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Friday
Jun302017

Will Minimum Wage Hikes Kill Restaurant Jobs?

Franchise LawyerChair, Franchise & Distribution Practice Group

by Barry Kurtz

818-907-3006

 

In 1981 “Video Killed the Radio Star” was the first music video MTV broadcast in the United States. The song was actually written a couple of years earlier, appeared on an album entitled The Age of Plastic by the Buggles, and raised questions regarding new technological advances in the music business.

Which brings us to the point:

Restaurant owners may be blindly reaching out to embrace technology, but at a high cost to humans, most notably their employees. Unfortunately, this move to team up with new tech isn’t entirely because of choice.

Robotic Handshake

Rise of Restaurant Machines

On July 1st, employers in Los Angeles and in many other metro areas across the nation are required to raise minimum wages. The mandate is the result of numerous campaigns initiated by labor unions to improve the lives of low-wage workers, by raising hourly rates to $15 per hour.

The restaurant industry is struggling with such a drastic increase, even though the daunting $15 pill is mostly being swallowed in smaller bites – gradual increases over a period of five years in Los Angeles County, for example. So what’s the industry’s survival instinct response?

Many are being forced to cannibalize their work forces, by investing in machines to replace human workers.

Former McDonald’s CEO Ed Rensi described the situation in a guest column on restaurant tech published in Forbes Magazine last November:

In 2013, when the Fight for $15 was still in its growth stage, I and others warned that union demands for a much higher minimum wage would force businesses with small profit margins to replace full-service employees with costly investments in self-service alternatives. At the time, labor groups accused business owners of crying wolf. It turns out the wolf was real.

Economists at the University of Washington also find the minimum wage increase to be detrimental – they are claiming low-wage earners have actually lost $125 per month because of the city’s minimum wage hike. (Study published by the National Bureau of Economic Research – NBER Working Paper No. 23432.) The economists concluded Seattle’s wage increase of $11 per hour in 2015, and then to $13 per hour eight months later, had a negative impact on hours worked. Employers reduced labor costs by about nine percent.

Restaurant waiter taking customer orderPeer review for the University of Washington study is pending, and another study contradicts the economists’ conclusions.

Nation’s Restaurant News for example, cites the Washington study as well as another research project from the University of California at Berkeley’s Center on Wage and Employment Dynamics. Berkeley researchers found no loss for low-income earners in Seattle as a result of minimum wage increases.

It looks like we’ll have to rely on time to let us know which researchers submitted the more accurate findings. Either way though, we see the handwriting on the digital wall: quick serve and fast casual restaurants are buying or contemplating buying more computers and kiosks, beefing up websites and apps, and generally eliminating the human factor to the furthest extent possible.

But chew on this:  Researchers at Harvard Business School conducted yet another study, this one centered in over 100 cities in the San Francisco Bay area. According to these authors, Bay Area cities saw 21 minimum wage hikes between 2008 and 2016. Which restaurants went bust because of these wage bumps? The lower quality restaurants with lower Yelp ratings seemed to be the ones most likely to close:

"Our point estimates suggest that a one dollar increase in the minimum wage leads to a 14 percent increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating), but has no discernible impact for a 5-star restaurant (on a 1 to 5 star scale)."

Based on this study, it appears restaurant owners may now either choose to close their doors or be forced to close their doors because of the increase in labor costs. Whether that decision to shut down is a result of having to devote financial resources to paying workers rather than making improvements to food, facilities or other areas – or some other factor – remains to be seen. The authors of this study say a purely causal relationship has not been determined.

But what recourse do restauranteurs have? When it comes to minimum wage increases already in place, we refer back to The Buggles:

“We can’t rewind, we’ve gone too far…”

 

Barry Kurtz is a State Bar of California 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.

Tuesday
Apr252017

Negative Reviews: Seeing Stars or Trolls? Here's What You Can and Can't Do

Franchise LawyerChair, Franchise & Distribution Practice Group

 

by Barry Kurtz
818.907.3006

 

 

Trolls aren’t just fictional creatures living under bridges in fairy tales – today they are anonymous but highly visible creatures plaguing individuals and businesses on social media. They’re angry, vindictive and financially destructive, particularly for businesses that rely heavily on reputation.

Franchise Reviews

Franchised businesses are not safe either. Though most customers recognize a national brand as having certain standards set by the franchisor, individual franchisees can still suffer from bad reviews – particularly those in service industries. Bad reviews can infect the entire system.

Recent lawsuits and legislation may address some of the problems of anonymous negative reviews and outright defamation. Most of these decisions and laws benefit the consumer, but there are some practical steps business owners can take to fight back.

Here’s what every business owner should know:

Non-Disparagement Clause Laws

First, clauses written into service contracts to protect the business from negative online comments won’t help. Incorporated into the fine print, this now infamous non-disparagement clause used by a hotelier in New York may have gone too far:

If you have booked the Inn for a wedding or other type of event anywhere in the region and given us a deposit of any kind for guests to stay at USGH there will be a $500 fine that will be deducted from your deposit for every negative review of USGH placed on any internet site by anyone in your party and/or attending your wedding or event. If you stay here to attend a wedding anywhere in the area and leave us a negative review on any internet site you agree to a $500 fine for each negative review.

For a franchise or business owner, $500 per negative review may not seem like much compared to the potential damage bad reviews wreak on future business.

That may have been how founders of Master Matchmakers felt, when the company chose to put a gag order clause in contracts with clients. When one client took to Yelp to express his dissatisfaction, the company responded in kind. The CEO denounced the client on Yelp as well, using the client’s employer’s listing to describe this particular lonely-heart customer as an “unscrupulous business person” who maligned Master Matchmakers for “personal gain just to extort money”, according to the L.A. Times.

Long before this incident though, legislators in California felt a need to protect consumers’ free speech rights. Thus the state enacted Assembly Bill 2365, a/k/a the Yelp Law, in 2014. Other states followed suit with similar legislation. And then it went federal.

Barack Obama signed the Consumer Review Fairness Act (CRFA, or the Act) in December 2016. The bill had non-partisan support.

The new federal mandate protects consumers expressing opinions about a business’s goods or services online – by penalizing businesses that threaten to act on, or actually try to enforce, non-disparagement clauses in their customer contracts.

In other words, companies that include gag order clauses prohibiting clients from posting negative online reviews can no longer enforce those contractual provisions, not just in California, but across the nation.

Before CRFA: Still a Losing Battle

Even before the federal CRFA went into effect, businesses had a tough time proving their supposed right to enforce the non-disparagement clauses in court. For example:

Palmer v. Kleargear.com: Husband and wife John Palmer and Jennifer Kulas ordered products amounting to less than $20 from kleargear.com, paying for the items via PayPal in 2008. The couple never received the items, attempted several times to contact customer service, and were eventually told the products weren't paid for, therefore the order was cancelled.

A few months later, Kulas posted a negative review on RipoffReport.com, criticizing the retailer's customer service reps.

Three years later, KlearGear sent a "Take Down" email to Palmer, demanding the couple remove the bad review within 72 hours or pay the company $3,500 – restitution for violating a non-disparagement clause in the business's Terms of Sale and Use (TSU). Arguments between the two parties ensued, and the retailer eventually submitted a negative report to a credit reporting agency.

In their lawsuit, Palmer and Kulas claimed violations of the Fair Credit Reporting Act, defamation (this story got national media attention) and emotional distress.

A federal court in Utah awarded Palmer and Kulas a default judgment – KlearGear failed to respond to the lawsuit. The judgment was more than $300,000 plus legal costs and attorneys' fees which the plaintiffs have yet to collect.

(This is the case that inspired legislators to write California's Yelp law, as well as the federal CFRA.)

Duchouquette v. Prestigious Pets, LLC: Robert and Michelle Duchouquette signed a $118 contract with Prestigious Pets of Dallas for pet sitting services. While on vacation, the Duchouquettes noticed via in-house cameras that their fish bowl was getting cloudy. Upon return, they gave Prestigious Pets a one star review on Yelp, explaining:

The one star is for potentially harming my fish, otherwise it would have been two stars. We have a camera on the bowl and we watched the water go from clear to cloudy. There was a layer of food on the bottom from way too much being put in it. Even if you don’t have fish, you should be able to see the change in the bowl and stop putting in food. Better yet, ask us how much to feed if you are unsure.

The pet service could have offered to refund the money in return for a better review. Instead, the business chose to “go nuclear”, suing for up to $1,000,000.

Prestigious claimed the contract did not cover fish care, though the sitter agreed to feed the fish anyway; and that media interviews with the Duchouquettes cost the company lost profits, devaluation of its business and other damages.  Prestigious also claimed the Yelp review constituted defamation because it:  was calculated to injure the business's reputation, alleged lack of pet care skills, and falsely accused the company of violating Texas's Cruelty to Non-livestock Animals law.

A Dallas district court judge threw the case out.

Fight Fairly and Thoughtfully

Franchise Online Reputation Management

Suing bad reviewers may be an uphill battle but it’s not impossible to obtain restitution, even from anonymous reviewers. Before initiating a lawsuit though, businesses should ask these questions:

Can the Business Handle the Truth?

Is there any veracity in what the reviews are saying? Honest feedback can be valuable.

Sometimes a slew of negative online commentary can stem from one employee’s attitude when dealing with customers – in that case a personnel change in either staff or management can turn the tide. Similarly, multiple comments about atmosphere could also be a problem – maybe it’s time to upgrade the lighting, furniture, restrooms or lease another space altogether.

Maybe it’s time to improve the menu or offer more choices. Franchisees should consult the franchise agreement and the franchisor to find out what changes, if any, will be allowed. Franchisors are reluctant to make substantial changes to their menus to satisfy individual tastes.

Have Stellar Reviews?

Almost every business has at least a few happy customers. Some of them are even generous enough to share their positive experiences online without being prompted to do so.

Business owners should try highlighting some of these and sharing them on social media; capturing screenshots and posting to the business’s Instagram and Facebook accounts; quoting the text on the business’s website; or retweeting when clients shout-out positively on Twitter. In short, a business should go viral with the good stuff. Again, franchisees should consult their franchise agreement and the franchisor to determine what they can post since most franchisors control system social media to protect their brand.

How Best to Respond to Reviewers?

Businesses should respond with caution, and in a positive way. Even if management responds via private message or email, the dissatisfied customer can still post the communication (or portions thereof) on social media.

Why do some negative reviews go viral? Most of the time, it’s because of the business owner’s aggressive response. (Click: SoCal restaurant rant re negative reviews, for an example of what NOT to do.)

Instead, try something along these lines:

Dear Ms. Doe, I’m sorry to hear you had such a negative experience at our restaurant, but do appreciate that you took the time to point out some problems. We are looking further into these issues. In the meantime, we hope you will revisit us soon, as we are working hard to remedy the problem. Sincerely …

This is a general, public response for something like Yelp or Facebook. Privately, management may want to also offer store credit, full reimbursement, free products, etc. in exchange for an updated review or a takedown of the negative commentary. Warning: Offering refunds in public may encourage opportunistic trolls to post more negative reviews, in the hopes of gaining some freebies. Proceed with caution.

The critical thing for any business owner to remember here, is the importance of monitoring reviews. Management should keep track of what’s going on with business listings on Yelp and TripAdvisor, on the company Facebook and Twitter feeds, on Instagram and Reddit.

The proper response could turn a disgruntled consumer into a life-long fan of the franchise system. The magic remedy may be a sincere reply from the president of the franchise, or it may take 100 bags of sour cream and onion potato chips, according to this post on fastcasual.com regarding negative restaurant reviews.

However management chooses to respond, it’s important to avoid knee-jerk reactions (give it a day or two), and react positively and logically – which means some posts may be safely ignored without too much damage. And remember that some franchise systems prefer to handle responses to online negativity at the corporate offices, while others will allow their franchisees a little leeway.

A business owner who can prove defamation by a reviewer may want to litigate after evaluating the financial damage. The trend for prevailing has historically been in favor of the reviewer, but there may be a sea change as more and more businesses decide to fight back.

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.

Thursday
Apr132017

Negative Reviews: Franchises Pursuing Truth, Justice, & Defamation Claims

Franchise LawyerChair, Franchise & Distribution Practice Group

by Barry Kurtz
818.907.3006

 

Franchised businesses, particularly restaurants, hotels, automotive servicers and others have been falling victim to the digital age. Many consumers now choose the places they do business based on what they read on Yelp, TripAdvisor, and other internet review sites.


This is great for franchises with mostly glowing, 5-star reviews. But every now and then, a business may fail to please a customer, and the results can be financially hurtful, if not devastating. All it takes is one eloquently written negative review, or multiple not so well-written posts by one particularly angry troll.

So how should management react? Here’s what every franchise owner, manager and marketer should know about the legal ramifications.

Consumer Anonymity in Social Media

It’s all about protecting free speech. Most recently:

Twitter filed a lawsuit against the Department of Homeland Security, and Customs and Border Patrol to protect the identity of user @ALT_uscis.

This anti-government account is just one of many “Alt Twitter” profiles that have popped up since President Donald Trump moved into the White House. And @ALT_uscis proved especially vocal when it came to denouncing the president – which prompted a Customs and Border Patrol summons requesting Twitter reveal the identity of this user to the government.

Twitter refused to do so, primarily because the summons didn’t cite a compelling or legitimate reason for the social media platform to comply. The government withdrew its request, and Twitter has since dropped the suit.

Revealing anonymous user IDs has been historically unsuccessful:

An Oregon hotelier attempted to sue TripAdvisor for the scathing comments made by the site’s user “12Kelly”. This reviewer claimed to have stayed on the property in March of 2014, described the rooms and food as “nasty”, the owner a weed smoker, and a front desk employee as someone who was having phone sex, presumably in the presence of the TripAdvisor reviewer. The profile for “12Kelly” said the site’s user was from Prescott, Arizona.

Hotel management couldn’t find a guest from March 2014 hailing from Prescott that would have matched the “12Kelly” user profile, so they sued TripAdvisor for defamation and filed a motion to compel the website to reveal the identity of 12Kelly, with the intention of adding that user later as a co-defendant.

According to the Oregon Restaurant and Lodging Association, the defamation suit failed because of a state media shield law. 12Kelly remained anonymous, and TripAdvisor continued business as usual.

But a new day in cyber litigation is dawning, and we may be seeing sparks of hope in combatting anonymous reviewers. If a franchise or business is the victim of outright lies, and can prove that is so, a defamation suit may succeed.

Take the case of Yelp v. Hadeed Carpet Cleaning. Hadeed filed a defamation lawsuit against seven anonymous reviewers on Yelp who allegedly falsely claimed to be customers. Hadeed served a subpoena on Yelp, seeking the identities of these John Does.

Though Yelp objected because of free speech rights, a circuit court and an appellate court in Virginia enforced Hadeed’s subpoena. The appellate bench stated that free speech rights of consumers should be balanced against a business’s right to protect its reputation.

A Virginia supreme court decided for Yelp however, but strictly on jurisdictional grounds, saying Hadeed should have brought the suit in California where Yelp headquarters are located. The court refused to consider the First Amendment questions. Given that both the trial and appellate courts found for Hadeed, the company may have a strong case.

And a retailer in Texas recently emerged victorious against anonymous employees who posted derogatory comments:

Glassdoor, Inc. operates a free jobs website, which invites users to rate their current or former employer companies. Texas retailer Andra Group, LP claimed several comments on Glassdoor were false and defamatory. The statements said Andra’s hiring practices were illegal and in violation of labor laws; that racial harassment was common; and that the company hired illegal immigrants.

Andra did not intend to sue Glassdoor, but wished to investigate potential claims of defamation or business disparagement against the website’s users. Glassdoor argued First Amendment rights for their users and filed an anti-SLAPP motion – a motion to strike down a Strategic Lawsuit Against Public Participation.

The Appellate Court in this case rejected the First Amendment argument, as those rights must be balanced against legitimate business disparagement claims. It also denied Glassdoor’s anti-SLAPP motion, because Andra had evidence of monetary damages (loss of qualified job candidates and additional costs for new recruiting).

Andra was granted its petition to take depositions to learn the identity of two Glassdoor users. A defamation suit may be pending.

Franchises: Fight Fair, but Fight Back

As noted in a previous blog addressing a franchisor’s negative publicity, it’s tough to fight a bad review. First Amendment rights are fiercely protected in the U.S., and defamation is hard to prove.

However, it’s not impossible. And though some may want to force websites to reveal the identities of anonymous reviewers, this is not the most financially feasible option. Stay tuned, we’ll tackle other relevant laws concerning internet reviews as well as other options available for franchises fighting back, in our next blog: Seeing Stars or Trolls? Here's What Franchises Can and Can't Do.

 

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
Mar292017

Food Fight: Two Sides to Every Chicken Filler Story

Craft Beer LawyerChair, Franchise & Distribution Practice Group

 

by Barry Kurtz
818.907.3006

 

The Canadian Broadcasting Corporation (CBC) recently aired a segment reporting that real chicken content in Subway sandwiches amounted to a lot less than what the average consumer would expect. The network commissioned DNA testing through Trent University of chicken-based menu items from six restaurant chains.

The results of the testing are depicted here (Trent University says ratios of actual chicken to plant fillers are "rough estimates"):

Chicken Filler Fiasco

Remaining ingredients in Subway’s chicken items turned out to be mostly plant-based or soy fillers, according to a researcher at Trent. But the CBC report, called “The Ultimate Chicken Challenge” also contended there were many other ingredients. According to the segment, Subway initially didn't respond regarding Trent's test results other than to say the chain would check with suppliers regarding quality standards.

The network then sought follow-up testing from the University of Guelph's Metabolic Test Kitchen. A dietitian explained the ingredients found by this lab were varieties of starches, salts and sugars. Guelph's processed meat specialist says all ingredients found are safe and approved by the Canadian government. 

Subway asked for a full retraction from the broadcaster. A restaurant spokesman stated:

The accusations made by CBC Marketplace about the content of our chicken are absolutely false and misleading. Our chicken is 100 percent white meat with seasonings, marinated and delivered to our stores as a finished, cooked product.

The franchisor notified CBC of its intent to sue, and reports say the sandwich chain will demand $210 Million in damages. The network says it has not yet been served.

So what does this mean for restaurateurs and other franchises facing similar situations? What are Subway's chances of winning?

Franchise Defamation Suits

Restaurant and other franchise defamation lawsuits are not uncommon, particularly in the world of online reviews. Yelp! for example, has been sued numerous times because of user-generated negative ratings and comments, though typically, consumer-aggregated review sites are protected from legal action by free speech rights.

California even has a Yelp Law – Assembly Bill 2365 was signed by the governor in 2014 to protect consumers stating opinions about a business. Establishments attempting to thwart negative reviewers by putting certain clauses waiving a customer's right to comment publicly in their contracts may find themselves fined when threatening to enforce those clauses.

Then there's this case from the Supreme Court of Nevada in which restaurant owners sued the Reno Gazette-Journal for a negative review. A freelance journalist visited the restaurant and made several defamatory statements, including:

1.  I scooped out guacamole with my fork and dug in.  One taste told me what I had feared:  this pale green stuff was definitely not the real deal.

2.  At this point my spouse pointed out what I was beginning to realize: “All this came out of some sort of package.”

3.  The cost cutting measure applied to the ornamentation had spilled into the kitchen.  The can of name-brand beans we spy while paying our check confirms this.

One of the questions considered here by the court revolved around the nature of protected statements of opinion in published food reviews, and concluded that:

"Defamation is a publication of a false statement of fact. Statements of opinion cannot be defamatory because 'there is no such thing as a false idea'. . . "

The Supreme Court of Nevada found that reasonable persons would conclude the journalist's statements regarding freshness of the food were merely the writer's opinions. It found the same regarding the canned beans – the restaurant owners admitted they kept canned beans on the premises in case of supply emergencies – therefore the writer's statement was substantially true.

Subway's Chicken Kerfuffle: "Let It Go"

Negative Restaurant Reviews DefamationGenerally speaking, a franchise system or individual restaurant doesn't have much in the way of legal recourse when bringing defamation lawsuits. Defendants will almost always claim they stated opinion and assert first amendment rights.

In this case, CBC Marketplace relied on lab tests to make their claims, which most would consider "truth".

The best option for this franchise was already taken: that of asking the network for a retraction. Failing that, the chain may want to consider commissioning other labs with different testing methods to analyze their menu ingredients. Should Subway find more positive data from other labs, they could counter the bad publicity by publicizing these better results.

Or, they can find different suppliers.

 

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.

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