Five Tips To Launching A Franchise Program Successfully

CONGRATULATIONS!  You’ve spent years building your business, developing a loyal following, and honing your operations into a replicable format.  You own two, three or maybe ten different locations, all profitable, and understand your business inside and out.  You know the right demographics and cost to jumpstart new locations.  You’ve cultivated reliable supply relationships, built a loyal management team, and learned to delegate daily details.  Over the years, you’ve turned away numerous inquiries about franchising while you’ve built your reputation and financial base.  Now you’re ready to franchise and you’re determined to avoid common mistakes.

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Twelve Tips for Franchisors to Reduce Joint Employer Risks Under Today's Legal Standards

Franchise agreement recitals declaring your franchisee to be an independent contractor, not an employee, are not dispositive!
 
Until now, the spotlight has never shined so brightly on franchising and, specifically, on whether franchisors are responsible for their franchisees’ activities.  
 
On July 29, 2014, the NLRB’s General Counsel announced its plan to sue McDonald’s for numerous unfair labor practices at franchisee-owned restaurants, claiming McDonald’s is the joint employer of the franchisees’ workers.  Weeks later, on August 27, 2014, the Ninth Circuit issued twin decisions holding thousands of FedEx Ground drivers were actually FedEx employees, not independent contractors, as FedEx claimed.  While FedEx’s arrangement with its drivers is not a franchise, the rulings expose examples of vulnerable practices that are also found in certain franchise arrangements.  The very next day, the California Supreme Court ruled that franchisor Domino’s was not responsible for sexual harassment allegedly committed by a supervisor at a franchise store, finding that Domino’s did not automatically become a joint employer or responsible for its franchisee’s wrongdoing simply because it set brand standards for running franchise stores.  Rendered in the space of four short weeks, these rulings show just how unsettled and confusing vicarious liability law is for franchisors in today’s business market.
 
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The NLRB Decision - What Does It Mean?

Join Shelley Spandorf in this Google Hangout for a frank discussion of the NLRB general counsel's action and its implications, as well as best franchise practices that help avoid these legal pitfalls.

NLRB Will Charge McDonald's as "Joint Employer" For Franchisee Labor Violations

In a move with far-reaching ramifications for all businesses that license their brands to independent contractors including franchisees, the National Labor Relations Board (“NLRB”) announced on July 29, 2014 that it has authorized the filing of administrative complaints against franchise giant, McDonald’s USA LLC, for unfair labor practices involving workers at franchisee-owned restaurants. The NLRB said that it had investigated 181 cases of unlawful labor practices at McDonald’s franchise restaurants since 2012, including reports that employees were fired for participating in worker protests, and found sufficient merit in at least 43 cases to name McDonald’s as the workers’ “joint employer” creating a legal basis for holding McDonald’s responsible with the franchise owners for the labor violations. McDonald’s has more than 14,000 U.S. restaurants of which approximately 90% are franchisee-owned.

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TTB Changes Course on Oregon's Wine Growler Law

 On April 25, 2014, the Alcohol & Tobacco Tax & Trade Bureau (TTB), the federal agency that regulates and taxes alcohol producers, suspended a March 2014 wine growler ruling that would have unnecessarily required wineries and retailers to register as federal taxpaid wine bottling houses before selling refillable wine containers.  For wineries and restaurants looking to sell customers to-go wine growlers, the ruling would have created new registration, recordkeeping and labelling requirements despite the fact that there are no similar federal requirements for beer growlers or for glasses or carafes of wine.

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New Suit Claims Wage Violations for Non-tipped "Side Work"

The restaurant industry just keeps getting hit with new and creative theories of liability under wage and hour law. Here, tipped employees in a tip-credit state claim they should not have to perform “side work” because it cuts into the time they could be spending on tip generating work. 

FDA Proposal Seeks to Prevent Food Terrorism

As FDA implements the various sections of the Food Safety Modernization Act (FSMA) through rulemaking, the agency continues to convey a pragmatic approach complicated by regulatory reality. With its latest proposal, FDA attempts to design a system for preventing acts of terrorism impacting food production. In FDA’s words, “food facilities would be required to identify and implement focused mitigation strategies to significantly minimize or prevent significant vulnerabilities identified at actionable process steps in a food operation.”

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California Appellate Court Holds That Federal Law Preempts Unfair Competition Law Claims Tied to Organic Label

By Chip English and Allison A. Davis

In a case of first impression in the state courts, a California appellate court delivered an early Christmas present Dec. 23 to beleaguered food and beverage companies facing an avalanche of lawsuits under California’s Unfair Competition Law (“UCL”). In Quesada v. Herb Thyme Farms, Inc., Case No. B239602 (2nd Appellate District, Dec. 23, 2013), the court found that the federal Organic Foods Production Act (“OFPA”) preempted state law claims related to organic certification where Herb Thyme labeled its products as USDA Organic, but sold products with organically grown herbs mixed with conventionally grown herbs. The putative class action, alleging that the UCL was violated under California’s separate, but federally certified, organic program, was dismissed because the label met USDA’s certification requirements.

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Oregon Court Limits Agri-tourism at Farm Stands

A land use decision by the Oregon Court of Appeals could impact farm marketing activities across the state, imposing new permitting requirements and forcing changes to business operations. 

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The Hidden Pitfalls of Joint Venture Partnerships

Restaurant joint ventures regularly grab headlines. In May, the San Antonio Express-News announced a deal between Steak 'n Shake and an unnamed professional athlete. A month earlier, Ollie & Jax Pub 'n Pizza was touted in the Orange County Register as putting roots down in the California community in a joint venture between the brand's owners and Main Street Concepts.

These strategic alliances form for many reasons, but all aim to combine complementary strengths. The brand owner seeks investors or experienced operators to replicate the restaurant concept in a new market; investors and operators want to hitch their money or sweat equity to the brand's star.

When joint venture, or JV, parties join together, they create a new legal entity, distinct and separate from the one through which the original restaurant operates.

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"Ladies' Night" Promotions Violate California Law

By Anna Buono

The hospitality industry is no stranger to the rules prohibiting discrimination in accommodations. The average restaurant or hotel operator is aware that the establishment cannot deny service to a patron on the basis of a protected status, such as race or gender. What appears to be less well known is that, at least in California, the same business establishments cannot discriminate by providing extra service to a protected status either. This fact is apparent by the continuing trend to hold “Ladies’ Night” events, or special discounts available only to women, for businesses from restaurants to car washes. These bonuses for female patrons may be useful in boosting business, but if the same businesses refuse service or the same discounts to a male patron, they may be in for a rude awakening when they receive a complaint for statutory penalties for violation of California’s Unruh Act and/or The Gender Tax Repeal Act.

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Food and the City: Making Density Palatable

Moderated by DWT partner Jim Greenfield, the third installment of DWT and Forterra's Creating a Great Global Region series was an interesting and engaging evening focused on how social equity, community building and conversation of farmland intersect around food. The event consisted of a panel discussion of prominent members of the local agriculture and hospitality industries, followed by a group workshop, and ended with a networking reception.

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New IRS Rule for Automatic Tipping Impacts Restaurant Owners and Servers

The new IRS ruling that takes effect in January will treat automatic gratuities as service charges, rather than tips. The IRS change will not only create additional accounting and bookkeeping work for restaurants, it could also mean the loss of an income tax credit, which restaurants receive for paying Medicare and Social Security taxes on employees’ reported tips. Read more about the implications of this change in the attached article “Automatic tipping: IRS rules change could be taxing for hospitality industry."

Liquor Privatization Battle in Washington Continues Over Shortfall Liability

By Ashley Watkins

The recent privatization of the liquor industry in Washington made headlines all over the United States. Implementation, though, has not been without some hiccups. The Association of Washington Spirits and Wine Distributors (the Association) renewed focus on the law when it filed suit this spring against the Washington State Liquor Control Board (the Board).  No. 13-2-00049-8 (Wn. Sup. Ct. filed Jan. 8, 2013). Under the privatization Initiative 1183 (I-1183), spirits distributors were required to pay a license fee equal to 10% of total spirits sales. In order to ensure that the State received a guaranteed revenue flow, if the fees collected did not total $150 million by March 31, 2013 the distributors would be required to make up the difference. Each distributor would be required to contribute the missing portion based on the proportion of his or her sales during the calendar year. 
 
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The Federal Government Shutdown and TTB

By Jeffrey Giametta

Approximately 483 federal employees that work for the Alcohol and Tobacco Tax and Trade Bureau (TTB) have dutifully reported to work today “for the orderly shutdown of TTB.” We have all heard how that the inability of Congress to pass a spending bill is creating a shutdown of the federal government, but what does that really mean for us in the alcohol beverage industry?

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