Food and Beverage Law Update: June 2018
Wage and Hour
Decision Upholds Class Action Waivers in Arbitration Clauses, Resolves Circuit Split
By Mary Goodrich Nix and Sara Staha
The U.S. Supreme Court issued a long-awaited decision in Epic Systems Corp. v. Lewis on May 21, 2018, holding that class action waivers in arbitration provisions are enforceable under the Federal Arbitration Act. The court rejected the National Labor Relations Board's position that class action waivers violate federal labor laws. Before the Supreme Court released its opinion, a circuit split had prevailed, with the U.S. Courts of Appeal for the Seventh, Ninth and Sixth Circuits ruling that mandatory class-waiver arbitration provisions were not enforceable, and the Fifth, Second and Eighth Circuits finding that such provisions were enforceable.
In light of the ruling, if an employer has a dispute resolution provision in their agreements with employees requiring individualized arbitrations to resolve employment disputes, the courts must enforce the provisions and send each employee's dispute to be arbitrated individually, instead of to be litigated as a class or collective action in federal court. The court also held that employers can require at-will employees to sign mandatory arbitration agreements with class action waivers as a condition of continued employment. Employers that do not currently have arbitration agreements prohibiting class treatment of employee claims should consider including them in future agreements.
Banks Fail to State Tort Claims Against Grocer for Credit Card Data Breach
By Nathan A. Adams IV
In Community Bank of Trenton v. Schnuck Markets, Inc., 887 F. 3d 803 (7th Cir. 2018), the court of appeals affirmed the district court's dismissal of credit card issuing bank claims against grocery stores that experienced a data breach. Hackers infiltrated the computer networks at Schnuck Markets, a Midwestern grocery store chain, and stole the data associated with roughly 2.4 million credit and debit cards. By the time the intrusion was detected, financial losses from unauthorized purchases and cash withdrawals reached into the millions. Card-issuing banks and credit unions were required to indemnify their card-holding customers for the losses. The banks had no contract directly with Schnuck Markets, but they were participants in a card payment system that included the card network (i.e., Visa), the acquiring and issuing bank, merchant and customer. The court of appeals ruled that the economic loss rule barred the banks' tort claims; the merchant's failure to adopt adequate security measures did not amount to negligence per se; the merchant was not unjustly enriched; the banks could not recover under a third-party beneficiary theory; the merchant's failure to implement and maintain reasonable payment card data security measures did not constitute an "unfair practice" under the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA); and the banks failed to plead a claim under the ICFA based on the retailer's violation of the Illinois Personal Information Protection Act.
Financial Institutions State Negligence Claim Against Restaurant for Data Breach
By Nathan A. Adams IV
In In Re Arby's Restaurant Gp. Inc. Litigation, No. 1:17-cv-0514-AT, 2018 WL 2128441 (N.D. Ga. March 5, 2018), the district court refused to dismiss several counts filed by financial institutions and a group of consumers after the defendant disclosed that third-party hackers had breached its credit card point of sale machines and retrieved the personal information of hundreds of thousands of consumers. The defendant argued that it owed no common law duty to the plaintiffs to protect their personal credit card data, but the court ruled that a company's knowledge of a foreseeable risk to its data security system is sufficient to establish the existence of a plausible legal duty as a basis for negligence. For negligence per se, the court agreed with the plaintiffs that it could be premised upon an alleged violation of Section 5 of the Federal Trade Commission Act. The court concluded that plaintiffs also pled the remaining elements of negligence and negligence per se and that the economic loss doctrine did not prohibit them because they are not based on the breach of a duty owed under any express contract between plaintiffs and defendant. The court also ruled that the consumer plaintiffs adequately alleged breach of an implied-in-fact contract or, in the alternative, unjust enrichment. For the former, they argued that the implied contract was that the defendant agreed to safeguard and protect their financial information in exchange for their purchases. The court did dismiss the consumer plaintiffs' Georgia Fair Business Practices Act and violation of other state consumer laws count.
Seasons 52 Settles $2.85M Hiring Discrimination Lawsuit
By Lindsay Dennis Swiger
Seasons 52, a national restaurant chain and part of the Darden family of restaurants, agreed to pay $2.85 million to settle a nationwide age discrimination class action lawsuit brought by the U.S. Equal Employment Opportunity Commission (EEOC). The consent decree also requires significant changes to Seasons 52's recruitment and hiring practices, including a decree compliance monitor who is charged with ensuring that Seasons 52 complies with the decree's terms. The plaintiffs will be invited to reapply for employment. Moreover, in connection with the settlement, the EEOC signaled that the agency will continue to be active in pursuing failure-to-hire age discrimination claims, especially on a class-wide basis because it thinks individuals are less likely to bring these cases.
In the lawsuit, the EEOC alleged that applicants ages 40 and older had been denied both "front-of-the-house" and "back-of-the-house" positions at 35 Seasons 52 restaurants around the country in violation of the Age Discrimination in Employment Act. During the course of the litigation, more than 135 applicants provided sworn testimony that Seasons 52 hiring managers asked them their age or made age-related comments during their interviews. Comments allegedly made included: "Seasons 52 girls are younger and fresh"; "We are not looking for old, white guys"; "Most of the workers are younger"; "Seasons 52 hires young people"; and "We are looking for someone with less experience." In addition, records indicated that Seasons 52 hired applicants who are 40 years of age and older at a significantly lower rate than applicants under age 40.
A key lesson of the lawsuit is that employers should avoid comments or phrases that could be construed as a euphemism for age, such as "fresh," "recent college graduate" and "energetic," or "old school," "set in his ways," and "out of touch with what's new and hip." The EEOC — and savvy plaintiffs' attorneys — will use these types of phrases as evidence that the employer's legitimate reason for not selecting an applicant is actually a pretext for unlawful age discrimination.
Working Rotating Shifts Is an Essential Job Function Defeating Disability Claim
By Nathan A. Adams IV
In Sepúlveda-Vargas v. Caribbean Restaurants, LLC, 888 F. 3d 549 (1st Cir. 2018), the court of appeals affirmed summary judgment in favor of the employer on a former assistant manager's action for failure to reasonably accommodate his disability, post-traumatic stress disorder and depression, and retaliation in violation of the Americans with Disabilities Act (ADA). The plaintiff was attacked at gunpoint, hit over the head and had his car stolen while making a bank deposit on behalf of Caribbean Restaurants. Managers ordinarily rotate among three work shifts, one from 6 a.m. to 4 p.m., another from 10 a.m. to 8 p.m. and the last from 8 p.m. to 6 a.m. The plaintiff asked for a fixed timeslot. The district court determined that working a rotating shift was an essential function of the assistant manager job with Caribbean. Accommodating the plaintiff permanently would have had adverse impacts on all other assistant managers. With respect to his retaliation claim, the district court concluded that none of the actions that the plaintiff argued were adverse were material. These included, for example, that he was scolded by his supervisor for requesting an accommodation from the defendant's human resources department even though the supervisor had already denied it, his direct supervisor accusing him of taking four pills of unnecessary medication, and his supervisor and other employees calling him a "cry baby" on three occasions.
State Law Challenge to Organic Branding of Baby Formula Pre-empted by OFPA
By Nathan A. Adams IV
In Marentette v. Abbott Labs., Inc., 886 F. 3d 112 (2d Cir. 2018), the court of appeals affirmed the district court's dismissal of some consumers' putative class action lawsuit against infant formula manufacturers for allegedly misbranding Similac baby formula as "organic." The consumers alleged that the formula was falsely labeled because it contains 16 ingredients that are prohibited by the Organic Foods Production Act (OFPA). They brought statutory consumer protection, common law breach of express warranty, and common law unjust enrichment claims under both New York and California law based on their false-labeling allegation. The defendant moved to dismiss the claims, arguing primarily that the parents' state law claims were pre-empted under OFPA. In its amicus brief, USDA reported that certifying agents review and approve both the process and the ingredients of the final product to be labeled organic. USDA added that certification is intended to be coextensive with compliance with OFPA, although it may not be if a plan is improperly certified, or if a producer or handler changes the plan after certification. Consequently, the court of appeals ruled that all state law claims that effectively challenge an OFPA organic certification are pre-empted by OFPA because they directly conflict with the certifying agent's role. "There is simply no way to rule in Parents' favor without contradicting the certification decision, and, through it, the certification scheme that Congress enacted in the OFPA."
Craft Breweries Pioneer Direct Sales and Ruffle Feathers
By Joshua D. Aubuchon
Imagine for a moment that you own a world-class bakery and make the best pies around. What would your reaction be if state law prohibited you from selling your pies directly to the public, and instead required you to sell them to a distributor that must then sell your pies to a retailer before reaching the consumer? Wouldn't direct sales in addition to retail supply chains simply make sense for those operating in a manufacturing space? Enter direct sales by craft breweries.
Growth in the craft beer industry has been surging as of late due to a heightened focus on direct sales from brewers to consumers in taprooms and brewpubs. According to the Beer Institute, these direct sales from taprooms and brewpubs accounted for craft beer growth of approximately 24 percent in 2017. While variations exist among states, a "taproom" usually refers to the on-site location at a brewery where customers can directly purchase beer for consumption on or off premises, whereas "brewpubs" are restaurants that are permitted to manufacture and serve beer on-site. By selling their products directly to the end consumer, they are able to make a higher margin on their products without necessitating the markups due to distribution and third-party retail.
This has some distributors and retailers crying foul based on the exception from the typical three-tier alcohol regulatory regime. In contrast, many craft breweries view retailers as crucial partners in expanding the reach of their products in the marketplace and contend that they have other regulatory burdens pertaining to licensing and alcohol production. Brewpubs are also subject to restaurant health and safety regulations. It remains to be seen whether with the genie out of the bottle for direct sales by breweries, all sides ultimately benefit as the model expands and they become interdependent business partners.
Deceptive Trade Practices
Manufacturer Fails to State Claim for Dog Food Packaging Against Competitors
By Nathan A. Adams IV
In Wysong Corp. v. APN, Inc., Nos. 17-1975-81, 2018 WL 2050449 (6th Cir. May 3, 2018), the court of appeals affirmed dismissal of a pet food manufacturer's Lanham Act claim against competitors for false advertising. The plaintiff included hundreds of pictures of pet food packaging featuring delicious-looking cuts of meat, whereas the plaintiff argued the kibble inside is actually made from less-than-appetizing leftover "trimmings." The plaintiff argued that the packaging is tricking people into purchasing the defendants' products. False advertising under the Lanham Act requires the plaintiff to show that the defendants (1) made false or misleading statements of fact about their products, (2) the product statements actually deceived or had a tendency to deceive a substantial portion of the intended audience and (3) likely influenced the deceived consumers' purchasing decisions. There are two ways to make this showing: (1) show that the defendant's advertising communicated a "literally false" message to consumers or (2) show that the defendant's messaging was "misleading," even if not literally false. The court of appeals agreed with the district court that the plaintiff failed the first test because a reasonable consumer could understand the defendants' packaging as indicating the type of animal from which the food was made but not the precise cut used, so that it was not an "unambiguously" deceptive message or literally false. The court of appeals also agreed that the plaintiff failed to allege facts supporting a plausible inference that the challenged advertisements in fact misled a significant number of reasonable consumers. Reasonable consumers know that marketing involves exaggeration or puffery and many of the packages list as ingredients animal "meal" or "by-product." Last, "[t]he defendants' product is dog food. Common sense dictates that reasonable consumers are unlikely to expect that dog food is made from the same meat that people eat" (emphasis original).
Plaintiffs Lack Standing to Challenge Appointees to National Organic Standards Board
By Nathan A. Adams IV
In Cornucopia Institute v. U.S. Dep't of Agriculture, 884 F. 3d 795 (7th Cir. 2018), the court of appeals affirmed the district court's ruling dismissing the plaintiffs' complaint for lack of standing challenging the appointment by the U.S. secretary of agriculture of purportedly unqualified candidates to the National Organic Standards Board. The court observed that it could not direct the secretary to appoint the plaintiffs to the board even if it required removal of the candidates who they argued are unqualified.
Regulation and Legislation
By Nathan A. Adams IV
May 7, 2018, was the compliance deadline for restaurants and similar retail food establishments that are part of a chain with 20 or more locations to implement menu labeling requirements. Covered establishments must disclose the number of calories contained in standard items on menus and menu boards. Businesses also must provide upon request total calories, total fat, saturated fat, trans fat, cholesterol, sodium, total carbohydrates, sugars, fiber and protein. They must display two statements, one indicating that this written information is available upon request and another indicating that 2,000 calories a day is used for general nutrition advice, albeit calorie needs vary.
After commencing the rulemaking process in July 2017, the U.S. Department of Labor announced in its 2017 fall regulatory agenda that it may issue a Notice of Proposed Rulemaking in October 2018 regarding overtime exemptions. Last year, a federal district court invalidated a Fair Labor Standards Act regulation that would have required employers to pay overtime to workers making less than the equivalent of $47,476 per year (up from the current $23,660). Meanwhile, bills introduced in both houses of Congress (H.R. 4505 and S. 2177) propose to legislate a $48,412 threshold.
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.