Category Archives: Best Practices

Non-Compete Agreements in California

With the proliferation of wineries in California, it’s not uncommon for an owner to find one of its winemakers deciding to leave and set up shop on their own. Is there anything you can do up front to prevent them from taking the craft they’ve honed at your winery elsewhere? The short answer is, in most cases, no. But as with almost everything in the law, there are some exceptions you should know.

California public policy strongly favors free and open competition in the marketplace. Business and Professions Code section 16600 states clearly that contractual restraints on competition or trade are void, except as otherwise provided. California courts interpreting this statute emphasize that it protects the right of Californians to pursue any business, occupation, or lawful employment of their choosing. Contract provisions which attempt to place restrictions on a person’s ability to work for a competitor, or open a competing enterprise, are generally unenforceable.

That said, you should be aware of the “as otherwise provided” part of the Code. The primary exceptions to the prohibition on non-compete agreements apply to “owners” of a business and arise in the following contexts.

First, if you are selling all of your ownership interest, or all of most of the operating assets together with the goodwill of the business, you can agree with the buyer to refrain from “carrying on a similar business within a specified geographic area” so long as the buyer is going to be carrying on the same or a similar business in that area.

Second, if you are leaving a partnership or an LLC, you can agree not to carry on a similar business within the geographic area where the business is operating.

If you fall within one of the above exceptions, you should consult with an attorney to make sure any non-compete agreement complies with California law and is narrowly tailored both in geographic scope and duration.


Best Practices in Winery Tasting Rooms

If you have a tasting room, you know that following the letter of the law is the best way to stay under the radar (and off the naughty list) of the ABC. Violations, including serving minors or obviously intoxicated patrons, can have serious consequences, including jail time, criminal fines, administrative penalties, and civil liability. And you, as the owner, will always be held accountable for the actions of your employees, even if you were not present when a violation occurred. While insurance can cover general business liability, it never covers gross negligence, which is why it is so important to make sure that you and your team are trained in the best practices to avoid violations. In addition to or as a part of your employee training and handbook, here are a few things to keep in mind:

Do all of your employees know where your license is? The ABC requires you not only to be validly licensed, but to have your license posted. Every employee of your tasting room must know where that license is, and be ready to point it out to anyone who asks for it. If your business cannot produce a license, then the person serving alcohol is subject to arrest, and you as the owner are subject to an administrative penalty. In reality, the ABC is not likely to make an arrest until they have sufficient reason to believe that no valid license exists, but, even with a valid license, the posting is required, and the consequences are potentially severe.

Do your employees know where people can and cannot consume alcohol on your premises? All permanent ABC licensees have submitted defined spaces for alcohol consumption to the ABC. Consumption of alcohol outside that defined space is a violation. For this reason, you should make sure that all of your employees know and enforce these limits. If your defined space does not include your parking lot, for example, then it is up to you and your employees to ensure that people are not walking out of the permitted area with a glass of wine. Even a bus stop on a public sidewalk in front of your tasting room may be your responsibility. It is important to remember that consumption outside the allowed boundaries, even if the alcohol was not provided by you, is a violation, and you can be cited. That means no tailgaters.

Do your employees follow a policy of checking identification? Serving alcohol to minors is the most common ABC violation. As a classy tasting room owner, the idea of teenagers trying to crash your business to get a sip of wine might sound absurd, but the truth is that it happens every day. Each employee should be required to check the identification of anyone who appears to be under 35 years old. You may want to take this a step further and require that all customer identification be checked before they can taste. Employees should be trained to look for six items in order to validate an ID: 1) the ID must be issued by the government; 2) name of ID owner; 3) date of birth corresponding to an age of 21; 4) description matching the person presenting the ID; 5) photograph matching the person presenting the ID; and 6) the ID must not be expired.

Do your employees know when to cut someone off? It is an ABC violation to serve alcohol to someone who is obviously intoxicated. For ABC’s purposes, “obviously intoxicated” has nothing to do with a 0.08% blood alcohol level, and has much more to do with common sense. While this description leaves some wiggle room, it is best to have in place policies so that you and your employees never have to worry about infringing. Train your employees to observe your customers. If someone appears to have had one too many, make sure that your employees have a game plan. For example, tell your employees to let another coworker or manager know about the customer so that there is backup. Employees should be courteous to the customer, and explain that the ABC won’t let the employee serve any more drinks. If the customer is rude or belligerent, the employee should be encouraged to contact authorities. The employee should never bargain with the customer or back down. If possible, the employee should provide water and arrange for a ride for the customer. Any incident where a customer is cut off or has their drink taken away should be documented.

Remember, nothing prohibits you from doing more than is required by the ABC. In order to avoid violations and keep the ABC at bay, the best tasting room policies and practices go above and beyond the compulsory conditions.


Going Green: Sustainability Certification in California

A few weeks ago, Aerin and I attended the Unified Wine & Grape Symposium in Sacramento. One of the seminars I attended dealt with sustainability, a topic that seems to be popping up with increasing frequency in the wine industry.

Sustainability is an interesting concept, primarily because it lacks any single definition or set of criteria. And, when it comes to certifying your wine as “sustainable” there are several programs to choose from. Wineries need to do their research to uncover the criteria for each certification program, and evaluate which program best fits their current practices and goals for sustainability.

One of California’s main sustainability programs is the California Sustainable Winegrowing Program. It advances and provides resources for practices that are “environmentally sound, socially equitable, and economically viable.” Its certification program – Certified California Sustainable Winegrowing (CCSW Certified) – provides third-party verification of a winery’s implementation and ongoing improvement of nearly 200 sustainability practices/criteria drawn from a publication called the “California Code of Sustainable Winegrowing Workbook,” which is available for free to California vintners and winegrowers here. According to its literature and website, CCSW emphasizes conservation of water and energy, soil health, protection of air and water quality, employee/community relations, and the preservation of local ecosystems and wildlife habitat.

Another third-party certified sustainable winegrowing program is Lodi Rules for Sustainable Winegrowing Certified Green. According to its website, the Lodi Rules take “a comprehensive approach to farming that goes beyond just pest management to promote practices that enhance biodiversity, water and air quality, soil health, and employee and community well-being.” A fact sheet can be found here, which summarizes the Lodi Rules’ standards for Certified Green. The program does not restrict its certification to wines from the Lodi Appellation; in 2012 about 1/5 of its certified acreage was outside the Lodi region.

Napa County vintners and winegrowers have their own local certification program: Napa Green. Napa Green describes itself as the wine industry’s “most comprehensive ‘best practices’ program for land use and wine production.” Two certifications are available: Napa Green Certified Land, and Napa Green Certified Winery. The Land Certification seeks to protect and preserve the Napa watershed, and involves creating a plan unique to each landowner’s property that emphasizes wildlife habitat, protection of riparian environments, and sustainable agricultural practices. The Winery Certification emphasizes the conservation of water and energy, prevention of pollution, and reduction of waste.

Yet another statewide program out is Sustainability in Practice, or SIP Certified. This program focuses on habitat and water conservation, energy efficiency, pest management, economic stability, and human resources.  According to its website, SIP Certified wines reflect the implementation of sustainability practices that are broader and more comprehensive than even USDA Organic standards. A link to SIP Certified frequently asked questions can be found here.

All of these programs are based on the fundamental premise that ultimately, sustainable practices are not only good for the environment, but good for business as well. After all, the wine industry is heavily dependent upon both natural and human resources, so it only makes sense that business practices emphasizing the protection and health of those resources will ultimately contribute to the industry’s continued vitality and growth.

Room for improvement may lie in the specificity of information available to the consumer about sustainability certification. Certainly consumers find value in knowing which wines are “certified” sustainable, but at present they have no easy way to differentiate between the various certifications they may find on the labels. Do they want that information? Or is it enough to simply know the product has been through some form of certification process? I suppose time and the market will tell. Meanwhile, wineries interested in letting their consumers know more specifics always have the option of describing their sustainability practices where the consumer can’t miss them: right on the label itself. Of course, don’t forget to check the regulations governing labeling before you do – particularly those prohibiting any statements that could be considered misleading. That’s a topic for another day.


Social Media is Advertising: Know the Basics

There’s no question that social media is critical to marketing one’s product. For wineries, however, maintaining a social media presence comes with some serious restrictions. That’s because social media is considered advertising, and is subject to both federal and state regulations governing the advertising of alcoholic beverages. This post is intended to give you the basics on regulations governing the use of social media by wineries. It is, however, not exhaustive. If you have questions about whether something you want to post is permitted, it’s best to look into it or seek advice before posting, rather than risk an inquiry by the TTB or ABC.

Federal regulations set forth both mandatory and prohibited content for any advertising. As for mandatory content, regardless of what social media platform you are using (i.e., Facebook, Twitter, YouTube, blogs, etc.), you must post the name and address of the permittee responsible for the advertisement. This information does not need to be repeated in each individual post, but should be readily accessible to anyone visiting the page. The best place to put this information is in the “About” or “Profile” section of the page. If you are posting about a specific product, your post is required to have “a conspicuous statement of the class, type, or distinctive designation to which the product belongs,” corresponding to that which appears on the product label.

Turning to prohibited content, your page cannot contain any of the many prohibited types of statements set forth in 27 CFR 4.64. That means no misleading statements, no “obscene” or “indecent” statements or designs, no statements that are disparaging of a competitor’s product (even if you’re comparing your product to a competitor’s product), no statements relating to alcohol content (with a few limited exceptions), no statements inconsistent with your labeling, and so on. Check the regulation: it’s pretty comprehensive and includes other restrictions on statements relating to the age of your product, its origin, and any health-related claims.

Of course advertising directed at minors is prohibited. Your online platforms should include an age-screening tool, where the user must either confirm they are of legal age, or enter their birth date to proceed to your content.

California law prohibits wine manufacturers from giving anything of value, “directly or indirectly, to… any person engaged in operating, owning, or maintaining any off-sale licensed premises.” In other words, you can’t give anything of value to a retailer. Posting where your products are sold is providing something of value to the retailers that sell your products. Fortunately, there is an exception to be found: in response to a direct consumer inquiry, you may post the names, addresses, and other contact information for two or more unaffiliated off-sale retailers selling your product as long as you satisfy certain conditions. Those conditions are that you cannot post the retail price of your product, your listing is the only mention of the off-sale retailer in your post, you have to refer to more than one retailer and they cannot be affiliated in any way, and you are exclusively responsible for making, producing, and paying for said listing in response to the consumer inquiry.

Remember that all advertising restrictions apply to the permittee. That means if someone else posts something on your page that does not comply with federal or state regulations, you as the permittee will not be held responsible for that third-party content. However, if that third-party content is re-posted or shared by you, you will be held responsible. While not strictly required, it’s probably a good idea to monitor user-generated content on your sites to make sure it doesn’t fall too far outside the scope of permissible content, or your own bounds of good taste.


Shipping Wine In, Out, and Around California

Are you considering shipping your wine within California, or even out of state? Like everything else in the wine industry, shipping can be complicated and difficult to stay up to date with. This article is written as a guideline for wineries to use prior to shipping any bottle to anyone. Please note, it is illegal in every state for any consumer to ship wine to any other consumer. This article is written as a guide for licensed wineries to ship wine to consumers.

Within the state of California:

The ability of California wineries to make retail wine shipments to adult California consumers is a basic privilege for a California Winegrower Licensee (Type 02 license designation). However, just because you have the privilege of shipping wine does not mean that any shipper will allow it. The United States Postal Service does not accept packages containing alcohol. UPS provides wine shipping services to wineries with valid Type 02 licenses. However, this is on a contract basis only. FedEx has a similar service, with stringent regulations for wine shipping containers. Regional carriers, such a Golden State Overnight, provide similar services, and can often beat the national carrier prices. No matter what carrier, all deliveries must have a person over age 21 sign for the package.

From outside of California to California:

Non-California wineries may ship retail wine to California residents over the age of 21, provided they have a Wine Direct Shipper Permit, available through the ABC. This is a Type 82 license designation. The permit application (Form ABC-248) is $10 per year, and can be found here. Once the California Board of Equalization receives the permit application, the non-California winery must provide the Board with a Certificate of Use Tax, and other reporting as required by the Board. If a non-California winery fails to report their sales, the Board will notify the ABC for further action.

From California to a state other than California:

California wineries do have the ability to ship wine to many non-California adults, but there are restrictions and exceptions, and regulations vary from state to state. For example, for the state of Tennessee generally, California wineries may ship a maximum of one case per month, not to exceed three cases per year, directly to individual consumers. And, as in many other states, Tennessee requires a one-time non-refundable application fee of $300.00, in addition to the annual license fee of $150.00, which is pretty hefty if you only have a few customers in the state. Other states, like Utah, prohibit California wineries from shipping any wine direct to consumers. This is why it’s so important to check the local laws and regulations for any state to which you are considering doing direct-to-consumer shipping.

For more information about shipping wine in and out of California, or for specific information about your needs, contact the author of this article.