What is a Restaurant Non-Disclosure Agreement?
A Restaurant Non-Disclosure Agreement, commonly known as an NDA, is a legally binding contract between an employer and an employee (or a contractor) that prevents the employee from sharing certain confidential information regarding the business with individuals outside of the company. In other words, it’s essentially an agreement between the employer and employee where the employer provides the employee with an overview of what is considered confidential restaurant information , and the employee agrees to not share or disclose this information with any unauthorized third parties.
NDAs are essential for protecting the best interests of a restaurant, and should be used in all establishments – independent, franchise and corporate owned. NDAs are typically signed on the first day of business (at the time of hire) when onboarding new employees, but the use of a Non-Disclosure Agreement also depends on the type of information the employee will have access to, and their position within the company.
Key Components of a Restaurant NDA
An NDA typically consists of several key elements, including the identification of the parties to the agreement, a definition of the confidential information to be protected, the obligations of the receiving party, term and duration of the agreement, an outline of the use of the information during the term and after the termination of the agreement, the manner of return or destruction of confidential information, and a provision for governing law and any exceptions. Any breach of the NDA can lead to legal action by the breaching party.
Confidentiality Obligations
In a restaurant NDA, there is usually a confidentiality obligation placed on the receiving party pledging to keep the information secret. The obligations will include protecting the information with the same degree of care that the receiving party uses to protect its own confidential information. This section may also require the receiving party to train its employees on confidentiality obligations and to impose similar responsibilities on its employees.
Why Do Restaurants Need NDAs?
As critical as non-compete, non-solicitation and arbitration agreements are, a restaurant’s most trade secret information is its recipes, formulas, methods of preparation, techniques, products or a combination of these. It is not unusual for restaurants to tell employees the names of ingredients, but do not want those employees to know the proportions. When employees have access to a restaurant’s proprietary customer lists, marketing strategies and systems, and the like, it is important to get an agreement. Even if a restaurant does not have meaningful proprietary information, a non-disclosure agreement is still worthwhile because there is a level of confidence one can obtain in an employee that helps avoid other unfortunate situations.
Drafting a Restaurant NDA
Begin by choosing an appropriate name for the document. You can use "Confidentiality Agreement" or simply refer to it as a "Non-Disclosure Agreement (NDA)." Then, identify each party involved in the agreement. Specifically, use the names of each business or person to prevent confusion later. The Names of the Parties section should declare that "The parties to this agreement are…," for example, "The parties are (1) [Your Company Name], a [Your Company’s Domicile] corporation with an address of [Street Address, City, State, Zip Code], and (2) [Employee Name], an employee of [Your Company Name], with an address of [Street Address, City, State, Zip Code], hereinafter known collectively as the "Parties"."
The Recitals section highlights the objective of the agreement. It could start as follows, "Whereas, the employee and [Your Company Name] (the "Company") are parties to this Confidentiality Agreement ("Agreement"). The Company possesses sensitive and proprietary information that is confidential and the employee recognizes that disclosure or unauthorized use of any of this information may cause irreparable harm to the Company."
Confidential Information Under This Agreement section is where you inform the employee of what the Company defines as confidential information during the course of their employment. Such information could include trade secrets, know-how, production methods, processes, customer lists, financial information, computer software, and related documents and records. This section could read, in part, "For purposes of this Agreement, the term "Confidential Information" shall mean any data or information that is proprietary to the Company and not generally known to the public, or that the Company considers proprietary and confidential by nature."
Governing Law section states that the laws in your state shall apply. The text could read, "This Agreement shall be construed in accordance with and enforced under the laws of the State of [Insert Name of State]."
The Signatures of the Parties section is where the parties sign and print their respective names. It could start as follows, "In witness whereof, the Parties hereto have executed this Confidentiality Agreement as of the date set forth herein."
Common Mistakes and How to Avoid Them
When adding a little more muscle to secure your restaurant’s reputation, covering all the bases is essential. Perhaps the most common pitfall for restaurant owners when finalizing a non-disclosure agreement (NDA) is using a non-compete or other legal template that doesn’t apply specifically to the situation and is much broader than what’s necessary to protect the restaurant’s interest. For example, if a disgruntled employee plans to take away a few of your suppliers, a generic NDA that prevents him from taking away all your suppliers probably won’t give your restaurant much added protection. The NDA may be "motioned," but unable to "carry a legal style." While it may be difficult to specify the exact suppliers , a more enforceable NDA would stipulate that the employee may not deal with any suppliers for your restaurant whose identity would be reasonably possible for the employee to transmit to another competitor. Another common arrangement seen in restaurant NDAs is included in a contract that has been blurred in for a long period of time, perhaps even decades, from a business or industry that is noticeably different from the original. Often these documents contain prohibitively dated or irrelevant terms that can be disqualifying in any type of attempt to hold another liable. Even where an NDA is otherwise perfect, there are special rules that come into effect once the NDA is signed, especially if a particular location has a sizeable number of labor unions. Labor Unions are very sensitive about the terms outlined in any NDA. Those outlined terms must be carefully scrutinized before attempting to enforce the NDA and punish the violator.
How to Enforce a Restaurant NDA
In the unfortunate event that an employee does breach a restaurant non-disclosure agreement, there are a series of steps you may wish to take to address the matter. For a non-essential employee, a warning or reprimand may suffice. However, enforcement may be more necessary in the case of an essential employee.
For starters, it may be advisable to contact the individual directly and ask him or her to cease the behavior. You can reiterate the existence of the nondisclosure agreement—as well as the possibility that he or she has violated it—and ask for his or her cooperation in stopping any actions that may be in breach.
It may also be helpful to send a letter or email to the employee reiterating the existence and contents of the nondisclosure agreement, and how they have been violated. Let him or her know that violating the agreement could have legal consequences in accordance with the law and with the signed agreement.
Your restaurant may also wish to take certain disciplinary actions against the employee. Some punitive actions could include a formal written reprimand — outlining the error and the individual’s past history in a way that documents the mistake but does not put him or her at risk of immediate termination — or demotion to a lower-paying position, if the employee holds a high-paying job. The restaurant may even choose to terminate the employee, provided there is sufficient cause, a proper audit has been performed and terminations are consistent with labor laws.
If none of these options resolve the issue, or if an investigation reveals the employee in question has not obeyed the non-disclosure agreement, and further action must be taken against him or her. Depending on the severity of the breach and the potential ramifications, you may need to take legal action against his or her. Consulting with an attorney with experience in employment law should be a business owner’s first step. He or she will be able to thoroughly outline which actions you can take, what you need to prove and the potential consequences for your former employee.
In addition, your attorney may also be able to assist you with determining how you might be able to mitigate the damages caused by the breach. In some cases, the damage caused by a breach may not be permanent and there are some actions the restaurant might be able to take to reclaim some of the losses.
Restaurant NDA: Examples and Case Studies
The world of food and beverage is a dynamic, ever-evolving environment, rich with creativity, innovation, and perhaps the most coveted form of intellectual property of them all: the secret sauce. As a result, it is not uncommon for restaurants to need to utilize NDAs to protect valuable information.
Case Study 1: The Franchise Signing
A successful chain of mid-tier, fast-casual eateries, "Berry Good," has expanded locally and nationally by franchising its business model. Although Berry Good has a set number of restaurants in the city, Berry Good compensates a third-party consultant, Charlie, for his expertise and guidance on how to expand the franchise’s footprint into previously uncharted cities. Recognizing that their sales model is its most valuable and unique possession, despite being discussed in open settings, Berry Good requests each individual restaurateur sign their own NDA before Berry Good provides business details for his or her specific location. Charlie refuses to sign the NDA because, as a passionate member of the industry, he strives to maintain his ability to work across multiple franchises. Berry Good does not pay Charlie for his services until he signs the NDA. According to Berry Good, Charlie’s knowledge of the restaurant combined with his position as a consultant to other companies across multiple industries make him a potential risk to Berry Good’s business model and component skills. The NDA makes it clear that a violation will result in a lawsuit against Charlie by Berry Good. Ultimately, Charlie consents. The NDA protects Berry Good’s sensitive information during the consulting process and provides valuable remedies in the event that Charlie disregards the NDA.
Case Study 2: An Employee’s Departure
Ricky Sroe, a bartender with five years of service at Night Bites, a popular 24-hour, fast-casual restaurant, resigned late one month, effective immediately . With Ricky’s sudden departure, Night Bites lost a bartender who establishes rapport with its night shift employees, trains new employees, and makes the best Gingerbread Martini in town. Night Bites is concerned that Ricky may disclose confidential information that he obtained during his employment which could be valuable to a similar restaurant vying for clientele. As a result, Coral Allie, the Director of Human Resources, sends Ricky a NDA that requires Ricky’s signatures and remains in effect for one year following Ricky’s last date of employment. The NDA defines "confidential information" as "Night Bite’s recipes, including but not limited to its gingerbread martini, food and drink costs, the names and contacts of its vendors, its current and future marketing strategies, and all confidential business plans, marketing plans and proposals, while still excluding information publicly available to the average consumer." Coral believes that it has taken all necessary precautions to protect Night Bites’ interests. However, despite Coral’s efforts, Ricky discloses the secret recipe to another local establishment of the same genre after agreeing to receipt of a $10,000 cash payment, if the drink’s recipe remains a secret when written on the contract. Soon after, Night Bites files a lawsuit against Ricky for breach of contract and misappropriation of trade secrets. Night Bites is able to recover damages in addition to its actual loss due to the NDA’s injunctive relief and attorney fees provisions. Although Ricky was never apprehended, Night Bites’ confidence in pursuing Ricky with a NDA and reaction to Ricky’s otherwise "simmering down" is an example of how NDAs can settle the exposure of sensitive information.