If America were a restaurant, and we created a 2017 Legal Outlook Menu, it might look like this: for starters, we’re offering an amuse-bouche of uncertainty; for the main course, a healthy ragout of surprise and complexity; and for dessert, we give a tip-of-the-hat to the American voter and offer a small – or large – serving of change. With Republicans controlling the White House, Congress, and the executive and legislative branches of many states, the 2017 outlook for restaurant owners should, in theory, be positive.
The 2017 outlook for restaurant owners should, in theory, be positive.
President-Elect Trump presumably understands first-hand the challenges faced by business owners and, in theory, should be sympathetic to their plight. The Republican-controlled Congress and state governments should, in theory, be in favor of reducing intrusive and burdensome regulation and over-reaching government bureaucrats. But among the many things the 2016 presidential election showed us is that “theory” does not necessarily translate into “reality.”
Restaurant owners will continue to grapple with the same issues that were prominent in 2016, but perhaps with different evolutionary paths: employment-related issues such as minimum wage, overtime pay, joint employment and unionization; “healthy consumers” issues such as menu labelling and taxation of “unhealthy” foods and beverages; the Affordable Care Act; and the impacts of globalization and trade treaties. If, as some predict, the federal government pulls back on some of these initiatives, restaurant owners should be prepared for a continued push by state and local governments on many of the same issues. Restaurant owners must watch the interplay between federal, state and local regulation on these and other issues involving food and businesses that sell it.
In the employment arena, the legal conversation was dominated in 2016 by the NLRB/joint employment, vicarious liability, overtime pay, and minimum wage. As 2016 winds down, we’ve seen several key developments that will further shape the conversation and perhaps provide a glimpse of things to come in 2017:
A nationwide injunction suspended the effectiveness of the Department of Labor’s new overtime pay rule. The DOL’s new rule, set to go into effect on December 1, 2016, would define “exempt” and “non-exempt” employees according to a significantly higher salary threshold. Under the new rule, an employee who is paid less than $47,476 annually (currently $23,660) or $913 per week (currently $455) would be entitled to overtime pay regardless of the employee’s responsibilities. The revised rule also provides for automatic increases in the salary threshold every three years. Projections are that at least 4 million additional private sector employees would be entitled to overtime pay under the revised rule, sending restaurant and other business owners scrambling to adjust workers’ schedules to avoid hitting the salary threshold. However, on November 22, a Texas federal judge ruled that the DOL overstepped its statutory authority and issued a nationwide injunction suspending the effectiveness of the revised rule and preserving the status quo until the court is able to consider further evidence. Since nothing is expected to happen in that lawsuit until after President-Elect Trump is sworn in and has an opportunity to make changes to the leadership of the Department of Labor, the issue will likely ultimately be resolved by the Department of Labor, under its new leadership, instead of by the courts. In any event, employers are left facing two prospects: (1) they might have already made changes in their organizations (revised work schedules and salary increases to get employees above the new threshold) in anticipation of the December 1 effective date, and those changes could be difficult to pull back without creating confusion and ill-will among their employees, or (2) they will have to be prepared to act quickly should for some reason the injunction be lifted.
Importantly, the injunction has no impact on state wage and hour laws, and employers must also take those laws into consideration. For example, California recently tied its overtime rule to twice the state’s hourly minimum wage which, coupled with recent increases in the state’s minimum wage requirement, will put the salary threshold for determining an employee’s entitlement to overtime pay in that state at $43,680 annually.
The NLRB and McDonald’s agreed to bifurcate the pending joint employment lawsuits which will speed the process through the administrative courts and, barring a settlement, more quickly move the issue to the regular courts. Even with the bifurcation, the future of these cases and the positions taken by the NLRB will be impacted by President-Elect Trump’s appointments to the NLRB over the next couple of years and, as importantly, what happens when the term of the current General Counsel of the NLRB – the main driver behind the NLRB’s actions – expires in November 2017. There will also likely be continued and renewed Congressional efforts to legislate the issue – like the Protecting American Jobs Act that stalled in the House and would have limited the power and authority of the NLRB and its General Counsel.
McDonald’s recently settled an important vicarious liability lawsuit. This California case and others like it have particular importance in the context of franchise systems. In the settled case, a franchisee’s employees asserted that the franchisee – their actual employer – was a mere agent controlled by the franchisor, that they believed they were actually employed by the franchisor, and that the franchisor should, therefore, be responsible for payment of their wages. Although the case was settled before a determination was made on the merits, the complaints themselves provide valuable practice pointers to restaurant franchisors and franchisees alike, particularly in the context of the franchisee’s hiring and employment practices.
State and local governments continue to adopt increased minimum wage requirements. While a federal minimum wage law appears unlikely in 2017, there will continue to be pressure from employees, particularly in the QSR segment, and unions to increase the minimum wage. In response, states and municipalities will likely continue to adopt laws that will impact the wages paid by locally-operated businesses and will force restaurant owners to figure out how to either absorb those costs or pass them on to customers in the form of higher prices or surcharges.
‘Healthy’ Consumer Initiatives
States and municipalities are likely to continue to pass laws and ordinances to protect “unhealthy” consumers from themselves. On May 5, 2017, chain restaurants and similar food retailers that operate at least 20 locations under the same name and substantially the same menu will be required to comply with new federal menu-labeling rules adopted by the Food and Drug Administration. Under these rules, covered restaurants will be required to post calories for standard menu items and provide additional nutrition information on the customer’s request. While the rules are not mandatory for restaurants that do not meet the location and menu thresholds, their existence will force all restaurant owners, from a competitive perspective, to weigh the benefits and costs of voluntary compliance as consumers continue to be more health conscious and compare dining alternatives.
While New York City’s failed “Big Gulp” ban was clearly aimed at “unhealthy” consumers, some so-called healthy initiatives may gain traction because of their revenue generation features. For example, supporters of Chicago’s recently adopted penny-an-ounce soft drink tax touted the need to promote “healthy” options, but the more likely driver for the initiative was what was reported to be the addition of $224 million per year to the county’s cash-strapped operating budget.
Changes to the Affordable Care Act
President-Elect Trump campaigned on the promise to completely dismantle the Affordable Care Act. Since the election, he has signaled his willingness to retain certain key provisions of the Act. In addition to members of Congress, each of the state’s governors is also jockeying for position in the discussion. While it is likely that there will be a major overhaul if not a complete replacement of the Affordable Care Act, what it ultimately looks like is anyone’s guess as we enter 2017.
Impact of NAFTA, TPP and Other Trade Treaties
While discussion during the election cycle on the pros and cons of NAFTA and the Trans-Pacific Partnership focused on their impact on American jobs, their elimination or renegotiation could have significant impact on the cost of goods imported into the US. Restaurant owners who use foreign-sourced ingredients or other goods or services will need to keep a close eye on duties and tariffs that will likely be imposed on those items should America exit from or attempt to renegotiate those treaties.
2017 Legal Outlook
Predicting the legal outlook for restaurants – in fact, for businesses generally – in 2017 is much more challenging than in any other year in the recent and not-so-recent past. Generally, restaurant owners will hope for “theory” matching “reality,” but what is certain is that all business owners will need to stay vigilant and nimble, be prepared to take a proactive role in developments that could have significant impact on the success and profitability of their businesses, and stay tuned to what will, by all accounts, be a quickly changing landscape.