Qui Tam - Illinois' New Form of Ambulance Chasers Targeting the Wine Industry

An Illinois Plaintiff's lawyer has recently been targeting the wine industry in qui tam class action suits alleging that wineries with direct ship sales have been breaking the law by deliberately disregarding the Illinois tax code. The Illinois False Claims Act (IFCA), formerly known as the Whistleblower Reward and Protection Act, derives from the Federal False Claims Act. 740 ILCS 175/1, A provision allows a private citizen to bring a civil suit on behalf of the government in the name of the government to recover damages for the government.

The Plaintiff in this case is the lawyer himself, Stephen Diamond of Chicago. Diamond is suing on his own - claiming he made the purchases and discovered the act - and thus not sharing in any recovery. Diamond has filed over 300 suits against out of state retailers.  Some of those claim that Illinois wine retailers are defrauding the Illinois government because they do not charge tax on the shipping and handling portion of the sales. The Illinois Department of Revenue has addressed the shipping charges, and does not require shipping charges if the shipping charges are separate from the price of goods or if the shipping charges are equal to the cost to the retailer of using the common carrier. Ill. Dept. Rev. Reg. Title 86 Part 130 Section 130.415. The shipping charges are taxable if the shipping charges exceed the cost to the retailer of using the common carrier, or if the shipping charges are included in the price. 

So if the Code is pretty clear, how does the Plaintiff have a leg to stand on? The Illinois Supreme Court held in Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351, (Illinois 2009) that the tax on shipping charges was part of the “selling price” according to 35 ILCS 105/3-10 (2006), and 35 ILCS 120/1 (2006).  The Court concluded that because internet purchases must be delivered, that shipping was an inseparable part of the transaction. The court held that “under the Retailers Occupation Tax Act, that the shipping charge is inseparable of the Internet “selling price,” and tax must be assessed on the shipping charge.

While there are defenses, the litigation has been costly to those affected. Because Diamond is filing on his own behalf, he is actually making purchases himself.  Most of the cases have settled on terms favorable to Diamond as opposed to litigating the defenses.  The Illinois Attorney General has not yet gotten involved to make a determination, and the legislature has not yet addressed the disparity in the tax code and the Supreme Court ruling.  Until then, if you're a direct to consumer seller, it is advisable to beware and take precautions to avoid being a target of the suit. 

The Clark Hill Food and Beverage Team is well-equipped to help if you have questions about these actions, or how to avoid these actions. Please contact Jonathan Boulahanis, jboulahanis@clarkhill.com if you have questions.

Chicago Bars Face De Ja Vu This New Year's As Crackdown on Happy Hour Violations Continue

The City of Chicago Department of Business Affairs and Consumer Protection has investigators racketing up to enforce the Illinois Happy Hour Law of 1989 again this New Year's Eve.  Last year, the City cited over 80 establishments for violations of the Happy Hour Law by promoting open bar packages. The Happy Hour Law only allows an open bar during a set period of time for a private event like a wedding or private fundraiser.  It came as a surprise to many of the establishments, as the State of Illinois Liquor Control Commission previously had been the exclusive regulatory authority for all intents and purposes until that point.   The establishments faced fines from the City in the range of $5,000, and included threats to revoke their liquor license for repeat offenders.  It is expected that the City will again cite establishments, and that the City has already started investigating establishments that are advertising such packages on social media. 

If your bar or restaurant has questions about your event, or compliance with the Illinois Happy Hour Law, Clark Hill's Food and Beverage Team is ready to assist.  Contact Jonathan Boulahanis at jboulahanis@clarkhill.com


http://chicago.eater.com/2014/12/17/7410623/new-years-eve-chicago-liquor-crackdown-open-bar

http://www.cityofchicago.org/city/en/depts/bacp/supp_info/top_tips_for_liquorlicensees.html

Quote from San Diego Union Tribune Article Re: "Handmade" Label Suits

Attorney Jonathan Boulahanis, co-leader of the food and beverage team with the law firm Clark Hill PLC, who is not involved in any of these cases, agrees.

Buzzwords like “small batch” and “handmade” are starting to get challenged in consumer fraud cases more frequently, he said.

He said the underlying idea of the lawsuits has some novelty to it, in that consumers are paying attention to those catchwords in deciding what to buy.

Whether the suits have merit is a different question, he said.

The full article can be viewed here:

http://www.utsandiego.com/news/2014/dec/11/lawsuits-handmade-liquor-label-makers-mark-tito/?#article-copy

Chicago Panera Decides Not to Renew Lease in Part Because of Wage Hike

A Panera Bread Co. in the Chicago neighborhood of Beverly has advised that it will not renew its lease in Chicago after the City passed an Ordinance increasing the minimum wage in the City limits. Panera is about 100 feet from nearby suburb Evergreen Park. The Illinois Restaurant Association, and several of its members, made emotional appeals to the City Council that warned of these ramifications and lobbied for a reasonable, statewide increase. It will be interesting to see how many other establishments bordering a suburb will look to relocate in the coming years.

http://www.dnainfo.com/chicago/20141204/beverly/beverly-panera-bread-closing-alderman-says-minimum-wage-hike-played-role

City of Chicago Approves $13 Minimum Wage Phased In By 2019

After much debate, and strong opinions on both sides, the Chicago City Council approved a minimum wage hike to be phased in over the next five years.  The City Council voted 44-5 today approving an increase to $13 per hour minimum wage by July 2019. 

Some key provisions of the new ordinance include:

- Increases in the minimum wage to $10.00 an hour in July 2015.  Minimum wage is currently set at $8.25 per hour.

- Future increases of the minimum wage to $10.50 in July 2016, $11.00 in July 2017, $12.00 in July 2018, and $13.00 in July 2019.

- After July 2019, annual increases will take place based on the Consumer Price Index and capped at a 2.5% increase per year.

- Employers utilizing the tip credit will also see a hike in minimum wage. Starting in July 2015, those employers will be permitted to utilize the tip credit allowed for in the Illinois Minimum Wage Law, but will need to add $0.50 per hour.  In July 2016, tipped employees will be paid according to the tip credit allowed in the Illinois Minimum Wage Law, but will need to add $1.00 per hour.  Starting in July 2017, and every July thereafter, tipped employees will be paid the amount from 2016 plus an increase tied to the Consumer Price Index and capped at 2.5% per year.

- If the federal government or Illinois passes a minimum wage increase above the City’s minimum wage at any time, the federal or state minimum wage will supersede the City’s.

- The City will require an additional poster regarding the City’s Minimum Wage to be posted in a conspicuous place.

- The City has authorized the Department of Business Affairs and Consumer Protection to enforce City violations, and violations range from $500-$1,000 per employee, per day.

- The Ordinance also allows for private suits by the employee to recover damages up to three times the amount of any underpayment, plus attorneys’ fees and costs.

Proponents of the Ordinance touted the increase as a way to lift thousands of families above the poverty line, and increase spending power in communities.   They also lamented the fact that no action had been taken in Springfield or Washington, and action needed to be taken now. The Raise Chicago Coalition called the Ordinance a major victory and celebrated the profound impact the raise will have on minimum wage workers.  The State of Illinois voters also passed a referendum this November calling for a $10 minimum wage by 2015 with a 66% vote.

Opponents have criticized the action as devastating to small businesses.  Governor elect Bruce Rauner warned that the minimum wage could make the city less competitive, and cause it to lose business  nearby communities and Indiana. The Illinois Restaurant Association, Chicagoland Chamber of Commerce, and Illinois Hotel and Lodging Association favored a lesser, statewide increase to allow for a level playing field.  Business owners testified that the increase will be devastating to their businesses. They further testified that small and mid-sized businesses, already feeling the impact of the Affordable Care Act, will be forced to lay off more employees. Additionally, the  increase will lead to higher demand for City of Chicago jobs, which may lead to even higher unemployment.

The new ordinance will have vast legal implications for Illinois businesses.  To discuss the impact the ordinance has on your business, please contact your attorney at Clark Hill PLC.  

The entire Ordinance can be found here:

https://chicago.legistar.com/LegislationDetail.aspx?ID=2077010&GUID=587B8AC5-864F-4C12-BB9D-4A0B58D84BC0&Options=&Search=

Liquor Industry Targeted by False Advertising Class Actions

One of the new hot trends in class action litigation is to bring suit against products for false advertising.  Both federal laws, like the Lanham Act, and state laws protect consumers from deceptive practices in advertising.  A recent target of these suits is the liquor industry, which is surprising because the the Federal Alcohol Administration Act gives the Alcohol Tax and Trade Bureau ("TTB") the authority to regulate advertising of liquor products.

Nonetheless, two well-known liquor products are facing class action suits.  First, Templeton Rye Whiskey is defending a potential class action suit in Cook County, Illinois.  The class Plaintiffs have alleged that Templeton deceives consumers and violates Iowa and Illinois law by stating that it's made in Iowa, and that it is a Prohibition Era recipe. 

Tito's Vodka is also facing multiple class action suits in federal court in Florida, and state court in California, over the fact that it calls itself "hand-made" right on the bottle. The consumers claim that "hand-made" makes the purchase deceptive, because consumers believe hand-made is of a higher quality, but in reality it is manufactured similarly to most other vodkas.  In defense, Tito's notes that the TTB approved the brand’s label and that Tito’s “small-batch distillation process” differentiates it from other vodka brands.

It will be interesting how these suits play out on multiple fronts.  First, there is a question of whether individuals can maintain a suit against a company that has passed the government advertising  regulations of the TTB, and received specific approval.  Could a TTB approved label really still be a target for a deceptive practices suit?  Additionally, how are terms like "hand-made" defined?  Are courts going to define such terms for purposes of determining misrepresentations?  And, finally,  are terms like "Prohibition Era recipe" and "hand-made" just “puffery” such as “premium” or “best” that cannot, as a matter of law, be reasonably relied upon by consumers. 

Full Article: Is a Wage & Hour Class Action Secretly on Your Menu?

Many in the hospitality industry are focused on the newest trends and keeping up with the ever changing tastes and desires of their consumer base.  While restaurant and bar menus have begun changing seasonally, or more frequently, to keep up with the rapid change in tastes, the hospitality industry has been slow to keep up with workforce regulations and laws that have evolved at a frantic pace.

The hospitality industry has unquestionably had a bulls-eye on its back in recent years when it comes to Wage and Hour violations. Besides the class action lawsuits and private lawsuits targeting restaurants, bars and hotels, the Government has drastically increased its scrutiny. According to Department of Labor ("DOL") statistics, from 2009-2013  Fair Labor Standards Act ("FLSA") investigations into hotels and restaurants increased from approximately 4,500 investigations to approximately 7,300 investigations. In 2013, investigations into restaurants and hotels made up approximately 53% of all DOL investigations.  As part of the DOL's P3 initiative (Plan/Prevent/Protect), nearly 2,000 investigators have been added in the last three years. On top of DOL investigations, each state regulates wage and hour violations (in Illinois, it's the Illinois Department of Labor that enforces the Illinois Minimum Wage Law and Wage Payment Collection Act).  

Why is the hospitality industry being disproportionately targeted by wage and hour lawyers and regulatory agencies? There are a few answers.  First, attorneys are much more willing to take these cases because they allow for the recovery of attorneys' fees, and courts have been much more willing to certify class actions in recent years.  Class actions don't necessarily mean a class of 500 - in these cases the similarity of issues has let employees in small to mid-size establishments certify a class or join as many employees or former employees as is possible.  Second, there is a much more educated workforce regarding their rights.  Media coverage of high profile wage and hour suits, including against big corporations like Applebee's and Friday's, as well as against high profile celebrity owned restaurants like those owned Mario Batali and Joe Bastianich, have made employees take notice. Third, when an establishment utilizes the tip credit, it adds a layer of complicated rules and regulations that are difficult to understand, and even more difficult to navigate.  Fourth, the hospitality industry has been slow to conform to the additional regulations that have gone into place, and have been slow to institute and enforce uniform policies that comply with the regulations. 

Given that background, what can an operator in the hospitality industry do to ward off wage and hour issues?  Before highlighting some areas of concern and ways to approach them, it is essential that your establishment recognize the danger, and take steps to limit the risk. Meeting with an employment attorney familiar with the industry to audit current practices and policies is a great first step. Preparing an updated handbook documenting practices, policies, and compliance with regulations, and distributing the handbook to current employees and new hires is important as well. An operator also should have a discussion with its insurance provider to make sure that any EPL (Employment Practices Liability) insurance in place contains coverage for wage and hour litigation.  

As for potential problems and solutions - here are some of the top recurring issues that confront hospitality industry operators:

* Improperly Classifying Employees as Exempt
Very few employees in the hospitality industry actually fall into a clearly defined exception to the FLSA overtime requirements. The recognized exceptions are executive, administrative, professional, and outside sales. Any "exempt" employee must make at least $455/week.  Executive exempt employees are owners and operators, or managers if they are clearly defined as such, their primary duty is management, they supervise 2 or more employees, and have authority to hire and fire employees. The administrative exemption likely applies for bookkeepers and the like. The primary duty for those in the "administrative" category includes non-manual office work, and requires the exercise of independent judgment and discretion on matters of significance.  The "professional" exception was created for learned professionals and applies for lawyers, doctors, and accountants. It also applies to creative professionals who perform work requiring invention, imagination, and talent.  A chef could arguably be classified as such, but the case law does not clearly accept the profession yet, thus it would be best to tread carefully before classifying the chef as such.  Outside sales is someone who is primarily and regularly engaged in making sales away from the employer's business. 80% of such duties must include attempting to make those sales for the employee's benefit.

Every other employee, whether salary or not, is entitled to time and a half for hours worked over 40 hours.  This is a very common pitfall for hospitality industry owners. 

* Tip Credit - Tip Sharing/Pooling

A common problem is allowing improper personnel to share in the tip pool.  Members of management, employers, and owners can never share in the tip pool. Kitchen and office staff also have been held to be improper.  Additionally, tip pool portions that go back to "the house" for administrative expenses or training are also improper.

Servers, bussers, bar backs, service bartenders, and food runners all may be proper.  However, their job descriptions and actual roles should be clearly defined so that there can be no argument that the employees are properly sharing in the tip pool.

* Tip Credit -Overtime

According to the FLSA and IRS regulations, employers cannot take a greater tip credit on overtime hours than they do on regular hours. Taking a larger tip credit results in underpayment to the employee and violation of the FLSA. For example, in Illinois an employer can take a 40% tip credit on the applicable minimum wage of $8.25 - so the tip credit is $3.30.  When an employee works more than 40 hours, they are entitled to 1 1/2 times the minimum wage, but the employer can only subtract $3.30.

* Tip Credit Distribution of Work

In order for a tipped employee to be paid the tip credit minimum wage, at least 80% of their work must be  in furtherance of the tipped occupation.  For example, servers, who are also bussing tables, making coffee, setting tables, and occasionally washing dishes are performing duties in furtherance of the tipped occupation.  If they have half their shift doing bar inventory, or working in the kitchen, then the tip credit is inappropriate. 

* Work Before Employees Clock In, or After Employees Clock Out

Employees must be paid for all hours performing activities for the benefit of the employer. Beware of automatic clock out systems. Establishments run into issues when they require employees to come in before their shift to prepare stations for service or set up the restaurant, or stay after to clean up. The employee should be clocked in for every minute they are performing duties that are even arguably benefiting the employer.

* Walk Outs/Breakage
Walk outs and breakage cannot be charged back to the employee.  Additionally, there cannot be a portion of the tip pool to cover walk outs or breakage. If there is a pattern with a certain employee, it is best practice to have a provision in the disciplinary policy regarding walk outs and breakage that will result in loss of a shift or termination. 

* Automatic Gratuity

Automatic gratuity, or service charges, are not considered "tipped wages" by either the FLSA or the IRS. A recent IRS ruling confirmed as much.  The employer can suggest a tipped amount by printing suggested 15%, 18% and 20% calculations, but automatic tips that are applied without an independent choice by the consumer are not considered tips.  In that circumstance, it is improper to utilize  the tip credit for the employee's hourly wage, and doing so results in underpayment to the employee.  

This is just a sample of common issues that confront employers in the hospitality industry. It is by no means a comprehensive list, and many of these issues have deeper layers that should be explored in more detail.  As an owner/operator or member of management, it is important to understand that these issues are real, continuing to evolve, and are extremely dangerous for the industry.  Look closely at your policies, talk to a professional, and please make sure that you do not have the wage and hour class action hidden somewhere on your menu.

About the Author:

Jonathan M. Boulahanis is an attorney in Clark Hill’s Litigation and Labor and Employment Practice Groups, and is one of the Chicago leaders of Clark Hill's Food and Beverage Team.  He focuses his practice on commercial, business, and employment litigation, as well as advising businesses on labor and employment issues and litigation avoidance. He also provides counsel on administrative and regulatory compliance issues that are commonplace in the food and beverage industry. Jonathan has been practicing since 2009 and has extensive trial experience in the federal courts.

Be Cautious About Who Shares in the Tip Pool

The tip credit is a land mine for employers in the service industry.  As we all know, the tip credit allows for employers to pay a lesser hourly rate to employees who receive tips as compensation as long as it can show the tips are enough to otherwise meet the minimum wage.  According to the Fair Labor Standards Act, proper tip pooling is allowed as well.  Many restaurants and service industries utilize tip pooling in order to tip out bussers, barbacks, and bartenders.  However, may establishments misuse the tip credit.

A recent class action lawsuit filed against New York restaurant Le Cirque exploits the complications of tip pooling. In the suit, the class of plaintiffs allege that they were forced to tip out captains and other management staff. The Department of Labor and Fair Labor Standards Act absolutely bar requiring tipped employees to share tips with management or the establishment itself. While busboys, hosts/hostesses, and bartenders are proper participants in tip pooling, going much further than that could land your establishment in hot water. 

If you have questions about your tip pooling arrangement, payment of wages, or your service establishment's employment policies, please contact Jonathan M. Boulahanis and the Clark Hill Food and Beverage Team.


http://eater.com/uploads/le-cirque-lawsuit.pdf

Chipotle Wins in Court Limiting Wage and Hour Class Action Class

Chipotle, which has faced similar wage and hour suits nationwide, was able to stem off a nationwide putative class action. Judge Susan Nelson, a federal judge in the District Court of Minnesota, ruled that a nationwide class action was improper given the allegations.  The allegations allege that a manager in Crystal, Minnesota, would make employees continue working after the clock in computer system automatically clocked them out at a certain time.  The Plaintiffs argued that the clocking system was nationwide, and likely affecting the entire country.  Chipotle successfully argued that the allegations should be properly limited to that store. Judge Nelson agreed.

Wage and hour litigation has seen some of the biggest upticks in the nation, and the restaurant industry has been one of the biggest targets.  Please be aware of your policies and technology, and if you have any questions, speak with an expert to help limit your risk of this type of litigation.

Nat'l Restaurant Association Continues Fight to Lower Debit Card Fees

The Nat'l Rest. Association continues its fight to lower debit card swipe fees for merchants by appealing a case that allows for swipe fees up to 21% to the Supreme Court.  The NRA argued that " the 21-cents-per-transaction limit the Fed imposed on debit-card swipe fees violates the 2010 Durbin Amendment passed by Congress that called for fees that are “reasonable and proportional” to the cost of the transaction."  After winning the battle in the district court, the appellate court overturned the ruling and allowed the Fed Rule for up to 21% fees on debit card transactions. As quoted in the article, "[t]he Fed’s own research has shown that 90 percent of debit-card transactions cost less than two cents to process." This rule is affecting small businesses immensely, and costs the industry approximately $4 billion per year in swipe fees.

The Foodie Law Blog will keep you updated as the case moves through the Supreme Court.

http://www.restaurant.org/News-Research/News/NRA-merchants-take-swipe-fee-case-to-Supreme-Cour

CH Attorneys Jonathan Boulahanis and Kevin Williams Quoted in Law360 Article

Clark Hill attorneys Jonathan Boulahanis and Kevin Williams were recently interviewed for an article on Law360 and provided insight into the act of outsourcing production in the food industry.  Check it out:

http://www.law360.com/foodbeverage/articles/559423/5-tips-for-food-cos-looking-to-outsource-production

Illinois Cupcake Law Gives Rise to Concerns

https://trendwatchnow.com/trendpoints/80

Is the Illinois Liquor Control Commission stifling craft beer growth?

Interesting article regarding the ILCC's interpretation of the following regulation:

"A brew pub license shall allow the licensee to manufacture beer only on the premises specified in the license, to make sales of the beer manufactured on the premises to importing distributors, distributors, and to non-licensees [consumers] for use and consumption, to store the beer upon the premises, and to sell and offer for sale at retail from the licensed premises, provided that a brew pub licensee shall not sell for off-premises consumption more than 50,000 gallons per year."

The ILCC has interpreted this regulation to mean: "c. A Brew Pub license holder shall not: 1) Annually sell more than 50,000 gallons of its manufactured beer to licensed distributors for off-premises consumption."

The question is whether a craft brewer with a brewpub license cannot sell more than 50,000 gallons from the brewery to consumers for consumption off premise, or whether it cannot sell more than 50,000 gallons to consumers off-premise even through distributors.  The latter interpretation, proposed by the ILCC would severely impact growth opportunities for the industry.  Learn more in the attached article written by Phillip Montoro.

http://www.chicagoreader.com/Bleader/archives/2014/05/26/new-proposed-state-distribution-rules-would-choke-the-growth-of-chicagos-biggest-craft-brewers

Shiftgig Q&A: Legal Bites: Can Dancing Really Be Banned, Footloose-style?

Legal Bites: Can Dancing Really Be Banned, Footloose-style?

• 
• By JonathanMay 23, 2014

Serving It Straight

Ask The Lawyer, Dancing, Bars

 

Q: Can a town ban dancing like in the movie Footloose?

A:  A Roseville, California bar owner has recently sued the village for false arrest alleging that he was arrested in 2012 for violating the city’s dance permit ordinance.   This begs the question, did Kevin Bacon have a false arrest suit for the Sheriff’s constant harassment in Footloose? (I would have referenced the remake, but honestly, I have no idea who was in it, and even if I did, I’d be distracted trying to connect them with six degrees of separation to Kevin Bacon).  The bottom line is yes, some restrictions (though, usually, not the draconian total ban) are in place across the country that limit an establishment’s ability to allow people to boogie down.

Roseville, CA does have a zoning ordinance that states  "It is unlawful for any renter, leasee or owner of any premises, or any person acting in the capacity of a manager, employee, or agent thereof, to conduct, permit, encourage, facilitate, or allow a public or private dance without the dance permit required by this chapter. " Roseville Municipal Code 9.040.020. This type of ordinance actually has been upheld as constitutional by the US Supreme Court as rationally related to a legitimate public interest, meaning that if the city of municipality has a good reason, the law will be upheld.  Other towns have similar provisions – Footloose, the original movie, was based on Elmore City, OK which banned public dancing within the city limits. Purdy, Missouri is another town that had banned dancing, even for students at a high school prom.

Even some big cities have limitations on dancing.  New York City requires establishments to obtain a Cabaret License if they want to allow  The typical test used to see if the license is required is three or more people are found dancing at one time in the establishment.  The City of Chicago requires some businesses to obtain a Public Place of Amusement license (PPA) for all nightclubs, dance clubs, karaoke, and DJ’s, and these activities usually implicate dancing.

The lesson here is that establishments must check local ordinances, regulations, and laws to make sure that they are complying  with the required permits and zoning ordinances, or consult with a legal expert – usually before opening the doors. Or, you can just write a letter to Kevin Bacon and ask that he advocate on your behalf.

Jonathan

Jonathan Boulahanis is an attorney in the Chicago office of Clark Hill PLC and is a leader of the firm’s Food and Beverage team.  Since Jonathan can’t cook like his Italian mother and the fast food was going to his hips, he became a self-proclaimed foodie. As an attorney, he has made a commitment to serve the food and beverage industry, no pun intended, by representing restaurants, bars, individuals, and other food and beverage businesses with various legal issues as they arise. You can reach him by sending an email to submissions@shiftgig.com.    

LEGAL DISCLAIMER:

The responses provided in this blog are for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of this blog does not create an attorney-client relationship between Jonathan Boulahanis or Clark Hill PLC and the user.

***This article was posted as part of a question and answer series that Jonathan Boulahanis is conducting with Shiftgig.com. The article, as well as all other articles in the series, can be found at http://www.shiftgig.com/articles.

Are your interns unpaid? Be careful

As summer approaches, a new set of high school and college age employees embark on corporate America to gain valuable experience and learn new businesses. As this time approaches, companies should be mindful of a litigation trend sweeping the country in relation to unpaid internships.

In June 2013, Judge William Pauley III of the Southern District of New York ruled that Fox Searchlight violated federal and state minimum wage laws by not paying two interns on the set of the movie The Black Swan. Glatt v. Foxx Searchlight Pictures, Inc., 2013 US. Dist. Lexis 82079 (S.D.N.Y. June 11, 2013).
Judge Pauley utilized six principals supplied by the Department of Labor in an April 2010 Fact Sheet to come to the determination that the interns should have been paid: "(1) the internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment; (2) the internship experience is for the benefit of the intern; (3) the intern does not displace regular employees, but works under close supervision of existing staff; (4) the employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded; (5) the intern is not necessarily entitled to a job at the conclusion of the internship; and (6) the employer and the intern understand that the intern is not entitled to wages for the time spent in the internship." DOL WHD Fact Sheet # 71 (April 2010).

Both complaints to the Department of Labor and private suits have exponentially increased in the last five years. As your company begins implementing internship programs for the summer, it is essential to examine the program itself, and the agreement between the intern and the company, to limit any exposure of potential liability.

Minimum Wage Debate Hits Chicago

Mayor Emmanuel announced today that he is forming a task force to discuss raising the minimum wage, which has been a hot button issue nationwide. The Mayor did not announce who would be part of the task force, but did say labor and business leaders will be included in the task force.  Findings will be presented to the Mayor later this summer. The Mayor is stuck between a rock and a hard place on this issue, as he is being criticized by union leaders for "giving in" to corporate interests, and is being criticized by corporations for increased costs of doing business in Chicago. It will be interesting if the hospitality industry will be included in the task force.

The National Restaurant Association has weighed in on the issue of increased minimum wage, and has lobbied against a dramatic increase in the minimum wage. The NRA has explained "As businesses struggle to recover from the economic recession, dramatic, mandatory wage increases such as those proposed under the Fair Minimum Wage Act of 2013 would place yet another financial burden on business owners who are already feeling the pressures of a weak economy and additional costs and regulatory complexity associated with the Affordable Care Act." Additionally, the impact would have a dramatic effect on the restaurant industry in particular, as most industry participants only have 3-5% pretax profit margins, and "58 percent of restaurant operators increased menu prices and 41 percent reduced employee hours following the 2007 minimum wage increase."

Chicago Push Cart Vendors May Be Subject of New Ordinance

Could push carts be the hot button regulation this summer?  It looks like it may be so... It will be interesting to see how this ordinance develops, and whether regulations will be stalled due to political pressures. The push cart operators want to be able to operate in a more widespread manner across the city without regulation, while the City contends that licensing and regulation is necessary for public safety.  This battle has been going on for years, dating back to the Daley administration.

http://www.suntimes.com/27296322-761/emanuel-searching-for-way-to-sanction-pushcart-food-vendors.html#.U2ugY4FdVzU

Shiftgig Q&A - Shift Cancelled On My Way To Work

Legal Bites: So My Shift Was Cancelled on My Way to Work... I Get Nothing?

• 
• By JonathanMay 2, 2014

Serving It Straight

Ask The Lawyer, Shifts, Laws

 

Q: I was on my way into my shift, and I got a call saying my shift was cancelled.  Is that allowed?

A: The long and short of it is yes. Under federal law, employers are not required to consider time showing up as compensable time. Additionally, employees’ time traveling to work is not compensable time.  If an employee is traveling to a different location, special assignment, or has already started work, the travel time can be compensable.  However, the federal laws do not have a “reporting time” pay that would compensate someone just for showing up or starting to travel into work.

This answer comes with the caveat that some states have stronger protections than the federal laws.  For example, California has a “reporting time pay” law that covers this situation and guarantees at least partial compensation for reporting to work.  Additionally, company handbooks and union contracts sometimes require compensation for this situation.

Jonathan

Jonathan Boulahanis is an attorney in the Chicago office of Clark Hill PLC and is a leader of the firm’s Food and Beverage team.  Since Jonathan can’t cook like his Italian mother and the fast food was going to his hips, he became a self-proclaimed foodie. As an attorney, he has made a commitment to serve the food and beverage industry, no pun intended, by representing restaurants, bars, individuals, and other food and beverage businesses with various legal issues as they arise. You can reach him by sending an email to submissions@shiftgig.com.    

LEGAL DISCLAIMER:

The responses provided in this blog are for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of this blog does not create an attorney-client relationship between Jonathan Boulahanis or Clark Hill PLC and the user.

***This article was posted as part of a question and answer series that Jonathan Boulahanis is conducting with Shiftgig.com. The article, as well as all other articles in the series, can be found at http://www.shiftgig.com/articles.

Legal Bites: Am I Breaking the Law if I Don't Have Nutritional Info on Menus?

Q: Why are some places beginning to put nutritional information on their menus and menu boards - am I breaking the law by not including the information on the menu at my restaurant?

A: As society becomes more aware of health issues and obesity in America, lawmakers have started making a push for consumers to be informed about what they are eating - especially in the fast food industries.  For example, the onus is placed on a restaurant to inform their customer that eating a Whopper with Cheese is going to account for more than 1/3 of the recommended daily caloric intake - without the fries. States, like NY, started pushing for nutrition information requirements some years ago.  However, the issue was recently addressed in the Affordable Care Act.

In the ACA, the Food and Drug Administration proposed guidelines that would become law.  Those guidelines are in the final stages of discussions and the requirements will go into effect soon. The guidelines require chains to post caloric information,  information on fat, saturated fat, cholesterol, sodium, carbohydrates, fiber and protein, and also would have to provide the information to customers, in writing, upon request. Some highlights in the new law include:

* Applies to restaurants with 20 or more locations. Restaurants operations with less than 20 locations do not have to participate, though, they may voluntarily opt in;

* Only applies to restaurants or similar food retail establishment, as defined by more than 50% of their total floor area is used for the sale of food;

* Nutrition information must be posted on all menus, drive through boards, and menu boards;

* Contain a statement like "[a] 2,000 calorie diet is used as the basis for general nutrition advice; however, individual calorie needs may vary.”

* Self-service style restaurants, such as buffets, must also post nutrition information by each item as a per serving basis;

* Has a provision that vending machine operators that own 20 or more machines post caloric information.

Jonathan

 Jonathan Boulahanis is an attorney in the Chicago office of Clark Hill PLC and is a leader of the firm’s Food and Beverage team. Since Jonathan can’t cook like his Italian mother and the fast food was going to his hips, he became a self-proclaimed foodie. As an attorney, he has made a commitment to serve the food and beverage industry, no pun intended, by representing restaurants, bars, individuals, and other food and beverage businesses with various legal issues as they arise. You can reach him by sending an email to submissions@shiftgig.com.

 LEGAL DISCLAIMER: The responses provided in this blog are for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of this blog does not create an attorney-client relationship between Jonathan Boulahanis or Clark Hill PLC and the user  

***This article was posted as part of a question and answer series that Jonathan Boulahanis is conducting with Shiftgig.com. The article, as well as all other articles in the series, can be found at http://www.shiftgig.com/articles.

Alderman Backs Sunday Liquor Sales at 8 am

As reported in the Trib yesterday, Chicago Alderman Pat O'Connor has proposed changing the liquor sale start time on Sunday from 11am to 8am for certain grocery stores and big box retailers. The store would have to have less than 25% of their shelf space dedicated to alcohol, which would leave local liquor stores and liquor specialty stores like Binny's in the dark.


http://www.chicagotribune.com/news/politics/clout/chi-chicago-aldermen-back-8-am-grocery-store-liquor-sales-20140423,0,5272798.story

Q&A - Service Animals

Q: Are service animals allowed to come into the restaurant and bar I work at if there is a no pets policy?

A: Not only are they allowed to come in, they must be permitted to  accompany their owner into whatever areas customers are generally allowed.  Service animals are utilized by individuals with disabilities as defined by the American with Disabilities Act.  A business cannot exclude a service animal from a restaurant, hotel, retail store, taxi, theater, concert hall, or even sports arena without committing an act of discrimination in violation of the ADA.  Service animals are usually seen as guide dogs helping people with severe vision problems.  However, service animals also assist people with hearing impairments, pulling wheelchairs, or assisting people with mobility impairments.  The no pets policy does not apply to service animals because, according to the ADA, they are not pets.  The policy is still effective to prevent Joe from down the street  from bringing his pet ferret into the restaurant because that is considered a pet. However, the ADA requires the restaurant to modify the “no pets” policy to allow for the use of a service animal by a person with a disability.

Jonathan

Jonathan Boulahanis is an attorney in the Chicago office of Clark Hill PLC and is a leader of the firm’s Food and Beverage team.  Since Jonathan can’t cook like his Italian mother and the fast food was going to his hips, he became a self-proclaimed foodie. As an attorney, he has made a commitment to serve the food and beverage industry, no pun intended, by representing restaurants, bars, individuals, and other food and beverage businesses with various legal issues as they arise. You can reach him by sending an email to submissions@shiftgig.com.    

LEGAL DISCLAIMER:

The responses provided in this blog are for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of this blog does not create an attorney-client relationship between Jonathan Boulahanis or Clark Hill PLC and the user.

Shiftgig Q&A - 3 Affordable Care Act Questions for the Service Industry

Q: As a server, am I entitled to health insurance under the new Affordable Care Act? 
 A: Depending what news station you watch, the Affordable Care Act will either save the world or end the world. Let's cut through some of the boasting and criticizing and get into the nitty gritty - what does this new law change for the bar and restaurant world? First, the implications depend on the size of the business. Small businesses are not affected by the new mandate, and are not required to offer health insurance to full-time employees. The law defines a "small business" as an employer that employees 50 or less employees. There are incentives in the form of tax credits for small businesses that fit this definition, if they offer affordable health insurance under the state-exchange program. Under the Affordable Care Act starting in 2015, for businesses that employ more than 50 employees, any employee that averages at least 30 hours per week becomes considered a "full-time equivalent employee." That designation means that the business would have to offer health care benefits, or face a government penalty. If you are an employee that averages more than 30 hours per week, the company may need to either offer you health insurance, or face a penalty that would likely cost much more than offering insurance. The concerns for those involved in the restaurant industry is that the this government penalty could erase any existing profit margin (given the low profit margin associated with the industry), and could reduce hours for current employees. Legislation is advancing, supported by the restaurant trade groups, to make "full-time equivalent" mean an average of 40 hours per week, but no such law has been passed yet. Second, if you are entitled to health insurance under the Affordable Care Act, your company is required to offer you AFFORDABLE health insurance. Affordable health insurance, according to the Act, means that the employer must pay for at least 60% of the covered health expenses for a typical population, and that no employee pays more than 9.5% of their family income for health coverage.

Q: If my restaurant charges an Affordable Care Act surcharge to customers, am I entitled to that money as an employee?
 A: Some restaurants and bars have started putting a surcharge on bills called "ACA Charge" or "Health Insurance Charge." Employees are not entitled to that money, and employers may legally institute the surcharge. They should be careful though, as individual states do have disclosure laws about any surcharge, meaning the restaurant or bar may need to post in the premises or explain on the receipt what the charge is for. Additionally, there will be separate accounting requirements, and all of the money must be used for payment of health insurance premiums. San Francisco had a similar law predating the Affordable Care Act, and the San Francisco City Attorney had been aggressive in prosecuting employers who did not use 100% of the money for insurance, and instead used the surcharge to line their pockets. It is likely that the IRS and Department of Labor will also be aggressive in prosecuting such claims.

 Q: My restaurant doesn’t have 50 employees, but it’s one of eight restaurants that the company owns. Where does this restaurant fall under the Affordable Care Act regarding providing health insurance benefits?

 A: It depends how the company is structured. Likely, there is one corporation/entity that owns all eight restaurants. If that is the case, the corporation/entity is the employer, and employs more than 50 employees. In that case, the corporation must offer benefits to full-time equivalent employees at all eight restaurants, or be subject to the ACA penalties. If all eight restaurants are separate corporate entities, and each, individually, employs less than fifty employees, there is an argument that they do not fall under the Affordable Care Act requirements.

 Jonathan

 Jonathan Boulahanis is an attorney in the Chicago office of Clark Hill PLC and is a leader of the firm’s Food and Beverage team. Since Jonathan can’t cook like his Italian mother and the fast food was going to his hips, he became a self-proclaimed foodie. As an attorney, he has made a commitment to serve the food and beverage industry, no pun intended, by representing restaurants, bars, individuals, and other food and beverage businesses with various legal issues as they arise. You can reach him by sending an email to submissions@shiftgig.com.

 LEGAL DISCLAIMER: The responses provided in this blog are for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of this blog does not create an attorney-client relationship between Jonathan Boulahanis or Clark Hill PLC and the user 

***This article was posted as part of a question and answer series that Jonathan Boulahanis is conducting with Shiftgig.com. The article, as well as all other articles in the series, can be found at http://www.shiftgig.com/articles.

Bar Business Magazine Features Clark Hill Attorney Jonathan Boulahanis

issuu.com/barbusinessmagazine/docs/mar_2014_bar_business_magazine_issu?e=11263118/7128828 Page 38-39: Is Automatic Gratuity Coming To an End?

Shiftgig Q&A: McDonald's Napkin Suit

Q: Is McDonald’s really being sued for 1.5 million dollars for denying a customer a napkin?


A: Oh Ronald McDonald, you continue to be the butt of every legal joke (Disclaimer: I hate clowns). Between the “beef fries” fiasco, (where Mickey D’s admitted beef flavoring is added to their fries that they boasted as vegetarian in advertisements, resulting in payment to vegetarian groups of over 10 million dollars in a settlement), and the “hot coffee” fiasco (where a 79 year old woman was awarded 2.9 million dollars in damages when she spilled hot coffee on her lap causing third degree burns), McDonald’s has had a rough time with the US court system.

But who lives in the past, right? We have a new, even more outrageous lawsuit to joke about. The NAPKIN suit. All the headlines scream that McDonald’s is being sued over a napkin. However, that’s not the whole story.  I was able to obtain a copy of the actual complaint* filed in the case, which explains the  Plaintiff’s basis for the suit. Usually, outrageous lawsuits are blamed on the lawyers…. but, for once, my brethren are safe.  This is a pro se lawsuit, meaning the Plaintiff filed suit on his own – without a lawyer.

According to the Plaintiff, after being seated with his food, he approached and asked for more napkins.  Allegedly, the manager denied him more napkins because he already put them in the bag. Plaintiff alleges that he said “I should have went to eat at the Jack-in-the-Box, because I didn’t come here to argue over napkins, I came here to eat.” Allegedly, the manager started yelling, and Plaintiff asked if he was being yelled at because he was Black.  Allegedly, the Defendant responded “You People.” Plaintiff alleges he suffered severe emotional damages and should be compensated to the tune of 1.5 million dollars.    

All things considered, I don’t think the lawsuit goes very far, or at least it wouldn't under Illinois law. His claims for intentional infliction of emotional distress, discrimination, slander, and defamation would probably be dismissed for failure to state a claim under the law. Based on his allegations, the conduct likely does not rise to an actionable claim and Plaintiff would have a lot of trouble proving his damages.

So what can be the takeaway from this, if anything?  From an employment lawyer’s perspective, this suit is more about alleged discrimination and management responsiveness than the napkin. A proper employee response could have helped diffuse the situation, instead of helping ignite it. Implementing training programs, discrimination policies, and management response training are ways to avoid making a napkin into a million dollar lawsuit.

Jonathan

* View the filed complaint at http://www.huffingtonpost.com/2014/03/04/mcdonalds-sued-customer-napkin_n_4877000.html?ir=Weird+News


Jonathan Boulahanis is an attorney in the Chicago office of Clark Hill PLC and is a leader of the firm’s Food and Beverage team.  Since Jonathan can’t cook like his Italian mother and the fast food was going to his hips, he became a self-proclaimed foodie. As an attorney, he has made a commitment to serve the food and beverage industry, no pun intended, by representing restaurants, bars, individuals, and other food and beverage businesses with various legal issues as they arise. You can reach him by sending an email to submissions@shiftgig.com.  


LEGAL DISCLAIMER:
The responses provided in this blog are for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of this blog does not create an attorney-client relationship between Jonathan Boulahanis or Clark Hill PLC and the user.

***This article was posted as part of a question and answer series that Jonathan Boulahanis is conducting with Shiftgig.com. The article, as well as all other articles in the series, can be found at http://www.shiftgig.com/articles.

Q&A: Weird Bar Laws

Q: Is it really against the law to serve tap water unsolicited in NYC? Are there other quirky laws affecting restaurants or bars across the country? 

A: Believe it or not, serving unsolicited tap water to a customer was illegal in NYC until just this month.  Provision (a) of Section 20-08 of Chapter 20 of Title 15 of the Rules of the City of New York Governing and Restricting the Use and Supply of Water banned restaurants from providing water to patrons without them asking.  It was instituted in the 1990’s to conserve water during a drought.  With only 14 warnings issued since it was instituted, it is clear that this law was rarely enforced, like driving 37 MPH in a 35 MPH zone. NYC isn’t alone.  Other states and cities have laws on the books that make people scratch their heads.  Here are some of the best of the best: Utah:  Until 2009, patrons had to apply for memberships to local bars so they could legally drink alcohol.  That law was repealed, but it still forbids ordering doubles and mixing cocktails in front of patrons. Indiana: “Blue Laws” are still in effect which do not allow alcohol to be sold for carry-out on Sundays, in order to keep Christian principals alive and well.

Kansas: 29 counties still do not allow the sale of individual glasses of liquor. Illinois: Does not allow happy hours, or any program that discounts alcohol for a certain amount of time. Any discount must be for all customers, all day. Colorado: Horses are considered vehicles, so you can get a DUI on horseback. New Orleans: You CAN carry your drink from one bar to another. Texas:  You can be arrested for public intoxication inside of a bar.   Take a bite out of that.

Jonathan Boulahanis is an attorney in the Chicago office of Clark Hill PLC and is a leader of the firm’s Food and Beverage team.  Since Jonathan can’t cook like his Italian mother and the fast food was going to his hips, he became a self-proclaimed foodie. As an attorney, he has made a commitment to serve the food and beverage industry, no pun intended, by representing restaurants, bars, individuals, and other food and beverage businesses with various legal issues as they arise. You can reach him by sending an email to submissions@shiftgig.com.   

LEGAL DISCLAIMER:
The responses provided in this blog are for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of this blog does not create an attorney-client relationship between Jonathan Boulahanis or Clark Hill PLC and the user.

***This article was posted as part of a question and answer series that Jonathan Boulahanis is conducting with Shiftgig.com. The article, as well as all other articles in the series, can be found at http://www.shiftgig.com/articles.

Shiftgig Q&A: If a drunk patron injures someone when leaving your establishment, you or your employees could be responsible

Q: Who can be held responsible if a drunk patron leaves an establishment and injures themselves or another?

A: The short answer is, potentially the bartender, server, manager, owner, and/or the establishment.  This is called “Dram Shop” liability, and most states have enacted laws on the topic.  “Dram Shop” is a term that now refers to any establishment serving alcohol on premises.  Historically, the term was used as early as the 1400’s, and referred to a dram, or a small unit of liquid. Medieval patrons would order spirits by the dram.
The basic premise is that states have enacted laws that could hold the bar, the owner, or the server financially liable if they serve alcoholic drinks to a visually intoxicated customer, and that customer injures someone.  The strictest laws in the country even call for social hosts to be potentially liable.

Typically, the situation is as follows.  A customer/guest either comes into the establishment intoxicated and is served a drink, or drinks to the point of visible intoxication at the establishment. The intoxicated patron then gets into their car, leaves and injures someone in a motor vehicle accident.

The difficulties that arise for owners, servers, and establishments, is how can you tell when someone has had too much, and what steps can you take to limit liability? There are several tips.  First, training programs for servers are good for both management and servers (and even for hosts, security, and valets).  The ability to recognize intoxication, and stop service of an individual is absolutely essential. The National Restaurant Association offers a great training program called ServSafe. Second, management should create an official policy for safe alcohol consumption. If a server has any question regarding a patron, a member of management should be contacted and follow the policy in place.  Third, taxi numbers or alternate transportation should always be made readily available.

Finally, it is extremely important to recognize that the laws have given you a heightened responsibility over your customers as an employee of the service industry.  Whether it is fair or not, the law looks to you to make judgment calls in order to prevent people from being injured.  I would caution that  employees take this responsibility seriously, and always be alert, avoid drinking on the job, and be knowledgeable about the laws in your state.  Not only does that help you keep your job and keep your establishment up and running, but it is also an important step to help prevent tragic accidents in your community.

The National Conference of State Legislatures has put together general informational summaries of Dram Shop laws for all fifty states, and you can view your state’s Dram Shop law at http://www.ncsl.org/research/financial-services-and-commerce/dram-shop-liability-state-statutes.aspx

Jonathan

Jonathan Boulahanis is an attorney in the Chicago office of Clark Hill PLC and is a leader of the firm’s Food and Beverage team.  Since Jonathan can’t cook like his Italian mother and the fast food was going to his hips, he became a self-proclaimed foodie. As an attorney, he has made a commitment to serve the food and beverage industry, no pun intended, by representing restaurants, bars, individuals, and other food and beverage businesses with various legal issues as they arise. You can reach him by sending an email to submissions@shiftgig.com.  

LEGAL DISCLAIMER:
The responses provided in this blog are for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of this blog does not create an attorney-client relationship between Jonathan Boulahanis or Clark Hill PLC and the user.

***This article was posted as part of a question and answer series that Jonathan Boulahanis is conducting with Shiftgig.com. The article, as well as all other articles in the series, can be found at http://www.shiftgig.com/articles.

Q&A: TABLES WALK OUT, WHO IS RESPONSIBLE?

By: Jonathan Boulahanis

February 25, 2014

Q: My servers dropped two trays of expensive wine glasses, and I had three tables walk out on my restaurant last night.  What am I supposed to do? Can I have the servers pay for these mistakes out of their tips?

A: First, deep breath and remember everyone has those kinds of days.  When serving, I once tripped and fell dropping an entire tray of food and standing up covered in cheeseburgers and chili. The 3 year old at the table loved it, but my boss sure didn’t. You shake it off (literally when it comes to chili in your shirt). In my case, my boss wrote it off as an accident.  That being said, those “accident” costs add up to management. Remember, restaurants make the smallest profit margin of any business in the country. 

When these situations happen to your employees, it is tempting to try to make them share in the loss. This is a dirty little secret in the restaurant industry – some employees are made to pay for the mistakes out of their pockets. However, it is illegal to dock the server’s tips for the walkouts or the broken dishes.  While the Fair Labor Standards Act, doesn’t flat out say this practice is illegal, courts have interpreted the language of the statute to determine that the practice is illegal. A federal district court in Texas* held that a restaurant violated the FLSA by improperly deducting servers’ wages for unpaid checks and cash register shortages, and a federal district court in Miami** agreed. Some states, like California, Massachusetts, and New York specifically prohibit charging employees for spoilage, breakage, cash shortages, or losses.

So what is an employer to do? Remember, First, avoid the tip docking practice.  Aside from the wage and hour issues outlined above, the practice could also open up the establishment to liability for discrimination or retaliation if some employees are treated differently.  The safer way to handle the situation is to have a progressive discipline policy in place, with the same punishment for employees that are repeat offenders, such as changes to the schedule, loss of a shift, or in extreme circumstances - termination.

Jonathan

* Bernal v. Vankar Enters., 579 F. Supp. 2d 804, 810 (W.D. Tex. 2008).

** Brennan v. Haulover Shark and Tarpon Club, Inc., No. 74-1276-Civ., 1986 WL 587 at *16 (S.D. Fla. Jan. 27, 1986).

Jonathan Boulahanis is an attorney in the Chicago office of Clark Hill PLC and is a leader of the firm’s Food and Beverage team.  Since Jonathan can’t cook like his Italian mother and the fast food was going to his hips, he became a self-proclaimed foodie. As an attorney, he has made a commitment to serve the food and beverage industry, no pun intended, by representing restaurants, bars, individuals, and other food and beverage businesses with various legal issues as they arise. You can reach him by sending an email to submissions@shiftgig.com.    

LEGAL DISCLAIMER:

The responses provided in this blog are for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of this blog does not create an attorney-client relationship between Jonathan Boulahanis or Clark Hill PLC and the user.

*This article was posted as part of a question and answer series that Jonathan Boulahanis is conducting with Shiftgig.com. The article, as well as all other articles in the series, can be found at http://www.shiftgig.com/articles.

Shiftgig Q&A: Does Server have to pay for credit card processing fees?

Q: Who is responsible for paying the credit card fees charged by credit card companies – the business, the employee, or the customer?

A: As the days of “Cash Only” signs in the windows are dying out and the world is becoming more and more reliant on credit cards to pay for goods and services, this question is becoming increasingly asked. Credit cards make money in several ways, including usually on a percentage fee per transaction. Most people don’t think about the credit card’s cut from each purchase, but it ends up being a huge amount. Using a food analogy, it’s like the little corner piece of a pizza cut into square pieces.  With all the pizzas sold around the world, those little corner pieces add up to a gigantic piece of the pie pretty quickly.

As for who is responsible for paying that percentage, the credit card companies have a contractual relationship with the business providing the good or service, i.e. the restaurant, bar or hotel. However, legally, the business can choose to pass the charge on to its employees or to the consumer.

Increasingly, restaurant and bar employees are seeing their employer subtracting the credit card percentage fee against their tips on credit card transactions.  That action is permitted under the Fair Labor Standards Act (but may violate state law, depending what state you are in). Under the FLSA, for example, where a credit card company charges an employer 2 percent on all sales charged to its credit service, the employer may pay the tipped employee 98 percent of the tips.  The caveat is that the reduction may not reduce the employee's wage below the required minimum wage.

The businesses are also now allowed to pass the charge onto consumers based upon the settlement of a class-action lawsuit in 2013.  Prior to that, most credit card companies did not allow the practice. Now, a business can add a disclosed surcharge fee for credit card purchases to the final cost of a good or service.

As has been a theme so far in the Weekly Legal Bites column, the “can they?” and “should they” questions result in different analysis.  If the business charges the credit card processing fee against the tipped employees, it could be an accounting nightmare.  The business likely pays a different percentage fee on each type of credit card, and must deduct the correct amount from each charge against each employee. It could require overhaul of existing systems and require substantial bookkeeping changes. If the business passes the charges to the consumers, they may lose a competitive edge on prices, as many big box retailers refuse to pass that charge on to customers. 

Jonathan Boulahanis is an attorney in the Chicago office of Clark Hill PLC and is a leader of the firm’s Food and Beverage team.  Since Jonathan can’t cook like his Italian mother and the fast food was going to his hips, he became a self-proclaimed foodie. As an attorney, he has made a commitment to serve the food and beverage industry, no pun intended, by representing restaurants, bars, individuals, and other food and beverage businesses with various legal issues as they arise. You can reach him by sending an email to submissions@shiftgig.com.    

LEGAL DISCLAIMER:

The responses provided in this blog are for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of this blog does not create an attorney-client relationship between Jonathan Boulahanis or Clark Hill PLC and the user.

*This article was posted as part of a question and answer series that Jonathan Boulahanis is conducting with Shiftgig.com. The article, as well as all other articles in the series, can be found at http://www.shiftgig.com/articles.

jboulahanis@clarkhill.com