Articles Posted in Business Law

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Restrictive covenants are contractual clauses that limit an employee’s post-employment activities for a specified length of time and geographic area.  Their enforceability varies by state and by profession.  For example, restrictive covenants are unenforceable in the legal profession but are enforceable in the medical profession. The American Medical Association, however, discourages restrictive covenants between physicians. Yet it deems them ethical unless they are excessive in geographic scope or duration, or fail to reasonably accommodate patients’ choice of physician.

The determination of whether a restrictive covenant is reasonable is a factual one that is assessed on a case-by-case basis: courts weigh the competing interests of the employee versus the employer, and typically the burden is on the employer to demonstrate that the restrictive covenant protects the employer’s interests without posing an undue hardship on the employee.

In Pennsylvania, restrictive covenants are enforceable if they are incident to an employment relationship between the parties, the restrictions imposed by the covenant are reasonably necessary for the protection of the employer, and the restrictions imposed are reasonably limited in duration and geographic extent.  Hess v. Gebhard & Co. Inc., 808 A.2d 912 (Pa. 2002).

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Beer
In June, the New Jersey Attorney General’s Office announced the largest fine ever imposed upon a beer wholesaler by the Division of Alcoholic Beverage Control.[1]  The Hunterdon Brewing Company (“Hunterdon”) agreed to a fine of $2 million to avoid a suspension of its license in light of allegations that it committed trade practice violations.[2]  Beer wholesalers such as Hunterdon act as intermediaries between brewers and retailers by purchasing beer from craft breweries such as Dogfish Head, Weyerbacher, and Avery and reselling the beer to retailers such as bars and restaurants.  Chief among Hunterdon’s alleged trade practice violations was its alleged sale of draft beer tap systems at “below fair market prices” in violation of N.J.A.C. 13:2-24.1.[3]

The regulations Hunterdon is said to have violated are part of a three-tier distribution system that was established by most states in the aftermath of prohibition.[4]  The three-tier distribution system, which traces its origins to a study entitled Toward Liquor Control that was financed by John D. Rockerfeller, Jr., a noted teetotaler, creates a separation between alcohol manufacturers and retailers.[5]  As a result, wholesalers like Hunterdon exist to act as intermediaries between brewers and bars for the sale of beer.

Toward Liquor Control, in no hidden terms, made clear that its goal was to limit alcohol consumption by making the sale of alcohol difficult and expensive.[6]  As part of this scheme to increase the price of alcohol, three-tier distribution systems 1) prohibit direct sales from manufacturers to retailers, and 2) limit the ability of brewers and wholesalers to incentivize retailers to carry their products.[7]