There’s a quote that resurfaces every time a craft brewery tries to enforce non-compete agreements against former employees through litigation. It’s a real all-timer, spoken — or was it spat? — into the record by then-chief executive of Anchor Brewing Co. Keith Greggor during one such legal tangle between the San Francisco brewery and Boston Beer Company (BBC) in 2011. The gist of that conflict: Anchor hired a former BBC sales representative to manage its distributors in Northern California; BBC sued the employee and the San Francisco brewery the following day, arguing that The House That Samuel Adams Built had “taught [the rep] everything he knows about the beer business.”
The case eventually settled out of court. But the initial reaction to BBC’s, ah, zealous enforcement effort by Anchor’s then-CEO echoes in beer-industry eternity. Let’s revisit it in full, shall we? Yes (emphasis mine):
For more than 40 years Anchor Brewing has set the standard for open and collegial collaboration among the fraternity that is American craft brewing. Anchor finds it ironic that Boston Beer feels its training is so special and unique. We think they must have short memories of the time they spent here at Anchor gaining first-hand knowledge of how craft beer was working.
Translation: Are they kidding with this shit?
Time has passed and things have changed in the American craft brewing industry. (Nowhere more so than at currently erstwhile Anchor and Twisted Tea-dependent BBC.) But the brewerly impulse to occasionally haul off and sue former employees and/or their new employers for breach of anti-competitive covenants signed at the acceptance of a job at the first firm remains.
In late 2016, Minnesota’s Summit Brewing Co. sued a pair of sales employees alleging theft of trade secrets to rival Surly Brewing Co. In 2018, Iowa’s Toppling Goliath filed a legal challenge to block a former brewer from taking a job at another brewery 100 miles away. This isn’t a trend that BBC kicked off in 2011, either. Even back in craft brewing’s kumbaya first-wave days of 1993, the Widmer brothers behind Widmer Brothers made themselves overnight villains of Portland, Ore.’s influential scene by taking a former brewer to court out of concern he might try to steal the firm’s then-hot hefeweizen. (What’d I tell you? Times change.)
It’s a head-scratchingly corporate habit in an industry that once prided itself (and heavily marketed itself, to fanboys and too-credulous mainstream journalists alike) as anything but corporate. Worse, it’s out of touch with both public sentiment about the employer-employee relationship, and a growing body of evidence showing that such enforcement makes the job market a costly hassle for everyone, including breweries themselves — not to mention the craft brewing industry’s declining growth in the face of changing preferences and varied competition.
Translation: The tide is no longer rising for American craft brewing, and non-compete enforcement ain’t helping with matters of flotation.
Somebody should really ship that message off to Boston. Apparently nonplussed by the public pantsing the firm received last decade over its non-compete enforcement, or the macroeconomic and microbrew-specific vibe shifts since, the country’s second-biggest craft beer maker (in the Brewers Association’s definition, at least) has lately found its policies under scrutiny in the trade press and on social media again. In October, BBC sued a former employee and Downeast Cider House for allegedly taking trade secrets to his gig. (It’s since dropped the suit against the worker, but not the firm.) Earlier this month, two former employees sued the company in separate suits in U.S. District Courts in Washington and Massachusetts (both of which have rules on the books constraining firms’ use of non-competes) claiming its “unreasonable and overly broad non-compete agreement” forced them out of the craft brewing industry entirely.
“It is my belief this bullying tactic shows Boston Beer will stop at no lengths to prevent its employees from working for another brewery,” one of the former employees, brewer John Brennan, told Brewbound, which first reported on the suits last week. The other employee, Maxx Hockenberry, alleges that his efforts to abide by BBC’s one-year non-compete clause — which, according to his complaint, was pointedly mentioned in his exit interview — left him without steady income, health care coverage, and career prospects. “After being out of the brewery industry [sic] for twelve (12) months, Mr. Hockenberry found it nearly impossible to reenter,” the complaint reads.
“A year out of the industry pretty much destroyed any prospects I had of continuing my career in the beer world,” he tells Hop Take.
BBC insists this is how it’s gotta be. “A one-year non-compete helps protect customer goodwill, prevents confidential information from immediately being used to benefit a direct competitor, and enables us to benefit from our best-in-class training programs,” a spokesperson says. Via email, the BBC rep declined to make anybody from the firm available for an interview, or answer detailed follow-up questions, including one about whether its enforcement policy comports with its stated intent to “pursue ways of doing business more sustainably, and work toward making a better world for our coworkers, drinkers, partners, and communities we work in.”
Lawsuits being public record, BBC has developed a reputation in business pages and on social media for this sharp-elbowed behavior over the years. It doesn’t help that macrobrewers like Molson Coors and Anheuser-Busch InBev reportedly don’t require non-competes for lower-level brewery employees, whereas BBC appears to require ‘em for pretty much everybody.
Let’s look beyond Team Truly for a moment. Most American employees — 66 percent, according to a January 2023 Ipsos survey — support the Federal Trade Commission’s proposed ban of non-compete agreements. This is not shocking: In the absence of job security, and in the face of semi-stagnant wages, the only way many workers can get ahead is to stay on the move from firm to firm. “You’re not really free if you don’t have the right to switch jobs or choose what to do with your labor,” wrote FTC chairwoman Lina Khan last year in an op-ed in The New York Times announcing the authority’s proposal to kibosh non-competes. Yes, correct, thank you Lina.
But what about the trade secrets?! you cry with chagrin. You can’t expect firms like BBC to just let their employees walk off with proprietary business materials and relationships! That would disincentivize innovation and investment! Calm down, business boys and girls. Just because those objections feel true doesn’t mean they are. I posed those common arguments for non-compete agreements’ vitality to Evan Starr, Ph.D., an assistant professor of management & organization at the Robert H. Smith School of Business at the University of Maryland. The upshot: This covetous corporate guarding (of secrets real or imagined) hurts both employees and employers.
“The best evidence points in the direction that, actually, firms are also made worse off under non-competes,” he tells Hop Take by phone. “Non-compete agreements impose higher hiring costs on everybody. … What it promotes is effectively some stagnation, where workers are not sorting to their best job.” Given the myriad of academic research indicating that happier workers are more productive, the regime of non-compete enforcement runs counter to the very fitness that enforcers claim to be protecting — especially when you consider that aggressive and public enforcement can chill unhappy other workers from leaving for more desirable jobs elsewhere
Here’s where things get interesting. Firms do have genuinely proprietary materials, strategies, and so forth that they want to keep out of competitors’ hands — like BBC’s Twisted Tea recipe, for example — but the non-compete isn’t the only tool for achieving that. It’s just the one that covers companies’ asses the most. “They’re such a blunt instrument,” says Starr, likening them to a “prophylactic” that creates a preemptive protective barrier for companies at the expense of their workers’ job prospects. There are more surgical remedies for specific harms if and when former employees actually cause them, like non-disclosure and non-solicit agreements. Using a non-compete is corporate overkill at the expense of employee freedom. “It’s just reducing mobility, not protecting trade secrets,” Starr says.
(This is not ivory-tower hypothesizing: There’s real-world evidence underscoring the point. Starr references a 2023 study he co-authored on the effects of a Washington State law that invalidated non-compete agreements for employees earning less than $100,000 annually. Rather than bump more workers’ salaries just above that six-figure threshold to keep them eligible, firms decided nondisclosure and nonsolicitation agreements were plenty powerful for protecting their interests.)
Research (both Starr’s, and others’) indicates non-competes do not meaningfully induce investment, nor do they create a more compelling workplace for innovation. And so on, and so forth. But let’s turn our attention back to the craft brewing industry. Its biggest player is currently facing down lawsuits over its non-compete enforcement even as it pursues a lawsuit to enforce the agreement against a competitor. You can make an ethical judgment on that behavior; you can also make an economic judgment, based on the work economists like Starr have done to scrutinize the classic corporate canard about such covenants.
Either way, the lawsuits will proceed, and your humble Hop Take columnist will keep an eye on them. But we began with a quote, so let’s close with one. An excerpt, really, from “Quench Your Own Thirst: Business Lessons Learned Over a Beer or Two” by one Jim Koch, co-founder and chairman of Boston Beer Co. (emphasis mine again):
“What if you spend all that time and money training people and they leave?” he asked me.
On the face of it, the question makes sense. But I told the distributor he needed to think of it this way: What if you don’t train people, and they stay? Isn’t that much worse?
It’s a clever, albeit unoriginal aphorism that shifts the corporate paradigm on employee retention from one of paranoid scarcity to collegial abundance. His own company would do well to adopt it.
🤯 Hop-ocalypse Now
I argued last week in these digital pages that the brewing industry’s long, mostly proud legacy of culture-making Super Bowl advertising was a thing of the past. Turns out, the American viewing/drinking public felt likewise. Budweiser’s nostalgia-laden Clydesdale delivery spot placed 10th in USAToday’s annual AdMeter benchmarking survey — and that was Big Beer’s top performer! Critics were similarly unimpressed with America’s macrobrewers. Not a single spot cracked AdWeek’s top 13, and AdAge (correctly) clowned on Coors Light’s lackluster “Chill Train” redux with a two-star rating. The latter outlet gave Michelob Ultra and Bud Light 3.5 stars apiece, but still. Tough look for a category in search of momentum.
📈 Ups…
Mid-majors Yuengling and Kirin-Lion (i.e., New Belgium and Bell’s) quietly posted solid volume growth last year… Kona Big Wave went big last year, adding 100,000 barrels thanks to a major push from ABI’s marketing machine… Workers at Aslin Beer Co.’s taproom in Washington, D.C. went public with a union drive… Holy smokes, Brooklyn Brewery sold a lot of beer overseas last year…
📉 …and downs
Big Beer’s (bad) Super Bowl ads performed badly with critics and consumers alike, go figure… Nielsen scan data for January 2024 shows the category’s volume down 4.4 percent against tough year-over-year comps of early 2023’s price-hike-palooza… Meanwhile, the Beer Institute announced total shipments were down 6.5 percent last year compared to 2022… Minnesota’s Fair State Brewing Cooperative filed for Chapter 11 bankruptcy protection, but says it’s got a path forward… Meet the new Lagunitas packaging, same as the old Lagunitas packaging… HomeBrew Con is officially on hiatus…
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