Hold My Beer

An Employment Lawyer’s Tips For Craft Brewers
By: Brian Casaceli, Associate at Mirick O’Connell

A few friends and I were recently enjoying a couple ofcold beers at a local brewery – which shall remain nameless to avoid playing favorites!  We discussed how the craft brew movement has been such a positive force not only in Massachusetts, but across the country.  We marveled over the crowds that breweries draw, the diversity and selection of beers (and ciders), and the seemingly endless list of IPAs we need to try. The consensus was that, if we ever found ourselves in a position to be part of such a venture, we would all jump at the opportunity. 

On my drive home that night, the employment lawyer in me took over. Given the significant commitment it takes to establish and operate a brewery, and how quickly breweries can grow, I thought – what employment related issues would a brewery need to address to protect its interests?  Several issues immediately came to mind.     

Protecting the Brewery’s Confidential Information and Trade Secrets Through a Non-Competition Agreement

If not an owner, one of the most essential employees at a brewery is the head brewer or brewmaster – a complex role likely responsible for managing the brewery’s overall operations including hiring and onboarding employees, checking inventory, managing tanks, scheduling, and forecasting production. Given the number of breweries in the Commonwealth, it is easy to foresee a situation where your head brewer/brewmaster might leave your brewery for a competitor.  Such a departure could expose your brewery’s confidential information and trade secrets to a rival brewery.  Fortunately, you may be able to prevent such a scenario from playing out and protect your confidential information and trade secrets by putting a non-competition agreement into place with the head brewer/brewmaster.

As many of you may know, on October 1st, a new law governing the use of non-competition agreements went into effect in Massachusetts.  The law – which sets parameters for how an employer may lawfully enter into a non-competition agreement with certain employees – defines a non-competition agreement as:

[A]n agreement between an employer and an employee, or otherwise arising out of an existing or anticipated employment relationship, under which the employee or expected employee agrees that he or she will not engage in certain specified activities competitive with his or her employer after the employment relationship has ended. 

It is important to note that the law contains many nuances and, for that reason, does not lend itself to a “one-size-fits-all” approach.[1] In fact, given its intricacies, some breweries might opt to forego non-competition agreements altogether and, instead, choose to use other agreements (discussed below) to protect their interests.  Nonetheless, when carefully drafted, non-competition agreements can significantly protect a brewery’s competitive interests.  

Maintaining the Confidentiality of The Perfect IPA Recipe

Perhaps nothing is more sacred to a brewery than its recipes and formulas and the particulars of its brewing process.  To ensure that such information remains private, a brewery should strongly consider having all of its employees who have direct access to such information sign confidentiality agreements.  

Confidentiality agreements, in a nutshell, prohibit an employee from using or disclosing to any individual outside of the company, whether during the course of his/her employment or at any time thereafter, any information the company designates and maintains as confidential, except as necessary to perform his/her job duties.  Thus, in addition to its brewing recipes, a brewery can use a confidentiality agreement to protect a brewery’s trade secrets, other confidential or proprietary information regarding its existing and/or future products, customer lists and/or customer information, business plans, marketing plans and other financial information.  Aside from a confidentiality agreement, breweries should also generally limit access to such information to only those employees who have a business need access to it.        

Protecting Against a Raid of Your Employees and Customers

A brewery can also take steps to prevent departed employees from trying to take the brewery’s remaining employees, and/or its customers through non-solicitation agreements.  Non-solicitation agreements are more narrow than non-competition agreements as they focus on specific activities.    

Employees

If your head brewer or any other employee decides to take a job with another brewery, it is easy to envision how the departing employee might attempt to recruit or solicit other employees to join him/her at the new brewery. To prevent such a situation from happening, breweries should enter into an agreement with their employees that, for a specific amount of time after an employee leaves his/her employment (regardless of the reason), prohibits the employee from recruiting or soliciting for hire any of the brewery’s employees, agents, representatives or consultants.

Customers

A brewery may have an exclusive arrangement with several local restaurants (i.e., customers) that serve its beer/cider on tap.  Breweries should consider a provision that prevents  a sales professional who leaves to join a competitor from using his/her relationship with those restaurants to solicit or do business with them.   

Last Call

Any of the above scenarios can happen in the craft brew industry.  Incorporating the above provisions into your hiring process (or even adopting after the fact) will help protect your business interests, including that secret IPA recipe everyone is trying to get their hands on.  

These are just a few employment-related issues to consider – there are many others out there!  I look forward to regularly submitting articles to the Mass Brewers Guild Newsletter to discuss additional issues as they may relate to craft brewers.  Please feel free to reach out if you have questions on anything mentioned above, or if you want to discuss any other employment related matters.  And, of course, I am always around to grab a beer too!  

[1] Notably, the law prohibits an employer from using non-competition agreements for those employees who are classified as non-exempt under the Fair Labor Standards Act.  Thus, before entering into a non-competition agreement, you must analyze whether the employee, including your head brewer/brewmaster, is lawfully classified as exempt or non-exempt.  It is recommended that brewers contact counsel to assist them with this analysis. 

Brian Casaceli is an employment attorney in the Labor, Employment and Employee Benefits Group at Mirick, O’Connell, DeMallie & Lougee, LLP.  He can be reached at bcasaceli@mirickoconnell.com or (508) 860-1478.  

Utility Service Interruption Insurance: What Craft Brewers Need to Know

Business insurance is a complex animal. The list of potential risks is long and fairly nuanced, depending on the type of business at hand. Without an industry expert in your corner, it can be easy to overlook certain “what-if?” scenarios that aren’t expressly covered by your business owner’s policy. Having the right agent on your team, to anticipate and explain hidden gaps, is essential.

In the world of microbreweries, utility service interruptionis a perfect case in point. Utility service interruption is a specific type of loss event—an event not typically covered by standard commercial property terms, nor equipment coverage (a.k.a. “inland marine”), nor basic business interruption, despite its similar-sounding name. Meanwhile, utility service interruption is a very real and very costly exposure.

So here’s what you need to know:

What is utility service interruption insurance?

Also known as “off-premises power coverage,” utility service interruption (USI) is an endorsement that can beaddedto basic business interruption and/or commercial property coverage. USI typically covers disruptions to the following: 

·       Your Water Supply (pumping stations, water mains, sewer mains)

·       Your Power Supply (utility generating plants, switching stations, substations)

·       Your Communications Supply (optic fiber transmission lines, coaxial cables, microwave radio relays, overhead transmission lines)

USI endorsements vary widely, in terms of which utility services are included, whether both “Direct Damage” and “Time Element” losses are covered, whether transmission lines are covered, and other variables. Your brewery insuranceteam should help you define which elements within these categories are covered on your policy.

What’s the difference between Direct Damage and Time Element Losses?

There are two ways to extend your basic insurance program by adding USI coverage: a direct damage endorsement and/or a time element losses endorsement. 

A Direct Damage endorsement acts as an extension of your propertyinsurance, offering protection against damage to tangible property, resulting from a utility interruption. So if, for example, a power line down the street is struck by lightning, and a surging electrical current flows back into your building, the burst can overwhelm your surge protectors—damaging your computers, appliances, breakers, switches and receptacles. A Direct Damage endorsement would kick in to cover any new wiring needed or equipment replacement.

Time Element Losses, on the other hand, are associated with stalled operations and lost income. After a utility disruption, lacking electricity or water would likely prevent you from opening your doors—costing you money.  Similarly, if a prolonged power outage affected your ability to control fermentation temperatures, you might lose valuable batches of beer: more lost income. A USI Time Element endorsement would extend your business interruption coverage to help you recoup these losses, up to a predetermined time limit or until utility service was restored.

But I already have business interruption coverage? Isn’t this the same thing?

Not necessarily. Basic business interruption insurance covers your costs if an unexpected event (e.g. a fire or a flood) damages your propertyand forces you to close shop for a short time. In some cases, basic business interruption may also cover certain types of utility disruptions while excluding other types; overhead transmission lines are a prime example. Be sure to ask your agent which utility disruptions, if any, are included in your current BI policy. 

How common are utility service interruption events?

In the past 10 years we’ve all been affected by at least one severe weather event. Following the October snowstorm of 2011, thousands of New England customers lost power—many for more than a week. Hurricane Sandy caused nearly 400,000 power outages in Massachusetts alone, dragging out over a five-day span. 

Lightning is another common concern. According to electro-mechanical consultants, direct and indirect lightning strikes happen every day, causing a variety of business interruptions. “…All business machines and various equipment types can be electrically shorted and mechanical components become fused, resulting in premature failure, if not instant total loss. Water pumps, blower motors, alarm systems and machinery can be compromised.  Building plumbing, HVAC air handlers, heaters and wiring can have extensive damage affecting the operation and control.” In fact, in 2015, nine percent of all reported claims involving HVAC systemswere caused by lightning strikes. 

What does utility service interruption insurance cost?

Costs and ideal coverage limits vary, depending on your operation. The cost may also be a function of your carrier’s property rating algorithm. To provide a ballpark figure, our craft brewery insurance team was able to add $25,000 in utility service coverage—including overhead transmission lines—for a mid-sized brewery/tap room, for less than $200 per year. Well worth it, when you consider the cost of new equipment or multiple days of downtime.

What do I need to ask my agent about USI coverage?

We recommend having a conversation with your brewery insurance agent as soon as possible—especially now that we’re officially into hurricane season. He or she can explain the conditions under which your insurance company offers USI coverage, as well as advise you on what makes sense for your microbrewery. Talking points should include:

• The types of utility power or service to be listed on your policy
• The specific waiting period (often 24 or 48 hours) that must elapse before coverage is triggered. (Instead of a flat deductible, there is typically a waiting period for coverage to kick-in.  Because of this, you will want to consider how much your business could absorb before you would need to be reimbursed, factoring in peak and low periods of business.)
• Whether or not your USI coverage applies to contingent third-party locations (suppliers and receivers)
  
  In addition to utility service interruption, there are many other niche coverages and endorsements that craft brewers should at least consider adding to their policies. If you’re not sure what your current program covers (and what it doesn’t), please don’t hesitate to contact our knowledgeable brewery insurance team.

In addition to being a craft brewery insurance expert, Ben Cavallo is the owner and principal of C&S Insurance, a proud member of the Mass Brewers Guild. He holds degrees from Emory University and Boston College, as well as CIC, AAI, and CISR insurance designations. He can be reached at 508.339.2951 or ben@candsins.com.

What Does Microbrewery Insurance Cover?

In addition to being a craft brewery insurance expert, Ben Cavallo is the owner and principal of C&S Insurance, a proud member of the Mass Brewers Guild. He holds degrees from Emory University and Boston College, as well as CIC, AAI, and CISR insurance designations. He can be reached at 508.339.2951 or ben@candsins.com.

By: Ben Cavallo, owner and principal of C&S Insurance

When breweries are shopping for insurance the most common questions we hear are: 

• What does microbrewery insurance cover? 
• What comes in the “standard” startup package?
• Which coverages am I required to have in place so I can open a microbrewery, nanobrewery, or brewpub?

Folks starting new breweries—and plenty of long-time owners, too—call to ask for the baseline minimum. After all, running a business comes with all sorts of hidden costs and unforeseen expenses. No one wants to shell out extra money for insurance—which is basically a business tool you can’t see, can’t touch, can’t even use unless something goes wrong.

Unfortunately, we have to give these brewers the same answer: it all depends. Not very helpful in the immediate sense, but individualized needs are the reality of craft brewery insurance. There’s not much standard about it, despite the results you can find online for “business insurance packages.” What’s more, shopping for a cheap, generic option often leaves craft brewers exposed to serious gaps. Here’s a quick look at some examples:

1.     Property Insurance

Unlike a typical restaurant or bar, the products and equipment inside your microbrewery are especially costly and time-consuming to replace. In the event of a fire, prolonged power outage, tank leak or other machinery failure, you have to consider the potential loss of business income, product spoilage, and other unique concerns. Only an agent with experience in microbrewery insurance can advise you property coverage blanket limits based on your in-house capacity.

2.     General Liability Insurance

Allegations of wrongdoing don’t just damage your brewery’s reputation; they’re often expensive and drawn-out legal events—and that’s before they even get to a courtroom. It’s difficult to anticipate how much liability coverage you’ll need (on a “per occurrence” basis and in aggregate) without enlisting an industry professional. Even if you opt to forego certain coverages as a startup operation, it’s important to at least understand the different types of risk and protection—from liquor liability, to special events, to employment practices liability (employee lawsuits)—as your brewery grows and evolves.

3.     Workers’ Compensation Insurance

We know lots of microbrewery startups begin with a pair of spouses, siblings, or hometown buddies, which might seem to negate the workers’ compensation discussion… But the truth is that most small businesses in the Commonwealth of Massachusetts are  required by law to have a valid workers' compensation policy at all times—even for a staff of just two people. If your business is an LLC, LLP or otherwise qualifies for exemption, there’s still a conversation to be had. Chances are you don’t intend to be a two-man (or two-women) show forever. Anticipating the measures and protocols that will affect your workers’ comp rates is a smart thing to start doing now. Take advantage of the free advice you can get from a dedicated brewery insurance agent.

Bottom line: when you ask yourself, “what does insurance cover?” you should be prepared to sit down and have a longer conversation with an agent who is an expert in your industry. He or she will listen to your complete business description and ask a series of questions designed to map your unique risk profile. Meanwhile, learn more about the factors that affect microbrewery insurance rates and carrier options: