Help! I've been Yelped!

When you get that notice that someone has written a yelp review about your restaurant, you can't help but to swallow, take a long breath, close one eye, and open your yelp account to see if it is a good or bad review. Most people don't write about their good experiences. Some folks write a bad review on just about anything. Sometimes a reviewer will only give you a couple of stars and refuse to explain the reasoning behind it -- in fact those very same patrons rave about your establishment but only give you 3 or 4 stars. What can you do?

Well in September of 2014, the Ninth Circuit in San Francisco ruled that Yelp can revise, edit and prioritize business reviews based on advertising money it receives from that business. Basically, now Yelp can delete your reviews based on advertising money you give them. While they did not admit doing it previously, the Court ruled that they can moving forward. 

So now -- there is something you can do about a false yelp review or an unreasonably difficult patron (the one that no matter what you do, they are not happy). 

Restaurant 101

The 101 to operating a restaurant, especially if you are in the venture with partners and/investors, is ... drumroll ... have a contract! Not rocket science I know. But I am still surprised how many of you out there that have restaurants went into it without a viable (and enforceable) contract. That said, most of you have been operating without one for years. It's easy to say that when there are no problems... Well, then there are no problems. 'We trust each other.'  Yes of course you do -- money and fame haven't sunk in yet and an issue hasn't arose. But when there is a problem, small or large, the contract - that operating agreement, partnership agreement, joint venture agreement, or what have you - will almost always solve that problem before it gets any more sticky. When there is equality in the initial capital contributions and each member/partner has injected the equal amount of money into the restaurant, a contract is equally important than say if one partner invested and the other handled operations. The reasoning is simple -- when a partner wants out, or wants to be a part of another competing business, or wants to get paid back on his investment by a certain date, or a partner wants to restructure (whether it's the menu, the look, or the delegation of power to employees) -- the contract will solve those issues and serve as the handbook, or the bible of the business. Your restaurant will not only run smoother, but you and your partners will have a peace of mind. Trust will only grow, and so will respect for each other's roles and liabilities. It's a lot more expensive and messy to litigate a divorce between partners without a contract or worse, with a contract drafted and negotiated poorly. 

"Do It Yourself" Will-Writing Websites - BIG NO-NO!

A growing number of websites now allow people to plug information about themselves and write their own will.  But doing so can be very dangerous and can lead to big problems, according to an independent review by Consumer Reports.

The magazine analyzed three such sites - LegalZoom, Rocket Lawyer, and Quicken WillMaker Plus - and ran the results by a law professor who specializes in tax and estate law.  All three websites had a variety of problems, according to the study.

The problems include:

Outdated Information:  Two sites applied federal tax rules that were already months out-of-date and incorrect.

Not State-Specific:  The law of wills varies from state to state, but the programs didn't take into account variations in state law.  For example, NY follows strict guidelines for health care directives, powers of attorney, and gift riders that must be present in order to be enforceable.

No Tax Advice:  None of the programs offered tailored advice on how to reduce taxes - a critical flaw.  In fact, every client should have two major concerns when approaching an attorney for estate planning: How do I reduce my tax consequence so that more money is left for my family and charities; and How do I protect my assets for trusts created for my children from debtors.  All of which are not accounted for in the online do-it yourself websites.

Incomplete:  The websites often lacked provisions on how to handle business interests, electronic assets, trusts for children with special needs, domestic partnerships, multiple properties held (nationally and internationally), multiple trusts, etc etc.  All of which are crucial in planning your estate documents and Wills.

No Flexibility:  The websites frequently made arbitrary choices and didn't allow bequests to be handled differently.  Some added additional provisions to trusts without any warning which could render the entire trust void, null, or just outright unenforceable!

The professor described one will produced by Rocket Lawyer as "primitive," and another as "a mess."

The magazine noted that LegalZoom allows you to pay extra money to receive attorney "support," but when it contacted the company, it was told to type questions about arbitrary or missing provisions into a box and that these would be handled later in a hard copy of the will.  According to the magazine, even though it paid the extra fee, this never even happened.

In sum, using a do-it-yourself website to write your will can be "like removing your own appendix," according to the Consumer Reports article.  There's simply no substitute for a lawyer who can understand your wishes and goals, and provide legal and tax advice that's suited to your needs.

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.