The following 12 topics create compliance challenges in the restaurant industry, particular given most restaurants’ business model, workforce make-up, and (in many cases) employee turnover. In some states, new laws become effective on 1 July. Given the time of year, restaurants should review these topics and their compliance in each area. Restaurants with multi-state operations in particular should check for compliance given the variance in state laws. Where appropriate, take legal advice to ensure compliance with federal, state and local laws.
Employee misclassification issues
Exempt employees (who must be paid a salary and otherwise perform certain qualifying duties) are exempt from the federal overtime obligations set forth in the Fair Labor Standards Act (FLSA). These employees need not receive overtime when they work over 40 hours in a workweek. In most cases, a restaurant’s general manager (and sometimes other management-level employees) will qualify as exempt. However, almost all other restaurant employees should be treated as non-exempt and therefore receive overtime pay when they work in excess of 40 hours each week (or daily overtime if required by state or local law). Nevertheless, restaurants sometimes incorrectly classify non-exempt employees as exempt, creating significant potential liability. To avoid this pitfall, restaurants should audit their current employee classifications to ensure compliance with applicable wage and hour laws.
‘Off-the-clock’ work (i.e. where non-exempt employees perform job duties despite not being ‘clocked in’) can create significant minimum wage and overtime liability. This issue arises when employees start work before clocking in or continue working after clocking out. The FLSA requires every employer to pay employees at least the federal minimum wage (currently USD 7.25 per hour) if they perform any duties on its behalf. In the event of legal action, employees who provided services on behalf of a restaurant while not clocked in can claim the restaurant failed to pay them minimum wage or overtime. These actions are often brought as part of a collective action and are therefore expensive to defend.
Child labour laws
Federal and state laws restrict the type of work minors may perform, the number of hours they may work, and when the work can be performed. The number of allowable work hours depends upon the minor’s age and whether school is in session or not. In particular, restaurants employing minors should carefully consider reviewing their scheduling practices and should implement appropriate safeguards to ensure minors are not working in excess of federal or state requirements. Especially during the school year, inadvertent overscheduling of minors could result in significant penalties and fines. Often, these issues are uncovered during a federal or state audit conducted by an enforcement agency (e.g., the Department of Labor). Restaurants should review applicable child labour laws, ensure local management understands them, and provide training if needed.
The #MeToo movement has had widespread nationwide impact. Legislatures have responded. Some states now require employers to provide special harassment training for employees. Other states have made it easier to bring sexual harassment claims. Employers are likely to face an increase in the number of harassment charges and lawsuits filed each year. Restaurants should review their policies related to discrimination and harassment to ensure they have created a culture against harassment. Policies should be designed to provide employees with multiple options for reporting alleged harassment or discrimination. Restaurants should promptly investigate each complaint and take effective remedial action where appropriate. Mandatory annual harassment training should also be considered. In conjunction with appropriate policies and procedures, training can limit the potential liability restaurants face if an employee files a claim of discrimination or harassment.
Equal pay laws
The Equal Pay Act requires employers to pay men and women the same wage for doing the same work (work which requires equal skill, effort and responsibility and performed under similar working conditions). States are increasingly passing similar laws, which can carry more stringent penalties and/or apply in other contexts (e.g. guaranteeing members of different races receive the same pay for the same work). Further, this year the Equal Employment Opportunity Commission (EEOC) will begin collecting pay data from qualifying employers about their respective workforces. This data can be statistically evaluated to determine if certain pay inequities in a restaurant’s workforce exist. To combat these claims and issues, restaurants should consider conducting a pay analysis. If inequities exist, take appropriate action to correct any deficiencies and take legal advice to determine if other compliance measures are needed.
Joint employment concerns
Joint employment is a significant concern in the restaurant industry, and legal standards may differ depending on the law at issue. Generally, a restaurant will be considered a joint employer of another business’s workforce if it exercises sufficient control over the terms and conditions of that organisation’s employees. In franchised operations, a joint employer finding may turn on the degree of control a franchisor exercises. It is important to check documents for language and monitor practices so that a restaurant is not found to be a joint employer of another entity’s employees.
Public accommodation for individuals with disabilities
Title III of the Americans with Disabilities Act (ADA) requires every business to provide goods and services to persons with disabilities on an equal basis as the rest of the general public. That obligation requires, pursuant to the ADA’s implementing regulations, that businesses remove certain architectural and communication barriers from their premises. An increasing number of ‘drive-by’ legal actions are being filed against employers claiming violations of the ADA. These suits are filed by ‘testers’, who are individuals that ‘drive by’ the entity for the sole purpose of evaluating their physical facilities for compliance. Claims also are being asserted based on website accessibility for people with disabilities. If a business is non-compliant, the ‘tester’ files a legal claim. Despite issues surrounding the genuineness of such claims, these suits can nevertheless be costly; especially if the remedy requires significant alterations to the company’s business.
Paid leave laws
An increasing number of state and local jurisdictions require employers to provide employees with paid leave for a variety of reasons. Typically, these laws require qualifying employers to provide leave that the employee may use for her own medical condition, or in some jurisdictions, the medical conditions held by the employee’s family members. The amount of leave that must be provided will depend upon the number of hours the employee works, whether the restaurant makes the leave available for immediate use, and whether the restaurant may lawfully cap the amount of accrued leave. Restaurants operating in multiple states would be wise to evaluate their current paid leave benefits against state and local law and, where appropriate, consider modifying the amount of leave offered to employees.
Ban the box and pay history inquiries
Many state and local jurisdictions prohibit an employer from asking about an employee or applicant’s criminal history (arrests and convictions) and/or the amount of salary earned at a former employer. These laws vary widely from state to state. Some prohibit asking questions on the employment application while others require such inquiries be made only after a conditional offer of employment has been extended. Restaurants should evaluate their current practices for compliance. Violations of these laws can create significant liability, particularly if an employee is denied employment based upon an impermissible application question or interview inquiry. In order to have consistency, multi-state employers might want to consider adopting the requirements of the most restrictive jurisdiction in which they operate.
While marijuana is still listed as a Schedule I drug under the Federal Controlled Substances Act, and is therefore illegal under federal law, an increasing number of states have legalised or decriminalised the possession and use of medicinal and/or recreational marijuana. These laws vary dramatically, and in some cases provide additional rights and protections to employees who use marijuana. In particular, restaurants should evaluate their current drug-testing procedures and protocols for compliance with state law and whether changes to their business practices are warranted. In states where marijuana use is protected, restaurants may be required to accommodate an employee’s off-site marijuana use under state law. Before granting or denying this request, however, restaurants should seek legal advice to analyse their legal obligations under applicable law.
Restrictive covenant agreements
Enforcement standards vary considerably from state to state. Non-compete, non-solicitation of customers, and employee-raiding agreements are used by many employers to protect confidential information, customer information, goodwill, and their employees. Some states prohibit their use altogether while others prohibit their enforcement against ‘rank-and-file’ employees. In recent years, a number of restrictive covenants agreements have been challenged in the restaurant industry (including franchise agreements with no solicitation and no-hire provisions) on the theory that they violate antitrust laws. Restaurants should review and analyse their business need(s) and whether restrictive covenants agreements are the best mechanism for protecting those interests.
In the wake of recent Supreme Court decisions, mandatory arbitration agreements may be the most practical and meaningful solution for employers to avoid jury trials and class and collective actions. However, before implementing a mandatory arbitration agreement, restaurants should consider the cost involved and whether such agreements fit their culture. They also should check applicable state law for enforceability standards. Arbitration agreements should be drafted by counsel familiar with the evolving legal standards.