Large and even medium scale acquisitions in the hospitality industry trigger these important legal questions and more. Sometimes, however, the dealmakers overlook or delay one critical area: alcohol service! How will we make sure the hotel or restaurant will be able to serve alcohol on Day One?

Careful planning and precise timing are critical. If your transaction involves properties in multiple jurisdictions, you will need to understand the existing licensing structure of each property, and the requirements and procedures for transferring the license to a new owner, noting that the procedures for doing this will not be the same in every jurisdiction. The timelines in each location, dictated by the governing licensing authorities will be different; therefore, it is essential that you work backwards from your proposed closing date to guarantee yourself enough time for licensing. Here are some initial questions to consider:

• Does the jurisdiction require licensing on more than one level (state/local)?
• Does the jurisdiction allow the transfer of a license from the seller, or will new licenses be required?
• Does the jurisdiction’s licensing process include prerequisites with additional internal deadlines which must be adhered to (e.g., publication requirements)?
• Does the jurisdiction allow a procedure for temporary licensing if permanent licensing cannot be completed by the closing date?
• Does the jurisdiction allow a “master file” when there are multiple properties licensed to one entity inside the same jurisdiction?

The answers to these questions will provide you with a rough timeline to work with. The next thing you need to be prepared for, however, is the inevitable. Something will go wrong and you will need to adjust your timeline. That means that is even more important for you to build in extra time. For example:

• The kitchen failed the health inspection.
• The license cannot transfer because the seller has sales tax due and unpaid.
• The officers of your licensed entity have all gone overseas for vacation and cannot be fingerprinted.

Wait a minute….the officers need to be fingerprinted? What officers?

Liquor license applications in all states require some level of fingerprinting of the officers disclosed on the liquor license application, as well as disclosure of personal information like physical description (height, weight, eye color), bank account references, and social security numbers. Similar information may be required for spouses of the disclosed individuals. There are several reasons that government agencies request this information, but the most important one is that the state has an interest in knowing that the individuals running a regulated business are who they say they are. The number of individuals to be disclosed will depend on the corporate structure of the applicant, and, depending on the nature of the transaction and the enforcement policies of the licensing jurisdiction, the officers of parent companies or holding companies related to the applicant may also need to be disclosed. It will be important for you to understand at the beginning of the licensing process how many individuals need to be fingerprinted and submit personal questionnaires.

Timing is paramount when acquiring any business with a liquor license. These introductory tips apply in any jurisdiction; however, note that each licensing authority has different rules and communication with those government agencies about your transaction so that you understand the expectations will be key to a successful and timely transaction.

About GrayRobinson
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At GrayRobinson we offer not only breadth across a great many legal areas, but also depth and proficiency in each one. We have invented a better brand of law firm, counting creativity as a hallmark characteristic and insisting on ingenuity and innovation. At GrayRobinson, there is no such thing as “business as usual.” We are one of Florida’s fastest-growing law firms and are proud to be at the forefront of emerging legal issues.

Tip v. Mandatory Service Charge

In a ruling issued in June 2012 the Internal Revenue Service clarified the difference between a tip and a service charge for tax purposes under the Federal Insurance Contributions Act. The IRS determined that automatic gratuities (a percentage automatically added to a restaurant bill) are service charges, rather than tips for tax purposes. Revenue Ruling 2012-18 also determined that to the extent any portion of a “service charge” is distributed to an employee, it is wages for FICA tax purposes.

Generally, the burden of reporting tips falls on the employee. Employees that receive more than $20 in cash tips (cash, debit/credit cards) per month are required to report the tips to their employers by the 10th day of each month. The employer is then required to withhold FICA taxes, similar to non-tip wages. An employer is not liable for their share of FICA taxes if the employee fails to report tips.

However, effective January 1, 2014, employers are required to treat mandatory gratuities as “service charge wages” instead of tips. This directly affects an employer’s responsibility to report and pay FICA taxes, as well as, overtime calculations.

Under the new guidelines, the IRS stated that the difference between a tip and wage requires a factual determination considering all the circumstances. The IRS will generally categorize a payment as a tip (versus a wage) when: (1) the payment is made free of compulsion; (2) the customer retains the right to determine the amount; (3) payment is not subject to negotiation or employer policy; and, (4) the customer determines who gets payment.

As a result, automatic gratuities or service charges are no longer considered tips. Customers do not have a choice whether or not to leave a gratuity and are forced to leave a specified amount set by the employer. Such mandatory gratuities when distributed to the employee by the business are considered wages. As wages, they are not eligible for the FICA Tip Credit (The 45B Credit). For many years, 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 on tips in excess of the federal minimum wage as of Jan. 1, 2007.

Also, since automatic gratuities and service charges are not tips, they cannot be included in the tip amount that social security and Medicare taxes are paid on, which takes some tax credit off the table for restaurants. This credit is claimed on Form(s) 8846 and 3800.

However, where a restaurant provides a customer a receipt with recommended tipping amounts i.e… 15%, 18% and 20%, the IRS does not classify the amount left as wages because the customer has a choice to determine the amount, is free from compulsion and determines the amount of the gratuity, if any, left. Therefore, this situation would support a finding that this is truly a tip and not considered wages.

Absent choice by the customer, an automatic gratuity when paid by the restaurant to the employee is considered part of the employee’s wages. This means the burden rests on the employer to incorporate automatic gratuities as part of the employee’s wages as opposed to relying on the employee to report their tips. Service charges/automatic gratuities are considered part of the employees’ overall rate of pay. As such, where a member of the staff works over 40 hours in week or 8 hours in a day in some states like California and receives a portion of the automatic gratuities, this amount must be factored into the total wages earned and factored into that day’s or week’s regular rate of pay (i.e. total wages ÷8 or ÷ 40). It is this figure that is used to determine the overtime rate of pay (1 ½ times the regular rate of pay) for any overtime earned.

This means employers now have the additional burden make sure their pay systems calculate automatic gratuities as part of employees’ wages and use them to determine the regular rate of pay for a particular day or week for purposes of correctly calculating overtime. As such, employers must pay close attention to avoid the underpayment of overtime wages.

History of Federal law as to Tip Pooling

Historically, the federal law on tip pooling adopts standards which are protective of employees’ right to tips.

The Fair Labor Standards Act (FLSA) permits employer-mandated tip pools among employees who “customarily and regularly” receive tips, such as waiters, waitresses, bellhops, bussers and service bartenders. The interpretation made clear that employees who did not directly interact with customers such as chefs, cooks, janitors, and dishwashers were not allowed to share in the money contributed to a tip pool. A court in one case has held that hosts and hostesses who greet customers and perform some table attendance duties might be included in a tip pool. However, this holding was not all encompassing so a case-by-case analysis needed to be applied to determine applicability.

The FLSA forbids any arrangement where any part of the tip received becomes the property of the employer. A tip is the sole property of the tipped employee or employees appropriately participating in the tip pool.

The Department of Labor (DOL) also mandates that the pooling arrangement must be “customary and reasonable” and can not require an employee to contribute a greater percentage of their tips other than what is customary and reasonable. Although there is no definition or exact percentage of what the DOL deems “customary and reasonable,” the wage and hour division has found in cases where contributions of 15 percent or less of an employee’s tips to be acceptable. Contributions of greater than 15 percent are not statutorily forbidden but may require the employer to show that such a percentage is “customary and reasonable” for that community.

States also have similar definitions of allowable tip pooling. An issue of much interpretation and debate is whether employers may mandate that tips/gratuities be pooled and distributed among certain employees as a mechanism for ensuring that gratuities are shared by all employees in the “chain” of customer service and the chain of service over time in the restaurant industry has come to include all non-management employees in states where a tip credit is not permitted..

Pooling tips for redistribution is not required, nor is a written agreement or policy required to allow a tip pool.

“Chain of Service” Eligibility

However, the definition of “chain of service” has continued to be refined and evolve with opinions both by federal and state wage and hour divisions and the courts. For example, in 2005, California’s Department of Labor Standards Enforcement issued an opinion regarding tip pools stated that employees eligible to participate in a tip pool included anyone who contributes to the “chain of service bargained for by the patron, pursuant to industry custom.” This opinion letter described the “chain of service” to include bussers, bartenders, hostesses, wine stewards and front-room chefs (e.g., chefs at a sushi bar or who prepare food at the patron’s table). The opinion reaffirmed that no employer or agent with the authority to hire or discharge any employee or supervise, direct, or control the acts of employees may collect, take, or receive any part of the gratuities intended for the employees as their own. In other words, despite any tip pool container as is often seen at coffee shops, the owner(s), manager(s), or supervisor(s) of the business can not participate in the tip pool, even if these individuals provide direct table service to a patron. This is the case even if the guest intended to leave the tip for an owner, manager, supervisor, or agent of the business who actually provided service to the patron. Given the broad definition of the Labor Code, an agent could include a floor manager or shift supervisor if that person has the ability to direct or control the acts of employees.

However, recent court decisions have allowed shift supervisors in certain situations to share in gratuities. This situation was dealt with in lawsuits by Starbucks baristas as to company’s practice of permitting shift supervisors to share tips. At the Starbucks stores, the collective tip box was divided among the entry-level employees and the shift supervisors. A trial court in San Diego, California initially ruled that California law prohibited managers and supervisors from sharing such tips and awarded over $105 million dollars in damages. However, this decision was reversed with the Court of Appeals holding that shift supervisors are eligible to share in the tip pool, reversing the lower court decision. The Court found that shift supervisors performed the same tasks as baristas because their primary duty was to serve food and drinks. Chau v. Starbucks, Corp. 174 Cal App 4th 688 (2009). This case has not been overturned and even other states including New York cited to the Chau case to support allowing shift supervisors to participate in the tip pool based on their duties being more akin to baristas. See, Barenboim v. Starbucks Corp., 2013 N.Y. Slip Op. 04754 (June 26, 2013) wherein New York highest court found given that shift supervisors performed the same duties as baristas that they could share in the tip pool. Therefore, there seems to be consistency among states as to the role of shift supervisors working at Starbucks. However, consistently courts have found assistant store managers should not be included in the tip pool because they have too many managerial duties, including hiring and firing, so as not to be classified as staff…

These cases have also brought up the concept of a customer service team (consisting of one or more entry-level and one or more shift supervisors) who rotated jobs throughout the day and spent most of their time performing the same customer service tasks, thereby supporting the Starbucks tip pooling arrangement. Generally, a customer who places a tip in a collective tip box was found to understand that it would be shared by all service employees and these cases appear to be guiding law.

As to tip pooling, the industry has adopted a standard that distributes the majority of the pooled gratuities to waiters and waitresses, followed by a smaller percentage to bussers, and a still smaller percentage to other categories of employees who provide limited direct table service. There is no specific cap placed on the percentage of tips waiters and waitresses can be compelled to “tip out”. As will be explained below, the current state of the law has clarified who can participate in a mandatory tip pool.

Tip Credit and Tip Pooling subject to Attack

The most recent issue that has arisen involves who can share in the tip pool and whether “back of the house” employees like dishwashers, food scrapers, chefs, and cooks can share in the tip pool. For years especially under the Obama Administration, the Department of Labor (“DOL”) has consistently taken the position that employees who do not provide direct service to the customer are not allowed to participate in a tip pool. This would mean that kitchen staff who do not have direct service contact would not be viewed as being valid participants to share in a tip pooling arrangement.

However, inconsistent interpretations of the FLSA among various appellate courts have created confusion for both employers and courts regarding the applicability of valid tip pools. In early 2010, when the Ninth Circuit Court of Appeals (which covers the states of California, Nevada, Oregon, Washington, Arizona, Alaska, Idaho, Montana and Hawaii) held that an employer could require servers to pool their tips with non-tipped kitchen and other “back of the house staff,” so long as a tip credit was not taken and the servers were paid minimum wage. Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010). According to the court, nothing in the text of the FLSA restricted tip pooling arrangements when no tip credit was taken; therefore, because the employer did not take a tip credit to reach the minimum wage, the tip pooling arrangement did not violate the FLSA.

In response, the DOL on April 5, 2011, issued new regulations that directly conflicted with the holding in Woody Woo. In early 2012, the DOL clarified its position on tip pooling by fully rejecting the Ninth Circuit’s decision in Woody Woo. Therefore, employers could no longer require mandatory tip pooling with back of the house employees. In conjunction with this announcement, the DOL issued an advisory memo directing its field offices nationwide, including those within the Ninth Circuit, to enforce its rule prohibiting mandatory tip pools that include such employees who do not customarily and regularly receive tips.

As a result, several restaurant trade groups and Wynn Las Vegas challenged the 2011 rule change in separate cases, seeking to enjoin its enforcement. (The plaintiff employers all required their employees to participate in a tip pool that included both tipped and non-tipped employees, and they did not take a tip credit against the minimum wage.) Both federal district courts concluded that the DOL lacked authority to make the rule change as a result of Woody Woo and, moreover, that the substance of the DOL’s revision contradicted Congress’ clear intent.; therefore upholding Woody Woo and allowing a mandatory tip pool with back of the house employees states where a tip credit was not allowed..

In response, the DOL appealed but set forth language that it would not seek to enforce these 2011 new regulations within states located in the Ninth Circuit area of responsibility that do not allow a tip credit. On February 23, 2016, a sharply divided panel of the Ninth Circuit Court of Appeals (which covers the states of California, Nevada, Oregon, Washington, Arizona, Alaska, Idaho, Montana and Hawaii) ignored its prior precedent issued in 2010 and upheld the 2011 DOL rule change. The majority concluded that the Fair Labor Standards Act’s (FLSA) “clear silence as to employers who do not take a tip credit has left room for the DOL to promulgate the 2011 rule and rejected the notion that the appeals court itself had foreclosed the agency’s ability to do so by virtue of its 2010 decision in Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010). This decision meant that even in states where no tip credit exists that employers can no longer mandate a tip pool distribution that includes employees who are not in the chain of service or have direct contact with customers i. e. cooks, dishwashers… Oregon Restaurant and Lodging Association v. Perez, 816 F.3d 1080 (9th Cir. 2016)).

A petition for rehearing en banc before the full panel of Ninth Circuit judges, rather than the usual three, was requested. On September 6, 2016, the Ninth Circuit denied the petition but ten of the judges joined in a sharply worded dissent that laid out a path for an appeal to the U.S. Supreme Court. The Oregon Restaurant decision is directly at odds with the Fourth Circuit Court of Appeals decision in Trejo v. Ryman Hospitality Props., Inc., 795 F.3d 442 (4th Cir. 2015). Due to this “circuit split”, the National Restaurant Association, the National Federation of Independent Business and other hospitality groups filed briefs to join the Wynn’s prior petition for U.S. Supreme Court to decide whether the DOL acted within its statutory authority when it barred restaurants from including kitchen staff in tip pools. This appeal still is pending with the U.S. Supreme Court and a decision as to whether it elects to take this appeal and resolve the split in the federal courts of appeal is still outstanding

New Federal Budget allows Tip Pooling

In response to the DOL rule adopted under President Obama, the Trump DOL proposed a new rule which would allow tips to be shared and pooled between all employees. Even though this would allow some of the lowest paid employees to receive additional monies from sharing in tips, labor groups opposed the proposed new rule claiming this would result in employers’ managers or supervisors taking tips away from employees. The DOL extended the comment period to address these concerns.

On March 22, 2018, a compromise was reached as part of the omnibus budget bill signed by President Trump on March 23, 2018. Under a rider to the bill, now law, the FLSA is amended to allow mandatory tip pooling so long as the workers are paid at least the minimum wage. This is not an issue in California as a tip credit is not allowed and all employees must be paid at least the applicable minimum wage. Also the rider includes a provision reinforcing the rule that already exists in California that do not allow employers to keep “tips received by its employees for any purposes”. As a result, it reinforces the California rule that the agent of the employer i.e. owners, managers, supervisors are not permitted to share in a tip pool.

In summary, the new budget makes it clear that all employees can share in a tip pool and no longer excludes the heart of house employees like dishwashers, cooks and other kitchen staff. This new rule will help close the large wage gap between front of the house and back of the house workers. Finally, the new FLSA rule does not allow, and has never allowed, restaurant owners to keep employees tips. The tips belong to the nonsupervisory employees, even if the employer helps serve meals and interacts with customers

Practical guidelines for compliance

As a result the new FLSA rules, a company that pays all of its employees at least the minimum wage can l impose a tip pool that allows all non-management employees even those who are not directly in the line of service to be a part of a tip pool arrangement. “Back of the house” employees like cooks, kitchen staff and dishwashers can also share in the tip pool. It is unclear if the U.S. Supreme Court will take the pending appeal given this action as the new rule may have made the appeal no longer necessary.

Going forward, employers should take the following steps to limit liability on tip pooling claims:

A mandatory tip pool can include all line employees even those with limited customer contact as the law has evolved to recognize these employees as being a part of the chain of service for the industry.

If a mandatory tip pool is instituted, the employees with the greatest amount of customer interaction should get the largest percentage of the tips. It is important to make sure that the tip pool is distributed to participating employees in a reasonable manner, proportionate with the employees’ direct interaction with the customers.

Rely more on what the employee actually does in his/her job versus a job title. For example, an employee carrying the title of “waitress” whose only job is to prepare food outside the view of patrons or without personal contact with patrons should receive a smaller percentage of the tip pool. Also an employee who has greater contact with the customer should receive a greater percentage of the tip pool than employees who have less direct interaction with the patron.

It is illegal for the employer to share in the tip pool and therefore, do not distribute any portion of a tip pool to any owner, manager or supervisor, even if the owner manager or supervisor provides direct table service and/or the tip was left by the patron specifically for that individual.
Finally, if a tip pool is instituted, please make sure the tip pool is distributed to participating employees in a reasonable manner, proportionate with the employees’ direct interaction with the customers. It is important to review your current tip pooling arrangement, if you have one and revise it as needed to comply with the new rules.

For more specific questions as to prevention and allowable tip pooling policies, it is important to consult competent legal counsel who understands both the hospitality industry and wage and hour issues and can analyze those issues given your specific circumstances and policies.

Joint Employment

A little over a year ago, we wrote about the concept of joint employment and its impact on the retail industry, particularly as it related to franchisors and franchisees. At the time of publication (August 2016), the National Labor Relations Board was taking a very expansive view of the concept of joint employment, meaning more companies could potentially be targets for union elections and collective bargaining by individuals with whom they had no direct employment relationship.

With the advent of the new administration, however, the Department of Labor withdrew the previous guidance and its overly expansive view of joint employment. Congress also began work on a proposed law that would scale back the new standards to a less expansive legal test. Then, in December 2017, the newly constituted National Labor Relations Board overruled a 2015 decision that had expanded the concept of joint employment, returning the analysis to a traditional and reasonable interpretation.

Specifically, the Board held that two different companies would be considered joint employers for purposes of the National Labor Relations Act (NLRA) only when each entity has exercised control over essential employment terms of another entity’s employees (rather than merely having reserved the right to exercise control) and has done so directly and immediately (rather than indirectly) in a manner that is not limited and routine. This was a welcome change for businesses that had operated under these standards for thirty years.

These changes do not, however, signal an end to the joint employment doctrine. To the contrary, even after retreating to the more conservative joint employer standard, the NLRB concluded that the two employers involved in the specific case were joint employers under the narrower standard. Nor do these changes under the NLRA change the law in every arena. Retailers will continue to see plaintiffs in employment lawsuits attempting to add them as defendants under a variety of laws. There is more than just one joint employment standard. Two examples of this doctrine are also found under the Fair Labor Standards Act (FLSA) and Title VII.

Joint Employment Under Wage And Hour Law

The FLSA – the nation’s primary wage and hour law – expressly recognizes the concept of joint employment. The regulations interpreting the Act provide that “a single individual may stand in the relation of an employee to two or more employers at the same time under The Fair Labor Standards Act of 1938 . . . .”  When determining whether two entities are joint employers under the FLSA, courts consider the economic realities of the relationship and apply a multi-factor test known as the “economic realities” test. For the most part, the various economic realities tests rely on the traditional common law test for employment with various economic considerations incorporated.

These economic considerations focus primarily on financial dependency. In other words, courts look to see whether the employee depends on the alleged employer for his economic livelihood based upon the parties’ actual working relationship. Whether or not the parties intended to create a joint employment relationship is irrelevant for purposes of the FLSA.

If a joint employment relationship is found to exist under the FLSA, both employers are responsible for compliance with the Act. For example, if a temporary employment agency supplies an employee to your company but fails to pay proper overtime compensation, the temporary agency and your company could both be held liable for the amount of overtime pay owed to the employee.

Joint Employment Under Discrimination Law

There is no clearly defined standard for determining whether a joint employment relationship exists for the purposes of Title VII, which is the primary federal antidiscrimination law. Nevertheless, for the purpose of Title VII liability, courts treat independent entities as joint employers if they share or co-determine matters that affect the essential terms and conditions of employment. Generally, the key issues examined by courts are whether the alleged employer has the right to hire, supervise, and fire employees.

It is important to note that a joint employment relationship is not always necessary for a finding of joint liability under Title VII. Federal regulations written by the Equal Employment Opportunity Commission (EEOC) provide that an employer may also be responsible for the acts of nonemployees with respect to sexual harassment. The EEOC will consider the employer’s degree of control and other legal responsibility with respect to the conduct of the nonemployee. Thus, regardless of whether an actual joint employment relationship exists, so long as you have some control over a contingent worker, you should take immediate corrective action if you become aware of harassing conduct.

Direct Causes Of Action

Furthermore, there are also employment-related claims that can be brought directly against you by individuals on your worksite who are performing employment duties for another employer. These claims generally arise either from direct interactions between your employees and the vendor’s employees at the worksite, or from communications between you and a vendor concerning employee performance.

Tort claims under state law are the most common source of these liabilities. For example, let’s say a worker loses their job because of negative information you reported to the direct employer. That worker might bring a defamation claim against you. This could easily arise from a situation where you accuse the individual of theft or some other criminal conduct (which could be considered defamation per se). In fact, even if you do not communicate negative information, but simply advise the direct employer that the individual is no longer welcome on your premises, the employee could bring a claim against you for intentional interference with a contract. While the premises for and viability of these claims differ among states, they do provide a means by which nonemployees can seek to punish the company that, in their minds, cost them their jobs.

Individuals may also have claims based on the conduct of one of your employees. For example, if your employee makes derogatory comments to the individual, a claim for intentional infliction of emotional distress could arise, and there is little doubt that the plaintiff’s attorney will name your company as a defendant. While one of the most difficult torts to prove, such allegations can pull your company into costly litigation.

Independent Contractors

Another problem area exists when contracting directly with an individual for services pertaining to functions commonly performed in the business. If your company identifies such an individual as an independent contractor, and therefore makes no withholding from their pay, you may run afoul of tax laws, as well as workers’ compensation, wage and hour, and unemployment insurance laws.

There is no single test for determining independent contractor status. Rather, the definition varies depending on the legal issue and the enforcement agency involved. For instance, you will find different definitions and tests for independent contractors in the IRS Code, the state unemployment insurance codes, federal and state wage hour laws, and state workers’ compensation statutes.

In the retail world, the question of whether to designate an individual as an independent contractor appears most often in situations that call for part-time employees. For example, if your store hires a janitor to clean the store twice a week, one of your managers might assume the individual is an independent contractor because they are not working full time. However, the number of hours an individual works is generally less important than the type of work being performed. Here, cleaning is a task for which most retail employees have some responsibility to oversee, which might categorize that individual as an employee in the eyes of the law. It is much safer to avoid the question by simply classifying the janitor as a part-time employee who is paid on a W-2 hourly basis.

Our Advice

No one can stop an individual from filing suit, no matter how frivolous. So your first step should be to obtain whatever protections are available before a suit is ever filed. If contracting with a company whose employees will be performing work on your premises, it is critical to negotiate for indemnification. While this won’t prevent your company from getting sued, it will put the burden of defense and associated costs on the contracted company.

Next, never sign a contract with a labor agency without a thorough review of the agreement. Oftentimes these contracts are written to assign responsibility to the retailer, indemnifying the labor provider for any event occurring on the premises that gives rise to litigation. Additionally, employment practices liability insurance policies should be reviewed with an eye toward whether they cover employment-related claims made by individuals who are not your direct employees. It’s important for your company to have this coverage.

When contracting for services, another important piece of the puzzle is to make sure the vendor supplies onsite supervision. While it isn’t necessary for these supervisors to be onsite 100 percent of the time, they should be visiting the workplace to check on their employees’ performance and to address any issues with a particular employee.

Once protections are in place, there are internal measures you should address. In-store management must understand that they are not to fill the role of supervisor to the other company’s employees. You need to conduct training identifying the individuals who fall into this category and the necessary procedures to follow for handling problems associated with these individuals. There should also be a stop-and-check mandate before a manager asks to have another company’s employee removed from your premises. While there will certainly be times when an individual’s misconduct means such action is appropriate, supervisors are often unaware of any risk in removing another company’s employee, and therefore act with little thought.

Conclusion

Hiring employees is not easy, and using another company to handle the administrative aspects of hiring can certainly be beneficial. But before traveling this road, you should take stock of where issues might arise and be prepared to address those risks.

For more information, contact the author at EHarold@fisherphillips.com or 504.592.3801.

Some plaintiffs’ lawyers have found a lucrative niche by engaging the services of “testers” – private citizens who go from business to business looking for ADA violations. The law does not require claimants to notify a business of alleged violations so they might fix the problem prior to filing a lawsuit; hence, many businesses are caught off guard when served with the lawsuit. Worse, they will spend thousands of dollars in attorneys’ fees to resolve a case when the cost of actual compliance is very low. In fact, after the costs of enforcing the technical requirements of the law are paid and the lawyers receive their fees, the plaintiff often receives no damages for the case.

A 21st-Century Twist On The ADA

A modern twist on these standard ADA cases is becoming increasingly prevalent. Now people are using this same section of the ADA to bring allegations that business websites are inaccessible to those with disabilities. No longer do testers need to actually visit a brick-and-mortar establishment, but can merely surf on the World Wide Web looking for those businesses with websites that are not accessible for those with disabilities.

In 2010, the U.S. Department of Justice (USDOJ) issued an Advance Notice of Proposed Rulemaking on the Accessibility of Web Information and Services. The purpose: “to establish requirements for making the goods, services, facilities, privileges, accommodations, or advantages offered by public accommodations via the Internet, specifically at sites on the World Wide Web (Web), accessible to individuals with disabilities.” Although the comment period closed in January 2011, the USDOJ has still not published clear guidance or final regulations for the private sector. The latest news suggests that will happen sometime in 2018. For now, though, the lack of clear policy has left the field wide open to unfettered litigation.

The bad news is that the delay in the regulatory process has not slowed the torrent of ADA lawsuits against businesses for alleged failure to provide equal access to web-based services. This means that your hospitality business can be sued by someone who is simply surfing for a lawsuit. You should take steps now to ensure your company’s website is reasonably accommodating those with disabilities.

What You Can Do To Stop The Surfing Suits

Some of the more common website accessibility issues affect individuals with vision or hearing impairments and those who are unable to use a mouse and must navigate with a keyboard, touchscreen, or voice recognition software. Those with visual impairments may need special software to magnify the content of a page, have it read aloud, or to display the text using a braille reader. For those with hearing impairments, the issue is often that audio content on the website does not include closed captioning, or that images do not include captions. You may need to build your website to properly interact with any adaptive software or technology designed for accessibility purposes.

Fortunately, the Web Content Accessibility Guidelines (WCAG) exist to provide web designers with standards for making digital content more accessible to those with disabilities. The USDOJ has made it increasingly clear over the last several years that it considers a website “accessible” if it complies with the standards of the WCAG 2.0 AA. The agency has used this standard in settlement agreements and consent decrees with businesses it believes to have violated the ADA. There is speculation that this will be the standard adopted for the private sector in 2018.

If your company website posts menus, accepts orders, permits customer reviews and testimonials, takes reservations, provides addresses and directions to brick-and-mortar locations, accepts job applications, includes FAQs, has email or chat features, or your business has any other online presence, you should consult with your web designer about ways to make these aspects accessible to those with disabilities. It is both the right and the legal thing to do, and it could save your business the unwanted expense and stress of litigation.

For more information, contact the author at MAnderson@fisherphillips.com or 504.529.3839.

Want to read more about the ADA? Check out these articles:

• Recent Verdict Strengthens the Growing Need for Websites to Increase Accessibility to Disabled Individuals
• ADA Interactive Process: A Quiz for Employers

Security measures protect people and property from threats and dangerous conditions. This protection extends to all parts of the premises which the patron or employee may be reasonably expected to go and to those parts of the premises that the business has reasonably led them to believe they can go. Bars have a responsibility to provide reasonable protection to patrons and employees on the premises.

There are many threats to safety that may occur at a bar. The possibility of death and injury due to fire is an important issue that has to be effectively addressed. Proper policies and procedures should be established for the safe evacuation of all the occupants on the premises. Bars will have a large amount of cash on the premises. Liquor bottles may be stolen. Employees may be assaulted during a robbery or theft of liquor. Bottles and drink glasses could be used as weapons not only during a robbery or theft; but during a fight between patrons or an assault of an employee. In some circumstances, an employee can effectively handle a disruptive patron by using verbal and nonverbal (physical actions and demeanor) skills to diffuse the situation. An effective method is asking a disruptive patron to leave the bar. If the patron refuses, advise the patron that he/she has the opportunity to leave on their own or the police will be contacted to remove them from premises. Employees should be properly trained in the policies and procedures established by the bar to address the aforementioned threats and improper behavior that may occur on the premises.

Assaultive behavior can occur between patrons. Managers, waiters, waitresses, and bartenders may be assaulted by intoxicated or combative patrons. An employee policy should be in place identifying when the police and/or management should be contacted when there are violent or disruptive patrons. If security personnel are on site, the employee policy should identify when security personnel should be contacted.

Consumption of alcoholic beverages by everyone working for the bar during their work hours should be prohibited.

Security Personnel

Bars, taverns, restaurants, and nightclubs are usually the busiest on Thursdays, Fridays, and Saturdays. Most assaults occur on weekend nights. If assaultive behavior is foreseeable on the property, security personnel should be employed. Security personnel in bars are often referred to as bouncers, doormen, and floor men. The role of security personnel is to protect people and property. This responsibility includes patrons and employees.

The hiring, training and supervision of security personnel is an important aspect of providing effective security. One of the best methods of crime prevention is the obvious presence of security personnel. It is essential that security personnel be recognizable and conspicuous.

Proprietary and Contract Security

Security personnel can be proprietary or contracted. Proprietary security personnel, also known as in-house security, are employees controlled by the company that is providing security for its facilities and other property. They receive instruction and supervision from their employer. Contract security personnel are employed by an outside security firm. They provide security services to a business customer, but are managed by the contracted security firm.

Hiring of Security Personnel

Hiring of applicants should take place after a reasonable background check is conducted. This responsibility is one of the most important priorities for security management. The background check often includes requirements identified by a governmental entity. A business’s responsibility to its patrons is to provide effective security through proper hiring practices. The hiring of security applicants is a critical part of establishing and maintaining an effective security force.

Training of Security Personnel

Security personnel should be adequately trained prior to beginning, and continue to be trained once employed. If a security guard is required to be licensed by the city and/or state where he/she works, the security guard should be licensed. The importance of training cannot be overstated.

Adequately trained security personnel are essential to achieve management’s goal for employees to properly perform their duties. What management wants and how management wants it done is reflected in the training of security personnel. Without the proper response of the appropriate employees, the security measures in place are often ineffective with respect to the safety and security of the patrons and employees of a business. Security personnel should know what their responsibilities are and how to properly carry them out. By security personnel being properly trained, their actions will be in compliance to the policies and procedures of the business.

The importance of employees following proper training is essential to a proper response. Security personnel, not assigned to a stationary post, will move throughout the premises and observe patrons for reasonable behavior while they patronize a business establishment. It should be remembered that security personnel have the same rights as a private citizen. When appropriate, reasonable force should be used by security personnel. If two or more patrons are involved in a fight, they should be removed from the premises. An effective method is to eject the more aggressive patron or group of patrons first and wait until they vacate the area of the premises before ejecting the more passive patron or group of patrons.

Monitoring Performance of Security Personnel

The management of security personnel should be delegated to a knowledgeable and competent individual who understands the required safety and security responsibilities of the business. If the security personnel are contracted personnel, there remains a responsibility by the business owner or manager to monitor their performance. This responsibility can include assessment of contract employee performance, response of contractor management to the bar owner’s or manager’s concerns, and training. It is important to ensure the contractor is meeting contractual standards, but direct supervision of contract security should be carried out by the management of the contractor. When there is an issue involving contract security personnel, the bar owner or manager should communicate their concern through the management of the contractor.

The responsibility for supervising security guard performance should be executed by someone who moves throughout the premises. Security personnel should be properly hired, trained and managed. When security personnel’s actions are improper, it may be attributed to inadequate hiring, training, and/or supervision.

An effective strategy of controlling assaultive behavior is to position a security guard/security personnel at bar entrances and exits. This will control access into the building by confirming a patron is the proper age to enter and is in compliance with bar policy for entrance into the building. Additionally, the actions of patrons outside the front door and inside by the front door can be monitored. Crowding around the bar and on the dance floor creates the risk of patrons accidentally bumping into each other. This can lead to fights between patrons. These are areas of the premises which may need to be monitored if assaultive behavior is foreseeable on the property.

Bar security is important for the patrons and employees of the bar. It is essential that all workers on site are properly trained in the policies and procedures of the bar. An effective response to a threat, dangerous condition or improper behavior is required.

To address this threat, gig companies can take some relatively easy steps to prevent contractors and departing employees from taking confidential information in the first place, and to protect that information from use by competitors.

Defending Trade Secrets

Businesses in the gig economy create and retain a trove of information that could be valuable in the hands of competitors: customer lists, purchase histories, customer preferences, and all kinds of financial information. And that’s just scratching the surface. Most gig employers have policies restricting employee or contractor use of and access to such information, and most states have laws to protect employers against trade secret theft.

As of 2016, federal law also provides a civil cause of action for trade secret misappropriation.  However, in order to recover punitive damages or attorneys’ fees under the law, the Defend Trade Secrets Act (DTSA) requires employees or contractors to be given notice of whistleblower immunities in all agreements dealing with trade secrets and confidential information. Gig businesses should take advantage of the trade secret protections afforded by this new law by reviewing policies and agreements to ensure they comply with the DTSA’s various provisions.

Protecting Relationships

A gig business’s relationships with its customers, contractors, and vendors are among its most valuable assets. Some employees and contractors are expected to develop lasting relationships on behalf of the company. Well-drafted agreements with these individuals should include a provision prohibiting them from soliciting customers, contractors, and vendors – especially those with whom they interact directly ­– for a reasonable period of time. State laws regarding the validity of non-solicit agreements can vary and can be complicated. That said, an enforceable agreement can be a potent tool to prevent individuals from poaching customers, contractors, or vendors on behalf of a competitor.

Non-Competition Agreements

One of the more sweeping measures a business can take to protect its relationships and confidential information is to ask workers to sign a non-competition agreement. These agreements generally prohibit departing workers from joining a businesses that competes with the company in a specified geographic area for a limited amount of time after their tenure with the company ends. Though a handful of businesses use non-competition agreements liberally, we generally recommend that companies limit these restrictive covenants to higher-level positions. As with the non-solicitation agreements discussed above, state laws vary widely regarding the enforceability of non-competition agreements, so well-tailored agreements are crucial.

Conclusion

With the deluge of stories about data security, now is an opportune time to review and update employment and independent contractor agreements and policies to protect trade secrets, confidential information, and relationships. On this front, an ounce of effort on the front end can save a ton of headaches in the event that an employee or contractor decides to take the company’s valuable information or relationships to a competitor.

This settlement brings to light the “predictive scheduling” trend that is occurring throughout the nation.  Historically, restaurants and retailers have used on-call scheduling to help control labor costs.  But as workers began claiming that the daily unpredictability of on-call scheduling hindered their ability to earn a living, hold more than one job, arrange reliable child care, and attend classes, this practice began to change.

Now, to combat worker uncertainty, numerous states and municipalities have begun passing these types of laws, referred to as “predictive scheduling,” “fair scheduling,” “secure scheduling,” and “fair workweek.”  For the most part, predictive scheduling laws typically require employers to provide employees (i) with their schedules two to four weeks in advance; and (ii) with predictable pay if changes to work schedules are made within this window.    Most of these laws contain exceptions to these requirements where an employer’s inability or failure to provide an employee with scheduled work results from specific causes beyond its control.

While San Francisco was the first locality to pass predictive scheduling legislation in the form of a “Retail Workers Bill of Rights” in November 2014, these types of laws are now becoming much more commonplace.

For example, in May 2017 New York City passed a law requiring fast food employers to schedule non-salaried workers for their shifts at least two weeks in advance, provide workers with good faith estimates of their hours, and pay workers extra when they work closing and then opening shifts back-to-back.  The law also creates a private right of action for employees who seek to enforce their rights.

Similarly, a new comprehensive predictive scheduling law took effect for Seattle in July 2017, pursuant to which employers are required, among other things, to provide (i) new employees with a written good faith estimate of their work schedule, including the average number of hours the employee should expect to work as well as the employer’s expectations that an employee will be on call; and (ii) existing employees with a written work schedule, posted in a conspicuous and accessible location, at least 14 days before the first day of the work schedule.

As of August 2017, Connecticut, Illinois, Indiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, Oregon, and Rhode Island, as well as numerous municipalities, are considering enacting some type of predictive scheduling laws.

Thus, employers in all states, and in particular those in the retail and food service industries, should closely monitor state and local legislation developments on this issue.  In any location in which legislation has been proposed, employers must educate themselves about and prepare themselves for both the practical and legal challenges that changes in these scheduling laws will present to their businesses.  However, employers should not wait for predictive scheduling laws to pass in their city or state before updating work scheduling policies, as a quick examination of laws in other jurisdictions provides an outline for what to expect.

Although predictive scheduling laws are designed to benefit employees, employers can, with careful planning, make changes in a way that is least disruptive to their businesses.  Further, implementing predictive scheduling changes that incorporate varied work shifts, straightforward schedule changes, and an effective communication process could help employers stay compliant with these evolving laws.

Finally, even if the state or municipality in which you do business is not affected, predictive scheduling could become a practice that improves employee relations and/or employee morale.  Thus, employers should evaluate their existing workforce and scheduling practices and consider whether moving toward predictive scheduling may be beneficial for their businesses.

As the United States District Court for the Eastern District of New York noted: “The FDA initiated this review in part because several federal courts had previously requested administrative determinations from the FDA regarding whether food products containing ingredients produced using genetic engineering may be labeled as ‘natural.’” Forsher v. J.M. Smucker Co. (E.D.N.Y. Sept. 30, 2016) The prospect of the FDA developing new guidance, like all pending regulation, is now in doubt, given the Trump administration’s avowed aversion to regulation and its executive order 13371, Reducing Regulation and Controlling Regulatory Costs, stipulating that for every new regulation promulgated, two older regulations should be eliminated. If the FDA declines to define “natural,” states may move to fill the void. In fact, in his 2016 State of the State address, New York Gov. Andrew Cuomo proposed that New York health officials develop their own definitions for terms like “all natural.”

Litigation concerning whether genetically modified foods can be labeled “natural” would presumably be affected by the FDA’s definition. Since this issue has been raised in cases across the country, one should expect to see a decline in litigation on this matter. In fact, according to an article in Time magazine last year, “Based upon statistics from 2013, only 22.1 percent of food products and 34 percent of beverage products marketed that year claimed to be ‘natural,’ which reveals a decrease from 30.4 percent and 45.5 percent respectively only three years prior. Insiders suspect that’s due to legal action or fear of future disputes about misleading labels.” That number can only be expected to decrease in light of the FDA’s current consideration of the term.

Litigation, Naturally

Nevertheless, litigation is prevalent in this area. For example, the plaintiff in the Smucker case alleged that the company’s use of the term on packaging for certain peanut butter spreads is false and in violation of various consumer protection statutes “because some products contain sugar manufactured from genetically modified organisms (GMOs).” In a motion to dismiss, the defendant argued that it complied with the FDA guidelines. In the alternative, the company maintained that the matter should be stayed pursuant to the primary jurisdiction doctrine in light of the FDA’s review of the definition of “natural.” And the court found that a stay was appropriate in light of the FDA’s consideration of the term in order to “allow the FDA the opportunity to take action.”

Similarly, in Kane v. Chobani, the U.S. Court of Appeals for the Ninth Circuit remanded an appeal brought by the plaintiffs after their putative class action, which alleged that Chobani’s labeling and use of the term was in violation of several laws, was dismissed. The Ninth Circuit found it prudent to enter an order staying the matter until the FDA completes its proceedings on the term “natural.”

Other Terms That Don’t Go Down Well

The courts’ decisions to stay matters pending FDA consideration is not a novel concept. Other courts have done the same thing.

Moreover, suits such as these are not limited to the labeling of “natural.” For example, in Garrett et al. v. Bumble Bee Foods LLC, the Superior Court of the State of California, County of Santa Clara, recently began a bench trial on Bumble Bee Foods’ alleged misleading of consumers. Specifically, the plaintiffs allege that the defendant labeled its tuna as an “excellent source” of omega-3 fatty acids. This was, the plaintiffs maintain, problematic, given Bumble Bee Foods’ use of the American Heart Association logo, while omitting that it paid the American Heart Association to review its product.

Similarly, in Wilson v. Frito-Lay North America, Inc., the United States District Court for the Northern District of California lifted a stay previously imposed and permitted the defendant to renew its motion for summary judgment. The basis of the putative class action is rooted in several Frito-Lay snacks labeled “0 grams Trans Fat,” which the plaintiffs contend should have referred them to the back panel for the total fat in the snacks, according to the plaintiffs’ reading of the FDA labeling regulations. The summary judgment motion has not yet been fully briefed, and the hearing is expected to take place on May 4, 2017.

Although the process of evaluating the definition of “natural” began over a year ago, the FDA’s careful consideration should come as no surprise, especially given the effects such a definition would have on the industry. Not only would every manufacturer be required to re-evaluate their labels in order to determine whether or not they are in compliance with new FDA regulations, but also litigation concerning this matter would be significantly affected in several ways. First, the industry can expect to see substantially less litigation stemming from alleged improper/misleading labeling should a definition be established. More specifically, defining the term “natural” will provide both manufacturers and consumers alike clarity and allow for industry-wide consistency. If, however, the FDA adopts an ambiguous definition, consumer litigation could actually be expected to rise in this area.

Insurance for False Labeling Claims

In so far as food and beverage companies are concerned, understanding these potential claims is essential, and understanding the extent to which insurance coverage may protect against potential liability is even more so. First, food and beverage companies should carefully read their insurance policies already in place to determine whether potential misrepresentation claims are covered. Commercial general liability policies that include coverage for “advertising injuries” are often narrow in scope, and may in fact exempt such misrepresentation claims. Second, in procuring future coverage, manufacturers should keep in mind the potential impacts of the FDA’s decision to define “natural” if such labeling applies. Finally, difficult as it may be, companies should look to applicable directors and officers (D&O) policies for potential coverage. While potential misrepresentation claims could be considered “wrongful acts,” D&O policies are often carefully crafted to preclude claims such as these.

Ultimately, procuring broader coverage could be beneficial to food and beverage companies during this time of changing regulation.

Authors

Steven J. Pudell – Managing Shareholder (Newark Branch), Anderson Kill
Christina Yousef – Attorney, Anderson Kill

One issue that can lead to a recall is “mislabeling.” Mislabeling occurs when a food product’s label does not accurately reflect its ingredients. A common reason for a recall is improper identification of allergens. There are more than 160 foods that can cause allergic reactions in people with food allergies. The FDA recognizes the eight most common allergenic foods, which account for 90 percent of allergic reactions to food. Those are milk, eggs, fish, crustacean shellfish, tree nuts, peanuts, wheat and soybeans. These eight foods and any ingredient that contains protein derived from one or more of them are designated “major food allergens” by the Food Allergen Labeling and Consumer Protection Act of 2004 (FALCPA) and require specific labeling.

If a product is not properly labeled, the consequences could be life-threatening. A person with severe food allergies could experience anaphylaxis, which could lead to constricted airways, severe lowering of blood pressure and suffocation by swelling of the throat. Sometimes symptoms start out mild and can become more serious in a very short time. Allergic reactions can include hives, flushed skin or rash; a tingling or itchy sensation in the mouth, face and tongue; lip swelling; vomiting and/or diarrhea; abdominal cramps; coughing or wheezing; dizziness and/or lightheadedness; swelling of the throat and vocal cords; difficulty breathing; and loss of consciousness.

Many instances of mislabeling are caused by cross-contamination, which occurs when an allergenic or undesired product comes into contact with the product but is not listed on the label. Food product producers, manufacturers and distributors must take care to accurately label their products that contain allergens and to prevent cross-contamination. If contamination is discovered, a recall is likely on the horizon. It is imperative to notify the FDA, USDA and consumers promptly to prevent injury and contain the problem.

The FDA and the USDA have helpful guidelines and reporting links on their websites. For more information, see https://www.fda.gov/Food and https://www.fsis.usda.gov.

What types of establishments must comply?

The menu labeling requirements apply to retail food establishments that are part of a chain with 20 or more locations doing business under the same name and offering for sale substantially the same menu items. This includes bakeries, cafeterias, coffee shops, convenience stores, delicatessens, food service facilities and concession stands located within entertainment venues (such as amusement parks, bowling alleys, and movie theatres), food service vendors (such as ice cream shops and mall cookie counters), food takeout or delivery establishments (such as pizza takeout and delivery establishments), grocery stores, retail confectionary stores, superstores, quick service restaurants and table service restaurants.

What are covered establishments required to do?

As mentioned above, covered establishments must:

• • Clearly and conspicuously display calorie information for standard items on menus and menu boards, next to the name or price of the item.
  • Provide on the menu or menu board a succinct statement regarding recommend calorie intake.
  • Provide on the menu or menu board a statement regarding the availability of additional written nutritional information.
  • Develop and maintain written information for a standard menu item in a covered establishment which provides the amount of total calories, calories from fat, total fat, saturated fat, trans fat, cholesterol, sodium, total carbohydrate, dietary fiber, sugars, and protein in that item. It may be provided by counter card, sign, poster, handout, booklet, loose-leaf binder, menu, or electronic device or by other similar means.

Is this required for all menu items?

No. These requirements only apply to standard menu items. A standard menu item is a restaurant-type food that is routinely included on a menu or menu board or routinely offered as a self-service food or food on display.  These requirements typically will not apply to (i) seasonal menu items offered for sale as temporary menu items, (ii) daily specials or, (iii) condiments for general use typically available on a counter or table.

Does the rule apply to alcoholic beverages?

Yes. The menu labeling rule applies to alcoholic beverages that are standard menu items that are listed on a menu or menu board. However, the requirements do not apply to alcoholic beverages that are on display, but are not self-service foods. For example, bottles of alcohol that are on display behind a bar that a bartender uses to prepare drinks that are not listed on a menu or menu board are not covered. Similarly, the menu labeling requirements do not apply beers on tap that are not self-serve or listed as a standard menu item on a menu or menu board.

A standard menu item offered for sale in a covered establishment is deemed misbranded under the Food Drug and Cosmetic Act (FD&C Act) if its label or labeling does not conform to the FDA’s menu labeling rule. Similarly, if the calorie and additional nutrition information is not accurate, the foods would be considered misbranded. Foods found to be misbranded under the labeling rule are subject to the same penalties that misbranded packaged foods are subject to under the FD&C Act.

Although these requirements may appear straightforward, testing or otherwise developing the necessary basis for the calorie counts and nutritional information can be costly and time consuming. Additionally, redesigning and distributing properly labeled menus can be a time consuming process. With less than two months until FDA begins enforcement, time is of the essence and covered establishments should evaluate their menus and prepare for these changes.

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