March/April 2020 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.

Administrative Developments

States Permit Alcohol To-Go Orders: Several states have already temporarily loosened their restrictions to permit restaurants to sell alcohol to customers placing to-go food orders during the COVID-19 emergency. These states include California, Texas, Virginia, New York, Illinois, Louisiana, Florida, and Massachusetts. Different jurisdictions have different restrictions as to whether alcohol needs to be sealed, whether hard liquor can be sold directly to customers, and the location from which customers may pick up.

San Francisco and Seattle Issue Emergency Orders Capping Delivery Service Fees: San Francisco issued an emergency order temporarily placing a cap of 15% on delivery fees from third-party delivery companies through the end of the Local COVID-19 Emergency declaration.  Similarly, on April 24, 2020, Seattle issued an emergency order capping such fees at 15 percent. Other cities, including New York City, are considering similar measures.

FDA Eases Labeling Requirements on Packaged Food Sold by Restaurants: On March 26, 2020, the FDA announced guidance easing labeling requirements for restaurants who wish to sell food directly to consumers or other businesses.  The FDA noted that restaurants generally follow stringent food safety requirements, and that these requirements were satisfactory to ensure food safety for consumers.  The FDA announced: “[t]o facilitate the further distribution of food during the COVID-19 pandemic, FDA does not intend to object to the sale of packaged food (both perishable and non-perishable food) that lacks a Nutrition Facts label by restaurants, provided that the food does not have any nutrition claims and contains other required information on the label.”

Country of Origin Labeling Requirements Paused by USDA: In order to facilitate the redistribution of food products intended for food service to be sold directly to consumers, the U.S. Department of Agriculture’s Agricultural Marketing Service announced that it would pause on enforcement of country of origin labeling.  This change is effective for 60 days beginning on April 20, 2020. After the 60-day period, covered products will need to have country of origin labeling to be sold for retail. 

Executive Order on Meatpacking Industry: On April 28, 2020, President Trump issued an Executive Order to address concerns about the meat and poultry supply chain in the wake of plant closures due to COVID-19.  The order classifies meat and poultry as essential, and delegates federal authority under the Defense Production Act to the Department of Agriculture to ensure that the consumer supply of these items continues.  The full effect of the Order remains to be seen.

COVID-19 Guidance for Curbside Pickup Best Practices: On May 1, 2020, OSHA issued new safety guidance for restaurants and beverage vendors offering takeout and curbside pickup.  The guidance is available at https://www.osha.gov/Publications/OSHA4017.pdf

Litigation

Restaurants File Business Interruption Insurance Coverage Lawsuits: Due to closures of dining rooms due to COVID-19 shutdowns, restaurants have made business interruption claims with their insurance providers.  Insurance companies have denied these claims, stating that virus-related closures are generally excluded from insurance policies.  Thomas Keller’s French Laundry filed a lawsuit seeking a declaratory judgment against Hartford Fire Insurance Co., currently pending in Northern California.  Additional restaurants and bars across the country have followed suit.

Fifth Circuit Affirms ADA Judgment in Favor of Monsanto: On February 27, 2020, the Court of Appeals for the Fifth Circuit affirmed a district court’s judgment in favor of Monsanto on a hostile work environment claim.  An employee had sued the company claiming that he was discriminated against and subject to a hostile work environment due to his morbid obesity.  The Court held that because the ADA defines “disability” as “a physical or mental impairment that substantially limits one or more major life activities of such individual,” the employee needed to show evidence that his obesity substantially limited his major life activities and had not done so.

Second Circuit Holds that Delivery Fees Are Not Gratuities: On March 5, 2020, in Belizaire v. Ahold USA, Inc., the Courts of Appeal for the Second Circuit held that delivery fees charged by the Peapod grocery delivery service were not gratuities.  The Court narrowly defined they type of fees that can reasonably construed as gratuities. The Court’s decision allows companies to continue to assess customer charges for food delivery. 

Second Circuit Dismisses Dunkin’ Donuts Lawsuit under Reasonable Consumer Standard: Dunkin’ Donuts was sued in a class action lawsuit over its Angus steak breakfast sandwiches.  Plaintiffs alleged that Dunkin Donuts violated New York consumer protection laws because consumers would be deceived into believing that the sandwiches contained Angus steak, when they were actually “inferior products.”  On March 31, 2020, the U.S. Court of Appeals for the Second Circuit dismissed the lawsuit, holding that no “reasonable consumer” could have been misled by Dunkin’ Donuts advertising, which showed close-ups of the product itself.  Based on the price of the sandwich and the fact that it was marketed as a “grab-and-go” breakfast item, a reasonable consumer would not have expected a piece of steak for a $3.99 breakfast sandwich.