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Experts advise craft breweries on avoiding legal pitfalls

SHERRY KARABIN
Legal News Reporter

Published: June 22, 2017

It’s been over two years since Sean Kennedy and several other family members first decided to start a craft brewery.

“My brother and two cousins had been talking about opening a family business and some vacant space became available because my other business (Technology Recovery Group) moved to a larger space,” said Kennedy, co-owner of Sibling Revelry Brewing in Westlake. “We talked about what we wanted to do and we settled on craft beer.”

While they began planning in March 2015, it took about a year to make their dream a reality.

“We were concerned that we did not know enough about the craft beer industry and that it might be too saturated,” said Kennedy.

Indeed the number of craft breweries has increased substantially in Ohio since 2011 when the state had less than 50. According to Mary MacDonald, executive director of the Ohio Craft Brewers Association, there are now approximately 220 such businesses operating in the state.

In the case of the Kennedy family, they spent time visiting breweries all across the country, developing a solid business plan.

“We even hired a consultant to give us an analysis of the market in Northeast Ohio before making the investment in the brewery,” said Kennedy.

“We did a lot of research about how to successfully take our product concept to market and we hired a brew master and a director of sales.”

The family also retained Brouse McDowell’s Litigation Practice Group Co-chair Michael O’Donnell to gain a better understanding of the risks and to mitigate any potential liabilities.

“A lot of breweries are having problems retaining employees,” said O’Donnell. “Given the nature of the business, an owner does not want to risk an employee leaving, joining the competition down the block and taking the brewery’s recipes with him.

“These beer recipes are essentially the same as a trade secret,” he said. “We are seeing a rise in the number of lawsuits between employees and breweries over stolen recipes and violations of non-compete agreements.”

To help Kennedy and his family avoid becoming a statistic, O’Donnell said he advised them to have their employees sign a non-compete agreement.

“Without revealing the specific nature of Sibling Revelry’s agreement, non-compete agreements usually remain in effect for one to two years and cover a specific geographic region,” said O’Donnell. “They are designed to prevent an employee from either going to work for a competitor or starting his own business in your market and using your recipes.”

Roetzel & Andress partner Joseph Ruscak, said any employer that deals with highly sensitive information or specialized products should require employees to sign non-compete and confidentiality clauses.

“I represent several tire manufacturers that use proprietary chemical compounds to make their tires,” said Ruscak. “While you cannot stop employees from taking knowledge with them, you can prevent them from taking your specific recipe with them.

“They may know how to make the product, but they can’t use your exact formula.”

Ruscak, who represents Thirsty Dog Brewing Company, said employment agreements that include confidentiality and non-compete clauses are key to avoiding problems in the craft beer industry. 

He said employers must also verify an employee’s age and make sure that employees are eligible to work in the various areas of the brewery.

“An employee must be at least 18 to handle closed containers as found in the packaging area and must be 21 years of age to work in service areas such as the tasting room,” said Ruscak. “Failure to comply can result in violations of State of Ohio liquor laws regarding the handling of open and closed containers.”

In the case of Sibling Revelry, the business includes a taproom.

Kennedy said all employees are required to undergo background checks and extensive training to ensure that they know how to handle a patron who becomes intoxicated.

“We have a policy that anyone who has had too much to drink can leave their car in the parking lot and it will be there in the morning,” said Kennedy.

“We also have rules for our employees regarding drinking,” he said. “Even if the employee is over 21, they are not permitted to drink alcohol while on duty except if they are sampling the product as part of their official job duties, and it’s a sip, not a bottle.”

Those are not the only measures the Kennedy family took to ensure the success of their business. To help avoid turnover, he said the family pays its full-time staff above the industry standard and offers health insurance, paid time off and even the option of a 401(k).

Together these rules and policies have helped Sibling Revelry to retain employees and avoid lawsuits.

MacDonald said the Ohio Craft Brewers Association offers its members educational opportunities, including those designed to keep them abreast of overtime regulations and trademark issues. 

“Our legal and other allied members have provided PowerPoint presentations and webinars on those topics and others,” said MacDonald.

Stephanie Harley, a partner in the Employment and Labor Group at Ulmer & Berne, was asked to speak to members in November 2015 during one of the nonprofit organization’s meetings, which was held at the Platform Beer Co. in Cleveland.

Entitled “From Hiring to Termination – How To Maximize Your Employee’s Potential and Minimize Your Liability Under Employment Laws,” Harley said she discussed everything from how to find the right candidate for the job to following the laws pertaining to compensation and overtime.

“We also talked about how to handle harassment and discrimination complaints and how to lawfully terminate someone,” she said.

While Harley said craft breweries face many of the same employment law challenges as other companies, she said drinking on the job is one issue that impacts breweries more than other industries.

“Although drinking while working is a concern for all businesses, employees at craft breweries often end up sampling the product that they are selling,” said Harley, who works out of the Cleveland office. “As a result employers need solid policies in place that address how much alcohol an employee can consume while working and under what conditions. Employees also need to be trained so that they understand the policies.”

O’Donnell predicts that the number of lawsuits filed over employment disputes is likely to rise as more craft breweries spring up in the state.

“With the ever-increasing number of craft breweries being established across Ohio, those employees with experience in the business could become a target to be recruited away from their current employer which, in turn, may lead to a rise in the number of non-compete cases being filed,” said O’Donnell.

“Accordingly, any brewery, and for that matter any employer who has employees that have access to trade secrets or other confidential or proprietary information, should take the necessary steps to safeguard its assets.”


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