Q1 2022 Legal Update

Pooja S. Nair, a partner at Ervin Cohen & Jessup LLP compiles recent legal news affecting the restaurant, food and beverage and hospitality industries for Modern Restaurant Management (MRM) magazine.

Litigation

Insurance Coverage for COVID Claims Largely Rejected by Appellate Courts: Throughout the country, appellate courts are reviewing insurance coverage lawsuits brought by restaurants who were forced to close due to COVID-19 pandemic shutdown orders.  These restaurants brought claims for their commercial insurance carriers to cover pandemic losses, and the insurers argued that COVID losses are not physical losses and therefore not covered.  By and large, district courts sided with the insurers, and appellate courts have affirmed these decisions, leaving little hope for restaurants in this area.  Recent opinions in favor of insurance companies include a March 16, 2022 unpublished Ninth Circuit pane opinion in Steven Baker v. Oregon Mutual Insurance Co., 21-51097 and multiple state appellate court decisions. 

District Court Denies Restaurant Industry Request to Halt New Tip Credit Regulations: On February 22, 2022, a Texas district court denied an emergency motion for a preliminary injunction brought by the Restaurant Law Center and the Texas Restaurant Association. The court found that plaintiffs had not met their burden to show irreparable harm if the Department of Labor’s rules went forward.

Iowa’s Ag-Gag Law Struck Down: On March 16, 2022, an Iowa district court found that a controversial Iowa law criminalizing undercover investigations at farms and slaughterhouses violates the First Amendment because it discriminates based on the viewpoint of the speaker (only preventing investigations from animal rights groups).  An earlier version of the law was passed in 2012, but was struck down in 2019.

Eleventh Circuit Finds that Mandatory Service Charge Is Not a Tip: On March 18, 2022, the Court of Appeals for the Eleventh Circuit upheld summary judgment in favor of an employer and found that a Miami restaurant’s mandatory 18-percent service charge was not a “tip” under the Fair Labor Standards Act (“FLSA”) and could be properly applied towards FLSA employee wage requirements. The case, Compere v. Nusret Miami, was brought by a group of tipped employees who argued that the service charge was a tip and could not be used to satisfy Nusret’s minimum wage and overtime obligations.

DC Sues Grubhub for Consumer Protection Violations: On March 21, 2022, the office of the Attorney General for the District of Columbia (“AG”) filed a lawsuit against Grubhub for violations of the District’s consumer protection law.  The AG alleged that Grubhub’s listing of restaurants without their consent and charging higher prices for food than the restaurants charge on their own websites are deceptive and unfair trade practices.

Lawsuit Over SF Fee Cap for Delivery Apps Will Proceed: On March 23, 2022, a San Francisco district court judge permitted plaintiffs DoorDash and Grubhub to go forward with a lawsuit challenging San Francisco’s 15-percent cap on commissions for third-party platforms. The City had filed a motion to dismiss the entire lawsuit.  The court granted the motion in part, trimming the scope of the lawsuit, but allowed plaintiffs’ challenge based on the Takings Clause of the Constitution to go forward.  Plaintiffs argued that the 15-percent cap on commissions (down from commissions of up to 50 percent) was a regulatory taking that would force them to renegotiate contracts and lose revenue. 

Supreme Court to Hear Challenge to California Farm Law: On March 28, 2022, the Supreme Court of the United States granted a petition for a writ of certiorari in the case of National Pork Producers, et. al. v. Karen Ross, 21-468.  The order means that the Supreme Court will hear a constitutional challenge to California’s Proposition 12 farm animal confinement law.  Proposition 12 was passed by California voters in 2018 as a ballot initiative.  The law prohibits confining certain farm animals (egg-laying hens, veal calves, and breeding pigs) in a cruel manner (as defined by the law), and prohibits the sale of products from farm animals confined in a cruel manner in California. 

Legislation

California Expands Regulation of Third Party Delivery Apps: On January 1, 2022, California’s AB-286 went into effect to further regulate food delivery platforms.  The law makes it unlawful for delivery platforms to charge consumers higher prices than the prices posted online; requires a cost breakdown to be provided to consumers; and makes it unlawful for food delivery platforms to retain amounts designated as tip or gratuity.  This law builds from the Fair Food Delivery Act, which went into effect on January 1, 2022, and prohibits food delivery platforms from listing restaurants without their express authorization. 

California Restricts Plastic Utensils and Condiments: On January 1, 2022, California’s AB-1276 went into effect. The law requires restaurants to only distribute single-use straws, utensils, and condiments upon consumer requests. Violations are punishable by a fine, with a maximum of $300/year.

Chicago’s Single-Use Foodware Ordinance: On January 18, 2022, Chicago ‘s single-use foodware ordinance went into effect.  The ordinance requires that food establishments must provide single-use foodware only upon consumer request or at a self-service station.

NYC Creates New Regulatory Structure for Third-Party Delivery Apps: On January 24, 2022, the first set of New York City’s new regulations for third-party delivery apps and increased consumer and delivery driver protections went into effect. These regulations require apps to tell consumers that they collect data, allow consumers to opt out of having data shared with a restaurant, and disclose how much delivery workers get paid from tips.  Ultimately, the new regulations will require delivery apps to set minimum pay for drivers, allow drivers to set distance and route limitations, and require that drivers be paid at least once a week.  Restaurants also must protect consumer data and allow consumers to withdraw their consent from data sharing and be removed from restaurant mailing lists.

California Creates State Tax Exemption for RRF Grants: On February 9, 2022, California enacted SB-113, approving additional economic relief for the COVID-19 pandemic. The bill passed with unanimous bipartisan support.  SB-113 makes federal grants received through the Restaurant Revitalization Fund exempt from state tax liability. This means that businesses that received these grants will not have to pay California state taxes on the grant amounts.

Wisconsin Passes Restaurant Relief Bills: On March 7, 2022, Wisconsin governor Tony Evers signed two restaurant tax relief bills into law.  One law exempts federal COVID-19 relief funds from state taxes, and the other increases the amount of ordinary income that may be offset by capital losses.

Connecticut Extends Outdoor Dining to April 2023:  On March 30, 2022, Connecticut governor Ned Lamont signed legislation that relaxes outdoor dining rules until April 30, 2023 to allow restaurants to continue serving customers outside.

Administrative Developments

DOL Revises Tip Rule (Again): On December 28, 2021, the Department of Labor revoked its 2020 Tip Final Rule and passed a new Final Rule.  The new Final Rule not only revives the 80/20 Rule, with modifications, but also adds a “30-Minute” Rule.  Under that rule, an employer may not take a tip credit when a tipped employee spends more than 30 continuous minutes performing non-tipped side work.  Restaurants must be aware of all the recordkeeping requirements under the rule, or risk penalties.

FDA Foods Program Announces Priorities: On January 31, 2022, the U.S. Food and Drug Administration released a list of guidance topics that are a priority for the FDA Foods Program to complete before February 2022. The guidance topics include several focused on plant-based labeling, food safety, and risk reduction.  The full list of topics is available here.

FDA Focus on Food Safety Initiatives: In January 2022, FDA announced new initiatives focused on food safety, indicating that the agency will continue to prioritize that area. Several of these programs are designed to provide more transparency and more information on foodborne illnesses and food safety hazards directly to consumers. Others, including a new egg regulatory program and a proposed rule on pre-market notification for food contact substances, are more technical and industry-focused.