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Friday
Sep012017

Franchise Litigation Rising Over Dietary Considerations

Chair, Franchise & Distribution Practice Group

by Barry Kurtz

818-907-3006

 

Rising concerns over food sourcing and preparation is leading to more and more litigation for restaurants and franchises.

Most of the lawsuits claim discrimination, which makes sense as many dietary strictures are rooted in religious tradition. Other restaurant lawsuits are based on disability discrimination, as some plaintiffs suffer physical hardships when their dietary needs are not met, or are blatantly ignored.

Then there are franchisor-franchisee lawsuits, generally over how restaurants are allowed or not allowed to market, and regarding suppliers of specialty foods.

Here’s a closer look at the litigation menu:

First Course, Gluten Free

Gluten-free Diner DiscriminationRecently, a living-history museum in Virginia forced a fifth grade student on a school field trip to eat his home-prepared gluten-free (GF) meal outside in the rain – the museum’s restaurant had a strict “no outside food” policy. The boy’s father tried to talk to the restaurant employee who was enforcing the rule and then to the manager, who steadfastly refused to make an exception.

The family’s GF discrimination lawsuit cites violations of Section 504 of the Rehabilitation Act of 1973, Title III of the Americans with Disabilities Act (ADA), and the Virginia Rights of Persons with Disabilities Act.

Here in California, a gluten-free class action lawsuit was recently dropped by the lead plaintiff. In this case, Anna Marie Phillips was contesting P.F. Chang’s $1 surcharge for GF menu items, pointing out that customers who asked for vegan substitutions, or peanut and peanut oil-free dishes, were not similarly charged. Phillips dropped her suit because of complaints from a group who advocates for celiac disease victims.

But even though the suit was dropped, a legal question looms: Is Celiac Disease considered a disability under the federal ADA or various state laws?

Restauranteurs wanting to avoid ADA suits may be best advised to accommodate GF diners whenever they can – without surcharges, unless the extra costs apply to all special requests. (We can hear the revamped Burger King commercial now: “Hold the pickles, hold the lettuce, special orders don’t upset us…if we can charge you just a dollar more…”)

On the other side of the healthy food coin, a customer in Massachusetts brought a class action lawsuit against 20 Dunkin’ Donuts stores last year. His complaint?  He asked for real butter on his bagel but was served a butter substitute instead. The point in this case, according to the plaintiff’s attorney, is the need for truthful representations.

Point taken. At the point of a butter knife.

Second Course: Religious Concerns

Food and Cultural ConcertsAlso of note recently are the lawsuits initiated by those concerned with kashrut (kosher) or halal diets. Though pork is forbidden in both of these, the lists of allowed and forbidden foods diversify a bit for Jews and Muslims.

A Muslim customer in Michigan sued Little Caesars for $100 million last May, alleging he accidentally ate pepperoni, which is strictly prohibited by Islamic law because it is composed of pork. The plaintiff specifically ordered halal pizzas, and though the boxes were labeled halal, they were topped with regular, non-halal pepperoni.

On the other hand, many Hindus believe in non-violence, including non-violence toward animals. Thus, many practitioners are vegetarian, or lacto-vegetarian, if not fully vegan. Some Hindus will eat meat, but draw the line at beef.

Remember the lawsuit over french fries? McDonald’s labeled their fries vegetarian, but litigation ensued when customers realized the fries and hash browns were cooked in a vegetable oil containing “the essence of beef” to enhance flavor. The franchisor paid over $10 million to settle the complaints.

It’s important for franchisors, franchisees, distributors or suppliers, and employees to know the differences between halal, kosher, Hindu, vegetarian and vegan diets. Wait staff, food expediters and kitchen staff should be especially aware of legal consequences when making a simple mistake, like putting meat-filled samosas in a vegetarian-labeled container.

Even if such mistakes don’t lead to lawsuits, they definitely lead to customer mistrust and injured reputations for the restaurant.

Third Course: Franchise Agreements and Policies That Just Won’t Fly

Unauthorized products, particularly in the food industry, can cause system-wide problems. One of the primary purposes of franchisors approving suppliers is so that the corporate office can trace problems in food quality or sanitation. Outbreaks of food poisoning, a discovery that a unit’s fries are cooked in oils containing animal byproducts, or that a hot dog isn’t really kosher all lead to an injured reputation for the unit as well as the franchise system.

Further, consistently ignoring the franchisors requirements regarding ingredient sourcing can lead to an agreement termination, and possibly, litigation.

But here’s another twist on the food supply problem:

KFC Franchisee Halal Chicken

The KFC Corporation (franchisor of Kentucky Fried Chicken restaurants, or “KFC”) was recently accused of enforcing an allegedly unknown policy that prohibits religious claims regarding KFC products.

The plaintiff, a multi-unit franchisee owner, alleges he has sold halal chicken for 14 years with KFC’s help; the religious claims prohibition is not part of the franchise agreement or disclosure statement; and at no time since opening his first restaurant did the franchisor ever mention the prohibition. The franchisee claims he was first made aware of the provision in December 2016, and that KFC’s policy violates the Illinois Halal Food Act. He expects to lose $1 million in revenue annually.

Boxing It All Up

It’s easy to sum up the lessons – be respectful, be aware, and be proactive.

To avoid potential litigation, restaurant operators should ensure all employees handling food are well trained. It may be difficult to instill knowledge about every ingredient in every menu item, but at least train workers to ask management or kitchen staff when they don’t know the answers to customer food questions. Front of the house staff should never tell the customer what s/he thinks the customer wants to hear, or provide the easy answer when busy.

Also, be very wary of triggering discrimination complaints like the ones mentioned in the gluten-free lawsuits cited earlier. There shouldn’t be one set of rules for GF requests, another for people with allergy concerns, and others for halal or kosher diets. If imposing surcharges for one type of food modification, impose the same surcharges for all. (Though it’s probably best not to initiate extra charges at all.)

Franchisors, ensure franchisees are using approved suppliers only. If making policy changes about food supply or anything else, first consider whether or not those changes are going to cause economic hardships for the franchisees, and whether or not the changes are contractually enforceable.

Franchisees, don’t go off menu with ingredients. The suppliers pre-approved by the franchisor are generally well-vetted. Their ingredients may cost a little more, but you can probably assume the higher costs are due to better quality, legitimate certifications, and the like.

Barry Kurtz is a California Bar Certified Specialist in Franchise & Distribution Law.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Monday
Aug282017

Gas Station Dealers: A Review of the Petroleum Marketing Practices Act

Franchise Litigation Attorney David GurnickCertified Franchise & Distribution Law Specialist

by David Gurnick

818.907.3285

So far in 2017 no federal or state court in California issued a published decision under the Petroleum Marketing Practices Act (“PMPA”) – despite the fact gasoline demand and consumption continue to rise. The reason for fewer cases may be the ongoing decline in number of gas stations and dealers. For dealers who operate as franchisees, it is useful to be aware of the PMPA.

The PMPA was passed nearly 40 years ago, in 1978. Congress sought to protect gas station franchisees from being unfairly terminated or not renewed by their oil company franchisors.

Its basic rule is that a franchisor cannot terminate a dealer or refuse to renew a dealer’s franchise at the end of the term. The law then states exceptions. For a franchisor to lawfully terminate or not renew a franchisee, it must fit the circumstances into one of the law’s exceptions.

A franchisor may terminate or not renew a franchisee dealer in the following circumstances: 

  • If the franchise dealer does not perform the franchise agreement, or try in good faith to carry out its terms. 

  • If the franchisor withdraws from the market area where the dealer is located. 

  • The franchisee fails to pay the franchisor on time. 

  • The franchisee fails to operate for 7 days. 

  • The franchisee commits fraud, criminal conduct or files for bankruptcy. 

  • The franchisee becomes severely disabled, physical or mental. 

  • The franchisor loses its lease for the location. 

Nonrenewal by the franchisor is allowed if: 

  • The franchisee did not operate in a clean, safe and healthful manner. 

  • The franchisee did not correct problems identified in customer complaints. 

  • The parties cannot agree on renewal terms. 

  • The franchisor decides to convert the location to a different use or to sell or replace the location. 

  • The franchisor decides the location is not economical. 

The above circumstances for termination or nonrenewal are summaries. The actual statutory grounds include additional restrictions and conditions on the franchisor.

For example, some of the grounds apply only if the franchisor’s decision was made close in time to when the situation occurred. Franchisor decisions must be made in good faith. In some cases, the franchisor is required to offer to sell the premises to the franchisee.

A franchisor seeking to terminate or not renew a dealer must provide written notice under the rules of PMPA.

For example, if the franchisor’s action is due to breach or misconduct by the franchisee, the franchisee must be allowed an opportunity to correct the breach. A franchisor must provide notice at least 90 days before the termination or nonrenewal date. The notice must meet requirements as to form. It must state the date of termination or nonrenewal and provide a summary statement specified by the PMPA.

For a dealer whose rights are being violated, the PMPA allows an action in federal court. The PMPA provides a relaxed standard for the court to grant an injunction against wrongful termination or nonrenewal. The PMPA directs the court to grant a preliminary injunction if the franchisee shows: the franchise is being terminated or not renewed; there are serious questions to be litigated; and the hardship to the franchisor from an injunction is less than the hardship to the franchisee if no injunction is granted.

A dealer who wins PMPA litigation can recover damages, punitive damages, expert fees and attorney fees. In one case, $2.5 million of damages was awarded against a franchisor (Sun Oil) that stopped selling product to its dealer on credit and told the dealer to stop using its trademark.  

A jury agreed that the franchisor had not followed the PMPA’s requirement to give an advance notice of termination. A franchisee whose claim is frivolous could be ordered to pay the franchisor’s attorney and expert fees.

David Gurnick is a business litigation attorney and a Certified Specialist in Franchise & Distribution Law.

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Friday
Aug252017

Six Ways Franchisors Can Reduce Joint Employer Liability Risk

CalBar Certified Franchise & Distribution Law Specialist

 

by Barry Kurtz

818-907-3006

 

In January 2016, the National Labor Relations Board (NLRB) determined that indirect control or the reserved right to control, even if unexercised, could be sufficient grounds to find a joint employer relationship between a franchisor and a franchisee. As a result, employees of McDonald’s, Dominos and many other systems initiated class action and individual lawsuits, naming the franchisor as a “joint employer” in wage and hour and other complaints.

Last June the Department of Labor withdrew the NLRB guidance.

Though good news, it doesn’t necessarily change the law – the action simply reflects the current administration’s friendlier attitudes towards business. But franchisors are still at risk. The  multitude of civil and administrative actions pending against franchisors in various courts on the joint employer issue are not affected by the Department’s action.

Because joint employer liability is still a risk for franchisors, consider taking these precautions:

1. Names: Prohibit franchisees from using your brand name when establishing their franchisee-entities; and consider enforcing the rule for existing franchisees as well as new owners. Virtually all Franchise Agreements forbid unit owners from doing so, but these provisions are not uniformly enforced.

2. Employment Materials: Require franchisees to prominently include their own entity name (rather than the system’s brand or logo) on employment applications, vendor and utility applications, checks, stationary, business licenses, employee manuals and the like.

3. Ownership: Require franchisees to post placards stating units are independently owned and operated under a license from you. If practical, consider providing your franchisees with such placards to maintain uniformity of message within your system.

4. Acknowledgements: Require franchisees to obtain written acknowledgments from all existing and new employees that that state the employee is employed by the franchisee and only the franchisee, and that the franchisor has no direct or indirect control over hiring, firing, compensation, discipline, supervision or scheduling policies. Again, consider providing franchisees with a standard-form acknowledgment to maintain uniformity if practical.

5. Reviews: Examine the various controls you have over operations in your franchise agreements, operating manuals and by custom and practice. Would you issue a default notice if a currently required action was not performed? If not, consider eliminating or modifying requirements that are not essential to the protection of your brand and brand standards.

6. Training: Educate field personnel. Teach them to avoid involvement in franchisees’ employment matters and the direct training of franchisees’ employees. Field personnel should be advised to direct franchisees to third-party human resource service providers of the franchisees’ choice for assistance and to offer training and support to franchisees and management personnel but not directly to staff employees.

Please let us know if you have any questions regarding these matters.

Barry Kurtz is the Chair of our Franchise & Distribution Practice Group.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Wednesday
Aug162017

Disabling Code: Franchisors Should Ensure Digital Properties Are Accessible

Franchise Distribution Attorney Barry KurtzChair, Franchise & Distribution Practice Group

by Barry Kurtz

818-907-3006

 

Are we still in the dawn of the digital age, or have we moved on to mid-morning yet? Only time, and your company's web site and applications, will tell.

Unfortunately, when it comes to website accessibility, it is still dark as midnight before the dawn for some users. That’s evidenced by the rise in web and app litigation we’re seeing lately – a surge of claims citing Title III of the Americans with Disability Act (ADA) violations.

One Forbes contributor opines that California, Florida, Texas and New York are the states most burdened by ADA lawsuits, though the heyday of quick ADA settlements may be throttled with new legislation soon. The writer is referring generally to physical impediments to a disabled person's use of a public facility.

But lately, there has been some litigation concerning online use as well. And this is of particular importance to franchisors who provide online ordering services.

An ADA Defense Can Not Be Built on Bricks Alone

To illustrate, franchisor Five Guys Enterprises LLC recently learned a class action lawsuit against the company will proceed in court. The suit was filed by Lucia Marett, who claims that Five Guys' online ordering system is inaccessible to the blind and visually impaired.

Five Guys attempted to get this suit dismissed by contending that the ADA only applies to brick and mortar locations, not to digital properties, and that the company was in the process of building a compliant site to better accommodate the disabled.

In denying the dismissal, U.S. District Judge Katherine B. Forrest said,

. . . defendant’s website is covered under the ADA, either as its own place of public accommodation or as a result of its close relationship as a service of defendant’s restaurants, which indisputably are public accommodations under the statute. 

Another web accessibility lawsuit actually went to trial, this time in Florida, and the result does not bode well for non-compliant businesses.

In Juan Carlos Gil v. Winn-Dixie Stores, Inc., plaintiff is blind and uses screen reader software that speaks written text, to help him navigate commercial websites. Unfortunately, Gil was not able to use this tech on Winn-Dixie's website.

Gil previously relied on in-store services and acquaintances to help him purchase groceries, refill prescriptions, and use coupons at the chain's physical properties – but a Winn-Dixie television commercial spurred Gil to try these services online. Unfortunately, when Plaintiff visited the site, he found about 90 percent of it was inaccessible to him and could not be read by the software he used.

The grocery chain argued that it never tried to prevent Plaintiff's access to any of its physical stores, and therefore, is not guilty of violating the ADA.

The federal district court disagreed, saying Winn-Dixie's website serves as a digital wormhole of sorts – it is a "gateway to the physical store locations" and therefore, is considered a service of public accommodation. Judge Robert N. Scola clarified,

. . .the ADA does not merely requir[e] physical access to a place of public accommodation. Rather, the ADA requires that disabled individuals be provided ‘full and equal enjoyment of the goods, services, facilities privileges, advantages, or accommodations of any place of public accommodation.

What impact do these lawsuits have on franchisors?

Franchisors' Guide to Digital Compliance

Chances are, if you're successfully running a busy chain of restaurants, hotels, accounting offices or whatever, you are not well versed in the technical aspects of digital properties. The best thing to do is hire the right people to handle this. And by the "right people", we mean web and app developers who are well versed in ADA Compliance.

When engaging a third party to build your websites and ordering systems, here are some basic questions to ask:

1. Will there be "alt tags" or "longdesc tags" added to all images? (Tags are part of hypertext markup language, or html code – these tags will allow a screen reader to describe an image to the user.)

2. Will documents be posted in readable formats for the visually impaired? The standard PDF (Portable Document Format) is generally not readable. Ask your developer to upload restaurant menus, coupons or other documents in html or "rich text format," as well as pdfs.

3. Will users be able to adjust font sizes and colors? Branding is critical to your business and you'll want your font and colors to be used on all marketing collateral. But some visually impaired users will need to see screens in specific color combinations and sizes. You developer will need to design to reflect your brand, but also to allow end-users to adjust to their own readable specifications.

4. Will videos include both audio and captions? If incorporating multi-media, ensure both the visually impaired and the hearing impaired can access the files.

5. Will online forms include descriptive HTML tags? All web users should be able to complete forms without a hitch.

The general rule of thumb for compliance is this: ensure all features available to the customers with full sight and hearing capabilities are also available to those with impairments.

The internet is nearly 50, and both the World Wide Web and the ADA are 27 years old this year – that's actually pretty ancient in terms of cyber shelf life. Don’t ignore web and app development for so long. Code that’s more than three or four years old may not be readable by the latest browsers, let alone tech tools for the disabled. Update regularly.

Barry Kurtz is a Certified Specialist in Franchise & Distribution Law, per the State Bar of California Board of Legal Specialization.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Tuesday
Aug082017

Property Needs Environmental Cleanup? Don't Scrap It, SCAP It!

Environmental Litigation AttorneyEnvironmental Litigation Defense Attorney

Stephen T. Holzer

818.907.3299

 

Environmental Soil SampleProperty owners in California may have access to state funds for environmental cleanup of smaller brownfields projects. The money comes from two pieces of environmental legislation passed in 2014.

The Proposition 1 Groundwater Sustainability Program authorized $7.545 billion in bonds for a variety of water projects, including storage, restoration and protection efforts. The State Water Resources Control Board (“Board”) was directed to distribute the funds amongst five separate programs; one of which includes the Groundwater Sustainability fund – it would receive $800 million.  

California Senate Bill 445 was an emergency measure also approved in 2014. The bill, essentially an amendment to the long-established Underground Storage Tank Cleanup Fund (“UST Fund”), provides for “. . . investigating and cleaning up contaminated sites without regard to the source of the contamination, particularly where there are no viable responsible parties . . .”   

Thus, unlike the UST Fund, the source of the contamination need not be an underground storage tank; and, unlike the case with the UST Fund, the contamination need not be petroleum-hydrocarbon based.

This part of SB 445 falls under SCAP, or the Site Cleanup Subaccount Program, funded with approximately $20 million in state money, plus local matching funds. That may not sound like a lot of money for environmental cleanup, but for some property owners, SCAP may provide the perfect solution.

Navigating Clean Water Resources

California Funding for Groundwater Cleanup

Cleanup projects eligible for SCAP funds include those properties that: 

  • May cause harm or potential harm from surface or groundwater contaminants

  • Have been polluted by human-made contaminants, e.g. nitrates (common in fertilizers), perchloroethylene (used in dry cleaning industry), pesticides, hexavalent chromium (commonly found in welding projects, paints, chrome plating), etc.

  • Received a directive from a regulatory agency

  • Are owned by responsible parties with limited resources

  • May include site characterization, source identification or implementation of cleanup. 

Certain applicants for SCAP funding will be given priority, including those that are significantly threatening to human or environmental health. Other priority projects include those in disadvantaged communities or those that cannot receive other cleanup funds.

The Board will also balance costs of cleanup vs. benefits.

Before applying for SCAP funds, property owners should first pre-apply for the Groundwater Quality Funding Program, through the Financial Assistance Application Submittal Tool (FAAAST). SCAP applicants will need to complete a grant agreement form, as well as forms describing the cleanup work to be done and the budget for such work.

Stephen T. Holzer is a Business Litigation Attorney and the Chair of our Environmental Practice Group.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

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