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Keep a Lid on It: Protecting Your Restaurant from Unfair Competition

It is no secret that today’s restaurants face stiff competition. New chefs, constantly-changing dining trends, a “foodie” culture, and rising costs all threaten the long-term success and viability of virtually every dining establishment. What if we told you, however, that one of the biggest risks facing your restaurant does not relate to these issues, but instead to the possible departure of your restaurant’s employees and confidential information?

Imagine this scenario: your top chef, who you have groomed for years, to whom you have given your every secret recipe, and who has a meaningful relationship with all of your regular diners, tells you out of the blue that he is leaving your kitchen. Not only that, you soon hear rumors that he is opening his own restaurant down the street, is taking several of your best employees with him, and will be serving a similar style of cuisine and beverage menu. Your mind races and your heart skips a beat, as you are clearly (and understandably) concerned about the continued viability and success of your restaurant. STOP. Before additional panic sets in, you can be comforted by the fact that there are proactive and protective measures that you and your restaurant can take right now to help guard against this uncomfortable and frightening situation, several of which are outlined below.

One of the best tools that your restaurant can utilize to protect itself against the unnerving situation described above is to have your key employees sign a restrictive covenant agreement, which is an agreement that places certain limitations on an employee both during and for a period after his/her employment ends. One of the benefits of a well-drafted restrictive covenant agreement is that, if it is abided by the parties that sign it, the agreement can prevent potentially costly, time-consuming, and distracting litigation. If, however, litigation does become necessary to enforce the restrictive covenant agreement, the outcome of winning the subsequent unfair competition lawsuit can include the following: (1) you may receive restitution for the money you lost due to your former employee’s unfair competition activities, and you may also be awarded any of his/her illegal profits; and (2) if your restaurant presents sufficient evidence showing a probability that your former employee will commit future violations of the unfair competition laws and/or his/her restrictive covenant agreement, an injunction may be issued ordering your former employee to curtail his/her unfair competition activities.

Approximately three years ago, the State of Georgia substantially altered its public policy on restrictive covenants, and its new Restrictive Covenants Act (O.C.G.A §§ 13-8-50 et seq.) makes it significantly easier for employers to enforce restrictive covenants against former employees than was permitted by prior Georgia law. While some may reasonably argue that requiring creativity-driven employees like chefs to sign such agreements will drive key talent to other establishments, some restaurants are in fact beginning to take advantage of Georgia’s new stance on restrictive covenants.

By having your key employees (chefs, bartenders, managers, etc.) sign a well-drafted restrictive covenant agreement, you can, for example, prohibit them from opening a competing restaurant within a certain geographic region and for a specific period of time, restrict them from recruiting and hiring away your other employees to their new venture, keep them from soliciting business from your regular customers, and forbid them from disclosing or using your restaurant’s most secret and confidential information. Importantly, these agreements can be hand-tailored to match a wide variety of restaurants and staff, including your own.

Restrictive covenant agreements are not the only way to protect your restaurant from unfair competition, however. With respect to your restaurant’s confidential information, which may include recipes, cooking techniques, food and alcohol sources, customer lists, and financial information, your restaurant must take internal measures to protect the confidentiality of this information. These measures may include, for example, only granting access to this information to those employees with a need to know it and for the sole purpose of conducting the business of your restaurant. Computer passwords, locked office spaces, and even combination safes should also be deployed, as necessary, to safeguard these secrets. Additionally, when your employees leave your restaurant’s employment, you should take steps to make sure that they are not taking any of this confidential information with them, whether in hard-copy or electronic form.

Evidencing the growing impact of this issue, some restaurants have sought relief after losing their key chefs or other employees, accusing them of leaving to create competitive dining establishments founded on their prior restaurants’ recipes. Recent cases include 50 Eggs Rest. Co., LLC v. Chef Bee et al., No. 13-027964-CA-01 (Fla. Cir. Ct. Aug. 27, 2013) and Torchy’s Tacos v. Mario DeJesus et al., No. 2013-34135 (Tex. Dist. Ct. Aug. 19, 2013). In each of these cases, the restaurant proprietor claimed that departing employees ransacked the restaurant’s recipe boxes, thereby engaging in trade secret misappropriation and unfair competition by using the recipes to establish new, competitive restaurants. In Torchy’s Tacos, for example, the restaurant claimed that a former employee stole its “Taco Bible” – a document containing a start-to-finish recipe and process guide for each of its food items – and used it to start his own taqueria.

If not handled properly, unfair competition issues can have a devastating impact on your restaurant; thus, time spent reviewing how to protect your restaurant, customers, employees, and confidential information from unfair competition is time well spent.