NDAs and noncompetes are popping up in Iowa’s craft beer industry, but will they hurt the community feel?
By Katharine Carlon
katharine@corridorbusiness.com
Artwork by Aly High
In what some are calling a case of “toppling David,” a lawsuit filed by a Decorah brewery against its former head brewer is making national headlines for all the wrong reasons – and exposing the growing pains the exploding craft beer industry is undergoing both in Iowa and across the country.
Members of the brewing community, which likes to think of itself as a friendly fraternity, were shaken when Toppling Goliath Brewing Co. filed suit against its former head brewer Chris Flenker last month, contending he was violating a two-year noncompete agreement by going to work for Thew Brewing Co. in Cedar Rapids’ Kingston Village.
Thew is owned by Mr. Flenker’s brother, Travis.
Toppling Goliath, known for its Pseudo Sue pale ale, IPAs and barrel-aged stouts, alleges Mr. Flenker, who worked there from 2015 to January 2017, signed an employment agreement stating that he wouldn’t work for another brewery within 150 miles of the Decorah facility. Its complaint asks the court for an injunction to block Mr. Flenker from working at Thew, located about 100 miles away, arguing he had confidential and “proprietary recipes, formulas and techniques and is using those trade secrets for gain.”
Reaction on social media, industry blogs and websites was swift, fierce and, as even Toppling Goliath admits, mostly negative.
“That’s pure B.S. from an owner who wants to make it hard for workers to leave – a legally punitive lock on the door to prevent defection,” influential beer writer Jeff Alworth wrote in a blog post titled “How to Screw Your Brewer” on his Beervana site.
“Toppling Goliath puts the state’s beer community in an uncomfortable position within a national news story focusing on its legal disagreements in lieu of its beloved IPAs and stouts,” wrote Bryan Roth, a contributor to Good Beer Hunting.
But even as bloggers, fellow brewers and beer enthusiasts criticized Toppling Goliath for attempting to restrict its former employee, others admitted that with 6,600-plus active breweries operating in the U.S. – and more than 80 of them in Iowa, according to the Iowa Brewers Guild (IBG) – competitive pressure is threatening to make relations a little less collegial.
“Toppling Goliath and Thew are both IBG members, so I’ll not be taking sides,” said J. Wilson, the IBG’s Minister of Iowa Beer, “but as the industry continues to mature, I’d say more squabbles between breweries is a distinct possibility.”
Mr. Wilson, who called the Iowa brewing community “for the most part … a tight-knit family,” said most of the competitive disputes he’s familiar with have involved intellectual property issues related to beer and brewery names.
“The guild changed the name of our enthusiast program from Iowa Beer Army to Iowa Brew Army just last week for that very reason,” he said, adding that the name change was sparked by a cease and desist letter from a North Carolina business that had already registered the “beer army” phraseology.
Noncompetes like the one required by Toppling Goliath are uncommon in the brewing industry, Mr. Wilson said – a fact borne out by interviews with several Corridor-area brewers who said they were aware of few, if any, operations routinely asking for them. However, some, like Millstream Brewing in Amana, have begun taking steps to protect their recipes and methods in an increasingly crowded beer market.
“We don’t require a noncompete, but we have started requiring NDAs,” said Chris Priebe, Millstream’s co-owner and brewmaster, referring to nondisclosure agreements aimed at keeping proprietary information under wraps. “Because the market is becoming more competitive, we thought that NDAs might cover our interests just in case. To date, we’ve never had a problem, but it’s there if we need it.”
Mr. Priebe said he personally believed noncompetes were too extreme in an environment that is both changing quickly and not particularly well-paid. According to the Brewers Association, the average brewmaster nationally earns between $44,844 and $95,403, with only those at very large craft brewers making near the top end of the scale.
“If I was a brewer looking for a job, I don’t think I’d take one requiring a noncompete because there are a lot of jobs out there,” he said, adding that on the other hand, “There is more competition all the time, so it’s something that could become standard. Who knows?”
“Breweries are struggling with the tension of trying to remain collaborative while at the same time protecting their enterprise value,” explained regulatory attorney Matthew McGlaughlin in the Aug. 6 Craft Brewing Business newsletter, which covered the Toppling Goliath lawsuit. Mr. McGlaughlin added that whether or not one uses noncompetes, “it is incumbent upon the brewery to take some affirmative measures to protect its confidential and proprietary information because there is a real financial value at risk by neglecting to do so.”
Sarah Hedlund, marketing director for Toppling Goliath, said protecting that information was her company’s only goal in requesting the injunction, though she allowed that the negative PR has not been good for business.
“This is a distraction from getting our daily work done – and this was a teammate of ours, so nobody is excited about the situation,” Ms. Hedlund said. “But this is probably something that is going to happen more as the industry grows here in Iowa.”
Until recently, noncompete controversies in the beer industry have mostly focused on top level management. In 2011, Boston Beer, the maker of Samuel Adams, accused Anchor Brewing of stealing away one of its district managers. Last year, St. Paul-based Summit Brewing filed a lawsuit against a former vice president of sales who left for another brewery. But suits against brewers themselves have been something of a rarity.
Ms. Hedlund pointed to other industries that have made noncompetes standard operating procedure, including her previous field of design.
“Because the industry is blowing up so fast, there’s a perception that this is unusual, but it’s probably something that’s going to become more commonplace as it grows and matures,” she said. “For us, this is a pretty simple black and white situation. A contract was signed and we want to uphold that. We’re not trying to prevent someone from doing what they love, and no one is excited about this, but it is what it is.”
Ana McClain, co-owner of Lion Bridge Brewing Co. in Cedar Rapids, said she could see both Thew and Toppling Goliath’s sides, and was reluctant to align with one or another, allowing only that “it sucks” to see members of Iowa’s brewing family squabble.
On the matter of noncompetes, however, she said Lion Bridge is unlikely to ever require them because breweries have their own personalities and “their own souls” that cannot be replicated.
“Lion Bridge is Lion Bridge,” Ms. McClain said. “We’re not just a recipe or a portfolio of customers. No one can imitate or emulate what we’re doing here: it’s our brand, it’s our culture, it’s the way we serve our food. [A brewmaster could leave] and it might be something great, but it’s never going to be ours.”
While the Flenkers at Thew might well agree, they’ve been advised by their legal team to stay quiet for now, Travis Flenker wrote in an email to the CBJ. A hearing in the matter is set for Aug. 31.
“The Iowa craft beer community is wonderful and we appreciate all of the positivity that has come our way since we opened,” Mr. Flenker said in a prepared statement. “While we find it disappointing that Toppling Goliath has chosen to pursue this route, and we disagree with the assertions within their court filings, we will not forget the warm welcome so many have given us. As importantly, we will not let this distract us from achieving that mission to give back to the communities we touch.”
Ms. Hedlund of Toppling Goliath said her company just wants to put the ugliness behind it and put the focus back on brewing a good product: “Our goal is for everybody to be happy and get back to making beer.”
