October 1, 2020
By: John T. Spangenberger
Trade secret law is becoming increasingly critical to businesses in the hospitality industry and, in particular, the food and beverage service and production sectors. As customers turn an increasingly curious eye towards food and beverage sourcing and production, the hospitality industry has eagerly obliged guests with chefs’ tables, cocktail classes, production facility tours, and other experiences designed to let guests in on the creative processes that fuel the industry. As the public continues to explore what has traditionally been the more secretive domain of the back-of-house, businesses may benefit substantially by understanding common traps for the unwary, outlined below, which may compromise business’s invaluable trade secrets, such as recipes, formulas, production techniques, and so forth. Three simple policies businesses can enact to protect their intellectual property include: strategically limiting access to confidential information; entering into well-tailored non-disclosure agreements; and considering non-compete agreements with certain key personnel. While some of these solutions may require involving attorneys (for example, where written agreements are required), others can be implemented by the business itself, as discussed below.
Restaurants and beverage-producing facilities, such as distilleries, breweries, cideries, and so forth often look to trade secret protection as a first line of defense in preventing competitors from acquiring confidential information—indeed, competitors may face criminal penalties for misappropriating trade secrets. Trade secret protection extends to a vast array of information, such as recipes and formulas (for example, which ingredients make up a dish, spirit, or beverage) as well as key processes and techniques, including methods of cooking, distilling, or brewing. Accordingly, it is critical for a business to ensure that appropriate procedures are in place to adequately protect their trade secrets.
Trade secret protection may be supported in a two-pronged approach: giving access to confidential information only to a designated group of employees, and requiring those employees to sign non-disclosure and/or non-compete agreements. Whereas the former prong may be accomplished by businesses independently, the latter may benefit more substantially from the advice of legal counsel.
Disclosure of trade secrets to employees should generally be restricted to a need-to-know basis to avoid accidental disclosure. For example, beverage-producing businesses offering public tours of their production facilities may wish to employ tour hosts who do not have direct knowledge of confidential information. By limiting widespread access to these trade secrets, confidential information cannot be inadvertently disclosed to guests on the tour. Tours may further be limited to times when production is not actively occurring so that guests do not observe any confidential processes or ingredients. Any key ingredients or secret, specialized equipment should, of course, not be visible or featured in the tour. As a general rule, tours should be conducted as though the tour group consisted of a business’s direct competitors.
Similarly, in the food-service industry, restaurants and bars may wish to avoid sharing trade secrets with employees who interact directly with customers. Key ingredients, such as seasoning blends and cocktail syrups, may be prepared in advance in the back-of-house by a designated employee having knowledge of a recipe and otherwise kept secret from the kitchen staff or bartenders responsible for preparing the dish or cocktail. Similar to the guidance above, ingredients commonly known to employees should only be the ingredients that would be shared with a direct competitor—knowledge of any key ingredients that one would not want to share with a competitor, by contrast, should be restricted to designated employees. For an added layer of protection, a non-disclosure agreement (NDA) may be entered into with the employee, preferably with the advice of legal counsel.
An NDA identifies confidential information that an employee may become aware of in the course of a business relationship, and establishes the duties that the employee has to the company to maintain the secrecy of the confidential information. Although general, “one-size-fits-all” NDAs are rising in popularity, employers are often better served by working with an attorney to tailor an NDA to a specific relationship with an employee.
An initial step in drafting a tailored NDA is to take an inventory of what confidential information an employer wishes to keep secret and include in the NDA. Employers benefit from this stock-taking by actively identifying where efforts should be directed to maintain confidentiality. Employees will also be better equipped to protect the confidentiality of trade secrets if they understand exactly what needs to be kept confidential. Narrowing in on what information should be kept confidential is also simply a practical matter in an industry where trade secrets often make up a small portion of a food or beverage—there is little surprise in learning that a dish contains salt, or that a gin contains juniper, for example—and NDAs are most effective when employees understand exactly what information should be kept secret.
In more limited circumstances, employers may consider entering into non-compete agreements with employees. Non-compete agreements vary by state, but typically limit an employee’s ability to work for an employer’s competitors for a limited time and in a limited geographic area after employment ends. In Massachusetts, for example, non-compete agreements are typically limited to one year and generally extend only to geographic areas where the employee provided services. Non-compete agreements often impose onerous requirements on employers, however, and may be difficult to enforce. For example, in Massachusetts, employers must agree to pay a departed employee 50% of the employee’s salary for the duration of the non-compete period. Furthermore, employers cannot enforce non-compete agreements against employees who are terminated without cause or laid off—a particularly acute concern during the current economic downturn disproportionately impacting the hospitality industry.
While non-compete agreements can serve a useful function for particularly critical employees, such as head chefs or master distillers, they are rarely a first line of defense in maintaining trade secret confidentiality, particularly because they are often inherently limited in duration. Given the complexity of NDAs and non-compete agreements, businesses are usually best served by consulting legal counsel in preparing such agreements.
Customers in the hospitality industry are increasingly demanding to “see behind the curtain” of how food and beverages are sourced and prepared. Many businesses are eager to oblige their customers’ interests by displaying their creative ingenuity, and significant room exists for businesses to share their creative process provided that a handful of steps are taken to ensure that trade secrets remain secret.
Critical information should be shared on a need-to-know basis to avoid inadvertent disclosure, particularly where employees are responsible for sharing certain details of how a food, beverage, or ingredient is prepared—a common scenario in the case of servers, bartenders, and tour hosts, for example. Businesses are often capable of implementing these measures independently (though legal counsel may be beneficial) by deciding in advance how information should be shared, as discussed above.
Where an employee is exposed to confidential information, a non-disclosure agreement should be prepared and tailored to the employee relationship by identifying exactly what information is considered confidential information. In more limited circumstances, a non-compete agreement may further strengthen trade secret protection by limiting an employee’s ability to work for a competitor for a certain time after an employment relationship ends. In either case, it may be particularly beneficial to consult legal counsel in preparing such agreements. Together, these three simple actions can help protect recipes and techniques while still satisfying customers’ interests in engaging with the creative processes underlying the hospitality industry.
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