Service charges, administrative charges, surcharges, house fees—whatever you call those charges assessed for food and beverage service in restaurants and in hotels—the rules about how they need to be disclosed to guests and how they must be allocated are propagating. More and more cities, municipalities and other local legal bodies are taking on service charges in detailed laws, and we expect more to come.
Interest in this issue at all levels of lawmaking seems to be increasing as living wage/minimum wage raise efforts become more and more popular throughout the country. Many such efforts result in laws that also affect how service charges may be collected, distributed and how they must be disclosed to consumers. In other words, the locus for relevant law in this area has shifted significantly from the state to the county or city level.
Regular readers of this blog will know that we have been following the development and implementation of the FDA’s new menu-labeling regulations with some interest. After multiple rounds of drafts and public comment periods, the agency now has issued its final guidance for compliance with the new rules. According to the FDA’s press release, the guidance is intended to respond to the most frequently-asked questions from business potentially subject to the new rules, and “differs from the draft guidance by providing additional examples and new or revised questions and answers on topics such as covered establishments, alcoholic beverages, catered events, mobile vendors, grab-and-go items, and record keeping requirements.”
Nevertheless, the final guidance does not appear to substantively change the prior drafts insofar as the hospitality industry is concerned. Perhaps most noteworthy to hotel owners and operators is that the FDA has maintained the position, described in the earlier draft guidance, that a hotel’s complimentary breakfast would not be considered food offered for sale and thus would not be subject to the menu-labeling requirements.
As before, that guidance comes with the caveat that it merely reflects the “current thinking” of the FDA and does not establish binding rights or duties. Thus, while the guidance may be called “final,” the agency’s “current thinking” could always shift as the regulations – which are set to take effect in May 2017 – begin to be enforced. Which might lead one to wonder, what’s in a label, anyway? Only time will tell.
One big trend in the restaurant industry is no-tipping policies, replacing the optional gratuity line on the bill with a “service included” mandatory charge or higher menu prices. After a number of successful restaurants having tried and failed to transition successfully to this model, the service-included model is not necessarily the future of the industry.
After surviving its first go-around in court, New York City’s attempt to require restaurateurs to add sodium warnings to their menus has hit a roadblock in the form of a temporary injunction.
Perhaps taking inspiration from the FDA’s recent imposition of nutrition-labeling requirements on restaurant menus, the New York City Board of Health had approved a menu-labeling regulation of its own this past December. Under the regulation, the New York City Health Code was amended to require “Food Service Establishments” (or “FSEs”) to post salt-shaker icons on their menus next to any food item containing more than 2,300 milligrams of sodium – the FDA’s recommended daily allowance of the delicious mineral. The regulation also requires FSEs to include a statement on their menus that “[h]igh sodium intake can increase blood pressure and risk of heart disease and stroke.”
In the latest of a series of twists and turns regarding the legality of certain tip pools in Western states, on February 23, 2016, a divided three judge panel of the Ninth Circuit Court of Appeals validated regulations by the Department of Labor (“DOL”) that significantly limit employers’ ability to have tip pools that include more than “customarily and regularly tipped” employees. This development means that employers operating in states or territories in the Ninth Circuit (covering Washington, Oregon, Alaska, Idaho, Montana, Nevada, California, Arizona, Hawaii, Guam, and the Northern Mariana Islands) cannot include in their tip pools “back of the house” employees (such as cooks or dishwashers) or other employees who are not customarily tipped. We examine the impact of and history behind this decision below.
In a recent blog post, we highlighted the trend amongst hoteliers and restaurateurs toward adopting service charge models to meet the rise in state and local minimum wage requirements. Although “no-tip” and “service charge” policies are receiving their fair share of attention in the news, employers with improperly designed tip pools are garnering their own headlines—and lawsuits. For example, Red Robin recently agreed to a $1.3 million settlement in response to class action claims against the company that it impermissibly included back of house kitchen staff in the servers’ tip pool. If your company requires employees to pool their tips, or is considering doing so, it will want to avoid some common and costly pitfalls that have beleaguered others. For starters:
As lawmakers continue to increase the minimum wage in states and cities across the country, many hoteliers and restaurateurs are implementing service charges and tip pools in order to meet rising costs and help workers earn consistent and livable wages. If your company is considering making such a move, you will want to do your homework to avoid the negative headlines, legal complications and financial burden that can accompany improper implementation of service charge or tip pool policies. Today’s post will focus on service charges.
Nancy Cooper, member of our Labor and Employment group and Hospitality, Travel and Tourism practice team, discusses how the recent Supreme Court ruling, Integrity Staffing Solutions v. Busk, may impact potential employee wage and hour claims for hourly employees in the future. Thank you for today’s post, Nancy! – Greg
The Supreme Court ruled recently that employers did not need to pay employees for the time the employees spend waiting to go through a security screening to make sure they were not stealing from the company. The case is Integrity Staffing Solutions v. Busk. While many employers applauded this ruling they were also confused because it is initially difficult to determine how going through the security clearance is different than the requirement that you must pay certain employees for the time it takes to change in and out of uniforms or special apparel, also known as donning and doffing time. This article will explore those differences and attempt to make some sense in the distinctions.
First, the history behind the law. The Fair Labor Standards Act (FLSA) and its regulations require that employees are paid for all hours worked. The courts immediately started to broadly interpret this obligation and Congress was concerned about the financial impact on the businesses of the country. As a result, Congress passed the Portal-to-Portal Act to more clearly define what time was actually considered to be work time.
The portion of the Portal-to-Portal Act that is implicated by this opinion is the portion that discusses what activities before (preliminary) and after (postliminary) must be paid. Generally, those activities that are preliminary or postliminary to the performance of the principal activities that an employee is hired to perform must be compensated. “Principal activities” includes all activities which are an “integral and indispensible part of the principal activities.” In order to be considered an “integral and indispensible” activity, it must be one that is intrinsic to the employee’s duties and one which he cannot dispense if he is to perform his principal activities.
Now that the law and terms have been defined, let’s turn to the facts of the case. The employees were hired by Integrity Staffing Solutions to work in a warehouse fulfillment center that filled orders for Amazon. The employees were responsible for receiving an order and picking the items from the proper locations within the warehouse to fulfill the orders. Integrity Staffing Solutions required the employees to clock out from work and then stand in a line to go through security clearance – essentially a metal detector similar to those at an airport – as they left work for the day. This allowed Integrity Staffing Solutions to control the loss of merchandise through employee theft. The lines for these clearances were often long and would take as long as thirty minutes to get through. The employees sued on the basis this 30 minute wait time was actual work time and they should be paid for waiting in line. The Supreme Court disagreed.
In order to be paid for such preliminary or postliminary activity the activity must be so related to the employee’s duties that the job could not be performed if the preliminary or postliminary activity did not occur. The Court decided the focus should not be on whether or not the activity was required by the employer. Instead, the focus should be whether not the activity was actually tied to the work the employee was hired to perform. For example, employees required to wear protective clothing due to the nature of their work, such as dealing with chemicals used in the battery making process, could not perform the work they were hired to do without putting on the protective clothes. The same is true of the time that meat packers spend sharpening their knives.
So, what does all this mean to the hospitality industry? Does it really change the rules on donning and doffing? The short answer is no, it doesn’t change the rules. What it does do is make sure that employers really look at the activity and determine just how integral to the job the activity is. For example, the employer who puts a lot of emphasis on uniforms as a part of the brand (including defining the level and quality of customer service associated with the uniform) may have to pay for the time it takes to don and doff the uniform. This is true if the employer places a lot of emphasis on the public face of the uniform and the associated internal expectations of customer service created by the identity. In short, the uniform becomes a part of the job since it defines the customer service portion of the job.
In contrast, a server who wears a uniform simply as a uniform, but not as a part of the customer service brand and standards may not have to be paid for the time spent changing clothes. The server can still perform the integral functions of the position (serving food and beverages) without the uniform. It is somewhat removed from the position, unless of course the policies of the employer indicate otherwise as discussed above.
What is the takeaway? If there is a question about preliminary and postliminary requirements, take the time to look at the relationship between the activity and the job the employee was hired to perform. Be critical of the situation and candid with yourself as you analyze the situation. If there is any question, reach out to your legal counsel. Be sure that you understand the risks and benefits so that you are not facing a potential wage and hour claim.
 Steiner v. Mitchell, 350 US 247, 252-253.
 Steiner v. Mitchell, 350 US 247, 249, 251.
 Mitchell v. King Packing Co., 350 US 260, 262.
What is the impact of the FDA’s New Food-Labeling Regulations? The new rules cover any restaurant or “retail food establishment” selling “restaurant-type food.” Does that include the wide array of retail and hospitality businesses, including bakeries, cafeterias, coffee shops, convenience stores? Dan Vecchio, a litigator in our Seattle office, has been watching the latest developments. As our guest author today, Dan can shed his insights on how these new regulations might affect hoteliers and restaurateurs. Thank you for today’s post, Dan! - Greg
In the spirit of the giving season, the FDA has finally issued its long-awaited final rules on menu labeling, which had languished in draft form for several years. But for many hospitality businesses, the agency’s year-end gift is little more than a lump of coal. That is because when the rules go into effect on December 1, 2015, they will require restaurants, hotels, and other sellers of “restaurant-type food” to provide nutrition information for the items on their menus, closing what the FDA perceived as a “regulatory gap” in the food-labeling sphere.
The new rules apply primarily to chain or franchise establishments (although the FDA is quick to point out that other businesses may voluntarily opt in if desired)! Specifically, the rules cover any restaurant or “retail food establishment” that is part of a chain of twenty or more locations doing business under the same name, serving substantially similar food items at each location. Sounds simple enough, but it is the FDA’s definition of “restaurant” that has caused considerable heartburn. In the view of the agency, a restaurant can be any one of a wide array of retail and hospitality businesses, including bakeries, cafeterias, coffee shops, convenience stores, delicatessens, bowling alleys, amusement parks, grocery stores, fast food restaurants, table service restaurants, or any establishment offering for sale what the FDA has helpfully dubbed “restaurant-type food.”
What is “restaurant-type food,” exactly? According to the new rules, it is food that is usually eaten at the restaurant, or while walking away, or “soon after arriving at another location,” and is either sold for immediate consumption or is ready-to-eat somewhere else. In other words, whether it’s take-out, dine-in, or maybe a deli sandwich for dinner tonight, the rules will apply.
So, what makes a restaurant part of a chain? According to the agency, it must be doing business under the same name (or a substantially similar name, such as “Restaurant” and “Restaurant Express”) as at least nineteen other locations, and must serve the same or substantially similar menu items. “Locations” include restaurants within other facilities, and indeed multiple restaurants within the same building (a mall, for example) are counted individually. If the restaurant has no name of its own – for example, a cafeteria in an office building or an unnamed hotel café – then the restaurant is considered to be doing business under the name of its parent entity. So, that means that if each of a hotel’s twenty or more locations has an identically-named or unnamed restaurant (including the one providing room service), the rules will apply to them. On the other hand, the rules would not apply to a hotel restaurant if it has its own unique name.
To comply with the rules, businesses must include calorie and other nutrition information on their menus, menu boards, signs adjacent to the food, or the like – essentially, wherever the standard food items and prices are listed. They also must print a “succinct statement” informing customers of the recommended daily caloric intake for adults or children, depending on the menu’s target audience. Restaurants also must keep nutrition information for their standard fare on hand in case it is requested by a customer – and the restaurant must note on the menu that such information is available.
Failing to adhere to the rules is sure to cause quite the bellyache, as well. In response to public comments, the FDA noted that any person exercising authority and supervisory responsibility over a restaurant or similar retail food establishment could be liable for a violation. That could mean that even the owner of a single franchise could get his or her goose cooked if that location isn’t up to snuff.
If there is any silver lining for the hotel industry, though, it is that these rules today don’t apply to alcoholic beverages that are “food on display” and not self-service, such as those bottles of liquor behind the hotel bar. Of course, any drinks that are listed as standard menu items still will need to be labeled. Bon appétit!
California employers are currently scratching their heads over how to interpret “suitable seating” that is required under California Wage Orders. Nancy Cooper, member of our Labor and Employment Group and Hospitality, Travel and Tourism practice team, discusses how that term is defined will affect your business. Thank you for today’s post, Nancy! - Greg
Section 1198 of the Labor Code of California states that the “employment of any employee for longer hours than those fixed by the order or under conditions of labor prohibited by the order is unlawful.
References to the “order” refer to California Wage Orders, which are issued from time to time by the California Industrial Welfare Commission and establish wages and working conditions for a number of industries within California. Section 14 of the majority of the California Wage Orders say that an employer must provide “all working employees” with “suitable seats when the nature of the work reasonably permits the use of seats.” What each Wage Order does not say is what this means.
Even though these Wage Orders have been around for decades, they are only now the focus of many lawsuits. So why now? Well, that is also hard to answer. These laws were originally focused on allowing employees who worked on certain equipment or in other jobs that were essentially stationary to sit down as they performed their work. There used to be many more “suitable seating” laws across the nation. They appear to have originated in the 1950s and were focused on the increasing number of females in the workplace. They have either remained on the books (though neutralized to be gender neutral) or taken off the books altogether. The California laws came to life with the passage of the Private Attorney General Act (PAGA). Under PAGA (which was deemed to apply to the suitable seating laws) an employee can seek up to a year of civil penalties and attorney fees, including a civil penalty of $100 for each aggrieved employee per pay period for the initial violation and $200 for each aggrieved employee per pay period for each subsequent violation. So, now there is real money tied to the law. Where there is real money – lawyers will follow.
Two of the more notable suits involving suitable seating are class actions that are currently on appeal with the Ninth Circuit Court of Appeals. As the Ninth Circuit was trying to interpret the law and make a ruling in these cases, the Court discovered that there was not clear interpretation of the law in California state court. There was not sufficient guidance from state courts to inform the Ninth Circuit what was intended under the law. Thus, the Ninth Circuit said that rather than substitute its own judgment in the interpretation of California law, it asked the Supreme Court of California to clarify three specific questions.
They first asked the California Supreme Court to clarify whether the term “nature of the work” refers to individual tasks that an employee performs during the day, or whether it should be read “holistically” to cover a full range of duties. As a sub-part to this question, if the courts should construe the “nature of the work” requirement holistically, should they then consider the entire range of an employee’s duties if more than half of the employee’s time is spent performing tasks that reasonably allow the use of a seat?
The second question the California Supreme Court was been asked to clarify is whether an employer's business judgment should be considered in determining whether the nature of the work “reasonably permits” the use of a seat, as well as the physical layout of the workplace and the employee’s physical characteristics.
The third and final question posed to the California Supreme Court was to clarify whether the employee must prove what would constitute a “suitable seat” in order to prevail.
So, what does this mean to the California hospitality industry? It could change the way in which operations are designed and how job expectations are defined. What if a sous chef wants a stool as he does prep work? Can the kitchen design handle the arrangement? How does that reconcile with the hazards of the kitchen workplace? Can it be set up in the often narrow passage ways of the kitchen?
How does the hostess position effectively use a seat and still present a welcoming atmosphere to the clientele? What about the wait staff? If they are given a seated area for use when the floor is not busy – what happens if someone is sitting down when they really should be tending to tables or cleaning the stations?
What about the reception desks at hotels and the spas? Do they give the same image if they are sitting down – even if on a high stool? More importantly, do you now have to change the lay-out of the reception area? Is there enough room for the employees to be seated or use a stool? Is a stool even considered “suitable seating”?
If a job or worksite has been modified as an accommodation to an individual in a wheelchair, does that mean that it is now considered to be a job that automatically can be performed when seated – even when it historically has not been?
It is not known when the California Supreme Court will provide answers to the questions posed by the Ninth Circuit. Any guidance offered by the Court will still be open to interpretation and lead to more suits. The answers will not be specific to any given industry. The Court is unlikely to provide guidance on the interplay with other laws (e.g. workplace safety, OSHA, etc.) as well as define who has the burden to prove the violations exist and that the solutions are or are not reasonable.
Some of the early California cases regarding suitable seating suggest that there may be some considerations available to employers. If a company can demonstrate that there is a genuine customer-service rationale for requiring the employees to stand, the company may have an argument. Depending on the nature of the service provided by the employee, it is acceptable for a Company right to be concerned with efficiency – and the appearance of efficiency – of the delivered service. These early cases have expressed concern not only about safety, but also about the employee’s ability to project a “ready-to-assist attitude” to the clientele. It is not clear that these arguments will survive the California Supreme Court’s analysis. It is anticipated that the answers will only create more questions, so it is well advised to start looking at your facilities as well as your job descriptions now so you can be prepared to take steps to not become the next lawsuit target.
Greg Duff, Editor
Greg Duff founded and chairs GSB’s national Hospitality, Travel & Tourism group. His practice largely focuses on operations-oriented matters faced by hospitality industry members, including sales and marketing, distribution and e-commerce, procurement and technology. Greg also serves as counsel and legal advisor to many of the hospitality industry’s associations and trade groups, including AH&LA, HFTP and HSMAI.