Employers in the hospitality industry need to be
aware that the "tip pool" has become the latest trend in litigation
under the Fair Labor Standards Act ("FLSA"). Most recently, Chili's
Grill & Bar found itself embroiled in a class action lawsuit in
Houston, Texas, in which employees allege that Chili's wrongly
distributed tips to Quality Assurance workers and Expediters. Because
they are often filed as class actions, these lawsuits can be very
costly, both in terms of potential liability and attorneys' fees.
Through this article, we hope to assist restaurants and other service
establishments in managing and distributing their tip pools so as to
avoid potentially expensive litigation.
Background
Tipped
employees-those who work in an occupation in which they regularly
receive more than $30 per month in tips-are subject to unique federal
minimum wage standards. Notwithstanding the current minimum wage of
$5.15, the FLSA provides that tipped employees may be paid an hourly
rate of only $2.13. Thus, the employer receives a "tip credit" for the
$3.02 difference between the employee's actual hourly wage and the
federal minimum wage. To take advantage of the lower rate for tipped
employees, the employer must ensure that its tipped employees' total
compensation (hourly rates plus tips) exceeds the $5.15 hourly rate.
The Tip Pool
As
a general matter, tipped employees must receive all of the tips they
receive during their shifts. Individual tipped employees may either
keep their own tips, or they may be required by the employer to share
or "pool" their tips with other "tipped employees."
The tip pool has become a common feature in restaurants. It accomplishes a number of objectives:
1)
It provides a fair distribution to employees, such as busboys and
bartenders, who customarily receive smaller tips than servers.
2)
It fairly compensates servers who are assigned slow sections of the
restaurant or who have the misfortune of serving low tipping parties.
3)
It allows the employer to identify certain employees (eg., busboys) as
"tipped employees" who would otherwise not customarily reach the $30
per month threshold, thereby allowing the employer to pay its busboys
$2.13 per hour rather than the standard minimum wage of $5.15.
In administering the tip pool, however, it is important to remember that only those employees who "customarily receive tips" may share in the tip pool.
If non-tipped employees share in the tip pool, the employer will lose
the "tip credit" and will be required to pay the federal minimum wage
of $5.15 per hour to both tipped employees and non-tipped employees.
The
allegation that the employer has forfeited the "tip credit" by
requiring servers to share tips improperly with non-tipped employees
has become the source of much litigation. In these cases, whether an
employee is a "tipped employee" or a "non-tipped employee" becomes the
central factual dispute. To be a tipped employee, an employee must be
engaged in an occupation in which he or she customarily and regularly
receives tips. Only occupations requiring significant customer contact
can be considered a "tipped employee." Therefore, the central issue in
this type of litigation often becomes the amount of customer contact
the employees has.
Various cases involving the tip pool credit
lend insight on which employees have sufficient customer contact to
share in the tip pool. Examples of employees who generally may share in the tip pool include: Servers, Bus Persons, Bartenders, Hosts/Hostesses, Greeters, Maitre d's, Captains, Sommeliers.
Employees who do not typically receive tips because of their minimal customer interaction cannot take money from the tip pool. Examples of such employees include:
Managerial employees, Cooks and other kitchen staff, Dishwashers,
Off-Hour Employees (eg., overnight janitors or security guards),
Non-Service/Back Room Bartenders.
A non-tipped employee's receipt of tip pool funds may cause the employer to forfeit the tip credit.
Customary and Reasonable Tip Out
The
DOL states in its Regulations that in order to maintain the tip credit,
an employer's tip-out requirement must be "customary and reasonable."
The DOL considers a tip out requirement of as much as 15% of an
employee's tips to be "customary and reasonable" by definition. The
Regulations on this issue have been questioned by the courts.
Nevertheless, withholding more than 15% of a server's tips as part of a
tip pool arrangement may raise the ire of the Department and instigate
an investigation. Accordingly, it is recommended that the "tip-out"
requirement not exceed 15% of a tipped employee's tips.
Notice
To
receive the tip credit, the DOL requires that an employer inform its
tipped employees that their tips will credited towards meeting the
minimum wage requirement. The necessary notice may be provided in a
number of ways: either through an employee handbook, a posting
alongside the mandatory minimum wage poster on the employee bulletin
board, or a separate memorandum given to each individual tipped
employee. Regardless of the method used, such notice should be in
writing and in such a place that the employer can demonstrate that the
tipped employee saw it during his or her employment. We would also
recommend that the notice inform tipped employees of which job
classifications will share in the tip pool (assuming, of course, that
only "tipped employees" are permitted to share in the tip pool
consistent with the provisions of the FLSA!). This additional notice
will prevent the type of uncertainty and misunderstandings that often
can lead to a DOL complaint or a class action lawsuit.
Conclusion
If
it is found that managerial or other non-tipped employees share in the
tip pool, the employer will lose the tip credit and be required
retroactively to pay each tipped employee the federal minimum wage of
$5.15 per hour. The hourly difference of $3.02 between the minimum wage
and the tipped employee rate can quickly add up, and is more than
enough to attract the interest of both the DOL and plaintiffs'
employment lawyers.
Thomas E. Reddin is a partner with Godwin Pappas.
He focuses his practice on representing corporate clients in employment
and labor relations. With more than 21 years experience in handling
complex litigation and employment matters for leading local, regional
and national companies, Tom is recognized as one of the preeminent
specialists in the field of labor and employment law. He can be reached
at 214-939-4821 or treddin@godwinpappas.com.
James Parker is an associate with Godwin Pappas
and represents corporate clients in a variety of employment related
matters, including lawsuits under federal and state antidiscrimination
laws, the Fair Labor Standards Act, ERISA, and the Family and Medical
Leave Act. He can be reached at 214-939-4442 or jparker@godwinpappas.com.
This information provided is general and educational and not legal advice. For additional information go to www.hospitalitylawyer.com.
It's common for restaurants to
require tipped employees to contribute a portion of their tips into a
pool which is then split among other employees. This is perfectly valid
under the federal Fair Labor Standards Act's tip-credit provisions, but
only if you follow certain limitations such as how much is contributed
and who all will share in the pool. That's the issue facing The Grotto
in Houston, where several disgruntled ex-waiters have filed a federal
lawsuit claiming back pay under an improper tip pool arrangement.
Beltran, et. al. v. Landry's Restaurants, Inc d/b/a/ The Grotto.
How Much Money Can Be Put In?
In
the first place, tipped employees cannot be required to contribute more
of their tips to a pool than is "customary and reasonable" in the
locality in which they work. As an enforcement position, the U.S. Wage
and Hour Division will not challenge pool contributions equal to 15% or
less of an employee's tips. If the proportion is greater than 15%, then
you might well be called upon to show (if you can) that the higher
amount is in fact customary and reasonable in your particular
community. This problem can sometimes happen where, for example, an
employer requires a contribution based on a percentage of an employee's
sales instead of using a percentage of his or her tips.
Also,
only the tip amount in excess of the tips used for the tip credit may
be taken for a pool. As an illustration, if you are taking the maximum
tip credit of $3.02 per hour (based on the current minimum wage of
$5.15), a tipped employee who receives only exactly enough in tips to
cover that credit cannot be required to contribute to the tip pool. If
employees are nevertheless made to contribute to the tip pool, then
they have not been paid the required minimum wage.
Who Can Swim In This Pool?
Another
limitation is that tipped employees cannot be required to share their
tips with workers who do not customarily and regularly receive tips.
The U.S. Wage and Hour Division has said that wait-staff, bellhops,
counter personnel who serve customers, bus employees, and service
bartenders are among the kinds of employees who are permissible pool
participants. But the Division has also taken the position that
dishwashers, cooks, janitors, and laundry-room attendants are not the
kinds of employees who can be permitted to participate in tip-pooling
arrangements.
In the Landry's case, the waiters allege
that they were required to contribute $3.50 of their tips to the person
in the kitchen who cut and prepared the dessert pastries, and another
$3.50 to the person in the kitchen who prepared coffee. Since these are
not employees who have any interaction with patrons, and do not
"customarily and regularly" receive tips, the waiters are claiming a
"clear violation of the FLSA." Even close cases are usually construed
in favor of employees, and adversely to restaurants. For example, a
similar case in the U.S. Court of Appeals for the Sixth Circuit
(covering the states of Kentucky, Michigan, Ohio, and Tennessee) ruled
that a tip pool should not have included waiters and waitresses
whose work had been limited to salad preparation and related tasks.
These employees had no personal contact with patrons and instead worked
outside of their view, and the employees' duties were, as the court put
it, restricted to things "traditionally classified as food preparation
or kitchen support work...." Therefore, the court said, the tip pool
was invalid, and the employees who had been required to contribute tips
to it were due enough in back wages to bring them up to the full
minimum wage for all their hours worked.
Sometimes tipped
employees decide on their own to share their tips with co-workers who
are not tipped employees and who do not participate in a tip pool. Or,
tipped employees might voluntarily decide to share a larger proportion
of their tips than their employer could require them to contribute to a
tip pool. If they do this freely, not under any formal arrangement, and
independently of and without any pressure or coercion from their
employer, then this does not invalidate the tip credit or a tip pool.
However, you cannot use any of those pooled tips to cover any tip
credit.
Adding It All Up
While the amounts
in questions might sound small at first, they add up quickly. The
financial exposure presented by allowing ineligible employees to share
in a tip pool can be serious indeed. In addition to reimbursing
employees for lost wages and money improperly contributed to the pool,
plaintiffs are entitled to an identical amount as "liquidated damages"
plus costs and attorney's fees on top of that! Still not a huge amount
if you're dealing with a single employee, but most of these cases,
including the Landry's lawsuit, are brought as collective
actions, meaning there is a whole class of plaintiffs which includes
both past and present employees.
As with all wage-hour issues,
small mistakes - even perfectly innocent ones - can lead to large
consequences. Be sure to seek competent advice if you're not 100% sure
of your own pay practices.
Michael Mitchell is a lawyer with Fisher &
Phillips LLP, a nationally recognized firm representing management in
labor and employment matters. He can be reached at 504-529-3830 and mmitchell@laborlawyers.com. This information provided is general and educational and not legal advice. For additional information go to www.hospitalitylawyer.com.
Employers in the hospitality industry experience a host of human
resource and employee management problems that require focused employer
attention and skills, namely in the areas of addressing and limiting
liability related to employee claims of harassment and discrimination,
specialized wage and hour issues, and a variety of other employee
relations concerns. However, perhaps the biggest liability threat to
food and beverage operators is that of harassment complaints by
employees and the employer's failure to remedy the same. Consequently,
employers in the food and beverage industry should manage that risk by
engaging in the appropriate proactive and reactive measures to limit
liability and promote good human resource practices.
The Risk of Inappropriate Behavior in the Workplace
Employers,
under both federal and state law, have an obligation to prevent not
only discrimination as it is traditionally understood, but also
harassment to the extent it rises to the level of creating a hostile
environment. Often times, food and beverage operators have younger and
less experienced workforces who work together in close quarters. Those
factors sometimes equate to a recipe for inappropriate behavior in the
workplace.
Because hostile work environment claims are the
product of a series of events or actions, employers may not have a
clear idea of the best approach to preventing a claim of and limiting
exposure to such claims. Recent developments in hostile work
environment case law indicate employers greatly decrease their risk of
liability by taking certain actions both before and after an alleged
incident of harassment occurs. If an employer fails to appropriately
remedy such harassment, then the damages and penalties for employers
can be great.
The key to limiting liability is to ensure your
company has an anti-harassment and anti discrimination policy with a
complaint procedure, that supervisors and employees alike are trained
on that policy, and that you, as an employer, are exercising reasonable
care to prevent and correct any harassing and/or discriminatory
behavior.
What Should An Employer's Policies and Training Programs Include?
Employers
should consider a number of factors when drafting an anti-harassment
and anti-discrimination policy, as well as in crafting their supervisor
and hourly employee training programs.
An employer's policy
prohibiting harassment, discrimination, and retaliation should be in
written or in computerized form. In addition, that policy should be
distributed to every employee upon hire, with the employer utilizing
and maintaining a form signed by every employee, acknowledging that
he/she has received the policy, read it, and understands it. Moreover,
the policy should prohibit all forms of discriminatory conduct, should
provide a complaint procedure, should set forth a number of avenues of
redress for complaining parties, and include a notice that
confidentiality will be maintained. Finally, the policy should clearly
state that any employee who reports incidents of harassment or
discrimination, or who participates in a related investigation, will
not experience retaliation as a result.
As a second line of
defense, employers should provide mandatory anti-harassment and
anti-discrimination training to employees, particularly to management
level employees. That training can be done internally or an employer
can utilize outside services. The employer should also document every
individual's participation in the training and should cover all forms
of harassment and discrimination. Moreover, the training should be
substantial in temporal length, with a minimum of a half-day total
training. In addition, periodic re-training or updates are advisable.
What Should An Employer Do When It Learns of Inappropriate Behavior?
If
an employer should become aware of inappropriate behavior through a
complaint or other means, it should promptly remedy the problem. The
employer should first investigate the complaint or issue that has been
revealed. Remember, an employer has an obligation to investigate once
it becomes aware of potential harassment/discrimination; a formal
"complaint" is not necessary to trigger the employer's obligation. The
investigation must occur immediately and conclude (as far as an initial
determination) within a reasonable time, regardless of the
justification, any delay in conducting or completing the investigation
will appear far worse and unjustified in subsequent litigation.
In
addition, an unbiased person should conduct or lead the investigation,
which person should document every allegation at the outset. Each of
those allegations should be investigated, with each potential witness
interviewed or contacted individually. The investigator should also
remember to stress confidentiality and non-retaliation to all involved.
Retaliation claims are the most difficult to defend.
Once the
person investigating the claim completes the investigation, that person
should relay the employer's findings and the steps taken to remedy the
problem with the victim. Notably, an employer need not conclude that
harassment or discrimination occurred.
Importantly, the employer
should remember not to punish the victim in any manner; for example,
while separating the victim and the harasser might be an acceptable
step (as a part of an acceptable resolution), transferring the victim
rather than the harasser is typically unacceptable; the exception is
where the victim specifically requests it. The employer should further
encourage the victim to report any future prohibited conduct,
regardless of the conclusion reached in the investigation. The employer
should also consider non-disciplinary steps, including re-training or
additional anti-harassment training, and issuance of a letter
reiterating the employer's anti-harassment policy.
An Ounce of Prevention...
Through
the careful consideration of the particular workforce, and by following
the preventative measures highlighted above, food and beverage
operators can limit liability and promote good human resource
practices. By taking the time to draft the appropriate policies, train
employees, and properly investigate and remedy employee complaints,
food and beverage operators will be ahead of the game by both fostering
employee good will and boosting the bottom line through the prevention
of costly jury verdicts.
Brad Hiles is a partner in the St. Louis office of Blackwell Sanders Peper Martin LLP. He can be reached at 314-345-6489 or at bhiles@blackwellsanders.com. Megan Belcher is an associate in the Kansas City office of Blackwell Sanders Peper Martin LLP. She can be reached at 816-983-8322 or at mbelcher@blackwellsanders.com.
Ms. Belcher and Mr. Hiles represent restaurants and hotels across the
country. Their practice includes compliance counseling, the defense of
discrimination and wrongful discharge charges and lawsuits, union
avoidance counseling, and collective bargaining on behalf of hotel and
restaurant owners and operators. This information provided is general
and educational and not legal advice. For additional information go to www.hospitalitylawyer.com.
While employers nationwide have dreaded the inevitably increase in
the federal minimum wage under the Fair Labor Standards Act ("FLSA"),
several states forged ahead and raised their own minimum wage rates.
Now that employers are making adjustments in their payroll systems
based on the increased federal minimum wage to $5.85 per hour, those in
the restaurant industry should take this opportunity to examine how
increased federal and state minimum wages impact the wage calculations
for tipped employees.
What Is Tip Credit?
Many employers in the hospitality industry rely on the "tip credit" to
comply with the federal minimum wage. Generally, if an employer
implements a proper tip credit arrangement under the FLSA's
requirement, it can pay a qualifying employee as low as $2.13 per hour
if it can demonstrate that the employee receives at least $5.85 per
hour when this payment is combined with his or her tips (i.e., amounts
paid at a customer's discretion with respect to whether, in what
amount, and for whom the tip is left).
Is Tip Credit An Option?
Not all states allow employers to take a tip credit when it comes to
the state's minimum wage. Particularly concerning are those states that
have minimum wage rates above $5.85 per hour applicable to most
employees. For example, Alaska, California, Minnesota, Montana, Nevada,
Oregon, and Washington all have higher minimum wage rates and do not
allow any tip credit. Therefore, even if an employee qualifies for the
tip credit under federal law, the employee's non-tip wages must equal
or exceed the higher minimum wage rate in these states.
How Much Tip Credit Can You Take?
On the other hand, some states allow employers to take a tip credit
such that an employer can pay qualifying employees the stated lower
wage rate if they receive the required minimum wage when this amount is
combined with their tips. Specific requirements for determining whether
an employee qualifies as a "tipped employee" under state law might vary
from federal law. Moreover, the amount of tip credit available (and
correspondingly the amount of non-tip wages due) can vary. For example,
Delaware only requires non-tip wages of $2.23 per hour (maximum tip
credit $4.42 per hour), but Hawaii requires employers to pay at least
$7.00 per hour in non-tip wages (i.e., the maximum tip credit is only
$0.25 per hour).
Additionally, while some states provide an exact non-tip wage rate
(similar to the FLSA), others provide an exact tip credit amount such
that the minimum non-tip wage rate increases by the exact amount that
the minimum wage increases. To illustrate, Colorado's maximum tip
credit is set at $3.02 per hour based on a constitutional provision.
Currently the state's minimum wage is $6.85 per hour, which means that
the minimum non-tip wage rate is $3.83 per hour. However, if the
minimum wage were to increase next year by $1.00 the maximum tip credit
still would be set at $3.02 per hour such that, under those
circumstances, the state's minimum non-tip wage rate would increase to
$4.83 per hour. Accordingly, employers should watch for changes in the
tip credit/non-tip wage rates as well as the state minimum wage.
Finally, in those states that have a higher tip credit than $3.72,
employers must be careful not to ignore the application of federal law.
Employers are required to comply with both state and federal law unless
otherwise exempt and generally speaking should apply the most favorable
applicable provision. Please consult your attorney to determine under
what circumstances you can pay less than the federal or state minimum
wage.
Download
State-by-state chart showing the minimum wage requirement and maximum tip credit amounts for each jurisdiction.
Click here to go to the download page.
Caroline Brown is a lawyer with Fisher & Phillips LLP, a nationally recognized firm representing management in labor and employment matters. She can be reached at cbrown@laborlawyers.com
or at (404) 240-4281. This information provided is general and
educational and not legal advice. For additional information go to www.hospitalitylawyer.com.
Employers in a variety of industries where employees receive tips
should expect court challenges to their tip practices in the wake of
several recent high-profile rulings, caution attorneys from Jackson
Lewis LLP, one of the country’s largest workplace law firms.
A
California Superior Court judge recently awarded $105 million against
Starbucks Corporation for unlawfully allowing shift supervisors to
share in a portion of tips left in tip jars for baristas. A
Massachusetts verdict against American Airlines earlier this week
awarded $325,000 in lost tips to skycaps. Employers of workers ranging
from hotel housekeepers, bell persons and door persons to casino
workers to restaurant servers and others should review their tip plans
with counsel as Jackson Lewis attorneys anticipate tip challenges may
form another wave in the wage-hour class action tsunami that has hit
the nation.
"This is not just a California issue; the entire
tipping industry might soon be affected. As tip pooling lawsuits
continue to grow in number across the country and employers
subsequently have to shell out millions of dollars, the practice could
become a thing of the past," said Paul DeCamp, former Administrator of
the U.S. Department of Labor's Wage and Hour Division and current
co-chair of Jackson Lewis' Wage and Hour Practice Group.
DeCamp
adds, "What makes the Starbucks decision difficult for employers in
this industry is that shift supervisors commonly function in different
roles at different times."
The Starbucks lawsuit focused on an
interpretation of California’s Labor Code regarding the payment of tips
to employees and the practice of tip pooling. Labor Code Section 351
provides, "No employer or agent shall collect, take or receive any
gratuity or a part thereof that is paid, given to or left for an
employee by a patron," and Labor Code Section 350 defines "agent" as
"every person other than the employer having the authority to hire or
discharge any employee or supervise, direct or control the acts of
employees."
While Starbucks shift supervisors were paid more per
hour than baristas, they shared customer service responsibilities such
as making coffee, working the register and serving customers. In
addition, shift supervisors were responsible for scheduling workers and
directing work flow – based on these additional responsibilities, the
court ruled that the shift supervisors were "agents" and thus not
entitled to share in the tips.
DeCamp cautioned that "applying
Section 351 to bar participation in tip pools for non-exempt hourly
workers who spend most of their time doing the same tip-generating
tasks as their co-workers is bad law and terrible public policy. Let's
not forget who these shift supervisors really are – hourly workers who
spend nearly all of their time making coffee and devote a few minutes a
week to writing up schedules."
Similar lawsuits against Starbucks by former employees have since been filed in New York, Massachusetts and Minnesota.
A
Massachusetts jury awarded more than $325,000 to nine American Airlines
skycaps who claimed they had been denied tips after the airline began
charging $2 for curbside check-ins in a verdict rendered April 7, 2008.
The plaintiffs in Di Fiore, et al. v. American Airlines, Inc., Case No.
07-10070 in the U.S. District Court for Massachusetts, contended among
other things that the surcharge violated Massachusetts tips law.
Attorneys for those plaintiffs have said they plan to file a similar
action against U.S. Airways in Pennsylvania on behalf of 3,000 skycaps
across the nation.
"It is essential that all employers who use
tip pooling work their way through their state's wage-hour law
regulations to identify where they may be vulnerable," urges Rob
Pattison, Managing Partner of Jackson Lewis' San Francisco office.
"Jackson Lewis can assist companies across the country in these
self-audits."
Jackson Lewis attorneys will be monitoring the
progress of the California Starbucks case on appeal as well as the
progress of other tip and tip pooling cases. Jackson Lewis attorneys
also are available to answer inquiries about achieving wage hour
compliance in California and nationwide. For more information on Chou
v. Starbucks Corp. or the Wage and Hour Practice Group at Jackson
Lewis, please click here.
Founded in 1958, Jackson Lewis LLP
is dedicated to representing management exclusively in workplace law.
With offices in 34 cities and more than 470 attorneys, Jackson Lewis
has developed a concentrated expertise in over 17 specialized practice
areas of the law. Additional information about Jackson Lewis LLP can be
found at www.jacksonlewis.com.
My brother, a chef, has been looking to open his own place for a
number of years now. He tells me that when he finds the perfect space,
he is going to jump on it. If that happens, I'm sure that I will get a
call from him asking if I have time to review his lease. He will tell
me that it's the perfect space and that I need to take only a "quick
look." He also will probably tell me that, because he's taken my advice
and set up his business as a limited liability entity, the landlord
wants him to sign a personal guaranty. He will want to know what that
means and whether he should sign it. Here's what I'll tell him:
Landlord POV
A
personal guaranty of a lease is a promise from a "guarantor"
(typically, the owner of the business) that, in the event of a breach
of the lease, the guarantor will make good on the tenant's promises.
For example, if the tenant fails to make rent, the landlord can sue the
guarantor to collect it. If successful, the landlord will get a
judgment against the guarantor and be able to execute against the
guarantor's personal assets to collect. So much for a limited liability
entity, right?
But that's the point. Many landlords are not
going to want to lease space to a start-up restaurant with no track
record of success. If the restaurant fails, the landlord is going to be
left with space that is built out like a Mediterranean castle ("Nice,
but not stuffy," says my brother). Suing the restaurant won't work
because it's gone out of business. On the other hand, suing my brother
might work. He owns a house and has various investments. By suing to
enforce the guaranty, the landlord can force my brother to liquidate
his assets to pay up. The only defense to the landlord's action is
likely to be personal bankruptcy. This legal route would be rough for
my brother, but it also can be bad news for the landlord: joint
business/personal bankruptcies can tie up a landlord's space and afford
him little prospect of getting paid, or they can trigger a long wait
for restoration.
Tenant's Option
So
what are the options? I will suggest to my brother that he try to
negotiate a good guy lease guaranty with the landlord. A "good-guy"
guaranty is different from an unlimited personal guaranty in that the
guarantor's liability is nullified if he delivers the vacant space back
to the landlord and pays the rent due up to the date of delivery. If
the tenant doesn't vacate, the guarantor can be sued personally. Once
the landlord gets the space back, however, the guarantor is off the
hook.
The benefits to my brother are obvious, but how does the
landlord profit? If landlords are able to insist on–and get–personal
guaranties from tenants, why would they ever accept a "good guy"
limitation? The simple answer is that they probably won't. This is
where my brother gets really mad at me. He has found the "perfect"
space and he does not want to hear me tell him about the risks. A smart
tenant will not commit emotionally to a space until an acceptable lease
has been signed. Negotiating such a lease can be done quickly, but it
also must be done intelligently.
If you are reading this column
and you are not my brother, be sure to review your leases and
guaranties with your real estate attorney. A space isn't "perfect" if
your lease terms are not acceptable. In addition to the "good guy
limitation" I discuss here, guaranties can be limited in many other
ways, including a specific dollar cap or length of time. The best
negotiating strategy will depend upon the facts of your situation and
the relative bargaining strength of the parties. Remember: Don't be
afraid to walk away.
John Benazzi is an attorney with the law firm of Davis Wright Tremaine LLP
in Portland, Oregon. He specializes in all aspects of real estate
transactions and has represented buyers, sellers, borrowers, lenders,
tenants, and landlords in connection with the sale, financing, and
leasing of commercial real estate.
NO SHIRT. NO SHOES. NO SERVICE. You have undoubtedly seen these
signs on restaurant doors. You may have this same sticker on the
display windows in your business. But have you seen a "NO YELPERS" sign?
The owner of a small café in the San Francisco Bay area recently
posted a warning sign that "YELPERS" were not welcome in his coffee
shop and restaurant. This was not a ban on the little hand-held barking
dogs toted by vapid socialites. Nor was this a prohibition against
crying babies or petulant toddlers. Rather, this restaurateur refused
to serve the new brand of coffee-swilling communication commandos:
consumers that post anonymous, often critical reviews of restaurants
and hotels on "yelp.com."
Yelp.com is just one of the new media outlets or "social networking"
websites that features real-time reviews and commentaries about
restaurants and businesses. In contrast to traditional methods of
professional reviews and analysis by established and recognized
authorities or critics, sites like yelp.com allow the normal, average,
everyday person in the corner booth to assume the mantel of a
Zagat-level restaurant critic. And their un-polished and un-edited
reviews are distributed immediately to anyone that cares to listen.
So, new startups like YELP.COM and the established hospitality market-makers like TRIPADVISOR.COM
have become trusted sources and "mavens" for suggestions and reviews
based on personal experiences of the anonymous content creators. These
networking sites are often the first choice for information by
travelers and interested foodies. In a business environment where word
of mouth is absolutely vital to success, what can shop owners do to
manage the buzz about their business, restaurant, or hotel?
Old School Vs. New Media
It should come as no surprise that a traditional and continuing
response to a bad review by a food critic is...SUE THEM. For many years
this tact of sending in a horde of lawyers to beat up the publisher and
reviewer was viewed as a ham-fisted attempt to subvert the perceived
Freedom of Speech. This assumes, of course, a constitutional right to
complain about cold soup, overdone fish, and belligerent waitstaff.
Nonetheless, many hospitality trade folks believe that a bad review is
libelous.
Recently, some notable chefs and eateries have revived the practice
of overlawyering a dispute. Courts in renowned foodtowns like
Philadelphia, Dallas, and New York City have all handled lawsuits
stemming from criticism in newspaper articles and restaurant reviews.
While there are any number of reasons for bringing these kinds of
suits-the mantra of "any publicity is good publicity" being one of them
- these leverage lawsuits against old school publishers are not
applicable to the new media, web-based networking sites.
First, when an established food critic savages a restaurant,
everyone knows who published the review. In these user-generated
content communities like YELP.COM the reviews come from anonymous
posters. So, even if a business owner has been unfairly or even
illegally harmed by comments...the victim will have a terrible time
trying to identify the critic. Sure, the business operator can run to
court to file suit, issue subpoenas, and raise a ruckus. But, there is
no guarantee that any of the online service providers will disclose any
information about its posters and courts are not always willing to
compel such disclosure.
Second, lawyers tend to overlook the fact that hospitality is a
viral business. Lawsuits are a bad virus. Restaurants and hotels need
to spread good vibes to drive its core business rather than alienate
the very community that it is trying to engage.
Good Options
If you or your business feels that you have been unfairly criticized
at a review site or someone has posted blatantly false and damaging
information, your first reasonable course of action should be to
contact the service provider directly. Most of the social networking
sites have formal or informal complaint procedures to ensure that the
subjects of the reviews are treated fairly. In many instances, the
sites will simply offer to remove the objectionable content.
In the "old days" when a restaurant critic would publish a
potentially harmful commentary, the owner or proprietor would often
respond directly to the magazine or newspaper in a Letter to the
Editor. This remains a good and reasonable option. There is no reason
that your business cannot have an online presence to actively monitor
and address the poor reviews and to dispute the allegedly inaccurate
portrayals on the sites. The websites themselves certainly appreciate
and welcome the additional traffic and information from both sides.
As a final recommendation, the hospitality industry needs to embrace
the change to the new media. Each and every person coming into the
hotel or restaurant is a Pulitzer-prize winning journalist. So, each
customer should receive the highest level of service and attention to
detail that was previously reserved for the known professionals.
Likewise, each and every customer is a Madison Avenue marketing
firm. Encourage your valuable customers to get on these sites and
spread the good word. A few negative reviews are easily dismissed as
crackpots when the vast majority of reviews rave about your place.
Anthony Martin is a Partner in the St. Louis office of Blackwell Sanders Peper Martin. He can be reached at 314-345-6202 or at amartin@blackwellsanders.com.
The Employee Free Choice Act (EFCA), otherwise known as the "card check"
law, has been overshadowed by the dismal economic news the past several
months. But just last week, the Act came back to life, and was
reintroduced in the United States House of Representatives with full
support of President Obama. The Act would dramatically change how
unions can organize, providing them with tremendous leverage over
employers.
As the economy continues to falter, the Act has grown in controversy
between Republicans and Democrats alike. But one fact is certain - if
enacted, the Act has the potential to impact employer and employees in
serious ways. The EFCA involves three major changes in labor laws that
impact employers, including:
1. Certification of a group of employees on the basis of a majority signs up.
This "card-check" process would replace the current secret ballot
elections that allow both the unions and employers to engage in a
robust campaign for their prospective sides prior to the vote. The
elections are currently conducted by the NLRB. Under this proposed
bill, employers fear that unions can persuade their employees with
empty promises without the employers having a chance to rebuttal. Under
the EFCA, employers may never learn that there is an effort to unionize
their business until the union knocks on the back door with 51% of the
employees' support.
2. A fast track to obtaining a contract. If the
parties are unable to reach a negotiated agreement within 90 days, the
topics in the dispute will proceed to mediate then binding arbitration.
Here, the arbitrator will have the final say and the contract will be
binding for two years on the parties. The fast track to contract
eliminates meaningful collective bargaining negotiations that can allow
time for the parties to reach agreeable terms without forced arbitrary
deadlines.
3. Enhanced penalties for employers who interfere with employees attempting to unionize or negotiate a first contract.
Civil fines up to $20,000 are proposed, as well as three times back pay
for employees terminated while exercising their rights under this Act.
Curiously, absent in the bills are any increased fines when union uses
coercive tactics.
The EFCA, if enacted, will generate enormous union membership
dues when unions obtain a majority of signatures without a secret
ballot vote at employers' work sites. Industries should be wary of this
legislation and take proactive measures before it is too late. The U.S.
Chamber of Commerce is actively opposing this bill and was at the
Capital in full force the day it was reintroduced.
Action is needed now. Employers should conduct
self-audits to ensure that their current salaries match the market
place. An underpaid workforce is more susceptible to unionizing efforts
for better wages. All Human Resources policies on the drawing board
should be finalized. Employers do not want an Arbitrator to finish off
their policies if the parties are at impasse. Employers are free to
educate employees now about the high costs of unions and why management
can more efficiently deliver better terms and conditions of employment
without the expense of negotiating with a union.
Open the lines of communication and find out the concerns of employees.
Employers may find that many of those concerns may be non-monetary and,
if addressed in a timely manner, there will not be a burning desire to
unionize with or without the passage of the EFCA. The key is to be
prepared.
Leonard Dietzen is a partner with the law firm Rumberger, Kirk & Caldwell, and represents private and public sector employers in all aspects of labor and employment law.