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10 legal issues for restaurant operators to watch

Article originally published by Nation’s Restaurant News

With the election of Donald Trump as president, labor-related stress that restaurant operators have experienced in recent months may soon relax. However, new federal, state and municipal regulations will impact operators in 2017. Regardless of federal policy, restaurants will face uncertainty when it comes to employment and regulations.

Here are 10 legal developments that should be front and center for operators this year:

1. Overtime

In early 2016, the U.S. Department of Labor published a final rule updating regulations governing the exemption of executive, administrative and professional employees from the minimum wage and overtime pay protections of the Fair Labor Standards Act. This rule doubles the annual salary threshold that generally determines who qualifies for overtime pay under federal law, from $23,660 to $47,476.


The rule dramatically impacts restaurants with mid-management employees. It was scheduled to go into effect on Dec. 1, 2016, but in late November, a federal judge in Texas blocked the rule nationwide, after 21 states joined to file a lawsuit alleging that the new overtime regulations were an unconstitutional exercise of power.

Additionally, Trump has nominated Andy Puzder as secretary of labor. Puzder, formerly CEO of CKE Restaurants Holdings Inc., parent to Carl’s Jr. and Hardee’s, is an outspoken critic of worker protections enacted by the Obama administration. A labor department under Puzder is unlikely to take a favorable view of the new overtime rule, and it is likely to be scrapped or significantly revised.

2. Minimum wage

Wages are always a pressure point for restaurants. While some states and municipalities have recently increased the minimum wage, the federal minimum wage remains at $7.25 per hour. Early in his campaign, Trump suggested that he would support a federal minimum wage increase to $10 per hour. But it is more likely that the Trump administration will leave the issue to state and local legislatures, rather than push Congress to act at the federal level.

Many states are acting on their own to boost the minimum wage, which has a significant impact on the restaurant industry. For example, effective Jan. 1, 2017, the California minimum wage increased to $10.50 per hour for employers with more than 25 employees. Employers with 25 or fewer employees are not subject to the increase until 2018. The statute provides for annual increases until the minimum wage reaches $15 per hour for large employers in 2022, and for small employers in 2023.

3. Marijuana and the workplace

In November, California voters approved Proposition 64, legalizing the recreational sale, possession and use of marijuana. This has raised several immediate questions about what, if anything, employers should do, and whether Prop. 64 created any new employee rights.

Ultimately, Prop. 64 does not generate new concerns for California employers that did not already exist when the medical use of marijuana became legal (Prop. 215). Following the passage of Prop. 215 in 1996, employers were faced with issues concerning drug testing, possession or use of marijuana at the jobsite or during working hours, dealing with employees possibly under the influence, and what the employer legally could or could not do upon discovering that an employee was using marijuana for medical purposes while working. Generally, Prop. 64 does not change the current legal landscape in the employment area.

Many employers have a mandatory drug testing policy, and legalization complicates this process somewhat, as the presence of a legal drug in someone’s system prior to starting employment is not necessarily an indicator of their propensity to abuse illegal narcotics or to be intoxicated on the job. Similarly, such a common pre-work screening could violate an individual’s privacy regarding a medical condition.

But this is nothing new, as the same concerns existed after the passage of Prop. 215. However, employers may wish to re-communicate workplace policies to employees, as they specifically relate to marijuana use in light of Prop. 64, so that employees do not mistakenly assume that workplace policies changed with the passage of the proposition. Violations of marijuana use policies should be documented, and, like all employee information, considered as a whole when determining an employee’s current and future status with the company. Employees who feel aggrieved are apt to seek recourse, and while an employer may have a sound basis for a termination, it is best to avoid giving a former, or even a current, employee, a pretext for seeking representation.

4. Joint-employer liability

The National Labor Relations Board decision in the Browning-Ferris Industries case, which is currently on appeal, has created a wave of issues in the restaurant industry, including conflict between franchisors and franchisees over which is liable when lawsuits arise, as well as increased liability when working with contractors.

In its highly controversial BFI decision, the NLRB revised its test for the joint-employer doctrine, dramatically easing the criteria for a company to be considered a joint-employer. For many decades, the traditional joint-employer test focused on governance, wage and supervision decisions, and “direct and immediate” control. The test excluded “limited and routine” oversight and supervision, because “hiring, firing, discipline, supervision and direction” were not considered essential or meaningful to the employment relationship. Under the new standard, a finding of joint-employment is much broader, and only requires that a business exercise “indirect” (or potential) control over workers. Hence, under the new test, a company may not only be held liable for its own labor violations, but also for those of the other entity.

The BFI case is relevant not only to franchisor/franchisee relationships, but all relationships in which tasks and responsibilities are outsourced. The recent joint-employer rulings affect all companies that outsource any aspect of their business. This includes contractors, suppliers or even outsourced cleaning or IT work. All of these business relationships can now be subject to review under the new joint-employer standard.

Unfortunately for restaurant owners, the appellate court is unlikely to adjudicate the matter until later in 2017, thereby ensuring that joint employment will remain a critical labor issue in the interim. It remains to be seen how the appeal will play out in the courts, and to what extent the Republican administration will relax this joint-employer standard.

5. Predictive scheduling

In November 2014, San Francisco became the first U.S. jurisdiction to pass predictive scheduling legislation. Seattle and New York introduced similar laws in 2016. Another bill has been drafted, but delayed, in Washington D.C., and a California statewide bill was advanced early in 2016, only to be tabled by the state senate. It is safe to say that this is becoming a trend, and one that restaurateurs must watch closely.

A recently introduced New York bill, for example, requires quick-service employers to schedule a majority of expected shifts and publicly post a workplace schedule two weeks in advance. It also forces employers to provide additional compensation when workers are required to accommodate last-minute changes to their schedules for reasons within employers’ ability to plan or control. The bill purports to address problems created by the practice of “clopenings,” or shifts that require employees to consecutively work closing and opening shifts with fewer than 10 hours between.

Although the New York legislation would only affect quick-service restaurants, we may see efforts to extend the reach of the law to other restaurants in New York City. As operators work to stay competitive, regulations like the one proposed by New York City Mayor Bill de Blasio place further strain on the industry. Such bills dramatically limit management’s flexibility in an industry that already must be creative with scheduling in order to meet demand and control labor costs.

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