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Posts from the ‘Chefs’ Category

Restaurant Franchisors May Be Liable for Violations of the Fair Labor Standard Act Committed by their Franchisees

The restaurant and hospitality industry has long been a target for labor and wage law suits by employees seeking back wages under the Fair Labor Standards Act (“FLSA”).  The newspaper headlines are full of lawsuits against renowned celebrity chefs, such as Tom Colicchio, Mario Batali, and Daniel Boulud, just to name a few.   These disputes can be costly as Mario Batali’s $5.25 million settlement demonstrates.   Many more FLSA lawsuits may plague the industry if minimum wage increases are approved by local county and state legislatures (see our posts about local wage increases here and here).

In Naik v. 7-Eleven[1],  a New Jersey District Court Judge’s recent decision should place franchisors on alert as it pertains to wage law suits.   On August 5, 2014, United District Court Judge Renee Bumb of the District of New Jersey ruled against the franchisor, 7-Eleven, Inc., by refusing to dismiss a wage and hour case where 7-Eleven franchisees claimed to be employees of their franchisor.   The Plaintiffs signed franchise agreements with 7-Eleven, Inc., however, Plaintiffs contend that despite being designated as “independent contractors” in the franchise agreement, “the economic reality of the relationship is that the Plaintiffs are employees of Defendant, and, therefore, they are entitled to the protections under the Fair Labor Standards Act.”[2]

Courts apply the “economic reality” test to evaluate the employer/employee relationship under the FLSA.  This four-part test generally requires consideration of (1) the power to hire and fire, (2) supervision and control of work schedules and conditions of employment, (3) determining the rate and method of payment, and (4) maintaining employment records.    However, the Third Circuit has taken a very expansive view of who is an employee under the FLSA, which Judge Bumb considered in her decision. These include: (1) the degree of the alleged employer’s right to control the manner in which the work is to be performed; (2) the alleged employee’s opportunity for profit or loss depending upon his managerial skill; (3) the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers; (4) whether the service rendered requires a special skill; (5) the degree of permanence of the working relationship; and (6) whether the service rendered is an integral part of the alleged employer’s business.[3]

Although, Judge Bumb’s decision allows the 7-Eleven franchisees suit to proceed against the national franchisor, the Plaintiffs still have the burden to prove their allegations that they were employees and that the franchisor violated federal and state labor laws.   To contrast, the Court of Appeals for the Fifth Circuit recently reversed a jury verdict and award for damages for violations of the FLSA entered against the franchisor.   In Orozco v. Plackis[4], the Fifth Circuit examined the facts of the case and determined that although the franchisor provided training to the employees and made employment suggestions on ways to increase profitability, these actions did not demonstrate that the franchisor had control over employment decision sufficient to render them liable as a joint employer.  Most importantly, the Fifth Circuit held that language in the franchise agreement regarding the franchisee having to follow the franchisor’s “policies and procedures” regarding the “selection, supervision, or training of personnel” did not suggest that the franchisor had control over or supervised the franchisee’s employees.

Obviously, this test is very fact-intensive and unique for every case, but franchisors need to keep these factors in mind when negotiating their franchise agreements.  The franchisor-franchisee relationship requires a delicate balance of powers primarily due to the franchisor’s focus on quality control of its brand and intellectual property, but the franchisor needs to ensure that their brand oversight does not lead to true operational control over the franchisee’s employees or into the day-to-day employment practices of the franchisees.

Doyle, Barlow & Mazard has experience defending hospitality clients in wage and hour suits, and other employment-related matters.  For more information contact

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Rosemarie Salguero, Esq.
rsalguero@dbmlawgroup.com
(202) 589-1836

 

 

 


[1] Naik v. 7-Eleven, Inc., Case No. 1:13-cv-04578-RMB-JS, (D.N.J. 2013).

[2] Naik, Docket No. 117 at p.2.

[3] Naik, Docket No. 117 at p.7.

[4] Orozco v. Plackis, 2014 WL 3037943, No. 13-50632 (5th Cir. July 3, 2014).

Sysco-U.S. Food Merger Could Affect Food Prices for Restaurants

On December 9, 2013, the two biggest U.S. food-distribution companies, Sysco Corporation (“Sysco”) and US Foods, Inc. (“US Foods”) announced an agreement to merge, creating a company which will control some 25% of the U.S. market, roughly five times the size of its next largest competitor, Performance Food Groups with just 5% market share.

The Federal Trade Commission (“FTC”) will conduct the regulatory review to analyze if the merger is anti-competitive or monopolistic in nature.  There are two areas of concern.  First, Sysco and US Foods are arguably the only two companies which can provide food service distribution to national foodservice chains.  Second, the two firms overlap in many geographic areas throughout the country so it is possible that the combined entity may be one of two distributors that provide a one stop shop to small local restaurants, catering firms, and hotels in certain local markets.  Industry insiders note that local competition is intense with some 15,000 local food providers.  That being said, the local competition may not have the same breadth of products that Sysco or US Foods can provide and may not price as competitively because their prices are higher.

Notably, Sysco Chief Executive Bill DeLaney acknowledges that the deal will provide increased purchasing power and that the company might need to sell parts of the business to satisfy antitrust regulators.  Therefore, even the parties to the deal believe that some competition concerns exist in certain local markets or in a national market.

International Culinary Tours Can Raise Reputation of Local Chefs

Chefs spend long hours in the kitchen, perfecting their craft to the delight of their patrons.  But with the rise of the celebrity chef, many are finding creative ways to get out of the kitchen while still delivering palate-pleasing experiences for their clients.

Missy Fredrick of The Washington Business Journal recently reported on the international culinary tours that three local restaurateurs hosted in the past few years.  Local chefs, K.N. Vinod, Guillermo Pernot and Domenico Cornacchia have organized culinary tours in Italy,Cuba, and South India, respectively.  Chefs Mike Isabella and Barton Seaver have also participated in domestic tours through the well-known Celebrity Chef Tour Dinner Series.

These tours offer a unique experience for both host chefs and patrons.  Attendees obtain access to specialty farms and vineyards, which are not part of normal travel tours, and chefs gain increased exposure for their restaurants.

Interested in hosting such a tour?  Besides coordinating flights and travel schedules, organizers should also keep in mind some legal considerations:

Visa Issues –  U.S.citizens may be required to obtain visas to enter certain countries or special licenses. Russia and Brazil, for example, require U.S.citizens to obtain visas to enter their countries.   Moreover, Pernot’s trip to Cuba required the issuance of a special license as vacation travel to Cuba has been illegal for Americans since the United States imposed a total economic embargo against the island in 1962.

Liability Release & Waivers – Travel, international or not, is fraught with potential risks (food poisoning, medical emergencies, bodily injury due to accidents), therefore, it is important to craft a detailed release form for all participants.  Provisions should include release of liability, indemnification, consent to medical attention, and a release for any promotional use of photos of guests on the trip.

Insurance – Business owners should review their general liability insurance to determine if it covers international travel and if not, business owners should purchase foreign liability insurance coverage, to protect their business against costly legal actions arising from events occurring outside the United States.   Owners should also require all attendees to have medical insurance or purchase traveler’s insurance.

These are just a few legal issues to consider when planning a culinary tour.  If you are interested in hosting a culinary tour, an experienced lawyer can help determine and advise you on the various legal issues that may exist with your next culinary tour.

Chef’s Go Fresh Motorcycle Tour Promotes Local Produce

On Monday, July 16th,  a caravan of motorcycles drove 110 miles through Maryland agriculture and wine country for the Second Annual Chef’s Go Fresh Event.   The motorcycle tour, founded by Chef Robert Wiedmaier, and organized this year by the Maryland Department of Agriculture and the Georgetown Media Group, publishers of The Georgetowner newspaper, encourages local chefs and restaurateurs to purchase local produce for their restaurants in order to reduce the carbon footprint created by transporting food products long distances.

The chefs’ first stop was at Shepherds Manor Creamery in New Windsor, which produces artisan sheep cheese, and later,  Black Ankle Vineyards in Mount Airy, Maryland.   The day ended with a late lunch hosted by Frederick’s Top Chef finalist Bryan Voltaggio at Family Meal, his new restaurant in Frederick, Maryland.

Participants included Chefs Robert Wiedmaier of Marcel’s, Brasserie Beck, Brabo, The Tasting Room and Mussel Bar and Paul Stearman of Marcel’s,  Chef Thomas Elder of Härth, Chef Luigi Diotaiuti of  Al Tiramisu, Chef Ryan Fichter of Thunderburger, Pastry Chef Allison Blakely of Pie Sisters, and Chef Demetrio Zavala of Lincoln.