Terms Worth Negotiating in Your Vendor Contracts

Most of my clients who own/operate restaurants have issues with their vendor's... and the common denominator in these matters is the contract they had with the vendor -- they failed to negotiate it.

It's likely your restaurant, too, will need to sign a contract with a vendor, whether for a POS system, alcohol purchases, marketing, promotion agencies, or something else.   Yes, it does take time and energy to negotiate these contracts with the vendor, but keep in mind, the contract is the bible of your relationship with that vendor... it is a good idea to negotiate the following provisions to protect yourself:

• Confidentiality. Vendors may have access to confidential information such as financial information, future plans, and recipes. A provision allowing vendors to disclose confidential information only to the limited extent necessary for them to perform the contract will help protect your business.
• Indemnification. Indemnification has a reputation among non-lawyers as being complex, but it actually is simple. When a vendor indemnifies you, it generally means that the vendor protects you from liability if it does something bad (e.g. breaches your agreement, acts negligently) and a third party sues you. Indemnification keeps things fair.
• Attorney's Fees. Attorney’s fees during litigation can easily reach six figures. Under an attorney’s fees provision, the losing party must pay the winning party’s attorney’s fees (without this provision, each party must pay its own attorney). This provision encourages each party to comply with the agreement – neither side wants to do anything that will expose it to the possibility of losing in litigation and paying two sets of lawyers
• Venue. Venue refers to the state where a lawsuit is litigated. Venue should be in a state that is convenient for you or equally inconvenient for you and the vendor. If you are a Colorado restaurant and your vendor is from New York, avoid New York venue. You would incur significant expense flying to New York to bring or defend a lawsuit, the vendor would not incur much expense, and the vendor’s attorneys might know the local judges.
• Quality of Service. It’s always a good idea to include a sentence saying something like: the vendor will provide services in a good and workmanlike manner, with the skill and expertise of a similarly situated business providing similar services. This just means the vendor has to do a good job. It also means the vendor breaches the agreement if it doesn’t do a good job, likely triggering a variety of rights for you.

Although I am not suggesting a top to bottom discussing of a vendor contract, paying attention to a few key provisions can significantly mitigate your risk and provide you protection.  Contact our office to find out how we can help you further... www.leanalaw.com.

DO YOU KNOW WHO WORKS IN YOUR KITCHEN?

As a restaurant owner, not only is it important to know how to target customers, it's also crucial to know how to target good employees.  When your operations are organized and professionally handled, your employees will most likely respect the protocols, acknowledge what is asked of them, and deliver quality work.

Even so, good employees can cause major problems in your restaurant in other ways.

Do you have a protocol for screening employees?  Have you adequately conducted a background check and reviewed references?  Doing your homework could save you from a number of problems that can arise after the employee is hired.  Your kitchen manager, store manager, and restaurant/operations manager should also understand the dynamic and pick up on red flags.

Here's a helpful link:
http://www.qsrmagazine.com/exclusives/who-s-working-your-kitchen?microsite=588

Restaurants/Clubs -- What Happens When Your Partner/Chef Copies Your Concept/Recipes?

First and foremost, you must always have your managers, partners, and other members of your establishment execute a non-disclosure agreement and include confidentiality provisions in all agreements.

Restaurant owners and chefs often conflict with regards to who owns the copyright to the recipes and concepts created by the Chef and/or partners of the Restaurant.  Concept and design of a restaurant/club is often times difficult to protect since, after all, we get our ideas from what we see.

Recipes that merely list ingredients are not copyrightable. They become copyrightable when they contain expression beyond the mere listing of ingredients, such as mixing and cooking directions, tips, photos, etc. Once they become copyrightable, they must be put in writing (or in some other tangible form such as a recording) in order to receive copyright protection. They are copyrighted the second they are written down and they do not need registered with the U.S. Copyright Office (although registering them does provide additional advantages such as proof of latest creation date, public record, and registration is required in order to file a copyright infringement lawsuit).

GENERAL RULE: THE COPYRIGHT FOR RECIPES CREATED BY THE CHEF WHILE WORKING AT THE RESTAURANT WIL BELONG TO THE RESTAURANT.
Once they are reduced to writing, the timing and circumstances of such will determine who owns the copyright. For example, if the chef copyrighted the recipes prior to working for the restaurant (eg, created and wrote them down), then the inquiry stops there: the copyright belongs to the Chef.  If the Chef created the recipes on his personal dime and time but during his employment period with the restaurant, it's arguable, but the Chef may own the Copyright.  If the Chef created the recipes while working at the restaurant, then the copyright will belong to the restaurant in accordance with the Work For Hire Doctrine in the Copyright Act.  One simple way to eliminate all of the uncertainty is to execute a written “Work For Hire” agreement specifying that all recipes created during the period of employment shall become the property of the restaurant.

GENERAL RULE: THE CONCEPT AND DESIGN IS NOT PROTECTED UNDER INTELECTUAL PROPERTY LAWS

Unless the two restaurants/clubs are so similar to the point that one would believe it's the same club/restaurant owners and/or franchisors, the concept and design will not be protected.  The rule of thumb is not to confuse the customer to believe that the two restaurants/clubs are created by the same owners.  A case in point, Rebecca Charles, chef-owner of Pearl Oyster Bar in NYC. Ms. Charles sued her former sous chef and previous partner, Ed McFarland, now chef and part owner of Ed’s Lobster Bar in Soho, NYC.  The two restaurants had similar menu options, as well as similar white bar, lamps, wallpaper/wall color, and similar seating arrangements.  (See Article http://www.law.suffolk.edu/highlights/stuorgs/jhtl/docs/pdf/CUNNINGHAM_Protecting.pdf)  Although the parties settled out of court for an undisclosed amount, it is evident that restaurant owners/chefs are becoming more and more aware of who to partner with, and how.  Everything should be memorialized in writing and should specificy that the concept/design of the establishment shall not be used in similar or same format elsewhere by those involved in the establishment (eg, partners, chef(s), managers, etc).

There are numerous exceptions and nuances to these general rules and a consultation with a qualified attorney should be had to determine actual copyright ownership of recipes in each particular circumstance.

"Pay if Paid" Provision in Construction Contracts ... VALID!

One of the gravest risks in any construction project is financing.  What happens to contractors/subcontractors when funds/financing from the Owner are lost in a construction project?  Well, depending on the way the contracts between the Owner-Contractor-Subcontractor-Vendor’s are drafted, work performed may go without compensation if a Pay-if-Paid provision is in a contract… Yes, even where the contractor/subcontractor/vendor has performed the work! 

This is particularly true in the DC/MD/VA area where the 4th Circuit in Universal Concrete Products Corp. v. Turner Construction Company (http://pacer.ca4.uscourts.gov/opinion.pdf/091569.P.pdf) held that a “pay if paid” clause in a subcontract was not ambiguous and, therefore, enforceable against a subcontractor who had performed substantial work on the Granby Tower Project in Norfolk, VA.  Even though the work was performed, the subcontractor still could not seek reimbursement.  All because of one small provision in the contract that stated, in pertinent part, “…payment under this agreement… is subject to the express condition precedent of payment therefore by the owner.”  So if the Owner of a construction project loses funding and does not pay the Contractor, the Contractor has no liability or duty to pay the Subcontractor when the pay if paid provision exists.   

So, what should your contracts provide?

v  Determine who will bear the risk of loss.  If you are a general contractor, you should make sure that your subcontracts include clear and unambiguous language placing the risk of loss for non-payment on the subcontractor. In addition to putting a timing mechanism on payment of funds to the subcontractor following a certain number of days after payment by the owner, it is also advisable to include a clause that “payment by the owner to the contractor is a condition precedent to payment by the contractor to the subcontractor.” In addition, you can make your subcontracts explicitly clear by stating that “the subcontractor assumes the risk of non-payment by the owner due to insolvency or other inability to pay.”

v  Get legal advice.  Either way, you should contact an attorney within your jurisdiction to determine whether there are any limitations of the enforcement of these (and other) types of clauses.  Since each state differs dramatically, it is in your best interest to determine the applicable standard in your state or the applicable law where the project is located or the governing law of the contract to determine this information.

It is imperative and well worth the effort to seek legal advice on these issues prior to drafting and executing contracts with other parties.

Trusts/Wills - The Solution to Several Challenges

Often times I am asked:  “I found a template online for my Will; do you think that would be sufficient?”

Although online resources can give you some basic background on what a Will or Trust is, most of the templates found online do not provide you with the necessary information.  Legal instruments that are personal in nature and dictate the future of your assets, your property, and your children, should not be generated from an online survey.  In fact, online generated forms require you to agree and understand the form may not fit your purpose.

"...but why establish a Trust or why draft a Will?"

A will is a perfect tool for the distribution of your assets to your beneficiaries upon your death.  A living trust, on the other hand, takes effect upon formation and is an excellent way to manage assets, large or small, during your life and beyond.  Unlike a Will which is of public record and subject to the probate court, a trust remains private throughout its existence, is not subject to probate court upon death, and is protected against creditors.

Whether you’re married, a young parent, or even single - If you own assets of $25,000.00 or more, you should consider protecting these assets.

I encourage you to notify any of your family or friends who also need to get their affairs in order; specifically those who have minor children, own their own home, cares for aging parents or those approaching retirement age themselves.  Contact us to set up your first FREE consultation… www.leanalaw.com.

In the meantime, I would encourage you to review the below scenarios depending on what category you fall under:

1.       Are you a newlywed? - If you're married and the combined estates of you and your spouse exceed $1,000,000 or your state's exemption from estate taxes, then you and your spouse will need to establish Living Trusts to take advantage of both of your exemptions from estate taxes.  Note that while this type of tax planning can be done in a will, once you and your spouse divide your assets into separate names, the assets will need to be probated after each spouse dies. The use of Living Trusts insures that probate can be avoided.

2.       Are you a young parent? - Life insurance policy or retirement plans can become a problem if the parents later divorce or if one parent dies and the children are still minors. What will happen to the life insurance or retirement account? These funds will be placed in a court-supervised guardianship or conservatorship for the benefit of the minor until age 18 or 21. Thus, in these situations, I recommend that the parents establish a Living Trust to be the primary or contingent beneficiary of the life insurance or retirement account. That way the successor Trustee will have the legal authority to accept the funds instead of a court-supervised guardian.

3.       Are you Single? - Anyone who is single and has assets titled in their sole name should consider a Living Trust. The two main reasons are to keep you and your assets out of a court-supervised guardianship and to allow your beneficiaries to avoid the costs and hassles of probate. The minimum net worth necessary for a single person to consider using a Living Trust will.

4.       Own any real estate? - If you own real estate in more than one state or outside of your home state, then you'll need to establish a Revocable Living Trust and deed the out of state property into the trust. Otherwise, your family may be faced with two separate probate estates - one in the state where you live, called the primary probate estate, and a second in the state where the real estate is located, called the ancillary probate estate.