Restaurant management

First Quarter 2022 Legal Update | modern restaurant management

Pooja S. Nair, partner at Ervin Cohen & Jessup LLP, compiles the latest legal news about the restaurant, food and beverage, and hospitality industries for Modern Restaurant Management (MRM) magazine.

Dispute

Insurance Coverage for COVID Claims Widely Rejected by Appeals Courts: Across the country, appellate courts are reviewing insurance lawsuits brought by restaurants that were forced to close due to COVID-19 pandemic shutdown orders. These restaurants have made claims to their commercial insurers to cover pandemic-related losses, and the insurers have argued that COVID-related losses are not physical losses and therefore not covered. By and large, district courts sided with insurers and appeals courts upheld those rulings, leaving area restaurants with little hope. Recent opinions in favor of insurance companies include an unpublished March 16, 2022 opinion on the Ninth Circuit in Steven Baker v. Oregon Mutual Insurance Co., 21-51097 and several state appellate court decisions.

District court denies restaurant industry request to stop new tip credit regulations: On February 22, 2022, a Texas District Court denied an emergency motion for a preliminary injunction brought by the Restaurant Law Center and the Texas Restaurant Association. The court found that the plaintiffs had failed in their duty to show irreparable harm if the Department of Labor rules were applied.

Iowa’s Ag-Gag law overturned: On March 16, 2022, an Iowa district court found that a controversial Iowa law criminalizing undercover investigations into farms and slaughterhouses violates the First Amendment because it discriminates based on point from the speaker’s point of view (only preventing investigations by animal rights groups). An earlier version of the law was passed in 2012, but was reversed in 2019.

Eleventh Circuit Finds Mandatory Service Charge Not Tipping: On March 18, 2022, the Eleventh Circuit Court of Appeals upheld summary judgment in favor of an employer and found that a Miami restaurant’s mandatory 18% service charge was not a “tip under the Fair Labor Standards Act (“FLSA”) and could be properly applied to FLSA employee wage requirements. The case, Compere v. Nusret Miami, was brought by a group of tipped employees who argued that the service charge was a tip and could not be used to meet Nusret’s minimum wage and overtime obligations.

DC sues Grubhub for breaching consumer protections: On March 21, 2022, the Office of the Attorney General for the District of Columbia (“AG”) filed a lawsuit against Grubhub for violation of the District’s consumer protection law. The AG alleged that listing restaurants on Grubhub without their consent and charging higher prices for food than restaurants charge on their own websites are deceptive and unfair business practices.

Litigation over SF fee cap for delivery apps will continue: On March 23, 2022, a San Francisco District Court judge granted plaintiffs DoorDash and Grubhub permission to file a lawsuit challenging San Francisco’s 15% cap on commissions for third-party platforms. The City had filed a motion to dismiss the entire lawsuit. The court granted the motion in part, narrowing the scope of the lawsuit, but allowed the plaintiffs’ challenge based on the Constitution’s catch clause. The plaintiffs argued that the 15% cap on commissions (compared to commissions of up to 50%) was a regulatory grab that would force them to renegotiate contracts and lose revenue.

Supreme Court to hear challenge to California Farm Bill: On March 28, 2022, the United States Supreme Court granted a motion for writ of certiorari in National Pork Producers, et. Al.c. Karen Ross, 21-468. The order means the Supreme Court will hear a constitutional challenge to Proposition 12 of California’s farm animal containment law. Proposition 12 was passed by California voters in 2018 as a ballot initiative. The law prohibits the cruelty of confining certain farm animals (laying hens, veal calves, and breeding pigs) (as defined by law), and prohibits the sale of products derived from cruelly confined farm animals in California.

Legislation

California expands third-party delivery app regulations: On January 1, 2022, California’s AB-286 went into effect to further regulate food delivery platforms. The law prohibits delivery platforms from charging consumers prices higher than the prices displayed online; requires that a cost breakdown be provided to consumers; and makes it illegal for food delivery platforms to retain amounts designated as tips or gratuities. This law builds on the Fair Food Delivery Act, which came into force on January 1, 2022, and prohibits food delivery platforms from listing restaurants without their express permission.

California restricts plastic utensils and condiments: On January 1, 2022, California AB-1276 became effective. The law requires restaurants to only distribute single-use straws, utensils and condiments when requested by consumers. Violations are subject to a fine, with a maximum of $300/year.

Chicago Single Use Eating Utensils Ordinance: On January 18, 2022, Chicago’s Single-Use Eating Utensils Ordinance went into effect. The ordinance requires food establishments to provide single-use tableware only at the request of the consumer or at a self-service station.

NYC creates new regulatory structure for third-party delivery apps: On January 24, 2022, New York City’s first set of new regulations for third-party delivery apps and increased protections for consumers and delivery drivers went into effect. These regulations require apps to tell consumers they’re collecting data, allow consumers to opt out of sharing data with a restaurant, and disclose how much delivery people get tipped. Ultimately, the new regulations will require delivery apps to set a minimum wage for drivers, allow drivers to set distance and route limits, and require drivers to be paid at least once a week. Restaurants must also protect consumer data and allow consumers to opt out of data sharing and be removed from restaurant mailing lists.

California Creates State Tax Exemption for RRF Grants: On February 9, 2022, California enacted SB-113, approving additional economic relief for the COVID-19 pandemic. The bill passed with unanimous bipartisan support. SB-113 makes federal grants received through the Restaurant Revitalization Fund exempt from state tax. This means that companies that have received these grants will not have to pay California state taxes on the grant amounts.

Wisconsin adopts restaurant relief bills: On March 7, 2022, Wisconsin Governor Tony Evers signed into law two restaurant tax relief bills. One law exempts federal COVID-19 relief funds from state taxes, and the other increases the amount of ordinary income that can be offset by capital losses.

Connecticut extends outdoor dining through April 2023: On March 30, 2022, Connecticut Governor Ned Lamont signed legislation that relaxes outdoor dining rules until April 30, 2023 to allow restaurants to continue serving outdoor customers.

Administrative developments

DOL Revises Tipping Rule (Again): On December 28, 2021, the Department of Labor revoked its 2020 Tipping Final Rule and enacted a new Final Rule. The new final rule not only revives the 80/20 rule, with changes, but also adds a “30 minute” rule. Under this rule, an employer cannot take tip credit when a tipped employee spends more than 30 consecutive minutes performing side work without a tip. Restaurants must be aware of all record-keeping requirements under the rule or face penalties.

FDA Foods Program Announces Priorities: On January 31, 2022, the United States Food and Drug Administration released a list of priority guidance topics for the FDA Foods program to be completed by February 2022. Guidance topics include several labeling-focused herbal, food safety and risk reduction. The full list of topics is available here.

FDA Focus on Food Safety Initiatives: In January 2022, the FDA announced new initiatives focused on food safety, indicating that the agency will continue to prioritize this area. Many of these programs are designed to provide more transparency and more information about foodborne illnesses and food safety hazards directly to consumers. Others, including a new egg regulatory program and a proposed rule on pre-market notification of food contact substances, are more technical and industry-focused.