How to Screw Your Brewer: The Case of Toppling Goliath
A remarkable--remarkably unfortunate--thing is happening in the Hawkeye State. Bryan Roth has the details:
In a court filing issued on July 26, Iowa's Toppling Goliath Brewing Co. sought an injunction to stop a former brewer from working in the same position for his brother's business in Cedar Rapids.
Chris Flenker, who worked at Boulevard Brewing before joining Toppling Goliath from 2015 until January 2017, was hoping to continue his career at Thew Brewing, which opened in March of this year. Started by Flenker's brother, Travis, the brewery is about 100 miles from Decorah, which falls within a 150-mile non-compete Toppling Goliath agreed to with Chris, according to the Associated Press.
The "rationale" in forcing brewers to sign a non-compete is to protect, in the brewery's words, "proprietary recipes, formulas and techniques"--or "trade secrets" as it also characterized them. Is this a reasonable demand breweries can make of their brewers? We're going to come back to the case of Toppling Goliath in a moment, but I would like to take you back a generation to 1993, when a similar case created a massive stink here in Portland. There are lessons to be learned from how that all played out.
The incident involved Alan Sprints and Widmer Brewing. I spoke to Alan about it in writing my biography of Rob and Kurt, The Widmer Way. He had been hired there as a brewer in a company that was just beginning to develop a corporate mentality. They had him sign a non-compete agreement and when he departed a couple years later to start Hair of the Dog, they sued him.
“In my mind the non-compete agreement was to protect them if I was to take a recipe or graphics, or doing something they did, they’d be able to enforce their non-compete. They were a draft-only brewery that made only wheat beer and I was a bottle-only brewery that made mostly strong beer. So I saw it as totally different, but the wording of the document was, ‘Anybody who makes or sells beer, any place they make or sell beer.’”
Care to guess how this particular case turned out? It was a public relations disaster for Widmer, and seriously dented their reputation within the burgeoning craft beer scene. Local media covered it heavily, and the court was sympathetic to Sprints:
“But coming from the food service industry, if I was told I couldn’t cook anywhere, it would be difficult to make a living. And that’s what the court basically said—you can’t stop him from making a living, and you need to come to an agreement or the judge would. Fortunately we didn’t have to go to trial.”
Widmer was trying to protect an extremely lucrative product in Hefeweizen, which nearly every brewery in the region was trying to emulate. They had gotten some bad advice from their lawyer to initiate this practice, and soon ended the use of non-competes after the debacle. Nevertheless, it left a sour taste in many fans' mouths, and actually helped Alan launch his new project. (“The one good thing is that it did bring attention to the brewery, but I wouldn’t recommend it as a tactic.”) The two sides have since reconciled, but it took years for Widmer to recover from the damage.
So now back to Toppling Goliath and the question of whether a non-compete is a good move. We could step back and ask whether they're ever a good move. Two years ago, the Obama administration tried to limit them, and many people believe they should rarely be used. And I'm not just talking about pro-labor communists like me--the Wall Street Journal and Fortune have inveighed against them, too. In an article on non-competes, that latter magazine quoted a Treasury Department report that pointed out it's not just bad for workers, but businesses, too: "Non-competes that stifle mobility of workers who can disseminate knowledge and ideas to new startups or companies moving to a region can limit the process that leads to agglomeration economies."
But in brewing? Come on. This is one of the most ancient activities still practiced by humans. There are tens of thousands of breweries out there, dozens of brewing schools, and the practices have been among the most-studied of any industry. There just aren't "trade secrets" in beer. That's pure BS from an owner who wants to make it hard for workers to leave--a legally punitive lock on the door to prevent defection. It traps workers in situations where owners have more power to suppress wages and benefits. Workers never have power to set their own wages; the one lever they can pull is leaving for a better opportunity. Non-competes prevent even that small leverage.
Toppling Goliath has already burned through its goodwill. This is a company that three years ago ran afoul of two other brewers in a different situation. In something of an irony, the precipitating event was owner Clark Lewey's decision to have Toppling Goliath contract-brewed at Brew Hub in Florida.
On February 20 of , tension between Lewey and former brewmaster Mike Saboe “reached a breaking point,” Saboe said. Neither would speak on the record about what exactly happened that day—which ended up being the star brewer’s last with Toppling Goliath. However, Saboe would say that he didn’t like the idea of contract brewing and felt Lewey had publicly taken credit for beers he created.
The split, which Lewey said also resulted in another brewer departing, left him scrambling to rebuild his team at a pivotal time. “I basically went from one day having [a] full staff to having no staff,” Lewey recalled. “All the eggs were in Mike’s hands, so very quickly I had to get those new brewers trained and up to speed.”
That last quote is instructive. It sounds like Lewey didn't like having "all the eggs" in his brewer's hands. Non-competes are certainly one way to address that lack of control. For the completists out there, I'll mention that Toppling has also engaged in other questionable behavior.
I hope customers in Toppling Goliath's distribution footprint learn about this incident. It is Lewey's right to run his company however he chooses, but his customers have a right to decide whether they want to spend their money on his product. Widmer learned a valuable lesson in 1993. Protecting one's business means not just looking after the intellectual property--it includes not enraging the people you need to buy your beer. “They don’t use them anymore," Sprints said of non-compete clauses. "I was the last person they sued. I think they discovered there was more goodwill to be had [than in trying to protect their processes]." Customers should be able to send Clark Lewey the same message. Make sure to let them know about this incident.
Cover photo: Toppling Goliath