Winter 2019 F&B 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.

Legislation

California Grapples with Regulation of Home Kitchens: On October 7, 2019, the California legislature passed Assembly Bill 377, to increase regulations on microenterprise home kitchens.  The bill generally prohibits a third-party delivery service from delivering food produced by a microenterprise home kitchen operation, with a limited exception for customers with disabilities.  Additionally, the bill prohibits microenterprise home kitchens from producing milk or milk products, including cheese and ice cream.  This bill represents California’s continuing struggle to regular microenterprise home kitchen operations. Last year, the California Legislature passed AB 626, which amended the California Retail Food Code to allowed “microenterprise home kitchen operations” to be legitimate food facilities that could sell perishable foods. AB 626 permitted home cooks to make up to 60 meals a week and make up to $50,000 in food sales a year. 

New York City Bans Foie Gras: On October 30, 2019, the New York City Council passed an animal welfare bill package with a 42-6 vote.  This bill will ban the production and sale of foie gras throughout the city, and will go into effect in January 2022.  Currently, approximately 1,000 restaurants across New York City have foie gras on their menus.

Minneapolis Wage Theft Ordinance and Notice Effects: Minneapolis has enacted its own wage theft ordinance and accompanying notice requirements.  The ordinance goes into effect on January 1, 2020 and largely tracks Minnesota’s wage theft statute that went into effect on July 1, 2019.  The ordinance is designed to ensure that workers are aware of the new wage theft laws.  Minnesota’s Department of Labor and other agencies are ramping up enforcement of the wage theft law, which is one of the nation’s toughest.

Litigation

U.S. Supreme Court Declines to Hear Appeal in Domino’s Mobile Accessibility Case: On October 7, 2019, the United States Supreme Court declined to hear Domino’s petition for review regarding website accessibility.  The issue presented to the Court was whether Title III of the Americans with Disabilities Act requires a website or mobile-phone application that offers goods or services to the public to satisfy discrete accessibility requirements with respect to individuals with disabilities.  By refusing to hear Domino’s appeal, the Supreme Court left in place the Ninth Circuit’s ruling broadly interpreting mobile accessibility, a major defeat for businesses.  Based on the current state of the law, businesses must comply with website accessibility requirements for both their websites and mobile apps.

Seventh Circuit Decries Employment Discrimination Suit Against Mars, Inc.: On November 7, 2019, the Court of Appeals for the Seventh Circuit rejected a former employee’s discrimination claims against candy maker Mars, Inc.  The employee had been laid off after her employer lost a contract with Mars, Inc. and then sued both her employer and Mars for discrimination.  The court called the lawsuit “utterly frivolous” and referred to the appellate brief as a “monstrosity.”

Tenth Circuit Reverses Preliminary Injunction on Mrs. Field’s Popcorn Licensing:  On November 7, 2019, the Court of Appeals for the Tenth Circuit reversed a preliminary injunction that had required Mrs. Fields to continue a trademark licensing agreement with MFGPC.  The licensing agreement allowed MFGPC the exclusive use of the “Mrs. Fields” trademark on popcorn products.  Following a dispute between the two parties, Mrs. Fields provided notice to MFGPC that it was canceling the popcorn licensing agreement.  MFGPC brought a lawsuit, and the district court found that the license was “effectively perpetual” and ordered Mrs. Fields to continue performing under the licensing agreement.  The Tenth Circuit found that the “perpetual license” finding was erroneous, and the district court’s analysis was “fatally flawed.” 

Seventh Circuit Rejects Class Action Claims in Chocolate Filling Lawsuit: On December 9, 2019, the Court of Appeals for the Seventh Circuit affirmed a district court decision rejecting a putative consumer class action based on Fannie Mae’s practice of filling chocolate boxes.  Plaintiffs sued Fannie May alleging violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFDBPA”), based on the boxes of chocolate containing needless empty space and misleading consumers.  The district court dismissed the complaint based on federal pre-emption.  The Seventh Circuit affirmed the judgment on other grounds.  The Court found that the plaintiffs did not show any actual damage as required under the ICFDBPA because they did not allege that the chocolates they received were worth less than the $9.99 they had paid for them.

Ninth Circuit Rejects Class Action Claims against McDonalds as Joint Employer: On December 11, 2019, a panel of the Ninth Circuit Court of Appeals filed an amended majority opinion affirming the district court’s summary judgment in favor of McDonald’s Corp. in a class action brought by employees alleging that they were denied overtime pay, meal/rest breaks, and other benefits in violation of the California Labor Code.  In the amended opinion, the panel denied a petition for panel rehearing and denied a petition for rehearing en banc.  The panel had previously filed an opinion on the same case on October 1, 2019.  The panel held that McDonald’s did not meet the “control” definition of an employer, and under California common law, could not be classified as an employer of its franchisees’ workers, despite evidence that McDonald’s was aware of the franchisees’ violations of California employment laws.  McDonald’s could not be considered a joint employer under California law based on its limited level of control.  

Tofurky Wins Preliminary Injunction of Arkansas Plant-Based Labeling Law: On December 11, 2019, a federal court in Arkansas granted a preliminary injunction preventing the enforcement of Arkansas’ new labeling law targeting plant-based products.  The court granted Tofurky’s request for an injunction, finding that Tofurky was “likely to prevail on its arguments that its labeling is neither unlawful nor inherently misleading and that Tofurky's commercial speech warrants First Amendment protection.” 

Tenth Circuit Rejects Employment Discrimination Claim Against IHOP: On December 17, 2019, a panel of the Tenth Circuit Court of Appeals affirmed a district court’s grant of summary judgment on employment discrimination claims raised by an IHOP employee.  The employee had engaged in an affair with a co-worker and become pregnant as a result. She claimed that her manager had made comments to her and expressed displeasure about the relationship.  The employee claimed that she suffered from pregnancy discrimination and religious discrimination.  The IHOP franchisor responded that the firing was a result of harassment of her manager, missed work shifts, and violation of IHOP policies.  The panel found that there was no reversible error in the grant of summary judgment in favor of IHOP.

Ninth Circuit Affirms Dismissal of Consumer Fraud Lawsuit against Diet Dr. Pepper: On December 30, 2019, a panel of the Ninth Circuit Court of Appeals affirmed dismissal of a complaint alleging that the use of the word “diet” on Diet Dr. Pepper products violated California consumer fraud laws.  The complaint alleged that the label “diet” was fraudulent and misleading because consumers would be led to believe that the product would “assist in weight loss,” and pointed to several studies that the aspartame sweetener used in Diet Dr. Pepper is likely to cause weight gain.  The panel held that the prevalent understanding of the term “diet” in the marketplace was that the product had less calories than its regular counterpart.  The panel found that dismissal of the consumer fraud claims was proper.

Administrative Developments

FDA Issues Consumer Update on CBD Products: On November 25, 2019, the FDA issued a Consumer Update regarding products containing cannabis or cannabis-derived compounds, including CBD.  The Consumer Update stated that it was illegal to market CBD by adding it to a food or labeling it as a dietary supplement.  The update warns consumers that “CBD has the potential to harm you, and harm can happen even before you become aware of it.”  The update also noted: “Despite the 2018 Farm Bill removing hemp — defined as cannabis and cannabis derivatives with very low concentrations (no more than 0.3% on a dry weight basis) of THC — from the definition of marijuana in the Controlled Substances Act, CBD products are still subject to the same laws and requirements as FDA-regulated products that contain any other substance.”

FDA Warns Companies for Illegally Selling CBD Products in Violation of the FD&C Act: On November 25, 2019, the FDA issued warning letters to fifteen companies for illegally selling CBD products in violation of the Federal Food, Drug, and Cosmetic Act.  The agency stated that “any product intended to treat a disease or otherwise have a therapeutic or medical use, and any product (other than food) that is intended to affect the structure or function of the body of humans or animals, is a drug.  The warning letters, as well as the consumer update from the agency on the same  

New FDA Commissioner Confirmed: On December 12, 2019, Dr. Stephen Hahn was confirmed as the next commissioner of the U.S. Food and Drug Administration by a 72-18 Senate vote.  Dr. Hahn is a radiation oncology expert who recently served as the chief medical executive of the University of Texas MD Anderson Cancer Center.

Department of Labor Considers New Tip Regulations: On December 11, 2019, the Department of Labor officially closed its comment period for proposed tip regulations under the Fair Labor Standards Act.  The new regulations were initially proposed on October 8, 2019.  The comment period was scheduled to end on December 9, but was extended to December 11 based on problems with the website.  It is likely that the Department will be publishing new tip regulations in early 2020.  The proposed rule would expand tip pools to share tips among front-of-the-house and back-of-the-house staff and would allow employers to reduce wages for employees earning tips (provided that the wages are above minimum wage).