December 6, 2016

Food and Beverage Law Update: December 2016

Holland & Knight Update
Nathan A. Adams IV | Christine Fuqua Gay

Wage and Hour

Overtime Rules Enjoined Nationwide

By Nathan A. Adams IV

In State of Nev. v. U.S. Dep't of Labor Case No. 4:16-cv-00731-ALM, 2016 WL 6879615 (E.D. Tex. Nov. 22, 2016), a Texas district court enjoined nationwide the Department of Labor's (DOL) final rule relating to the "white collar" or "EAP" (executive administrative professional) exemption to overtime requirements, described at 81 Fed. Reg. 32,391 (Final Rule), from taking effect on Dec. 1, 2016. The Final Rule required that employers pay executive, administrative or professional employees a minimum salary of at least $921 per week or $47,892 annually to be exempt from overtime requirements. As authority for its Final Rule, DOL relied on 29 U.S.C. §213(a)(1), which provides, in relevant part, that "any employee employed in a bona fide executive, administrative, or professional capacity ... as such terms are defined and delimited from time to time by regulations of the Secretary" shall be exempt from minimum wage and overtime requirements. Because Congress did not define the terms "bona fide executive, administrative or professional capacity," DOL argued it had delegated authority to interpret them to require a minimum salary level, but the district court ruled that Congress defined them exclusively with regard to duties or the tasks an employee actually performs.

Because Congress did not intend salary to categorically exclude an employee with EAP duties from the exemption (such that the employee could suddenly lose the exemption while performing the same job responsibilities), the district court determined that the Final Rule is not a permissible construction of the statute and, thus, does not merit so-called Chevron deference. The district court issued a nationwide injunction based on authority, indicating that the scope of injunctive relief should be dictated by the extent of the violation, not by the geographical extent of the plaintiff class. The nationwide injunction leaves in place the current minimum salary level to qualify for the exemptions as $455 per week or $23,660 annually, because the district court ruled that it was "not making a general statement on the lawfulness of the salary-level test for the EAP exemption," only the salary-level test as amended in the Final Rule. The states invited the district court also to determine that the Final Rule violates the Tenth Amendment by coercing them to implement the rule as it applies to state workers, but the court declined to do so in light of precedent. The opinion was appealed on Dec. 1, 2016, but the Final Rule may also come under scrutiny by President-Elect Trump.

Tip Pooling Before the U.S. Supreme Court

By Nathan A. Adams IV

The U.S. Supreme Court is considering a petition for a writ of certiorari to determine whether the U.S. Court of Appeal for the Ninth Circuit got it right the first time when it approved tip pooling inclusive of employees not customarily tipped by employers who do not take a tip credit in Cumbie v. Woody Woo, Inc., 596 F. 3d 577 (9th Cir. 2010) or the second time when it disapproved of the same arrangement in Or. Rest. and Lodging Ass'n v. Perez, 816 F. 3d 1080 (9th Cir. 2016). Under the Fair Labor Standards Act (FLSA), employers who have "tipped employees" can meet the minimum-wage requirement in either of two ways: 1) they can pay the employees a cash wage at or above the minimum, or 2) they can pay a cash wage below the minimum, but only if the employee receives enough money in tips to make up the difference. 29 U.S.C. §203(m). Employers who choose the second option take a "tip credit." The FLSA expressly prohibits an employer who takes a tip credit from engaging in "tip pooling," inclusive of employees who are not customarily and regularly tipped, such as kitchen staff. The FLSA is silent about this type of tip pooling when an employer does not take a tip credit.

Unhappy with the outcome in Cumbie, the DOL issued regulations to the contrary, the Updating Regulations Issued Under the Fair Labor Standards Act, 76 Fed. Reg. 18,832 (Apr. 5, 2011), and began to enforce them in the Ninth Circuit. The Oregon Restaurant and Lodging Association challenged the rule, but in a surprise 2-1 decision, the Ninth Circuit upheld the rule contrary to Cumbie. Or. Rest. and Lodging Ass'n v. Perez, 816 F. 3d 1080 (9th Cir. 2016). The Association asked for en banc review by the full Ninth Circuit. It was denied, subject to a blistering dissent from 10 judges. Or. Rest. and Lodging Ass'n v. Perez, No. 13-35765, 14-15243, 2016 WL 4608148 (9th Cir. Sept. 6, 2016). The decision created a circuit split with Trejo v. Ryman Hosp. Props., Inc., 795 F. 3d 442 (4th Cir. 2015), which followed Cumbie. Several district courts have also followed Cumbie. See Malivuk v. Ameripark, LLC, No. 1:15–CV–2570–WSD, 2016 WL 3999878 (N.D. Ga. July 26, 2016); Brueningsen v. Resort Express Inc., No. 2:12–CV–00843–DN, 2015 WL 339671 (D. Utah Jan. 26, 2015); Mould v. NJG Food Serv. Inc., No. CIV. JKB–13–1305, 2014 WL 2768635 (D. Md. June 17, 2014); Stephenson v. All Resort Coach, Inc., No. 2:12–CV–1097 TS, 2013 WL 4519781 (D. Utah Aug. 26, 2013); see also Trinidad v. Pret A Manger (USA) Ltd., 962 F.Supp.2d 545 (S.D.N.Y. 2013).

The petition for a writ of certiorari was filed on Aug. 1, 2016, and was distributed for conference of Oct. 7, 2016. Wynn Las Vegas, LLC v. Joseph Cesarz, Case No. 16-163 (Aug. 4, 2016). The Supreme Court requested a response in opposition that was distributed for conference on Jan. 6, 2017.


Is Your Website Accessible? Is It Required to Be? 

By Christine Fuqua Gay

The Americans with Disabilities Act (ADA) prohibits discrimination on the basis of disability by public entities and places of public accommodation, including, but not limited to, restaurants, hotels and shopping centers. For many years, plaintiffs have sued places of public accommodation, claiming, for example, that a restaurant is inaccessible because it allegedly does not have the required number of wheelchair accessible parking spaces or entrance ramps. Now, some ADA plaintiffs' claims have moved away from restaurants' physical spaces and into the virtual space of restaurants' websites.

The ADA, which was signed into law on July 26, 1990, predates the internet as it exists today. As a result, the ADA itself does not expressly address whether websites are required to be accessible. Likewise, although they were recently updated by the Department of Justice (DOJ), federal regulations implementing the ADA do not specifically address website accessibility or provide any particular guidance regarding websites.

Claims related to website accessibility often center around screen readers. To navigate the internet, some visually impaired individuals use screen readers, which read aloud web content. When websites are not coded to interact with these screen readers, they do not work properly and, as a result, they simply say aloud "image" or "blank," rather than what actually appears on the computer screen. A visually impaired plaintiff can claim that a website that cannot be read by a screen reader is inaccessible, and as a result, the plaintiff is unable to buy a product, read a menu or obtain information about the business in the same manner as a sighted person.

Despite the lack of legally enforceable guidelines, website accessibility lawsuits and threats of lawsuits have become big business for the plaintiffs' bar. In 2015 and 2016 alone, close to 250 lawsuits have been filed in federal court, with the vast majority of those lawsuits filed in Florida, Pennsylvania, New York and California. For example, Miami resident Juan Carlos Gil, who is legally blind, has sued more than 30 businesses this year, claiming that their websites violate the ADA. To date, however, only one California state trial court has definitively ruled that a private company violated the ADA when its website was not accessible to a disabled individual. Davis v. BMI/BNB Travelware Co., CIVDS1504682, 2016 WL 2935482 (Cal. Super. San Bernadino Cnty. Mar. 21, 2016) (order granting plaintiff's summary judgment motion).

Notwithstanding the ADA's silence regarding websites, the DOJ has taken the position that the ADA applies to websites of public entities and places of public accommodations. Specifically, DOJ relies on the fact that discrimination includes not providing an "auxiliary aid or service," including "accessible electronic and information technology" that could assist an individual with disabilities, unless providing the aid or service would fundamentally alter the good or service provided, or result in an undue burden. Prior to the election, the DOJ indicated that it plans to issue a Notice of Proposed Rulemaking addressing website accessibility. It is unclear whether the inauguration of President-Elect Donald Trump will change these plans.

Despite the fact that there are no legally binding guidelines requiring websites of public accommodations to be accessible, plaintiffs and the DOJ have been pushing companies to develop accessible websites through settlement agreements after filing lawsuits or by conducting compliance reviews. Frequently, plaintiffs and the DOJ require businesses to follow the Web Content Accessibility Guidelines (WCAG), notwithstanding that the WCAG can be costly to implement. While the regulatory landscape remains unclear, it is expected that the number of lawsuits filed will continue to rise. As a result, businesses may want to review their websites to determine any parts that may be incompatible with a screen reader.


American Express Anti-Steering Rules Upheld

By Nathan A. Adams IV

In United States v. Am. Express Co., 838 F. 3d 179 (2d Cir. 2016), the court of appeal reversed the district court's decision, finding that American Express engaged in restraint of trade by including nondiscriminatory provisions (NDPs) in its contracts with merchants that prevent them from steering customers to alternative card brands. NDPs provide that a merchant that accepts an American Express card may not 1) indicate or imply that [it] prefer[s], directly or indirectly any other payment products; 2) try to dissuade cardmembers from using the card; 3) criticize or mischaracterize the card; 4) try to persuade or prompt card members to use another payment product or method of payment; 5) impose any restrictions, conditions, disadvantages or fees when the card is accepted that are not imposed equally on all other payment products, except for electronic funds transfer, cash and check; 6) engage in activities that harm American Express' business or brand; or 7) promote any other payment products more actively than American Express' card, except private label cards that the merchant issues for use solely at its establishments. According to the court of appeal, the fatal defect in the district court decision was that the relevant market is two-sided to include the market for general purpose credit and charge card network services, as well as the market for card holders. The court stated, "Without evidence of the net price affecting consumers on both sides of the platform, the District Court could not have properly concluded that a reduction in the merchant-discount fee would benefit the two-sided platform overall." The court also concluded that American Express' 26.5 percent market share was not sufficiently indicative of it creating a barrier to entry for other competitors to demonstrate an indirect adverse effect on competition.


Franchisor's Forum Selection Clause Upheld Despite Litigation in Same Forum

By Nathan A. Adams IV

In SGIC Strategic Global Investment Capital, Inc. v. Burger King Europe GmbH, 839 F. 3d 422 (5th Cir. 2016), the court ruled that a restaurant franchisor did not waive its right to enforce a franchise agreement's forum selection clause, which specified Munich, Germany, as the exclusive venue for disputes arising out of the agreement. The action was brought by franchisees for tortious interference with the franchise agreement when the franchisor filed a separate action against the franchisees in the North District of Texas to recover franchise fees from that individual franchisee under a personal guarantee. The franchises at issue in the personal guarantee litigation are different from those at issue in the franchise agreement litigation, but concern materially identical language in the franchise agreement. The defendant is a Swiss corporation and the franchisor of Burger King restaurants in Germany. The plaintiff owned and operated numerous Burger King restaurants in Germany; it entered into an agreement to sell them when the franchisor notified the prospective buyers that the relevant franchise agreements required its approval for the sale, that the franchisor opposed the sale and that the franchisor could unilaterally terminate the franchise agreements. The prospective buyers pulled out of the deal and the franchisees sued the franchisor. The court of appeal affirmed the district court's judgment dismissing the franchisees' claims against the franchisor on grounds of forum non conveniens, but remanded the case to allow the franchisees leave to amend.


New Sugar-Sweetened Beverage Taxes

By Nathan A. Adams IV

San Francisco (62 percent to 38 percent), Albany, Calif. (71 percent to 29 percent), Oakland, Calif. (62 percent to 38 percent) and Boulder, Colo. (55 percent to 45 percent) passed taxes on sugar-sweetened beverages. Berkeley, Calif., was the first locality to pass a soda tax in November 2014. In San Francisco, the tax approved is 1 cent per ounce of sugar-sweetened beverages, defined as a beverage that contains added sugar and 25 or more calories per 12 ounces, including soft drinks, sports drinks, iced tea, juice drinks, energy drinks, syrups and powders for fountain drinks. Excluded are diet sodas, beverages containing only natural fruit and vegetable juice, infant formula, milk from animal or vegetable sources, nutritional therapy, rehydration and other beverages for medical use and alcoholic beverages. The Boulder tax is 2 cents per ounce on distributors.

Regulation and Legislation

President-Elect Trump's campaign criticized the "FDA Food Police, which dictate how the federal government expects farmers to produce fruits and vegetables and even dictates the nutritional content of dog food." A September 2016 fact sheet drew into question FDA food inspections and user fees and regulations governing food production hygiene, packaging and temperatures.

Industry groups hope to prevail on the administration to derail proposed guidance on sodium reduction issued on June 2, 2016; proposed guidance on use of the term "healthy" in labeling issued in September 2016; and to thwart or delay the compliance deadline with the Nutrition Facts Panel regarding added sugar delineation in the FDA's final rule issued in May 2016. Additional FDA guidance on the new added sugar provision relating to standard calculations is pending.


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

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