. Mr Tetitaha said that this was a one off incident and had a negligent impact on Caffe. Therefore Mr Tetitaha held that the publication of his determination was sufficient penalty and did not award compensation to Caffe.