Do Sophia and Hal have valid grounds for asking Jack to sign a noncompete agreement?

Intellectual Property Rights

Jack, a successful restaurant owner whose upscale establishment offers signature dishes, is selling his business to two of his employees Sophia, his sous chef, and Hal, the maitre d’. Jack’s Place is a trendy neighborhood restaurant and bar that has a loyal customer base built from a frozen food line created by Jack and Sophia over the years from the restaurant’s fresh menu.

Sophia and Hal are eager to purchase the restaurant and operate it under the same name, featuring the same dishes, frozen food line, and level of service that Jack’s Place customers have come to expect. Sophia is a longtime employee who helped develop some of the signature dishes that made Jack ‘s Place a popular destination in the neighborhood. A favorite dish is her Scaloppine al Marsala, which is based on a Sicilian family recipe.

As contract negotiations begin, Jack tells Sophia and Hal that he wishes to retain the intellectual property rights to the frozen food items as he enters into retirement. While he has no plans to open another restaurant, Jack believes that at some point he may want to market those dishes during his retirement for some residual income. Therefore, he suggests that a confidentiality agreement be drawn before the sale is final.

Sophia and Hal, who wish to continue operating Jack’s Place under its existing business plan, feel that if Jack keeps the rights to the frozen food items the future success of the restaurant could be compromised. If Jack’s Place can’t offer the same food items that have enabled the business to succeed in years past, then the restaurant could lose its customer base. And if Jack would use the recipes including Sophia’s Scaloppine al Marsala-to open another restaurant, then Jack’s Place would surely fail. Ten years ago, when Sophia began working for Jack, the restaurant didn’t offer the frozen food line. Over the years, she worked closely with Jack to develop the dishes, offering her own blends of spices and herbs. Therefore, she believes that she shares some intellectual property rights to the recipes. Jack, however, contends that Sophia doesn’t have any rights because, as an employer, he paid her to help develop that product line. The recipes, Jack says, are his trade secrets.

While Jack insists that he isn’t going to open another restaurant, Sophia and Hal believe they need protection if they agree to let Jack retain the rights to the recipes. On the advice of his brother-in-law, who is a lawyer, Hal suggests that a noncompete agreement be drawn up to protect the new buyers against competition from their former employer. The agreement would prohibit Jack from opening a restaurant within a 10 -mile radius for five years. Should Jack default on the agreement, then Hal and Sophia would have grounds for legal action.

Jack contends that signing a noncompete agreement would be foolish on his part, because he doesn’t know what the next five years will bring. Sophia and Hal believe it would be equally crazy on their part to buy the restaurant without its frozen food line and allow Jack to have the signature dishes and possibly to compete against them. The seller and buyers are at an impasse. The deal is in jeopardy unless an amicable agreement is reached.

View the video and answer the questions that follow.

Questions

Do Sophia and Hal have valid grounds for asking Jack to sign a noncompete agreement?