Imagine spending significant time, money, and energy designing a restaurant concept, working with your head chef to develop a cutting-edge menu, and finally bringing it all to reality only to find out that your new general manager has left to open a competing restaurant with a similar format, menu, and décor. While it is impossible (and unlawful) to stop your employees from opening competing establishments, advance planning and implementing some relatively simple protections for intellectual property will put you in a strong legal position to be aggressive if such a dispute arises.

For restaurateurs, key assets do not reside in factories or warehouses that are easily locked and to which access is easily limited. Instead sensitive information is generally available to the staff because they need such information to run the day-to-day operations of a restaurant. Furthermore, often such sensitive information is maintained in electronic media, and copies can be easily downloaded to a thumb drive or other hand-held device, or emailed to remove the information from the premises. Companies that have failed to plan for the protection of their trade secrets and other confidential intellectual property may find themselves scrambling to prevent its use by a former employee on behalf of a competitor.

Your Intellectual Property

It is a common misconception that only highly technical or scientific information is protected under trade secret and similar laws. In fact, courts have enjoined competitors from using things such as sausage-making equipment, signature barbecue sauce, and a taco shop's kitchen design and equipment layout. In the case of restaurants, other protected areas may include:

  • Unique recipes, food preparation techniques, and processes
  • Customer information (including both contact information and particularized information about customers’ needs or preferences)
  • Supplier information (including where to get certain unique ingredients or special décor items)
  • Technical or design information associated with the interior design of the restaurant
  • Internal company and restaurant management processes
  • Marketing or strategic plans

In short, any information that gives a company a competitive advantage and is not generally known in the industry may qualify for trade secret protection.

The Options for Protection

The protection of your confidential or trade secrets may be accomplished under one or more of three basic legal concepts.

  1. Implied law duties of loyalty and confidentiality which provide protection against employees’ misuse of “goodwill,” prohibits them from usurping business opportunities from their employers, and prevents them from disclosing confidential information that will place their employer at a competitive disadvantage; and
  2. Federal and state trade secret statutes which protects certain employer information that meets legislatively defined definitions; and
  3. Contractual agreements which often are the most effective means to restrict conduct during and after employment, provided the agreements are enforceable given the circumstances in which the agreement was signed, the reasonableness of the particular restriction at issue, and the nature of the information that is sought to be protected.  

What You Should Do

To take full advantage of the options for protection identified above, you must be prepared and proactively take steps to develop and implement certain process within your organization. For example:

  • Triage. Develop and implement processes for systematically examining company information. Make the effort to identify what information should be considered confidential or a trade secret. Periodically remind employees of the confidential nature of company information and their duty to refrain from its disclosure. Computer log-in messages, pay stub reminders, and internal company newsletters can be effective means of doing this.
  • Agreements. Use nondisclosure, nonsolicit, or noncompete employment agreements where appropriate. However, be aware that the effectiveness and enforceability of these agreements are a matter of state law. For example, in certain states, an employer must obtain signatures before the first day of employment or at the very latest, early on the first day of employment, before the employee actually performs work for the company or obtains access to confidential information to be effective.
  • Personnel Management. Review your employee handbook. Include in the employee handbook a statement regarding confidential employer information and the prohibition of disclosure of such information both during and after employment. In the handbook, and in any nondisclosure agreements, define confidential or trade secret information broadly enough to capture the information you are concerned about, yet specific enough that it is clear you are focusing on information sensitive in your business or industry. Have the employee sign a verification page indicating he or she has reviewed the confidentiality provisions in the employee handbook.
  • Limit Access. Limit access to confidential information and computer systems. Make sure at a minimum that computer systems are password-protected, and that only those employees with a business need to access confidential information may view such information. Require that passwords be updated periodically and that they must be in a form which is not readily guessed (i.e., some combination of numbers and capital and non-capital letters).
  • Be savvy with websites and social media. Make sure that company websites (internal and external-facing) do not contain information which you want to be able to classify as a trade secret or confidential or proprietary. Review websites regularly to ensure such information is not placed at risk. Address what information employees can discuss or post on blogs, and prohibit the disclosure of confidential information and trade secrets. Monitor blogging activity frequently, and take steps to prohibit or stop trade secret disclosures.

You cannot stop your general manager or any other employee from leaving your organization to start his or her own restaurant, but you can often limit the loss and use of your sensitive information by implementing some internal systems that help protect such information as trade secrets.