Restaurant Law Blog

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.

In the next several weeks, the popular review site www.Yelp.com will integrate the Department of Health’s letter grading system into its restaurant customer reviews. Potential patrons will now be able to read about a restaurant’s best dish alongside its inspection history – without ever having to go to the Department of Health’s own site.

While the Department of Health seems to be applauding this new development, restaurant owners are not so enthusiastic, and rightfully so. As anyone in the restaurant business knows, the letter grading system affects business in a big way. The difference between an “A” grade and a “C” grade can be the difference between a packed Saturday night dinner service and an empty dining room. With so many restaurant options to choose from in New York City, many customers feel they should not have to settle for less than the best. Customers do not have to consider that health inspections are often flawed; instead, they can simply look at a letter grade and make a quick decision: to dine, or not to dine?

The Wage Theft Prevention Act, requires all employers provide notice to their employees: (a) when they are hired, (b) annually, between January 1st and February 1st, and (c) whenever an employee’s pay rage changes. Additionally, employers in the hospitality industry must also give a new notice every time a wage rate changes.

Do not forget to provide your employees with this notice this next month. If you do not have a notice, our office is happy to help.

Take the famous Grimaldi’s Pizza, which was founded by Patsy Grimaldi in 1990. In 1998 Patsy retired and sold his business to Frank Ciolli for $500,000, who developed the business into 38 independent locations, the most famous of which remains in DUMBO. This past year the landlord refused to renew Ciolli’s lease agreement forcing him to move next door. Back into the picture and out of retirement steps Patsy, who leases his original space and now plans to open Julaiana’s, a nearly identical coal oven pizzeria. Legal battles ensue.

Perhaps not content with Grimaldi’s Pizza getting all the attention in New York’s “pizza news,” Peter Castellotti Jr. of John’s Pizzeria, has filed a lawsuit seeking a full accounting and $25 million dollars in damages against his sister Lisa Free with respect to their Times Square location. According to the court filing, Peter was disinherited by his mother which resulted in the business being left to his sister. Despite this, she always treated him as an equal partner, but according to John, has been cutting him out of profits and failing to pay appropriate sales tax amounts, as well as violating the SLA’s rules by purchasing wine from retailers with cash.

The following is courtesy of the New York State Division of Taxation and Finance.

If you're starting a new business or purchasing an existing one, there's a publication you might want to add to your reading list, the "Tax Guide for New Businesses" (Publication 20) from the New York State Department of Taxation and Finance.

This practical guide, freshly updated from cover to cover, provides basic information about New York State's tax laws and regulations for business of all sizes.

It highlights tax responsibilities related to sole proprietorships, partnerships, and corporations. It spells out filing requirements for employers and provides guidance on sales tax, the Metropolitan Commuter Transportation Mobility Tax, and other taxes such as the alcoholic beverage tax. It also provides information on New York City licenses, permits, and dozens of other tax-related topics.

Consider this – you have developed a clear business plan, spent countless hours conceptualizing every aspect of the restaurant you want to open, and have invested hundreds of thousands of dollars to get up and running. You select a name which is near and dear to your heart. You prepare menus, business cards and signage, all of which look amazing. Your website is generating lots of traffic and you have been written up in both the NY Times and Page Six. You then receive a cease and desist letter advising you that you have stolen another restaurant’s name. You call your attorney only to discover that the other restaurant trademarked their name years ago, and that you have no choice but to start all over.

The Department of Health has long been a thorn in the side of restaurant owners and even more so since the advent of Letter Grading. Take this last month alone, notable establishments such as Meatball Obsession and Kashmir's Dollar Burger, Mantao Chinese Sandwiches, and Effy's, among others, were temporarily closed for health code violations.

As owners are well aware, the NYC Health Code was recently revised to clarify “what is” and “what is not” a violation. Health Inspectors when conducting an inspection look for issues of concern and whenever they observe a possible violation, they are told to include it without their report. To create uniformity among violations and to quicken the inspection process, the Department of Health created a computer program which utilizes pre-determined templates of text that are automatically inserted into a violation’s description so as to expedite the on-site reporting and issuance of a Notice of Violation. Phrases such as “observed encrusted with old food” and “fresh mouse excreta” (among several others) are automatically inserted into the violation even though they do not necessarily reflect the facts or circumstances that were actually observed by the Inspector. Why does this matter?

The owner of a popular Greenpoint hotspot is suing the NYPD following its July 10, 2011 investigation and raid of Coco66 which is owned and operated by David Kelleran. In the lawsuit, Kelleran claims that the NYPD wrongfully poured out the club's entire inventory of wine, beer and liquor, because Kelleran's adjacent restaurant "68", had inadvertently bounced a check to the SLA — meaning that their liquor license was in jeopardy of being revoked. The SLA gave “68” 10 days to correct the mistake, but antsy police officers from Brooklyn's 94th Precinct rushed into Coco66 on the 5th day and dumped all the booze. Realizing their mistake (that they were in the wrong place not that they were 5 days too early), they proceeded to "68" where they dumped out all the booze. Kelleran estimates that the dumping cost his businesses "thousands and thousands" of dollars. If you find yourself having to deal with the State Liquor Authority or local police concerning a liquor issue, consult an experienced attorney knowledgeable of the Alcohol and Beverage Control Law. Doing so might save you "thousands and thousands" of dollars.


 

Employees are becoming much more aware of their rights as evidenced by the fact that they are rushing to Courts in droves to claim foul against their employers for failing to pay them an appropriate wage or for 'stealing' their tips. Recently, employees of Centolire voiced complaints that they had not been paid for the final three weeks of business before it closed and filed for bankruptcy protection. Although no suit has been officially filed, one seems imminent. Likewise, some former employees at Bar Veloce are suing for unpaid wages and labor violations and recently took to the streets to voice their frustrations by posting fliers in the neighborhood urging patrons to boycott the establishment. Whether this is the right route to take or not, the owner has taken notice and filed a defamation suit for unlawful retaliation against the employees. Another owner, Philippe Chow, is being sued by over 50 employees for failing to pay minimum wage and overtime pay to his employees.

Some former employees of Juventino Restaurant in Park Slope have taken to the internet to lambaste management for sexual harassment they claim occurred while they were employed. Through their new website "Juventino Disclosed" Staffers are hoping to "bring awareness to sexual harassment in the restaurant industry and maybe deter some prospective customers in the process." Some readers have left comments on the website promising not to frequent the establishment in support of the ex-employees. Undeniably, social media is a powerful tool that can dramatically impact one’s business in a good way, or in this case, a bad way. But is it ethical or for that matter legal? Can restaurant owners protect themselves from this sort of backlash? Can they file a defamation suit against their employees the way that the owners of Bar Veloce have? Unfortunately, each situation must be handled on a case by case basis, so before you do anything to defend or retaliate, seek legal advice.