The tied house and commercial bribery provisions are those most frequently cited by regulators reviewing an advertisement or marketing campaign.

It shall be unlawful for any person engaged in business as a distiller, brewer, rectifier, blender, or other producer, or as an importer or wholesaler, of distilled spirits, wine, or malt beverages, or as a bottler, or warehouseman and bottler, of distilled spirits, directly or indirectly or through an affiliate…

(b) “Tied house”

To induce through any of the following means, any retailer, engaged in the sale of distilled spirits, wine, or malt beverages, to purchase any such products from such person to the exclusion in whole or in part of distilled spirits, wine, or malt beverages sold or offered for sale by other persons in interstate or foreign commerce, if such inducement is made in the course of interstate or foreign commerce, or if such person engages in the practice of using such means, or any of them, to such an extent as substantially to restrain or prevent transactions in interstate or foreign commerce in any such products, or if the direct effect of such inducement is to prevent, deter, hinder, or restrict other persons from selling or offering for sale any such products to such retailer in interstate or foreign commerce: (1) By acquiring or holding (after the expiration of any existing license) any interest in any license with respect to the premises of the retailer; or (2) by acquiring any interest in real or personal property owned, occupied, or used by the retailer in the conduct of his business; or (3) by furnishing, giving, renting, lending, or selling to the retailer, any equipment, fixtures, signs, supplies, money, services, or other thing of value, subject to such exceptions as the Secretary of the Treasury shall by regulation prescribe, having due regard for public health, the quantity and value of articles involved, established trade customs not contrary to the public interest and the purposes of this subsection; or (4) by paying or crediting the retailer for any advertising, display, or distribution service; or (5) by guaranteeing any loan or the repayment of any financial obligation of the retailer; or (6) by extending to the retailer credit for a period in excess of the credit period usual and customary to the industry for the particular class of transactions, as ascertained by the Secretary of the Treasury and prescribed by regulations by him; or (7) by requiring the retailer to take and dispose of a certain quota of any of such products; or

(c) Commercial bribery

To induce through any of the following means, any trade buyer engaged in the sale of distilled spirits, wine, or malt beverages, to purchase any such products from such person to the exclusion in whole or in part of distilled spirits, wine, or malt beverages sold or offered for sale by other persons in interstate or foreign commerce, if such inducement is made in the course of interstate or foreign commerce, or if such person engages in the practice of using such means, or any of them, to such an extent as substantially to restrain or prevent transactions in interstate or foreign commerce in any such products, or if the direct effect of such inducement is to prevent, deter, hinder, or restrict other persons from selling or offering for sale any products to such trade buyer in interstate or foreign commerce: (1) By commercial bribery; or (2) by offering or giving any bonus, premium, or compensation to any officer, or employee, or representative of the trade buyer; …

TTB, with the cooperation in some states of state alcohol agencies, is conducting a widespread investigation of supplier and retailer activities involving one or more of the following activities: “pay to play” tied house violations, exclusive outlet, commercial bribery consignment sales, slotting fees, illegal sponsorship arrangements, and improper use of third parties, to name a few. TTB is conducting widespread industry interviews and is serving both formal and informal document requests directed at identifying these activities. TTB may prosecute a violation of the Act if the agency can prove an illegal inducement or requirement which resulted in exclusion; put another way, in order to meet its burden of proof, TTB needs to show that the inducement or requirement of the retailer resulted in the retailer purchasing the offending supplier’s products to the exclusion of other brands.

This article is part of our Conference Materials Library and has a PowerPoint counterpart that can be accessed in the Resource Libary.

HospitalityLawyer.com® provides numerous resources to all sponsors and attendees of The Hospitality Law Conference: Series 2.0 (Houston and Washington D.C.). If you have attended one of our conferences in the last 12 months you can access our Travel Risk Library, Conference Materials Library, ADA Risk Library, Electronic Journal, Rooms Chronicle and more, by creating an account. Our libraries are filled with white papers and presentations by industry leaders, hotel and restaurant experts, and hotel and restaurant lawyers. Click here to create an account or, if you already have an account, click here to login.

A former server filed an action under the California Labor Code Private Attorneys General Act of 2004 (PAGA), seeking civil penalties on behalf of herself and other “aggrieved employees” for California Labor Code violations, including the failure to reimburse the cost of slip-resistant shoes.  Plaintiff alleged a violation of Labor Code section 2802, which requires an employer to reimburse employees for all necessary expenditures incurred by the employee in direct consequence of the discharge of their duties.

Plaintiff argued that, because the restaurant required employees to wear slip-resistant, black, closed-toes shoes for safety reasons, such shoes should be provided free of cost or employees should be reimbursed for their cost.

The Court of Appeal, persuaded by the reasoning in an unpublished Ninth Circuit Court of Appeals decision, Lemus v. Denny’s, Inc., and guidance from the California’s Division of Labor Standards Enforcement (DLSE), held that section 2802 did not require the restaurant employer to reimburse its employees for the cost of slip-resistant shoes.  Specifically, the Court held that the cost of shoes does not qualify as a “necessary expenditure” under section 2802.

In reaching its decision, the Court followed the reasoning in Lemus, citing a DLSE opinion letter, “The definition and [DLSE] enforcement policy is sufficiently flexible to allow the employer to specify basic wardrobe items which are usual and generally usable in the occupation, such as white shirts, dark pants and black shoes and belts, all of unspecified design, without requiring the employer to furnish such items.  If a required black or white uniform or accessory does not meet the test of being generally usable in the occupation the [employee] may not be required to pay for it.”

Here, the plaintiff did not argue that the slip-resistant shoes were part of a “uniform” or were not usual and generally usable in the restaurant occupation.  The restaurant did not require employees to purchase a specific brand, style, or design of shoes and did not prohibit employees from wearing their shoes outside of work.

Under California law, a restaurant employer must pay for its employees’ work clothing if the clothing is a “uniform” or if the clothing qualifies as certain protective apparel regulated by OSHA or California’s Division of Occupational Safety and Health (Cal/OSHA).  Labor Code and Industrial Welfare Commission Wage Order No. 5-2001, governs the public housekeeping industry, including restaurants.  Under Wage Order No. 5, uniforms must be provided and maintained by the employer when the uniforms are required by the employer to be worn by the employee as a condition of employment.  “Uniform” includes “wearing apparel and accessories of distinctive design or color.”  This section of the wage order specifically does not apply to protective equipment and safety devices regulated by the Occupational Safety and Health Standards Board.

On appeal, the plaintiff abandoned her alternative theory of liability that reimbursement was owed under provisions of Cal/OSHA, Labor Code sections 6401 and 6403, which require employers to furnish and provide safety equipment to employees.

The trial court had held that OSHA and Cal/OSHA provide than an employer is not required to reimburse employees for the cost of non-specialty shoes that offer slip-resistant characteristics, but are otherwise ordinary clothing in nature.  However, the Court of Appeal ultimately did not decide the applicability of OSHA or Cal/OSHA.  Likewise, the Ninth Circuit in Lemus v. Denny’s, Inc. did not address whether Cal/OSHA requires reimbursement of slip-resistant footwear.

After the decision in Townley, there remains a question of whether reimbursement for the cost of slip-resistant shoes could be required under Cal/OSHA for safety reasons.  Under Federal OSHA regulations, employers must generally provide personal protective equipment at no cost to the employee.  The regulation specifically includes an exemption for non-specialty safety-toe protective footwear, which the employer permits to be worn off the job-site.  Employers are also not required to pay for everyday clothing, including street shoes and normal work boots.  Under California law, if protective equipment is required by Cal/OSHA, the employer is responsible for paying for the safety equipment.  There is no Cal/OSHA regulation equivalent to the Federal exemption for generic non-specialty shoes.  While California employers have argued (and the trial court in Townley concluded) that the Federal exemption should control in California, the California Court of Appeal and Ninth Circuit have so far left that question unanswered.

Takeaways

Although we now have clarity that California Labor Code section 2802 does not require reimbursement of the cost of slip-resistant footwear, there remains the question of whether such footwear could constitute reimbursable protective equipment under Cal/OSHA safety standards.  Although Townley and the Federal OSHA exemption provide some guidance for California employers, they are reminded that neither are necessarily binding or precedential.  As such, it will be important for employers to track California caselaw in this area, as well as look out for Cal/OSHA guidance.  In the meantime, employers are encouraged to periodically review their policies and practices for reimbursing employee business expenses to ensure compliance with California law, including Cal/OSHA regulations.

What Are Predictive Scheduling Laws?

Predictive scheduling laws are generally straightforward. In short, they require employers to post employee work schedules a set number of days in advance of when the work is to be performed. Once posted, however, employers are penalized for making any scheduling changes.

In theory, these laws seek to balance respective interests between employers and employees—a balance that was recently addressed in the landmark California decision, Ward v. Tilly’s. In that case, the court assumed the role of the employee’s champion and explained that schedule predictability was an absolute necessity that allowed employees to plan around second jobs, make child-care arrangements, coordinate school schedules, or commit to social plans, among other things. Glaringly absent from this analysis, however, was the employer’s perspective and concurrent recognition that scheduling changes and fluctuating staffing needs are often caused by unforeseeable market realities such as inclement weather, employee call-outs, and unposted community events.

In practice, unfortunately, legislators have expressed wide disagreement over how to address this problem, causing many jurisdictions to take wildly different approaches. For example, in New York City, certain employers are only required to post schedules 72 hours in advance, with changes thereafter being completely prohibited. In contrast, San Francisco requires employers to post schedules not less than two weeks in advance. Once posted, however, any changes require the employer to pay the affected employee anywhere between one and four hours of additional “Predictability Pay,” depending on how last-minute the change actually was. As these examples demonstrate, legislators have yet to agree on any centralized model for predictive scheduling laws, creating a potential minefield for those employers that attempt to apply consistent scheduling practices throughout multiple jurisdictions.

What Industries And Jurisdictions Have Been Most Affected?

Since the first predictive scheduling law arose in San Francisco several years ago, other states and major U.S. cities have contributed to a precipitous rise in these laws. Places like Oregon, New York City, Chicago, Seattle, and Philadelphia have all since participated in this rising regulatory experiment by respectively proposing and implementing their own unique frameworks.

Simultaneously, other states have actively sought to combat the rise of these practices. In the wake of San Francisco’s law, states like Georgia and Tennessee quickly implemented legislation that prohibited their own major cities from enacting similar predictive scheduling laws at the local level, seeking to stifle an already-emerging trend.

To date, however, the retail and hospitality industries have taken the brunt of the regulatory force, with the vast majority of predictive scheduling laws targeting these industries exclusively. As justification for this disparate treatment, legislators have pointed to the disproportionate number of low-wage workers present in these industries who they believe warrant greater protection. For these employees, securing a reliable schedule through traditional means, such as direct negotiation, is far less likely. Accordingly, in these industries, the employer-employee tension between scheduling flexibility and predictably is at its zenith.

So What Should You Do Now?

Unfortunately, compliance with predictive scheduling laws is far from easy. Larger employers with locations throughout multiple jurisdictions tend to be the most affected, although even smaller employers can find themselves in a position that requires a full overhaul of their current staffing model. Accordingly, it’s important to keep a few points in mind.

First, you should audit your locations. The piecemeal framework of predictive scheduling laws means that you may have multiple locations subject to different predictive scheduling requirements. As a result, a centralized staffing model can quickly become outdated, or even worse, a liability. Location-specific policy changes may need to be made, and managers may require retraining on how to handle staffing shortages.

Second, avoid the related pitfalls. No employment law exists in a vacuum, and predictive scheduling laws are no exception. Implementing predictive scheduling models will often impact other aspects of your business and, in some cases, could create unforeseen liability traps. For example, in San Francisco, forgetting to tell your payroll company to separately delineate the “Predictability Pay” scheduling change penalty on your employees’ wage statements could saddle you with a host of unexpected labor code violations and class action demand letters—all for a simple oversight.

Third, consider novel and creative approaches. To address the rise of these laws, some large companies have implemented the use of scheduling apps. In addition to viewing pre-posted schedules, employees can use the apps to swap shifts with coworkers or sign up for unfilled shifts in upcoming weeks. Although, even without apps, voluntary schedule swapping and sign-up policies are both phenomenal ways to reduce, and even eliminate, the need for last-minute scheduling changes—all while boosting employee morale.

Conclusion

Ultimately, when it comes to employment policies, there is rarely a “one size fits all” approach. What’s right for one company may not be right for another. As a result, it’s important to keep up to date on the newest changes in both law and compliance strategies. In the modern day, employment laws are changing at an ever-increasing pace; if the recent rise in predictive scheduling laws hasn’t hit your state or city just yet, it soon may.

For more information, contact the authors at CCook@fisherphillips.com (415.490.9032) or AGuzman@fisherphillips.com (415.490.9028).

Third-party delivery, streaming video, meal-prep kits, and other market disruptors are changing the face of the food and beverage industry as we’ve known it.

This paper will examine current market forces that are cutting into F&B profits, whether at restaurants, bars, or hotels, and provide important insights to keep guests coming back (and spending money).

Aggressive market forces are nothing new.

In July 2007, Technomic forecast “tough economic times ahead for same-store sales.”1 As reported by Nation’s Restaurant News on July 9, 2007, “Inflating commodity prices, a slowing gross domestic product, skyrocketing fuel costs and a weak dollar” were predicted to take a toll on food and beverage sales nationwide.

Experts identified opportunities for growth, however, noting, “The growing number of consumers under 35 in particular presents opportunities for targeted marketing,” suggesting further that “they are not cooking, so they will be very heavy restaurant users.”

Convenience (e.g. curbside pickup), variety, healthy options, corporate social responsibility, and value were all identified as being important to guests.

But neither Technomic nor NRN really knew what was coming. The article referenced above was published:

• a mere ten (10) days following the first release by Apple of its iPhone, which would change forever the nature of human interaction;
• six (6) months after Netflix began streaming content(for free back then), forever changing the way humans consume entertainment;
• one (1) year before Apple launched its AppStore, providing a marketplace for innumerable interactive apps; and
• eighteen (18) months before Lehman Bros. collapsed at the peak of the 2007-2008 financial crisis, triggering a recession that lasted until mid-2009. These market disruptors could simply never have been predicted, and the list could go on and on…

The advent of smartphones allowed guests to view restaurant webpages and menus online while away from their desktop computers, requiring restaurants to augment their web-based presences (and keep them updated). Netflix (and other streaming services), combined with the affordability of extremely large TVs, provided an alternative entertainment source beyond traditional network television and cable, effectively keeping guests at home, opting to Netflix & Chill (or even watch TV).The popularity of smartphone apps led to the availability of platforms for instantaneous verbal vomitus via Yelp, TripAdvisor, and other online rating services. The Great Recession affected consumer spending in ways never predicted by the economic indicators.

Current market threats.

Almost a dozen years after the above-referenced NRN article, the restaurant and bar industry faces new and insidious challenges to profits. Like 2007, however, the industry will rise above them, finding new ways to innovate and elevate the guest experience.

Smartphone apps continue to pose a threat,and have led to a meteoric rise in the popularity of food delivery services, resulting in significant encroachments into restaurant profits. The food delivery segment, with revenue of approximately $19B predicted for 2019, is predicted to grow to $24B by 2023, according to analytics firm Statista, though Morgan Stanley predicts that a whopping 40% of all restaurant sales will be via delivery, in the amount of approximately $220B. With costs to delivery services ranging from 15-30%, restaurants will face a significant hit in the event things continue along the current path.2

Food inflation continues to be a factor, as more families look to cook at home.The rise of delivered meal-prep kits (a la Blue Apron,etc.), where customers receive all the ingredients of a meal, plus a recipe, has people “cooking” away. Moreover, stores like Whole Foods and Central Market, which offer not only prepared meals for takeaway (at a significantly lower internal cost than what it costs a restaurant), but also wine bars, beer stations, happy hours, and customer events in an effort to increase guest spending beyond commodity groceries.

The most drastic market force facing restaurants and bars continues to be an incredibly tight labor market, driven by record low unemployment rates. This, coupled with organized labor’s pursuit of a national $15 minimum wage, presents a significant risk to the bottom line.

Finally, non-traditional market disruption is encroaching from market entrants such as Tesla Motors, which has announced its intention to include food and beverage venues in its charging stations. As in 2007, operators must always be on the lookout for potential threats to their ability to put guests in seats.

Overcoming the Challenge.

Getting guests in seats (and making sure they return) has always been the challenge. These days, however, since guests have so many other choices (most of which were nonexistent a decade ago), the restaurant has become a place they look for experiences they cannot get elsewhere. That might include specialized techniques like smoking, the use of specialty ingredients/flavors that are unfamiliar but appeal to evolving palates (Alabama white sauce,West African spices, etc.), featuring plant-based proteins,and/or providing flights, tastingmenus, etc. (home cooks do not routinely cook the same item multiple ways at the same sitting).

The restaurant and bar industry will continue to evolve, meet market challenges, and maintain its status as the second-largest private-sector economic force in the U.S.economy. But the tactics of just a few years ago are no longer good enough, and operators must adapt, react,and continue to innovate as the vortex of challenges continually swirls about them.

1. “Tough Economic Times Ahead for Same-Store Sales” available at: https://www.nrn.com/corporate/technomic-sees-tough-economic-times-ahead-same-store-sales (last visited February 21, 2019).
2. “Why the Delivery Market Will Look Different in 5 Years,”Available at:https://www.restaurantdive.com/news/why-the-delivery-market-will-look-different-in-5-years/546936 (last visited February 21, 2019).

This article is part of our Conference Materials Library and has a PowerPoint counterpart that can be accessed in the Resource Libary.

HospitalityLawyer.com® provides numerous resources to all sponsors and attendees of The Hospitality Law Conference: Series 2.0 (Houston and Washington D.C.). If you have attended one of our conferences in the last 12 months you can access our Travel Risk Library, Conference Materials Library, ADA Risk Library, Electronic Journal, Rooms Chronicle and more, by creating an account. Our libraries are filled with white papers and presentations by industry leaders, hotel and restaurant experts, and hotel and restaurant lawyers. Click here to create an account or, if you already have an account, click here to login.

The Americans with Disabilities Act (ADA) was enacted in 1990 to prevent discrimination against individuals with disabilities in all aspects of life. The Act has been applied to a variety of segments of our society, including building entrance designs, website displays, and workplace accommodations. Recently, a new twist to the Act arose when a 12-year-old boy visited a Colonial Williamsburg restaurant with his classmates on a school field trip.

The case, J.D. v. Colonial Williamsburg Foundation, was originally filed in the U.S. District Court for the Eastern District of Virginia and later appealed to the 4th Cir Ct. App. No 18-1725. In J.D., a 12-year-old boy with severe Celiac disease visited a restaurant with his classmates on a school field trip to Colonial Williamsburg. J.D.’s condition was so severe that even the slightest ingestion of gluten-based foods caused severe illness. On prior occasions, other restaurants had offered J.D. gluten-free meals that accidentally or unknowingly contained trace amounts of gluten, which caused J.D.’s symptoms to flare up. Because of this, J.D.’s parents decided that when J.D. had to eat out, they would prepare J.D.’s food for him, so that he could safely and comfortably eat without incident or fear of incident. Knowing that the field trip would require J.D. to eat at a restaurant, J.D.’s father (who also attended the field trip) brought a home-prepared meal for J.D. to eat while the rest of the class ordered its meals from the restaurant menu.

When the time came for lunch, the restaurant staff notified J.D. and his father that he was not allowed to consume outside prepared foods in the restaurant due to Virginia’s Health Code. In fact, Virginia’s Health Code prohibits food prepared in a private home from being used or offered for human consumption in a food establishment unless the home kitchen is inspected and regulated by the Virginia Department of Agriculture and Consumer Services. 12 Va. Admin Code § 5-421-270(B). However, as an accommodation, the restaurant advised J.D. that its chef would prepare J.D. a gluten-free meal of baked chicken and potatoes to meet his specific needs. The father declined the offer, stating that they did not want to risk kitchen mistakes, and he preferred J.D. eat his home-prepared meal. Left with the options of eating the chef-prepared meal, not eating, or eating outside the restaurant, J.D. and his father left the restaurant and ate the home-prepared meal separate from his classmates.

J.D. filed suit under §504 of Title III of the ADA, claiming that Colonial Williamsburg discriminated against him by excluding him from the restaurant and failing to modify its policy against the consumption of outside food. Defendants moved for summary judgment, and while the magistrate found a genuine dispute of material fact as to whether J.D. was disabled under the ADA, he recommended dismissal because J.D. failed to establish that he was discriminated against because of his disability. The District Court Judge adopted the magistrate’s recommendations and dismissed the case. Plaintiff appealed to dismissal to the 4th Cir.

An ADA claim requires a plaintiff to prove three elements: 1) that plaintiff is disabled under the meaning of the Act; 2) that the defendant operates a place of public accommodation; and 3) the defendant discriminated against him because of that disability. See Ariz. ex rel. Goddard v. Harkins Amusement Enters., Inc., 603 F.3d 666, 670 (9th Cir. 2010); Camarillo v. Carrols Corp., 518 F.3d 153, 156 (2d Cir. 2008). In this case, there was no dispute on the second element, so the Court looked only at elements 1 and 3.

Under §12102(1)(A) of the ADA, a disability is defined as any “physical or mental impairment that substantially limits one or more major life activities.” This is different from an impairment, which the Act defines as any physiological disorder or condition that affects one or more body systems, including digestive. 28 CFR §36.105(b)(1). The 4th Cir. noted that “‘[N]ot every impairment will constitute a disability within the meaning of this section,’ but it will meet the definition if ‘it substantially limits the ability of an individual to perform a major life activity as compared to most people in the general population.” Id. § 36.105(d)(1)(v). Eating is a major life activity. Id. § 36.105(c)(1)(i).” J.D. at 10. The court then explained that when deciding if the Celiac disease created a disability, it had to interpret the ADA language “broadly in favor of expansive coverage.” Id. Even though J.D. had no symptoms when he avoided gluten, this was immaterial in determining if a disability existed, because the Court was required to look at his condition when he consumed gluten. Id. With the evidence showing that J.D. had serious consequences to his health when he ingested gluten and that he had an unusually small margin for error in his diet, the Court felt that there was a material question of fact as to whether J.D. had a disability within the meaning of the ADA. Thus, consistent with the District Court ruling, the court did not decide that J.D. had proven a disability, but rather, felt it was up to the jury to decide.

The Court then looked at the third element; i.e., whether or not Colonial Williamsburg discriminated against J.D. According to 42 U.S.C. § 12182(b)(2)(A)(ii), discrimination is defined, “in part, as: a failure to make reasonable modifications in policies, practices, or procedures, when such modifications are necessary to afford such goods, services, facilities, privileges, advantages, or accommodations to individuals with disabilities, unless the entity can demonstrate that making such modifications would fundamentally alter the nature of such goods, services, [etc.].” Id. (emphasis in original)

The courts use a three-part test to determine if discrimination occurs. The three parts are: “(1) whether the requested modification is “necessary” for the disabled individual; (2) whether it is “reasonable”; and (3) whether it would “fundamentally alter the nature” of the public accommodation. Id., citing PGA Tour, Inc. v. Martin, 532 U.S. 661, 674 (2001), at 683 n.38.

The Court first looked at whether the modification [allowing him to eat his home-prepared meal] was necessary to provide J.D. with a “like experience” to non-disabled guests. This necessarily requires the court to make an individualized inquiry into the plaintiff’s specific circumstances and determine if the proposed accommodation addresses the disability, or if the accommodation creates a condition that extends beyond the person’s capacity. In this case, J.D.’s evidence showed that he repeatedly became ill when exposed to gluten from meals prepared at restaurants, even when they were purported to be gluten-fee. While the court did not make an ultimate decision on whether the modification of its rules was necessary, it did find that there was sufficient evidence presented to create a genuine dispute of fact on whether eating out is beyond J.D.’s capacity.

Second, where an accommodation is already in place, a plaintiff may still be entitled to something more if he can show that the accommodation does not account sufficiently for his disability.” J.D. at 16. In this case, the restaurant’s proposed accommodation was to prepare a gluten-free meal. Given J.D.’s history of illness from prior attempts at gluten-free restaurant meals, it became a question of fact as to whether or not the restaurant’s proposed accommodation was sufficient. “Indeed, a jury might well reject J.D.’s evidence about the severity of his gluten intolerance, and thus find that the protocols at [the restaurant] were sufficient to account for his disability. But in our view, J.D. has put forth enough evidence at this stage to raise a genuine dispute of material fact as to whether the proposed accommodation sufficiently accounts for his disability.” Id. at 17.

For the next step of its analysis, the 4th Cir. considered whether or not the restaurant’s proposed accommodation was reasonable or not. Indeed, “[f]acilities are not required to make any and all possible accommodations that would provide full and equal access to disabled patrons,” but “need only make accommodations that are reasonable.” Id. at 18. Citations omitted. Here, the court pointed out that the restaurant allowed guests to serve their own food if it is for babies or if they wanted to bring a cake in for large celebrations, provided the restaurant was given advance notice. The fact that J.D. may not have provided advance notice to the restaurant was dismissed as irrelevant to the court, because the lack of notice did not require additional staffing or create an unreasonable hardship in the restaurant’s operations. And when looking at the Health Code regulations the restaurant cited for its policy, the 4th Cir. noted that the prohibition on home-prepared foods was designed to prevent restaurants from serving food prepared in private homes. It did not prohibit customers from bringing in outside food. There was no evidence introduced that J.D.’s request would truly impose a safety concern or risk contamination of other foods. The court reasoned that if that were the case, the restaurant would not allow outside foods in other circumstances.

The Court ultimately ruled that decisions of reasonableness of accommodations are highly individualized, fact-specific for each case. As a result, they are decisions best left to a jury, who can judge the credibility of witnesses and weigh the importance of evidence.

Finally, the Court looked to the restaurant’s affirmative defense that allowing homemade meals fundamentally changes the restaurant experience. Under this defense, the defendant must prove that the Plaintiff’s request would fundamentally alter the nature of the program or services provided by the restaurant. Like the other issues, the court considered, this too was found to be a jury question. A jury “could reasonably find that accommodating the occasional request of someone with severe food sensitivities would not fundamentally alter the Tavern’s business model, especially if other family members purchase food or (as happened here) if the meals are already paid for as part of a group rate.” Id. at 23.

Impact of Ruling

Given the above, the 4th Cir. reversed the trial court’s dismissal and remanded it back to the District Court. The takeaways from the decision are striking.

First, it seems clear that the court is framing ADA cases such as this to be treated similarly to ordinary negligence cases. Those cases are almost always fact-specific and to be determined by a jury. If there is any credible evidence to support a claimant’s case, the court is likely to defer ruling to the jury.

Second, it is important to note that the Health Code Regulation relied upon by the restaurant does not expressly state that it is designed to prohibit the serving of food, rather than customers bringing in food. This ruling places restaurants in a difficult position of having to choose between enforcing written regulations and agreeing to proposed individual modifications as necessitated by the ADA. Restaurant staffers are not trained in legal analysis, and it seems untenable that a waiter or manager would have to interpret the intent of a health regulation. Forcing a restaurant to make such interpretation exposes a restaurant to more litigation because the parties cannot know if it is proper to violate the regulations based on its language. Indeed, the Dissent correctly notes that the de facto result of this ruling is that “Restaurants must either allow patrons to consume food prepared outside their premises or must justify their refusal at a costly trial.” J.D. at 32. Both the disabled parties and the restaurant industry would be better served if the Health Regulation was written clearly to prohibit serving versus bringing in outside foods, and the restaurant could rely upon the code as written.

Finally, it seems clear that the Courts are taking an expansive view of the ADA’s coverage. Rather than draw bright line tests that disabled persons and businesses can plan for, individualized assessments on a case-by-case basis must be made. This is likely to result in inconsistent applications where some modifications are allowed but possibly similar modifications are not allowed. As the dissent in J.D. notes, “[t]he majority’s rule means that a patron’s demand that he be allowed to eat outside food will sometimes be reasonable and other times not. This puts managers in the middle of a difficult line-drawing exercise: What criteria are they supposed to use in navigating the tension between the ADA’s requirements and public health law? Which privately prepared meals must they allow and which may they refuse? The majority wouldn’t even require advance notice from customers in J.D.’s position, meaning that managers will have to evaluate the disruption and the safety hazard of a customer’s outside meal on the fly, with the specter of litigation hanging overhead.” J.D. at 31.

If you have any questions about this ruling, its impact on restaurant operations, or how it may impact your business, the attorneys at KPM LAW are ready for your call.

The increased costs of operating a restaurant can be attributed to minimum wage increases, healthcare, paid sick leave, restrictive scheduling, cost of food and supplies and increase pay equity between traditionally tipped employees and heart of the house employees.  As such, these surcharges need to be analyzed for taxation purposes and legality as to how they are implemented. 

A. Tax and Wage Implications

First let us think about how surcharges affect a company from a tax and reporting perspective. Starting in 1994, many restaurants have benefited from being allowed to apply a general business credit toward a portion of the employer’s Social Security and Medicare taxes paid with respect to their employees’ cash tip earnings (IRC 45 B). However, the policy set forth in Rev. Rule 2012-18 means that the credit would not apply with respect to surcharges, because these mandatory charges do not qualify as tips. 

Surcharges like a service charge are a taxable event. The sales tax is imposed upon the retailer for the privilege of selling tangible personal property. “Gross receipts” provides that the taxable gross receipts include all amounts received with respect to the sale, with no deduction for the cost of the property sold, materials used, labor or service cost, or any other expense of the retailer passed on to the customer. Any expense of a restaurant passed on to customers in the form of a surcharge must be included in taxable gross receipts. Since there are no specific sales and use tax exemptions for a surcharge imposed, retailers may not claim the cost of the surcharge as a deduction on their Sales and Use Tax return. Therefore, a separate surcharge on customer bills must include the surcharge amount in the calculation of tax.

To the extent, a company elects to distribute a surcharge to its employees, the surcharge will be treated and must be reported as Salaries and Wages on the business tax return. Another issue to consider is that an employer who pays out a portion of the surcharges to employees may have to recalculate its employees’ overtime rates (if the employees work more than 40 hours in a week or 8 hours a day for businesses in California). As any distributed surcharges are wages, that money would count toward an employee’s regular rate of pay and therefore must be factored into the overtime rate calculation.

B. Claims Asserted

Starting in 2017 comments by several City Attorneys, as well as some letters, have raised issues concerning surcharges. Specifically, some City Attorneys have raised the manner under which surcharges are communicated to customers. Also in 2017, there were 16 cases filed in San Diego, California asserting the illegality of the surcharges and the manner of disclosure generally. These lawsuits claimed these restaurants were in violation of consumer protection laws including false advertising, unfair competition and misrepresenting the prices on their menus. It was further claimed that a failure to clearly and conspicuously communicate a surcharge might render the stated price of a food item untrue and misleading under California law. The San Diego City Attorney has made some statements that such charges are being investigated and may result in prosecution under the guise of consumer protection for false advertising. These lawsuits sought restitution, injunctive relief, civil penalties, punitive damages and attorneys’ fees.

In a ruling on November 16, 2018, a San Diego Superior Court Judge ruled in granting judgment for the restaurant at issue that the “undisputed evidence establishes that the surcharge is not unlawful as a matter of law.” Further, the Court concluded the restaurant “made adequate and non-misleading disclosures about the surcharge.” Subsequent judgments were entered in favor of other restaurants by the same judge in December 2018 and January 2019 based on the November 2018 ruling; whereby the ruling of the Court was adopted as to the legality of the use of surcharges by restaurants. In February 2019, a federal judge also granted summary judgment concerning identical allegations concerning the use of a surcharge.

C. Prevention Tips

As a result, even though surcharges are a legal and allowable option to help defray the recent increases in costs, there are some approaches that should be considered to avoid potential litigation. There are no regulations or laws that state how a restaurant should specifically and clearly disclose the existence of a surcharge. However, to try and prevent the filing of an adverse claim, it would be prudent that a company discloses up front that the items for example a meal (food and drink item(s)) is subject to a surcharge and state the percentage of the surcharge on the menu, in a prominent sign or posting, on web pages, as well as on advertising materials either electronic or paper. Also even though not specifically required, it would be prudent that the disclosure stand alone and not be contained in a statement about other aspects of the business. Some companies have elected to highlight the disclosure in a different or larger font or color as a means to try and alleviate concerns raised by governmental entities. That said, there is no mandatory way that a surcharge should be disclosed to a customer. In summary, there is no legislative or statutory guidance as to how a surcharge should be disclosed.

There is no requirement that a sign be used to disclose a surcharge but having a surcharge disclosure sign is another means of avoiding a consumer claim. If a restaurant elects to use signage, there is also no requirement about the size of font on any sign posted in a restaurant about a surcharge. Hospitality companies who elect to use a sign should consider a sign about a surcharge and percentage where patrons are likely to see it as they enter the restaurant. A sign no smaller than 10 inches wide by 10 inches high or a horizontal strip marker no smaller than 10 ½ inches wide by 1 ¼ inches high bearing the surcharge information in at least a 36-point font would arguably comply with the “conspicuous” requirements. Also, if a fair amount of the business is take-out or occurs at a register, the placing of a disclosure sign at the register would likewise be another preventive step for notice purposes.

As to menus, any statement as to surcharges should be separate from other information. Some restaurants have elected to use bold font, a different color or italics. However, none of this is required. It is merely one option. In addition, the font as to the disclosure should not be smaller than other items printed on menus or electronic media and certainly at least the size of the menu items and the prices. These steps should help defray any claims that the restaurant did not clearly and conspicuously disclose the existence of a surcharge.

Many San Francisco restaurants implemented a surcharge (i.e., an extra fee or cost) on the goods or services they sell to customers to cover, in whole or in part, the expense of complying with the Health Care Security Ordinance passed in 2008. This surcharge was specifically designated to defray the costs of the local healthcare ordinance. Some restaurants faced litigation and penalties when these surcharges were not utilized to pay for the cost of health care. There is now a requirement in San Francisco that the business on an annual basis disclose: 1) the amount collected from the surcharge for covered employee health care and 2) the amount spent on covered employee health care. Therefore, based on these lessons learned, if a company elects to impose a surcharge, it should consider disclosing it in a broad manner rather than designating it for a particular cost item. A more specific designation could subject the retailer to show that the surcharge collected must be only used for that item e.g., the cost of health care to employees. As a result, a broad designation of the surcharge would be a good preventive measure. The broader the language, the more flexibility the company has in how to utilize the money collected from the surcharge.

D. Summary Recommendations

Overall, surcharges are legal as supported by the recent court ruling. However, hospitality should implement surcharges with an eye toward prevention of any claims for consumer fraud, false advertising, unfair business practices or improper utilization of the surcharge. A company has wide discretion as to how it discloses and communicates the use of a surcharge but the disclosure should be sufficiently conspicuous to a reasonable consumer.

If a company elects to implement a surcharge, at a minimum the fact that there is a surcharge must be disclosed on the receipt as “SURCHARGE” and sales tax must be charged on all service charges and any separate surcharge line item, regardless of any amount that might be paid to the employees.

Herein is a summary of steps that a company should consider implementing, even though not currently required or mandated, as a means to prevent a legal claim:

• If a sign is utilized, take steps to place the sign at an entrance and/or at a check out area, disclosing the surcharge
• The use of the words “mandate” or “mandatory” when describing the surcharge, while not illegal, has been misinterpreted and has been criticized by some customers and political officials.
• Disclose the surcharge on menus, on websites and in advertisements, both paper and electronic, when the prices are disclosed
• Make sure the disclosure on the menu is at least the same font and size as the menu items and prices
• Keep any rationale as to the reason for the surcharge as broad as possible, e.g., to defray the increased cost of operations

Also, it is important to consult with your tax advisor or tax attorney to determine the proper method of taxing surcharges and paying your employees if a portion of the surcharge is distributed to the employees. It is also highly recommended to consult with qualified legal counsel concerning any questions about surcharges and how to disclose them to customers.

This article is part of our Conference Materials Library and has a PowerPoint counterpart that can be accessed in the Resource Libary.

HospitalityLawyer.com® provides numerous resources to all sponsors and attendees of The Hospitality Law Conference: Series 2.0 (Houston and Washington D.C.). If you have attended one of our conferences in the last 12 months you can access our Travel Risk Library, Conference Materials Library, ADA Risk Library, Electronic Journal, Rooms Chronicle and more, by creating an account. Our libraries are filled with white papers and presentations by industry leaders, hotel and restaurant experts, and hotel and restaurant lawyers. Click here to create an account or, if you already have an account, click here to login.

Yes, indeed—the labor market is tight. And with the nationwide unemployment rate below 4 percent, 263,000 new jobs created in April 2019, and a sizzling economy, the labor market is likely to get even tighter. This is especially true for the hospitality industry, which has traditionally relied upon a steady stream of lower-skilled and younger applicants eager to enter into the job market. In fact, the National Restaurant Association predicts that jobs in the food service industry will top 15 million in 2019, and lists recruiting and retaining employees among the top challenges for operators.

Yet, just 19 percent of 15- to 17-year-olds had jobs in 2018, and 58 percent of 18- to 21-year-olds had jobs, according to a Pew Research Center study published in November 2018. This is significantly down from years past. The cause of this trend is difficult to predict. Whether parents are not pushing their kids to enter the workforce, or there are too many other extracurricular activities to occupy their time, one thing is certain: younger workers are not as eager to pick up a part-time job, even at the local eatery that is begging for help.

Legal Roadblocks Also Complicate Hiring

Federal and state laws can also deter hiring anyone who is under 18 years of age. Under the federal Fair Labor Standards Act (FLSA), there are regulations that preclude employees who are 16 and 17 from performing certain job duties, such as operating power-driven machines like mixers and meat processors, and delivering food via automobile. Another layer of federal regulations applies to 14 and 15-year-olds, which significantly restricts the number of hours that can be worked during a day and workweek, particularly during the school year. If you are skeptical, check out “Fact Sheet #2A: Child Labor Rules for Employing Youth in Restaurants and Quick Service Establishments Under the Fair Labor Standards Act (FLSA)” on the U.S. Department of Labor’s website.

State laws also serve as a bugaboo to employing minors, and these laws can vary greatly from state to state. One example is in Louisiana, where additional rules and regulations for employing require that all minors (defined as under 18 years of age) to have a 30-minute uninterrupted work break within every five hours of employment. A failure to comply with this requirement will subject the employer to a significant fine.

Time To Get Creative

So, what can Mr. Joe at Big Eats do to increase applicant flow and hire more employees at his stores? We told Mr. Joe that one idea is to increase his starting wage and increase benefits, which he did not want to hear. The fact is, however, many competitors for this part of the workforce (such as big-box retailers) have increased their starting wages well above minimum wage in order to attract applicants.

A quick Google search offers other examples of how employers are creatively trying to solve this workforce problem. From utilizing mobile apps that allow employees to swap shifts at the last minute when conflicts arise, to allowing employees to express their opinions on branding of the products being sold, to handing out recruiting cards to customers who visit the establishment, to offering bonuses to employees who recruit other employees to join the company, to teaming up with AARP to recruit and hire older workers—it is clear that creative thinking gives employers a distinct advantage.

Need another example? Look no further than the Louisiana Restaurant Association’s Education Foundation (LRAEF), which is tackling the workforce issue head on. The LRAEF is a major supporter of the nationwide ProStart program, a two-year program for high school students teaching culinary techniques and management skills that are specifically tailored to the food service industry. Today, there are 56 Louisiana high schools and almost 2,000 Louisiana high school juniors and seniors participating in the program.

According to Wendy Waren, the Vice President of Communications for the LRA, “The LRAEF provides school support grants to purchase ingredients for labs, testing materials, and for field trips. The high school students also participate in the Raising Cane’s ProStart Invitational, held yearly at the New Orleans Convention Center, and that event provides the students with a chance to show their skills and compete for $1.2 million in scholarships. ProStart is a comprehensive program and it is a great way to get our young people interested in the food service industry. We hope they will discover that there are exciting and fulfilling career opportunities in the industry. While employing teens may present challenges, hiring ProStart students will make the challenge worth it given their advanced training.”

Conclusion

So, our advice to Mr. Joe at Big Eats? In addition to suggesting that he may want to look at raising his starting wage and offering additional benefits, he will have to get creative in his search for more applicants and good employees.

Yes, the labor market is tight. But, by partnering with a local restaurant association, using technology and social media, and just generally letting the creative juices flow, even Mr. Joe will be able to find and retain the elusive employees that he so desperately needs.

For more information, contact the authors:

Steven Cupp – Partner, Gulfport office | New Orleans office
SCupp@fisherphillips.com
(228.822.1440)

Steve Cupp is a partner in the firm’s Gulfport office. He has experience across a range of industries, including manufacturing, financial services, construction, and retail.

He has devoted his practice to representing management interests in various areas of labor and employment law, including traditional labor litigation before the National Labor Relations Board (NLRB), handling Department of Labor (DOL) wage and hour audits, and litigation of Fair Labor Standards Act (FLSA) cases.

Steve is certified as a Senior Professional in Human Resources from the Human Resource Certification Institute and he is an active member of the Society for Human Resource Management.

Jaklyn Wrigley – Of Counsel Gulfport Office
JWrigley@fisherphillips.com
(228.822.1440).

Jaklyn Wrigley is a high-energy labor and employment law litigator who exclusively represents the interests of management. Over the years, she has achieved countless employer-friendly results, recently in the form of a full defense verdict in a complicated he-said/she-said sexual harassment lawsuit.  Jaklyn is committed to providing the highest level of service, and in this “24/7” client service business, she recognizes that near-fanatical responsiveness is often as critical as innovative and quality legal representation.  She prides herself in offering both. These efforts have been recognized, and Jaklyn has been selected for inclusion in Mississippi Super Lawyers – Rising Starsevery year since 2013.

Practicing in both Mississippi and Florida state and federal courts, as well as before administrative agencies, Jaklyn has extensive experience with the alphabet soup of federal labor and employment laws: ADA, ADEA, FLSA, FMLA, NLRA OSH Act, and Title VII; and litigation involving immigration issues, wrongful termination, and breached employment agreements.   In her practice, Jaklyn applies a laser focus on the healthcare industry, and understands the interplay between and among healthcare compliance issues, the medical staff, and employment law. She also actively represents clients in the retail, gaming and hospitality, agriculture, and auto dealer industries (among others). Jaklyn has made a point to learn the business environments in which her clients operate so that she can offer advice that is specifically tailored to their needs.

When she is not litigating on behalf of her clients, Jaklyn is working diligently to help her clients avoid legal problems. This is particularly true as it concerns sexual harassment, gender identity, sexual orientation and gender equity issues in the workplace.  From internal audits, management training and employee contracts, to handbook reviews and practical day-to-day advices, Jaklyn believes the easiest problem to solve is one that never arises in the first place.

The Centers for Disease Control and Prevention estimates that 48 million people or 1 in 6 Americans experience a foodborne illness every year as a result of consuming contaminated food or drink and roughly 128,000 people in the US are hospitalized due to foodborne illness. There are many different pathogens or disease causing microbes that can cause illness. Currently, there are 250 known pathogens that are responsible for 20% of the reported foodborne cases and the root cause of the remaining 80% of all cases are many unknown pathogens. Additionally, chemical contaminates such as pesticides can cause foodborne illness. In the US, the top five pathogens that cause foodborne illnesses are norovirus (58%), salmonella (10%), Clostridium perfringes (10%), and campylobacter (9%). However, salmonella infections are responsible for the most hospitalizations and for the most deaths out of any of the foodborne pathogens.

What is a Pathogen?

Foodborne pathogens can cause several different types of illness. Salmonella and noroviruses can cause illness by consumption of live pathogens that replicate and grow in the intestinal tracks which is called a foodborne infection. An organism like Bacillus cereus (a pathogen found in rice and grains) can cause illness through foodborne intoxication through the production of toxins and the live bacteria does not need to be consumed. These microorganisms typically do not make the food look, taste or smell bad so it impossible to determine if the food is contaminated.

For a pathogen to grow and proliferate, certain conditions must be met. The first one condition is that the pathogen or its toxin must be in the food. Many raw foods have naturally occurring background levels of pathogen contamination. These pathogens can thrive when the temperature and the nutrients are suitable for the pathogenic growth. Foods that are high in protein such as eggs, meat, fish, and milk can provide appropriate nutrient levels for pathogens. Additionally, foods that are slightly acidic (pH levels 4.6-7.6) also support microbiological growth. Additionally, foodborne pathogens grow best in foods that have a temperature of 70-104° F. It is essential that hot foods must be kept hot and cold foods must be kept cold to prevent growth. Common food service foods that have a higher risk of foodborne illness are rice, cooked or raw animal products, cooked or raw vegetables, raw seed sprouts, raw shell eggs or water cooled hard boiled eggs, cut melons, and garlic and oil mixtures.

Once a pathogen has been allowed to proliferate in a food, foodborne illness can set in following consumption of the contaminated food. Most foodborne illnesses can occur with 2-24 hours following consumption of the contaminated food but symptoms have been reported as far out as 30 days post-contaminated food consumption. The time of onset of foodborne illness symptoms can be pathogen dependent. The most common symptom is diarrhea but symptoms can include vomiting, cramping, fever, and flu like symptoms.

Prevent the problem before it happens

To avoid potential problems in foods, it is very important to control or eliminate pathogens in food products. HACCPS or hazard analysis and critical control points are your quality assurance and risk assessment steps. They include coming up with preventative measures; evaluating critical control points and preventing, eliminating or reducing risk; evaluating and establishing critical limits such as cooking temperatures; monitoring CCP’s with temperature measurements; corrective action; record keeping systems; and verification.

SOPs and employee education are essential in preventing foodborne illnesses. The SOPs should address everything from where the product can be ordered from to how it is received, how it is stored, how long it is stored, how it is prepared, where it is prepared, by whom it is prepared, how it is transported and how it is served. Comprehensive SOPs go a long way to not only preventing foodborne illness, but also defending claims. However, that is only if they are adhered to. Employee training should be conducted on a continuous basis and management should continually verify SOPs are being followed. There are also several training certifications in food handling such as those offered through ServSafe and Learn2Serve. These can be done online and provide management with valuable education in developing safe food handling protocols.

Summary

While a foodborne illness outbreak can be devastating to a restaurant there is no restaurant that in a single night can serve as many individuals as a hotel during a large conference banquet or buffet. Many foodborne illness claims originate from that exact setting. Often times there are numerous individuals who become ill. The assumption is that there must have been some adulterated food item they all consumed that made them sick. It could not possibly be a coincidence… but it could be something other than a foodborne illness! Reaction time and record keeping is crucial in defending these claims.

This article is part of our Conference Materials Library and has a PowerPoint counterpart that can be accessed in the Resource Libary.

HospitalityLawyer.com® provides numerous resources to all sponsors and attendees of The Hospitality Law Conference: Series 2.0 (Houston and Washington D.C.). If you have attended one of our conferences in the last 12 months you can access our Travel Risk Library, Conference Materials Library, ADA Risk Library, Electronic Journal, Rooms Chronicle and more, by creating an account. Our libraries are filled with white papers and presentations by industry leaders, hotel and restaurant experts, and hotel and restaurant lawyers. Click here to create an account or, if you already have an account, click here to login.

Authors

Allison Stock – Principal Consultant/Toxicologist & Epidemiologist, Rimkus Consulting Group
astock@rimkus.com
504-832-8999

Dr. Allison Stock is an internationally known toxicologist and epidemiologist with 25 years of toxicological, epidemiological, regulatory, and environmental experience. Her background is supported by experience in the federal and state government and industry (small and Fortune 500 companies).

Dr. Stock specializes in human health risk assessments combing both toxicological and epidemiological data. She has expertise in petrochemicals, oil and gas, environmental permitting, property transfer, environmental, social, and health impact assessments, inhalation toxicology, renal toxicology, toxicological and epidemiological risk assessment, communicable and foodborne illnesses such as Legionellosis, E. coli infections, and Salmonellosis, rapid needs assessments, emergency response, ambient and indoor air exposure assessments including mold, particulate matter, and asbestos, occupational health and safety plans, drug and alcohol intoxications, and stakeholder communications.

Kari Jacobson – Shareholder, La Cava & Jacobson
kjacobson@lacavajacobson.com
(813) 209-9611

Kari Katzman Jacobson is a shareholder of La Cava & Jacobson, P.A. Born in Miami, Florida in 1967 she graduated from the University of Florida with a B.A. in 1989 and from the University of Miami School of Law with a J.D. in 1992. Ms. Jacobson began her career as a prosecutor, and then went on to defend self-insured companies, insurance companies and those whom they insure.

Ms. Jacobson was admitted to The Florida Bar in 1992 and has been admitted to the U.S. District Court, Middle District of Florida since 1994. She is a member of The Florida Bar Association; American Bar Association, Hillsborough County Bar Association, Collier County Bar Association and the Claims and Litigation Management Alliance. She is also a member of The Federation of Defense & Corporate Counsel. She is A.V. Peer Review Rated by Martindale-Hubbell.

Ms. Jacobson is certified by the Florida Supreme Court as a Circuit Civil Mediator. Her practice is primarily concentrated in the areas of general liability, premises liability, negligent security, construction litigation, professional liability, trucking and commercial freight defense litigation claims.

But not every article of clothing constitutes a “uniform” under the FLSA. The U.S. Department of Labor (USDOL) has long maintained that certain clothing, although required by the employer, is of such a character that it may be reasonably worn outside the context of work and therefore is not a uniform. Shoes are an interesting case-study.

Does The Shoe Fit?

Many hospitality employers often require employees, such as culinary department workers, to wear a certain type of shoe during work hours. Perhaps the most popular variety is the dark-colored, non-slip shoe—widely used both for their appearance and for safety reasons.

Some employers may be surprised to learn that the USDOL takes the position that these shoes do not constitute a uniform under the FLSA. As a result, employers can impose the cost of such shoes even if the cost results in the employee receiving less than the minimum wage after such deduction.

Before The Other Shoe Drops…

A word of caution before hospitality employers rush out to take advantage of this cost transfer. Experience in USDOL investigations teaches us that the agency does not give employers complete freedom regarding shoe deductions, even when it comes to dark-colored, non-slip shoes. For example, if you require employees to order a specific brand of shoe from a certain vendor when a comparable, less-expensive alternative is available, the USDOL may conclude that the shoe is no longer “basic street clothing.” The agency may reach the same conclusion if the employee already owns a pair of shoes but is told that they must order a new pair. Finally, the USDOL will be on the lookout for any ordering mechanism whereby the employer receives a fee or profit anytime an employee orders shoes through a designated vendor.

Many hospitality employers are familiar with Shoes for Crews, a manufacturer of non-slip shoes and other accessories. Shoes for Crews offers a corporate program to businesses which includes a “warranty” in the form of a $5,000 payment if an employee wearing Shoes for Crews slips at work. The USDOL finds this warranty problematic. The agency has been known to take the position in investigations that this warranty constitutes a benefit to the employer that changes the legal characteristic of the shoe such that it becomes a uniform. Thus, according to USDOL, an employer participating in this Shoes for Crews corporate program may not impose the cost of the shoe on an employee if doing so cuts into the minimum wage or overtime wages. The agency has taken this position even when an employer has never asserted a claim for the Shoes for Crews warranty payment.

Conclusion: Putting Yourself In Your Employees’ Shoes

The cost of purchasing (or cleaning) a uniform can be problematic for employers, when the cost (or part of the cost) is borne by the employee. Setting aside whether there is a legal basis for the USDOL’s position on the shoe warranty program, hospitality employers should carefully review their policies as they relate to the cost of required clothing worn by employees.

For non-slip shoes, if you have decided to pass on the cost of these shoes to employees, consider giving the employee the option of purchasing shoes at a retailer of their choice or wearing already-owned shoes which are compliant with safety requirements. This is particularly true for employers that participate in the Shoes for Crews corporate program.

For more information, contact the authors:

Andria Ryan – Partner, Atlanta office
ALureryan@fisherphillips.com
(404.240.4219)

Ted Boehm – Partner, Atlanta office
TBoehm@fisherphillips.com
(404.240.4286)

After the Prohibition was repealed by the 21st Amendment, a complex web of alcohol beverage laws created a “three-tier system” in which independence must exist between alcohol beverage manufacturers, distributors, and retailers. The ways in which these three tiers can interact is strictly controlled by federal and state laws. Armed with an increased budget due to a 2017 congressional appropriation, the U.S. Alcohol and Tobacco Tax and Trade Bureau (the “TTB”) intensified its trade practice enforcement efforts, resulting in several permit suspensions and high fines for industry members (the latest was $1.5 million). This [article] provides some practical advice on how to limit trade-practice enforcement exposure for hospitality clients.

What is a “Tied-House,” and Why is it So “Evil”?

A “tied-house” refers to an impermissible tie between an alcohol beverage retailer, wholesaler, and supplier. The “evils” associated with these ties refer to the post-prohibition fears that cozy relationships between these tiers, or “houses” could lead to less consumer product choice, or to the type of “evils” that existed during and pre-prohibition, like consumer overconsumption, predatory marketing practices by alcohol manufacturers, or dominance by a single producer in the marketplace. The essence of federal and state tied-house laws is that a supplier or distributor cannot exert undue influence over a retailer, and generally cannot pay or credit the retailer for any advertising, display, sponsorship, or distribution service. Similarly, suppliers and distributors are generally prohibited from owning retailers (thus becoming tied-houses). There are general exceptions to these laws that allow a supplier or distributor to market their products to retailers, but those exceptions are extremely limited. For example, in most states a supplier can do a consumer wine tasting at a bar, restaurant, or supermarket, and provide free samples to consumers to encourage a consumer to buy its product. Suppliers and wholesalers can also provide things of nominal value to a retailer, like branded napkins, banners, keychains, etc.

Are things so “Evil” right now?

In order to drive sales and increase profitability, industry members are constantly trying to strike the delicate balance between respecting tied-house laws and making the margins work. At the state level, we have seen heightened action by local agencies to enforce tied-house laws, including a 2017 Pennsylvania Liquor Control Board action that resulted in fines of $9 million paid by two large distributors, a Maine distillery, and an importer, after these industry members purportedly took Liquor Control Board members on lavish vacations, dinners, etc., in exchange for favorable treatment of their products. More notably, the TTB has been visibly present in various markets across the country since 2017, conducting comprehensive investigations at retail accounts in Florida, Illinois, California, and other states.

Best Practices

Retailers can steer clear of trouble in a number of ways:

1. Know the Law on Tied-House Exceptions. This gets tricky, because each state has a separate list of what a retailer can lawfully accept from a supplier or distributor. The details matter. For example, some state laws do not allow an alcohol beverage manufacturer or distributor to do “bar spends” at licensed retail accounts, or only allow them in limited circumstances. In New York, a manufacturer can spend no more than $700 in a retail account to buy rounds of drinks for consumers. In other states, bar spends have no monetary limits, and some states outright prohibit them.
2. Document, Document, Document. When a regulator questions a retail account about having received certain “things of value” from a supplier or distributor, having proper documentation is imperative. As an example, retailers should keep track of every time a supplier or distributor conducts an on-site sampling event or promotion, including time the time of arrival/departure, the types of drinks that were sampled, the total amount spent on the drinks, tip left, etc. Always include a copy of the itemized receipt in your records. Regulators will be looking to the retailer to justify the financial support or item received.
3. Quid Pro NO! Retailers cannot accept even allowable items from an upper-tier industry member, like branded napkins or bar mats, when the gift is conditioned on bar or menu placement, shelf space, etc. This is called a “slotting fee,” and is a classic example of a tied house violation.
4. Management Companies & Event Venues: Even if they don’t hold the retail liquor license themselves, hotel management companies cannot violate beverage law without subjecting themselves to great risk. The TTB is increasingly scrutinizing payments by alcohol brands to unlicensed third parties, where the benefits are clearly passed through to the retail licensee. Not only could these types of violations result in steep fines, but criminal action is also possible, including conspiracy and money laundering charges. At venues like concert or sports arenas, sponsorship agreements with alcohol beverage brands’ need to be carefully scrutinized. The TTB’s current position is that the sponsorship should be for legitimate brand advertising only, but cannot be tied to the food and beverage concessionaire’s activities at the venue. Branded bar areas or lounges are often viewed unfavorably by regulators.

This article is part of our Conference Materials Library and has a PowerPoint counterpart that can be accessed in the Resource Libary.

HospitalityLawyer.com® provides numerous resources to all sponsors and attendees of The Hospitality Law Conference: Series 2.0 (Houston and Washington D.C.). If you have attended one of our conferences in the last 12 months you can access our Travel Risk Library, Conference Materials Library, ADA Risk Library, Electronic Journal, Rooms Chronicle and more, by creating an account. Our libraries are filled with white papers and presentations by industry leaders, hotel and restaurant experts, and hotel and restaurant lawyers. Click here to create an account or, if you already have an account, click here to login.