Restaurant Law Blog

Restaurant goers are always looking for the next new and exciting dining experience. It is no surprise, then, that “underground supper clubs” are becoming increasingly popular – not only in New York City, but throughout the world. An underground supper club allows diners to reserve a spot in someone’s private home where they pay the host for their meal.

Several companies have created websites to facilitate these intimate and unique gatherings. For example, EatWith is a company that was founded in 2012 in Tel Aviv and has quickly expanded in Europe, South America and now the United States. While other countries may be more accepting of this practice, health and sanitation laws in the United States present huge roadblocks for supper club enthusiasts.

With the Mayoral election coming up, City Council speaker Christine Quinn is doing her best to get the votes of restaurant owners throughout New York City. In recent months, Quinn proposed a reduction in fines for health code violations in restaurants, and it seems that she is delivering on her promise. Quinn just struck a deal with the Department of Health that is expected to cut fines by $10 million a year and add some consistency to the restaurant inspection process.

Prior to the recent changes, fines ranged from $200 to $2000 per violation, as determined by a hearing officer. Under the new fine structure, 60% of violations will be set to a $200 fine and the remaining violations will be reduced by 15-50% of the current fines. Additionally, restaurants that receive less than 14 points after the hearing on their initial inspection will not have to pay any fines for that inspection. And finally, if a restaurant gets a violation for a structural irregularity (e.g., an improperly placed sink), but can demonstrate that they had never been cited for the irregularity in the past, that violation will be waived.

Several provisions of the Affordable Care Act (“Obamacare”) will impact small business owners and their employees. Many of our restaurant clients have expressed concerns about the cost of providing health insurance for all of their employees or otherwise being forced to pay a tax penalty. For those who are worried, the Obama Administration’s recent announcement that the mandate will be delayed until 2014 comes as a relief. This extra year will allow business owners needed time to plan for the upcoming changes.

While the mandates for small businesses may be daunting, there are several things that business owners should keep in mind. For starters, not all businesses will be affected. The term “small business” is somewhat misleading; only employers who have 50 full-time (or “full-time equivalent”) employees are mandated to obtain health insurance for their employees. One “full-time equivalent” employee is defined as two part-time employees, for example. Many restaurant owners employ less than 50 full-time employees and therefore will not be affected.

Can I allow customers to “BYOB” while my liquor license application is pending?

NO! Restaurants and bars may not allow customers to “BYOB” (Bring Your Own Bottle) while a license is pending. Although we have all seen establishments advertise that they are “BYOB,” doing so without a license is not legal in New York State and puts you at risk of getting your pending (or future) license application denied by the State Liquor Authority. Establishments that want to allow customers to BYOB must apply to the State Liquor Authority for a “bottle club license.”

Can my establishment host an open bar? Can we serve “bottomless brunches”?

NO! The Alcoholic Beverage and Control Law prohibits open bars. Specifically, the law does not allow patrons to pay a fixed price for an unlimited number of drinks during a set time. For this same reason, “bottomless brunches” where patrons can pay for a brunch meal with unlimited mimosa, bloody marys, etc. is illegal.  The State Liquor Authority does allow, however, “2 for 1” drinks and other similar drink specials as long as the price of a drink is not lower than ½ of the premise’s regular drink price.

I am buying a restaurant that already has a liquor license. Can the seller transfer the liquor license to me?

A case filed in federal court this week brings up some important issues for bar and restaurant owners to consider. Are you legally permitted to play music at your establishment? If you do so without prior approval or licensure (from the Artists themselves), you may face large penalties.  Even if you legally purchase music from iTunes, you are still prohibited from playing your downloaded music without obtaining the appropriate music distribution license; this is because your use of the music is for a “commercial purpose” rather than personal enjoyment. This is also true if you have a cover band play at your establishment. 

“Commercial purpose” or “commercial use” is defined as any use of a copyrighted song that somehow helps a person earn money. It is assumed that restaurant and bar owners play music at their places of business to draw in crowds, and thus, to earn money. 

Business owners form legal entities such as corporations and limited liability companies in order to protect themselves from personal liability. Before you choose which type of business entity is best for you and your company, consider the different types of protections offered by each of the business forms.

Corporations

New York does not allow corporate shareholders to be completely shielded from liability for their corporate debts. New York is the only state in the country that holds a corporation’s top ten shareholders personally liable for the unpaid wages of the corporation. Section 630(a) of the New York Business Corporation Law states, in relevant part:

“The ten largest shareholders …shall jointly and severally be personally liable for all debts, wages, or salaries due and owing to any of its laborers, servants or employees other than contractors, for services performed by them for such corporation.”

81% of New York City adults reported seeing the letter grades in restaurant windows. 88% of those who see the letter grades consider these grades when making their dining decisions.  As discussed in an earlier blog entry, sites like www.Yelp.com are planning to add restaurant grades to its restaurant review sections, and the iPhone App “ABCEats” provides restaurant grades and inspection reports for all New York City restaurants. Thus, it is easier than ever for a patron to find out about a restaurant’s letter grade, making the importance of that “A” grade even greater.

What can you do to best prepare your restaurant for its Department of Health inspection?

In association with NYC Business Solutions, the DiPasquale Law Group will be providing a free seminar for restaurant owners on issues relating to the New York City Health Code on July 15, 2013 between 5:30 p.m. and 7:30 p.m.  The seminar will focus on (1) preparing for your inspection, (2) monitoring the inspection process, and (3) preparing for and defending yourself before OATH.  You can register for the course by either: (a) emailing an RSVP to fchavez@nycbusiness-solutions.com with your Full Name, Email, Phone and Business Information, or (b) by registering directly through NYC Business Solutions at:  http://www.nyc.gov/html/sbs/nycbiz/html/summary/courses.shtml

Outdoor seating in New York City has the ability to draw large crowds when the weather gets warm, so it is no surprise that as the summer approaches, more clients contact our offices inquiring about how to get sidewalk café permits for their restaurants. Before applying for your sidewalk café permit, there are several things you should consider.

On January 22, 2013, Governor Cuomo released his proposed 2013-14 state budget, which contained several items that could drastically affect the restaurant industry. These proposals include:

• Increasing the minimum wage to $8.75/hour, effective July 1, 2013
• Increasing the hourly wage paid to tipped foodservice workers to $6.03/hour, effective July 1, 2013

The New York State Restaurant Association (NYSRA) is predicting that the above changes would impact 705,000 workers, costing business owners $1.01 billion a year in total wages. In addition to raising the pay rate of all employees, new notices of their pay rates will need to be provided. The New York State Restaurant Association is currently scheduling meetings with the administration and legislative leaders to provide feedback regarding these issues. If you are concerned about the impact this change will have on your business, you can share your story by contacting the NYSRA or your state senator.

Before entering into a contract with a linen supply company, read the fine print! Some linen supply companies use misleading sales tactics to lure clients in, but then place different (and often unfair) terms into the written agreement. There have been several recent court decisions in New York regarding this seemingly common problem.

In Best Metropolitan Towel & Linen Supply Company, Inc. v. The Oar Steak & Seafood Grill, a restaurant owner was orally promised a two-year contract by a representative for the linen supply company. However, when the restaurant owner tried to terminate services after two years, it was discovered that the written agreement demanded a five-year term. The agreement further provided for a “liquidated damages clause”, which requires the restaurant owner to pay a significant amount of damages for early termination of the agreement. The linen supply company sued the restaurant, and the Court awarded the linen supply company over $8,000 in liquidated damages, claiming that the restaurant owner breached the contract by failing to continue using the linen company for the full five years, despite the original two-year oral agreement, which could not be proven. Lesson learned: make sure you get everything in writing.