Poached

Earlier this week I was listening to Mark Gillespie’s excellent WhiskyCast podcast, and his interview with Lagavulin distillery manager Georgie Crawford.  Toward the end of the interview, Georgie mentioned that – despite the fact that Diageo is known to rotate its distillery managers around from time to time – she very much hoped she’d be able to stay at Lagavulin for years to come.   Such dedication to place and vision is remarkable.  But it is becoming less common.

Recently, I’ve heard from several DSPs that their distillers and skilled distillery staff are being increasingly targeted for hire by competing businesses.  To a certain extent, this shouldn’t be surprising since according to a recent study sponsored by the American Craft Spirits Association there are now more than 1,300 craft distilleries operating in the United States (generating more than $2.4B in retail sales in 2015).  The industry is growing – and with that growth comes the need for experienced and skilled employees in all phases of the business.  So what should a DSP do if it wants to keep its staff in place and isn’t fortunate enough to have Ms. Crawford (and others like her) clamoring to stay?

Increasingly, spirits industry participants are turning to the use of noncompetition agreements to try to stem the tide.  In simple terms, these agreements typically prevent an individual from entering into competition with her former employer for a period of time following the termination of the employment relationship.  If the individual does something that violates the agreement, she may be liable for money damages to the employer and the employer may be able to get injunctive relief (i.e., may be able to get a court to force her to stop competing).  In some cases, the employer may even be able to get damages from her new employer if that business was aware of the noncompetition obligation.  Sounds good, right?

Perhaps.  But before you go down this path, you need to be mindful of a few things.  First, in those states which permit the enforcement of noncompetition agreements, the restrictions on competition generally need to be reasonable in scope.  Most commonly, that means thinking about the nature of the work covered by the agreement, the geographic region in which the individual will be prohibited from competing and the length of time that the noncompetition obligation will last.  If it isn’t reasonable, a court will probably not enforce the agreement – or will at least carve the restrictions back to something that the court thinks are reasonable.  Put another way, if you write into your noncompetition agreement that the individual is prohibited from being a participant in the employer’s general industry, anywhere in the universe and for the rest of time – the court will probably say you’ve gone too far and you’ll be disappointed with the outcome.

Second, even if you’ve drafted your noncompetition obligation to be reasonable in scope, and you’re in a state that will allow you to enforce it, you may not be able to simply require existing employees to sign it without giving them something in return.  In many states – including my home state of Washington – an employer must provide new consideration (e.g., a bonus, a promotion or something else of value) to the employee in order to support the imposition of a noncompetition agreement for an existing employee.  Continued employment is not enough.  And if you fail to give new consideration then your shiny new noncompetition agreement may not be enforceable against the individual.

Third, bear in mind that some states don’t follow the general rules that I’ve outlined above.  Some states (notably California) may refuse to enforce any noncompetition agreements imposed by employers on their employees.  In fact, in California there are cases suggesting that firing an employee who refuses to such an agreement may actually give rise to a wrongful termination claim by the former employee against the employer. So before you set about drafting a noncompetition agreement for your employees (reasonable as it may be), make sure you’re actually in a state where such an agreement can be enforced.

Of course, entirely separate from the question of whether you can impose a noncompetition agreement on your DSP employees is the question of whether you should. One of the things that makes the U.S. spirits industry so vibrant is the extent to which ideas are freely exchanged among industry participants.  This cross-pollination, if you will, is part of the reason that the ACSA study shows the industry expanding at a 27% annual growth rate.  By limiting talented employees from pursuing new opportunities, you may actually be stifling the industry’s prospects for further growth.  Is that really in your best interest?