Your company’s recipes, methodologies and customer base are what distinguish it from the competition. If this information is disclosed to third parties, it could detrimentally hurt your business because a competitor could seemingly replicate the same or similar beverage. It is important that you protect your company’s trade secrets, customer relationship and other confidential information from employees, especially the brew master or distiller, in the event the employment relationship ends.

The good news is that New Jersey, like many other states, has recognized three categories of interests that may be legitimately protected:  (1) employer’s trade secrets, (2) employer’s confidential information, and (3) protection of customer relationships. However, the general rule is that a former employee may utilize information from a prior employer with a new employer or new business after his term of service has expired. That could lead to the dissemination of your trade secrets to a competitor or a new company formed by the former employee to directly compete with your business. In order to protect your businesses’ trade secrets, confidential information and customer relationships it is critical that proper employment planning is takes place.  Before or during the course of employment, the employee must agree to be restricted from competing with your business through a covenant not to compete, i.e., a restrictive covenant or non-compete agreement.

In most cases, a non-compete agreement can effectively limit the specified geographic area where a former employee can work, the type of job that the former employee can engage in, and the duration of the restricted type of work. The terms of the non-compete agreement must be “reasonable” in scope, location and duration in order to protect the interests of the employer. The timing of entry into the non-compete agreement is also important. Generally, entry into the agreement must take place at the inception of the employment relationship or when the employee receives a raise or promotion.

These are only a few examples of the issues that your business must consider in connection with its employees, especially the brew master or distiller, who knows your company’s trade secrets, confidential information and customers. Due to the importance of these issues, counsel should be consulted to help protect your brewery, brew pub or distillery’strade secrets, confidential information and customer relationships. 

For more information on Stark & Stark’s Beer & Spirits Group, please click here.

Stark & Stark attorney Marshall T. Kizner, member of the firm’s Beer & Spirits Group, was featured in the New Jersey Law Journal article, “Wine, Beer and Spirits Effervesces As a New Law Firm Practice Area,” published on February 3, 2014.

The article discusses the growing wine, beer, and spirits industry and the creation of Stark & Stark’s new Beer & Spirits practice group, which will “assist clients in licensing, land use, trademark, financing, employment and related issues.” Mr. Kizner was quoted in the article saying, “Growth in the industry is fueled by a trend on the federal and state level to lower barriers to entry, particularly for microbreweries.” He also said, “A new state law that took effect last year lowered the permit cost [and] two pending federal bills would lessen the tax bite.”

To read the full article, click here.

Equipment leasing may be an optimal solution for starting or expanding your brewery, brew pub or distillery because, among other things, it may greatly reduce up-front costs and expenses. However, when entering into an equipment lease, it is important to understand the terms of the agreement. Below is a list of 10 key factors to consider before entering into the lease:

  1. Term.  Your lease will likely be for several years. The term is significant because the decision to lease may require your company to keep the same equipment for several years. This may not be compatible with your company’s growth and vision. Alternatively, you may want the lease term to be longer to ensure your company’s access to the equipment at the terms set forth in the lease.
  2. Lease Payments.  To avoid breaching your lease, you company’s cash flow must support your monthly payment. Do your projections support the ability to pay the lease?
  3. Taxes.  Ensure that you understand who is responsible for sales tax and other applicable taxes under the lease.
  4. Insurance. If your company is responsible for insuring the equipment, you must ensure that you have coverage in place and that the coverage selected is sufficient under the lease. 
  5. Cost of Transportation.  You must understand who is responsible for the cost of transporting the equipment to your business location.  
  6. Installation and Setup.  Along these same lines, you must understand who is responsible for the cost of installing and setting up the equipment.
  7. Maintenance and Repairs.  Who is responsible for maintenance and repairs? If the lessor is not responsible for maintaining and repairing the equipment, your company may want to investigate estimated costs to avoid surprises. Your company may also want to consider entering into a service contract with a third party vendor.
  8. Warranties. It is important to understand the nature and scope of the warranties provided by the lease. Other warranties that are not spelled out in the lease may exist by operation of law.  It is important to understand those warranties as well.
  9. Default. If you are late with a payment or otherwise do not follow the lease you may violate the lease and be in default. Likewise, if the lessor does not follow the lease, it may violate the lease and be in default. It is important to understand your rights and the lessor’s rights to help minimize disputes.
  10. Resolving Disputes. When a dispute cannot be worked out between the lessor and lessee, litigation often ensues. The lease may provide for numerous provisions that impact your company’s rights during litigation. For example, your company will likely be responsible for the lessor’s attorney fees, costs and expenses if you default under the lease. Likewise, the lease could restrict the state(s) where disputes may be handled, i.e., choice of forum provision. The lease could also restrict how disputes may be handled, i.e., arbitration and mediation provisions. Due to the practical and monetary considerations of resolving disputes under the lease, it is important to understand your company’s rights and the lessor’s rights before entering into a lease.

These are only a few examples of the issues breweries, brew pubs and distilleries face when entering into an equipment lease. Because of the significant amount of legal terms and conditions contained in a lease agreement, it is important to consult counsel before signing the lease. 

For more information on Stark & Stark’s Beer & Spirits Group, please click here.

One interesting component of the recently enacted Craft Distillery License is that it permits license holders to certify that their products are “New Jersey Distilled.” Under the New Jersey statute authorizing the license, a craft distiller certifying that at least 51% of the raw materials used in the production of its distilled alcoholic beverages are either grown in New Jersey or purchased from providers in the State can label such beverages as “New Jersey Distilled.”

The New Jersey Distilled designator is symbolic of the State’s support for the nascent craft distilling industry in New Jersey. It also presents a unique marketing opportunity for the artisan distiller by permitting advertising that promotes spirits that are locally distilled using locally produced ingredients. With the new Craft Distillery License, the New Jersey legislature has reconsidered manufacturing laws that have been in place since the repeal of prohibition, lowering the barriers to entry for the craft industry. Further, New Jersey Distilled can be a sign of solidarity amongst the State’s artisan distillers as well as promoting distillers’ association with our State’s unique identity.

For more information on Stark & Stark’s Beer & Spirits Group, please click here.

Recent changes to the New Jersey Limited Brewery License and Restricted Brewery License have made the State a more favorable environment to establish a craft brewery or brewpub.

In New Jersey, craft breweries can apply for a Limited Brewery License, which permits the brewery to produce up to 300,000 barrels of 31 gallons of malt alcoholic beverage per year.  Traditionally, such establishments were permitted to sell and distribute this product to licensed wholesalers and retailers.  However, service to the consumer was limited to offering samples under to a separate permit issued by the Director of the Division of Alcoholic Beverage Control.  With the recent amendments to the Limited Brewery License that went into effect on December 1, 2013, craft breweries holding this license are now permitted to sell their product at retail to consumers on the licensed premises for consumption on premises in connection with a tour of the brewery.  Further, such license holders are also now permitted to sell their product for off premises consumption in a quantity of 15.5 gallons or less.  Currently, the license application fees for the Limited Brewery License in New Jersey range from $1,250 to $7,500, depending on production capacity.

Those looking to establish a brewpub in New Jersey must hold a Restricted Brewery License.  This license permits the holder to brew a specified amount of malt alcoholic beverages and sell such product for consumption in an immediately adjoining restaurant premises having adequate kitchen and dining facilities that are principally used for the purpose of providing meals to its customers.  This license may only be issued to a person or entity that has the same ownership to an entity that holds a Plenary Retail Consumption License.  The December 1, 2013 amendments to this license have generally made it more useful to its holder in furtherance of his brewpub business.  For example, a Restricted Brewery can now produce up to 10,000 barrels of 31 gallons per year, which is an increase from the previous 3,000 gallons.  Also, the holder of a Plenary Retail Consumption License can now hold up to 10 Restricted Brewery Licenses.  Finally, holders of the Restricted Brewery License are now permitted to sell and distribute their product to licensed wholesalers.  The fees for the Restricted License are $1,250 for the initial application, plus $250 for every 1,000 barrels produced beyond the initial 1,000 barrels.

The amendments discussed above are a welcome change for the craft beer industry in New Jersey and increase the state’s attractiveness as a place to establish such a business.

For more information on Stark & Stark’s Beer & Spirits Group, please click here.

Choosing your business location, whether as a startup brewery, brew pub or distillery, or to relocate an existing business, is a critical determination. There are many considerations, both business and legal, that must be weighed in making this decision. From a business perspective, the issues include whether the premises has adequate space for both present and future operations; are the utility systems (electrical and plumbing) adequate to handle operations and waste disposal; and is there adequate office space and storage space? If you plan on having a bar, tasting room or conducting tours on the premises, factors such as dining space, kitchen space, parking and major highway access will also be significant in your decision.

In addition to the business considerations of where to locate your brewery, brew pub or distillery, there are many legal considerations that must taken into account, including land use and zoning requirements for parking; legality of the commercial venture on the premises; loading and unloading; and compatibility with local waste management systems.

There are also factors for acquiring the premises. If the space will be leased, the third party landlord must be amenable to the nature of the business operations. Additionally, the landlord may require a long term lease. Will a long term lease be compatible with your vision and growth? Do you have the ability to exit the lease if your business needs change before the expiration of the lease term? Do you have the ability to extend your lease under favorable terms?

These factors merely highlight the myriad of issues that breweries, brew pubs and distilleries face when selecting a premises to run its operations. Due to the importance of these issues, counsel should be consulted before major decisions are made. 

For more information on Stark & Stark’s Beer & Spirits Group, please click here.

Effective December 1, 2013, the New Jersey Division of Alcoholic Beverage Control began accepting applications for a new craft distillery license for distillers located in New Jersey.  This new license, which makes it easier and more cost-effective for small distillers to distill and manufacture spirits within the state, was born out of new legislation that was signed into law by Governor Christie last August.

The license will entitle the holder, subject to certain rules and regulations, to manufacture up to 20,000 gallons of distilled alcoholic beverages annually, as well as to rectify, blend, treat and mix distilled alcoholic beverages.  Further, the license permits the holder to sell and distribute to licensed wholesalers and retailers as well as to retail consumers for consumption both on the holder’s licensed premises and off-premises in quantities up to five liters per person (but only in connection with a distillery tour).  The license also permits sampling in specified quantities.

The license application fee is $938.  However, there are certain information requests that must be submitted in connection with the qualifying investigation procedure by the Division, including business formation documents, financial records, and proof of insurance.  In addition, all applicants will be required to complete a state background check, furnish certain detailed information concerning the licensed premises and publish a public notice referencing their application.

While the licensing process involves compliance with detailed informational requirements, the craft distillery license presents a cost-effective alternative to the expensive New Jersey plenary distillery license and signifies the state’s welcoming a new craft distillery industry within its borders.

For more information on Stark & Stark’s Beer & Spirits Group, please click here.

Tax relief for breweries could be on its way thanks to two pieces of proposed legislation, The Small Brewer Reinvestment and Expanding Workforce Act ("Small BREW Act") and The Brewers Excise and Economic Relief Act of 2013 (“BEER Act”). Under current law, brewers generally pay an $18 excise tax on each barrel brewed.  Small brewers, defined as those that brew fewer than 2 million barrels of beer a year, pay a reduced excise tax of $7 per barrel for the first 60,000 barrels brewed each year.

The Small BREW Act would reduce the small brewer rate on the first 60,000 barrels by 50 percent (from $7.00 to $3.50 per barrel) and institute a new rate $16.00 per barrel rate on beer production above 60,000 barrels up to 2 million barrels.  Breweries with an annual production of 6 million barrels or less would qualify for these tax rates. 

The BEER Act would lower the federal excise tax rate on the first 15,000 barrels to $0. Barrels 15,000 to 60,000 would be taxed at $3.50 per barrel. Additional barrels above the 60,000 mark would be taxed at $9 each.

Thus, the BEER Act is designed to produce tax relief to small and large breweries, while the Small BREW Act is designed to provide relief targeted to small breweries. Proponents of the Small BREW Act argue that it should help promote a competitive balance for craft breweries competing with larger breweries. Proponents of the BEER Act argue that it will help foster economic growth on a larger scale across the United States.

Both the Small BREW Act and BEER Act’s progress can be monitored at the govtrac.us website.

For more information on Stark & Stark’s Beer & Spirits Group, please click here.