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Non-Compete Agreements for North Carolina Craft Breweries

Photo by Jupiterimages/Stockbyte / Getty Images
Photo by Jupiterimages/Stockbyte / Getty Images

Non-compete agreements, also called "restrictive covenants," are essential in today's growing brewery scene.  These contracts are typically included in employment agreements, and they restrict an employee from competing with the employer after they are terminated.

Imagine if your head brewer or brewmaster, who's been with your brewery for years, decided one morning to quit and start working for the brewery down the street.  These days, craft beer aficionados know who the genius behind their favorite brews is.  What if your loyal customers followed this brewer to your competitor?  What if this brewer started brewing the same recipes elsewhere?  Having a non-compete agreement can easily prevent this disaster.

Traditionally in North Carolina, attorneys could draft non-compete agreements such that they prevented a former employee from performing similar work within a reasonable time within a reasonable territory.  Basically, your non-compete agreement could prevent your brewer from brewing within 60 miles for two years after he leaves your brewery.

However, the North Carolina Business Court recently began tightening up requirements for enforcing non-compete agreements.  In Sandhills Home Care v. Companion Home Care, the Business Court struck down some non-compete agreements because they were too broad.  In Sandhills, the non-compete agreements in question simply prevented the employees from working for a competitor for one year after they leave the company.  While this clause sounds like a great method for protecting your brewery, it won't hold up.  The Court finds these types of provisions to be too restrictive on the employee's livelihood.

A more effective way to protect your brewery from this type of competition is to have specific, tailored provisions in your non-compete agreements.  Instead of preventing your brewer from brewing beer after they leave, prevent them from brewing the specific style of beer you're known for or prevent them from brewing with your specific process or unique ingredients.

The courts are more likely to enforce a non-compete agreement that prevents your former brewer from brewing within Mecklenburg County than an agreement that prevents them from brewing within North Carolina, the East Coast, North America, or another overly broad geographic area.  The key here is keeping the size of the territory reasonable.

The time requirement must also be reasonable.  For instance, a North Carolina court won't let you prohibit your brewer from brewing within the next 100 years.  A 10 year or even 5 year prohibition most likely wouldn't hold up either.  Shoot for something under two years.  This seems to be a good guideline under North Carolina case law.  However, remember that this is just a factor in the overall analysis of your non-compete agreement.

In conclusion, the timeterritory, and type of work must ALL be reasonable for your non-compete agreement to be enforceable.

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Jonathan Barber