Artisan Spirit: Summer 2016

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NON-COMPETE AGREEMENTS FRIEND OR FOE? BY MARC E. SORINI AND ANNE D. HARRIS

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ith the boom of craft distilleries, competition is everincreasing. If you’re thinking about going into the distillery business or you already have, undoubtedly you have considered how you can best protect your products, recipes, methodologies, and distribution from imitation or recreation. The sale and manufacture of craft spirits creates a unique set of issues and considerations. As the owner of a craft distillery, you may worry that your head assistant may take employment with another craft distiller. If confidential information he or she knows is disclosed to third parties, it can lead to financial problems if a competitor gets access and ruins the unique elements of your product or business practices. Indeed, panic may set in when an employee announces that he or she is leaving to start their own business or join a competitor. What would happen if he or she uses the recipes that you have cultivated on your own or what if your top salesperson goes to work for a competitor and exploits the contacts you have made and the knowledge they have gained while working for your company? Some employers have considered the use of restrictive covenants such as non-competition or non-solicitation agreements to bar employees from impacting their business after that employee is no longer employed by the company.

RESTRICTIVE COVENANTS No one wants to prevent someone from earning a living, and that is not the point of entering into a well-drafted non-compete or non-solicitation agreement. To the contrary, restrictive covenants seek to protect your company after you have invested in certain employees by providing them with confidential information and business knowledge relating specifically to your company. In particular, a non-compete provides a limitation for a specific period of time on the area and type of work they may perform after the business relationship with your company has ended. Similarly, a non-solicitation agreement may restrict an employee for a set period WWW.ARTISANSPIRITMAG.COM

Marc E. Sorini is a partner in the law firm of McDermott Will & Emery LLP, based in the Firm’s Washington D.C. office. He leads the Firm’s Alcohol Regulatory & Distribution Group, where he concentrates his practice on regulatory and litigation issues faced by supplier-tier industry members. His practice for distillers includes distribution agreements, distribution counseling and litigation, product formulation, labeling, promotional compliance, compliance strategy, and federal and state tax and trade practice enforcement defense.

of time from soliciting customers of the company or employees who still work for the company.

SO WHY DOESN’T EVERYBODY USE NON-COMPETE OR NON-SOLICITATION AGREEMENTS? Although a non-compete or a non-solicitation agreement ALTHOUGH A may be appropriate in some NON-COMPETE OR employment relationships, A NON-SOLICITATION it isn’t quite as simple as having an employee sign the AGREEMENT MAY agreement. The agreement BE APPROPRIATE IN must be enforceable. So SOME EMPLOYMENT what does it mean to make a non-compete or nonRELATIONSHIPS, IT ISN’T solicitation enforceable? QUITE AS SIMPLE AS Unfortunately, there is no HAVING AN EMPLOYEE single clear answer because restrictive covenants are SIGN THE AGREEMENT. governed by different laws in THE AGREEMENT MUST different states, and agreements BE . that are poorly drafted are likely to be found unenforceable if the employer ever tries to bring the former employee to court to try and enforce the noncompete or non-solicitation agreement. While there is no “one size fits all” restrictive covenant, there are some general concepts that the majority of jurisdictions require in order to hold a non-compete or non-solicitation agreement enforceable.

ENFORCEABLE

Reasonably limited in duration and geographic scope. The

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