Ask a Beverage Attorney: Protect and Serve

You may remember Ryan from my previous column, as the head brewer and owner of Slapstick Brewing Company. Ryan spent hours perfecting the recipes and processes for making Slapstick’s craft beers. More than half of his creations won national and regional awards. His assistant Melissa has been with the brewery for three years and is a key part of the beer production team. In fact, the two biggest selling beers were ones for which she actually developed the recipe.

Panic set in, however, when Melissa announced that she would be leaving to start her own brewery with her sister. What would happen to Ryan’s business with the recipes he crafted for the brewery still in Melissa’s head? Would she take her beer recipe for the two top sellers with her? Brand consistency is essential to a business. Visions of the crisis that enfolded when Coca-Cola tried to change its formula went through his head.

His first call was to his craft beverage attorney. The attorney asked him to bring his personnel files and employee handbook with him so they could review them together.

Recipes are Trade Secrets

Ryan was not much of a paperwork person, but remembers the papers that the attorney drafted for all employees to sign when they were hired. Luckily, signed copies were in the file, so he brought them along with the employee handbook to the meeting. After reviewing the papers, his attorney assured him that he was in a good position and should not worry. Ryan had taken the necessary steps to maintain the secrecy of the beer recipes. The computer files were password-protected, housed in a locked office, and shared only on a “need to know” basis. Volunteers at the brewery and tasting room personnel were not privy to the details of brewing operations. The attorney explained that Ryan’s efforts to keep recipes confidential, combined with his use of written agreements, were key factors a court would consider if he had to make a claim of trade secret misappropriation.

The attorney showed Ryan a document from the personnel file titled “Nondisclosure, Non-compete, and Intellectual Property Assignment Agreement” which obligated the signing party to keep the matters she knows confidential, and prevents sharing that information with others or using the information to benefit any other person or business. The confidentiality clause included any recipes that existed before Melissa was hired and any recipes created during her tenure. The bottom line: Melissa could work for a competitor or start her own brewery, but she could not disclose or use the trade secrets or confidential information she learned while working for Slapshot Brewing. This obligation could last forever — so long as the information remains a trade secret and confidential. The non-competition clause would also require Melissa to locate her brewery at least 50 miles from Slapstick Brewing, and she could not open a branch office or tasting room closer than that for at least two years.

The attorney explained that the law would not allow him to prevent Melissa from earning a living, but it would protect his business’ legitimate interests. As long as the agreement was reasonable in terms of the area and the length of time, and not unduly burdensome to Melissa’s ability to earn a livelihood, it would be enforceable. The two year timeframe and designated area where the business has an active market presence and sales portfolio (50 mile radius) would be readily enforceable if ever necessary. The agreement also included a non-solicitation clause to protect Ryan from preventing a departing employee from “poaching” other employees or otherwise encouraging them to leave and join her at her new start up brewery.

The agreement also included a clause about intellectual property assignments. The handbook and employee agreement stated that that all recipes and processes developed for and by the business are property of the business, and that employees who develop recipes or processes are required to irrevocably assign all rights in this intellectual property to the company.

Exit Interviews

Ryan was relieved that he had taken preventative steps to protect his business. His attorney advised him to conduct an exit interview with Melissa to review the contractual obligations upon her departure. He should also have her sign an agreement that she understands her continuing obligations, as well as require her to surrender any company documents and property in her possession before she leaves, including recipe and brewing notes and books.

Protect Yourself Now, For the Future

As craft breweries and distilleries continue to grow and evolve, competition is inevitable. To protect their interests, brewers and distillers must consider confidentiality agreements, non-competition agreements, and assignments with those who have access to sensitive proprietary information. These simple agreements can prevent recipes from walking out the door.

As is the case with Ryan, following the successful exit interview, Melissa departed on good terms, leaving the door open for future collaborations between the two parties.