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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.

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