Hospitality Law Blog

Initiative 1183: A Hidden Opportunity for Washington Hotels

Davis Wright Tremaine — Thu, 19 Apr 2012 12:44:00 -0800

It’s no secret that the State of Washington is getting out of the liquor business as of June 1, 2012 due to the implementation of Initiative 1183. Washington will no longer be in the ranks of “control” states that have monopolies on the distribution and/or retail sale of alcohol.

One aspect of Initiative 1183 that seems to have gone unnoticed is that Washington hotels that hold hotel licenses will soon be able to sell distilled spirits directly to consumers “to go” without having to apply for a new license. RCW 66.24.590 (2)(e) has been amended to read as follows:

The hotel license authorizes the licensee to … sell beer, including strong beer, spirits, or wine, in the manufacturer’s sealed container at retail sales locations within the hotel premises.

Hotels will be able to buy the spirits from spirits retailer or spirits distributor licensees.

This license privilege is particularly important because the requirements for obtaining spirits retail licenses are restrictive. For the most part, there are three categories of applicants that may be able to obtain spirits retail licenses.

The first group consists of the winning bidders for current state liquor stores that are in the process of being auctioned off and managers of contract liquor stores. Provided that the winning bidder or manager of a contract liquor store is generally qualified to obtain a liquor license, they will be able to own and operate their own liquor stores after June 1, 2012. These stores are not always in the most prime locations.

The second group is made up of large retail stores that have at least ten thousand square feet of fully enclosed retail space. Large retailers will be big players in this space, but are not always centrally or conveniently located.

Lastly, there is an exception to the ten thousand square foot retail space requirement if there is no retail spirits license holder in the “trade area” that the applicant proposes to serve. The Washington State Liquor Control Board has not yet defined “trade area” in its rulemaking, but it’s likely that meeting the requirement for the exception will involve selecting a location that is somewhat remote.

Many hotels are located centrally or in high traffic or destination locations, often away from existing liquor stores or big box retailers. As a result, some Washington hotels may be able to add a new revenue stream with minimal expenditure by adding distilled spirits to their offerings.

I-1183 and the Alcohol Distribution Chain

Jesse Lyon — Fri, 23 Mar 2012 14:49:38 -0800

Even as the various litigation questions get asked and answered to attract headlines, we are continuing to support many clients in each tier of the alcohol supply chain to deal with the changes brought by I-1183 and its implementation. The WSLCB and suppliers, distributors, and retailers are full-steam ahead on spirits privatization -- including ongoing evaluations and bidding on the privatizing state liquor store locations -- even as new rules and processes adopted or proposed by WSLCB are evolving. The logjam of spirits-related license applications is causing problems for the WSLCB, and now even causing problems for the federal TTB too concerning Washington retail applicants who are being told they must have certain federal permits at each of their locations. We are assisting clients to evaluate their business opportunities, pursue licenses and permits (or resist those that ought not to be required), and to comment on new rules and facilitate expedited approvals. Stay tuned...

Congratulations to client Wine by Joe for being named the #1 Hot Small Wine Brand of 2011 by Wine Business Monthly

Davis Wright Tremaine — Fri, 27 Jan 2012 11:16:46 -0800

Great work, Joe Dobbes! We are proud to have represented 4 out of the last 6 wineries that have been named #1 hottest wine brand by Wine Business Monthly.

Joe Dobbes, Oregon winemaker, named the nation's No. 1 'hot brand' winner of 2011

ADA and Health Care Reform Seminars

Davis Wright Tremaine — Wed, 28 Dec 2011 15:29:18 -0800

Join us in Spokane (February 8th) or Seattle (February 9th) for a collection of seminars geared towards educating hospitality and lodging businesses on ADA and Health Care Reform.

AFC Enterprises' Continued Use of the Name POPEYES for Fried Chicken Chain is Now Before a Georgia Court

Davis Wright Tremaine — Mon, 05 Dec 2011 12:12:42 -0800

By Sheila Fox Morrison

AFC Enterprises has asked the court to confirm that it may continue to use the POPEYES name after its licensing agreement with Hearst Corp., which owns the rights to the Popeye the Sailor cartoon character, expires.

The complaint reads: “The Agreement was never intended to and never has restricted AFC’s ability to use the name POPEYES® for its restaurant services as evidenced by paragraph two of the 2009 Amendment to the Agreement, which states: “WHEREAS, The Hearst Corporation, King Features Syndicate Division, (“Hearst”) and A. Copeland Enterprises, Inc. entered into an agreement dated March 11, 1976 relating inter alia to the use of the POPEYE cartoon in connection with POPEYES restaurants inside of the United States (the “Domestic Agreement”).” A plain reading of this agreement indicates that the Agreement only contemplated the use of the Popeye cartoon characters in connection with POPEYES® restaurants, therefore making a clear distinction between the Popeye cartoon character(s) and POPEYES® restaurants.

The case is AFC Enterprises Inc. v. The Hearst Corp. et al., case number 1:11-cv-04150, in the U.S. District Court for the Northern District of Georgia.

The US Trademark Office Says That Food and Beverage Products Are Also Related to Restaurant Services

Davis Wright Tremaine — Mon, 05 Dec 2011 11:54:43 -0800

By Sheila Fox Morrison

The Board has affirmed a Section 2(d) refusal to register a mark for a collection of food products on the grounds of likely confusion with another registered mark for hotel, restaurant and dining services. Click here to read the full story.

Will Four Loko's FTC Settlement lead to more disclosures of Alcohol Content?

Jesse Lyon — Tue, 04 Oct 2011 09:19:04 -0800

The maker of the controversial Four Loko flavored malt beverages has agreed to label its products with disclosures stating how much alcohol they contain compared to "regular" beer.

Craft beer manufacturers and producers in other categories should watch related regulatory efforts with some caution. TTB has previously proposed that all alcoholic beverages contain a mandatory "Serving Facts" panel, though due in part to the efforts of various industry organizations, including those representing craft brewers, those proposals have been shelved -- for now, at least. The Four Loko case demonstrates that the FTC (which works closely with TTB in these issues) believes that relative alcohol disclosures are meaningful.

Among craft brewers' concerns may be whether their often popular "high hops, high alcohol" ales (some approaching or exceeding 10% ABV) might one day have to caution that they contain twice the alcohol of "regular" beers, or whether they might be required to disclose that the 22-oz. bottles so common to the craft beer category contain more than one serving. Small producers have also complained that requiring them to analyze content, print labels, and get label approval based on Serving Facts of each of their small lots of production will add costs, discourage product development, and favor large manufacturers.

Social Media: New Best Practices for Spirits

Jesse Lyon — Wed, 21 Sep 2011 09:34:08 -0800

The Distilled Spirits Council of the United States (“DISCUS”), which represents spirits manufacturers and suppliers, this week released new guidelines (PDF) for marketing and promoting alcoholic beverage products via social media and other digital platforms.

While guidelines such as these are not binding, and not directly enforced by state or federal regulators, they may, over time, become “industry standard” practices that will influence agency interpretations and civil litigation on related subjects. This is especially likely to happen in the case where statutes, regulations, and case law may otherwise struggle to keep up with the pace of electronic marketing strategy, especially in the social media context. Similar self-regulatory codes have been adopted by the Wine Institute and the Beer Institute, though to date these have less specifically addressed social media issues.

Any proposed advertising, promotion and marketing activity concerning alcoholic beverage sales should be evaluated for compliance with applicable state laws in particular. The rules generally fall into three primary categories:

Content—for example, they should not be appealing to or depict minors, or cross-promote activities of a retailer and a producer;
Placement—industry codes instruct that alcoholic beverage advertising and marketing should be placed in media only where the audience is reasonably expected to be over 21.
Promotion-specific issues—certain kinds of promotions involving alcohol beverages are restricted or prohibited in many states, such as giveaways of alcohol beverages, coupons for alcohol beverages, sweepstakes and contests involving alcoholic beverages, print and broadcast advertisements, exterior signage, point-of-sale materials, sampling and tasting programs, and public events.

New Oregon Winery Land Use Law Signed

Davis Wright Tremaine — Thu, 04 Aug 2011 10:21:08 -0800

By Michael J. Gelardi

This week, Oregon Governor John Kitzhaber signed House Bill 3280, which creates new land use rules governing wineries on farmland. This legislation is an important step forward for the Oregon wine industry and anyone who cares about sustainable agriculture. The bill does however leave several important questions unanswered.

Oregon’s comprehensive land use system was a jewel of the 1970s. Back in the day, Governor Tom McCall raged against “sagebrush subdivisions, coastal condomania, and the ravenous rampages of suburbia.” Although the scheme he and his colleagues created has served the state well, its day-to-day mechanics can be Byzantine.

A key distinction in Oregon land use law is between so-called “Exclusive Farm Use” (EFU) zones and other types of rural lands. EFU zones are tightly regulated by state law, whereas local governments have more control in other areas. HB 3280 only directly applies to wineries in EFU zones, but will also influence county decision-making in other zones.

Another important distinction is between “wineries” and wine production facilities approved under other types of permits. HB 3280 only applies to permitted use wineries, leaving other avenues potentially open to wine entrepreneurs whose properties or business models do not meet its requirements.

For the many permitted use EFU wineries, HB 3280 provides some certainty regarding allowed activities and facilities. It clarifies that wineries may have public tasting rooms and host wine tastings, wine club functions and other normal wine marketing activities without limits. In addition, HB 3280 allows wineries to have 25 days of special events per year. Although what constitutes a special event is not entirely clear, weddings and facility rentals clearly fall into this category.

HB 3280 also creates a permitting pathway for full-service restaurants at Oregon’s largest EFU wineries. As for all other wineries, HB 3280 provides no guidance on what food they may serve, leaving the issue to county interpretation.

Finally, the bill includes a grandfather clause that should protect at least some existing EFU wineries that would otherwise need to make business changes in order to conform to HB 3280.

Overall, HB 3280 should facilitate good business planning in the Oregon wine industry and promote healthy rural communities. Wineries, local planners and neighbors will all have to work together though to implement sensible policy in communities throughout the state.

Senators in the Sheets

Davis Wright Tremaine — Mon, 25 Jul 2011 10:28:44 -0800

By Laura Warf and Steve Ledoux, Davis Wright Tremaine

The phrase would ordinarily bring to mind lurid images of politicians acting badly, but not so in California, where the legislature hopes to lend a hand to hard working housekeepers.

On June 1, 2011, the California Senate passed SB 432, which requires hotels, motels, and other “similar transient lodging establishments” to use fitted instead of flat sheets as bottom sheets on beds. As defined in the bill, a “fitted sheet” is “a bed sheet containing elastic or similar material sewn into each of the four corners that allows the sheet to stay in place . . . .”

A serious violation of the “fitted sheet” requirement could lead to a misdemeanor conviction, resulting in a fine of up to $1,000.00 and up to six months in prison.

The bill requires the Occupational Safety and Health Standards Board to adopt the “fitted sheet” standard and a standard requiring hotels and motels to provide “long-handled tools” to housekeepers for cleaning bathrooms.

The bill is aimed at preventing work-related injuries of housekeepers by reducing the amount of heavy mattress-lifting and kneeling housekeepers do on the job. The bill does not address the heavy mattress-lifting that is still necessary to tuck-in top sheets.

Although the bill has not yet passed in the California Assembly, the bill is hardly hanging by a thin thread. SB 432 passed each Senate committee and on the Senate floor on straight party lines. On June 22, 2011, a slightly amended version of the bill also passed in the Assembly Committee on Labor and Employment on party lines. If this partisan trend continues, the bill will pass in the Assembly by a wide margin, as there are over twice as many Democrats on the Assembly Committee on Appropriations (where the bill is currently) as there are Republicans, and Democrats control the Assembly fifty-two to twenty-eight.

Since the bill passed the California Senate, 22 new organizations have lined up to oppose the bill, including several hotel and resort associations and the California Chamber of Commerce. Supporters of the bill include numerous labor unions, including UNITE HERE, which represents hotel workers, and the California Labor Federation, a union lobbying organization.

Beware: Payroll Companies May Mishandle Garnishments of Tipped Employees

Davis Wright Tremaine — Tue, 28 Jun 2011 11:00:56 -0800

By Chrys Martin, Davis Wright Tremaine

Garnishment is a legal process by which an employer must withhold funds in its possession belonging to an employee and send them to a creditor. However, some direct tips are never in the employer’s possession, and accordingly are not likely subject to garnishment.

Tips cannot be garnished or calculated as part of earnings for garnishment purposes unless the employer has had control over those tips (e.g., tip sharing, service charges etc.). Many employers are not aware of this restriction and erroneously include tips in calculating earnings when processing garnishment orders. Unfortunately, many payroll vendors also are not aware of the intricacies of the law, and their garnishment systems are not set up to factor in the “tip” issue properly. State and federal laws also may vary on calculations of earnings depending upon the type of garnishment.

Under the Consumer Credit Protection Act (CCPA), only certain types of income can be garnished. Generally tips are not considered income for such purposes. Notably, tips paid directly to an employee by a customer and tips charged to credit cards that briefly pass through the employer before remittance to the employee are excludable from garnishment.

A directive in the DOL Handbook dated Feb. 9, 2001, eliminates doubt that a gratuity paid directly to an employee is not considered earnings. Chapter 16 of the DOL Handbook specifically describes the applicability of the CCPA to tips and gratuities. It states:

Bona fide tips are not subject to the provisions of the CCPA. A garnishment is inherently a procedural device designed to reach and sequester earnings held by the garnishee (usually the employer). Tips paid directly to an employee by a customer are not "earnings" within the meaning of [15 U.S.C.A. 1672] the CCPA, since they do not pass to the employer. This includes gratuities transferred free and clear to an employee at the direction of credit customers who add tips to the bill.
Service charges added to a customer's bill constitute "earnings" within the meaning of [15 U.S.C.A. 1672] when passed on to the employee. As such, they are subject to the provisions of the CCPA. The following examples demonstrate the point.
- A restaurant charges a customer 15% of the check, as a service charge, and in turn pays this amount to the server (debtor). Since this is an automatic charge, there is no gratuity by the customer. The compensation passed from the employer (garnishee) to the server.
- The employment agreement is such that the customer's tips belong to the employer and must be credited or turned over to the employer.(i.e., shared tips or pooled tips that go the employer and are then later turned back over to the employee less some sharing, processing fee, etc.)

Even some nationally recognized payroll processing services aren’t aware of these distinctions. Most restaurant employers aren’t either. Employers should verify with their payroll processing companies or their internal payroll staff that tips are being allocated correctly in garnishment processing.

Revised Standards for an Accredited Investor: A Legislative Update on Dodd-Frank

Davis Wright Tremaine — Tue, 28 Jun 2011 10:54:21 -0800

By Ryan Maughn, Davis Wright Tremaine

Restaurant businesses depend on private investors for capital. Fledgling restaurants need the funds to pay startup costs, while more established restaurants need it to expand, renovate, and maintain adequate working capital. Whether you interpret them as an appropriate correction to protect investors or an unnecessary restriction on the flow of private investment, recent amendments to securities regulations proposed by the U.S. Securities and Exchange Commission will undoubtedly make it more difficult for restaurants and other businesses to get that much-needed capital.

The sale of equity to private investors triggers requirements under state and federal securities laws. Issuers must either register the securities or sell them in reliance on an exemption. On Jan. 25, 2011, the SEC proposed amendments to its rules in order to comply with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which changed certain rules governing private and other limited sales of securities exempt from the registration requirements of the Securities Act of 1933.

Under the proposed amendments, the net worth standards for a natural person qualifying as an “accredited investor” continues to be net worth greater than $1 million, but the rule now excludes the value of the primary residence of the natural person when making the calculation. As a result, an investor whose net worth derives substantially from the value of his or her primary residence may no longer qualify as an accredited investor.

Further, especially relevant after the decline in home values following the recent economic downturn, if the amount of debt secured by the investor’s property exceeds the estimated fair-market value of the property (i.e., the case of an underwater mortgage), the debt in excess of the value of the property is to be considered a liability and deducted from the investor’s net worth.

As a result, regardless of whether one interprets the new rules favorably or unfavorably, the change to the natural person accredited investor standard means fewer individuals will qualify as accredited investors, which will reduce available private capital to entrepreneurs and restaurant businesses.

More information regarding the proposed amendments can be obtained here.

Health Care Reform: Strike Two!

Davis Wright Tremaine — Tue, 28 Jun 2011 10:44:39 -0800

By Sarah Bhagwandin, Davis Wright Tremaine

On Jan. 31, 2011, yet another federal district court, this one in Virginia, ruled that the individual mandate to purchase health insurance in the Patient Protection and Affordable Care Act of 2010 (the “Act”) is unconstitutional. That makes three for two: three federal courts that have ruled in favor of the constitutionality of the individual mandate in the Patient Protection and Affordable Care Act that each individual citizen obtain a government-approved level of health insurance or pay a penalty tax, and two federal courts that have ruled against it.

However, there are losses…and then there are losses. For proponents of health care reform, the ruling in Virginia was particularly worrisome.

The Virginia court held that not only had Congress exceeded its authority by adopting the individual mandate (i.e., the individual mandate is unconstitutional), but because the individual mandate is a central component of the Act and not severable from the rest of the legislation, its unconstitutionality renders the entire Act void. The defendants in the case, which included the Department of Health and Human Services, the Department of the Treasury, and the Department of Labor, argued repeatedly that the individual mandate is absolutely “necessary” and “essential” for the Act to operate as it was intended by Congress. Armed with this argument of the individual mandate’s centrality, and the absence of a severability clause in the statute allowing the Act to survive if one part is determined unconstitutional, the court reasoned that the entire statute is void.

While federal district courts only have jurisdiction over their specific district, this holding was particularly confusing because the attorneys-general and/or governors of 26 states banded together as plaintiffs. Opponents of the Act argue that, in light of this holding, states (and employers) are not required to comply with the legislation until the matter is settled by the Supreme Court. Proponents of the Act urge states (and employers) to continue to comply with requirements of the Act until the matter is reviewed.

What’s a prudent employer to do? Comply and stay tuned.

On April 25, 2011, the U.S. Supreme Court declined to address the constitutionality of the Patient Protection and Affordable Care Act in an expedited review. Appeals are pending in the Fourth Circuit in Richmond, Va., the Eleventh Circuit in Atlanta, Ga., the Sixth Circuit in Cincinnati, Ohio, and the federal appeals court in Washington, D.C. Oral argument in the Eleventh Circuit has been set for June 8.

The Supreme Court is expected to take up the matter in the next 24 months.

Responding to Social Security Number "No-Matches"

Davis Wright Tremaine — Tue, 19 Apr 2011 14:55:02 -0800

By Richard M. Rawson

You just got an “SSN no-match” notice – an employee’s name does not match his or her Social Security number. Now what? Is it grounds for termination? Should you give the employee a deadline for resolving the discrepancy? Should you ask the employee to submit new documents to re-verify his or her employment eligibility?

First, read up on the topic at the Justice Department’s website. Here are some basic “dos and don’ts” they offer:

DO:

Recognize that SSN no-matches can result from simple administrative errors.
Check the reported no-match information against your personnel records.
Inform the employee of the no-match notice.
Ask the employee to confirm that his or her name and SSN are correctly reflected in the personnel records.
Advise the employee to contact the Social Security Administration (SSA) to correct and/or update his or her SSA records.
Give the employee a reasonable period of time to address a reported no-match with the local SSA office.
Follow the same procedures for all employees regardless of citizenship status or national origin.
Periodically meet with or otherwise contact the employee to learn and document the status of the employee’s efforts to address and resolve the no-match.
Submit any employer or employee corrections to the SSA.

DON’T:

Assume the SSN no-match conveys information regarding the employee’s immigration status or actual work authorization.
Use the receipt of a no-match notice alone as a basis to terminate, suspend, or take other adverse action against the employee.
Attempt to immediately reverify the employee’s employment eligibility by asking the employee to complete a new Form I-9.
Follow different procedures for different classes of employees based on national origin or citizenship status.
Require the employee to produce specific documents to address the no-match.
Ask the employee to provide a written report of SSA verification.

Frequently Asked Questions
The following FAQs, also provided by the Department of Justice, help clarify exactly what an employer should and should not do in response to an SSN no-match notice:

Q: What is an SSA no-match letter?
A: It is a written notice the Social Security Administration sends to an employer, usually in response to an employee wage report, advising that the name or Social Security number does not “match” a name or SSN combination reflected in the SSA’s records. The letter cautions employers against taking any adverse employment action against the employee based solely on receipt of the letter, and explicitly states that the letter makes no statement about the referenced employee’s immigration status. Rather, the letter simply reports an apparent error in either the employer’s records or SSA’s records, and seeks the employer’s and, if necessary, the employee’s assistance in conforming those records. Click here for more information on the SSA’s No-Match letter program.

Q: If an employee's name and SSN don't match SSA's records, doesn't that mean the employee is not authorized to work?
A: No. There are many possible reasons for a no-match letter, many of which have nothing to do with an individual’s immigration status or work authorization. An employer should not assume that the employee is not authorized to work, and should not take adverse action against the employee. Such action could subject the employer to liability under the antidiscrimination provision of the Immigration and Nationality Act (INA), codified at 8 U.S.C. § 1324b.

Q: What might cause a no-match?
A: There are many reasons for a no-match notice, including but not limited to: an unreported name change due to marriage, divorce, or naturalization; input errors by SSA staff; reporting errors by an employer or employee; identity theft; errors in reporting proper culturally based hyphenated or multiple surnames; and fraud.

Q: What action should an employer take upon receipt of an SSA no-match letter or other notice of a no-match?
A: To confirm that a reporting or input error is not the cause of a no-match, an employer, with the assistance of the referenced employee, should confirm that the reported name and SSN are correct. If no error is discovered, the employer should then advise the employee to contact the local SSA office to address the reported no-match. An employer should not use the no-match letter or other no-match notice by itself as the reason for taking any adverse employment action against the referenced employee. In addition, employers should not use the receipt of a no-match letter or other no-match notice (or the fact that an employee raises any objection to the employer’s no-match response procedures) as a basis to either retaliate against the employee or otherwise subject the employee to heightened scrutiny. Doing so may violate the anti-discrimination provision of the INA or other state or federal equal employment opportunity or labor laws. While not required to do so, an employer may schedule (and document) periodic meetings or other communications with the employee during the resolution period to keep abreast of the employee’s efforts to resolve the no-match, and to determine whether the employee needs more time to resolve the no-match.

Q: Do no-match letters or other no-match notices create “constructive knowledge” that an employee is not authorized to work?
A: The mere receipt of a no-match letter or other no-match notice does not, standing alone, constitute “constructive knowledge” on the part of an employer that the referenced employee is not work-authorized. Only the Department of Homeland Security (DHS) is legally authorized to conclusively determine an individual’s authorization to work. An employer should give a referenced employee a reasonable period of time to address and correct information contained in a no-match letter or other no-match notice.

Q: What is a “reasonable period of time”?
A: There are no federal statutes or regulations that define a “reasonable period of time” in connection with the resolution of a no-match notice. As a practical matter, a “reasonable period of time” depends on the totality of the circumstances. Of note, in the E-Verify context SSA has the ability to put a tentative nonconfirmation into continuance for up to 120 days. This recognizes that it can sometimes take that long to resolve a discrepancy in SSA’s database.

Q: What is the relationship between E-Verify Notices of Tentative Nonconfirmation (TNC) and SSA No-Match Letters?
A: Both rely upon SSA databases. However, DHS’s E-Verify program is specifically designed to verify an employee’s work authorization and provides workers with an opportunity to correct the SSA databases before making that determination. Click here for more information on the E-Verify program. In contrast reports simply indicating that an employee’s name and SSN do not match SSA’s records do not make any statement about an employee’s work authorization.

Q: How can employers minimize the receipt of SSA No-match Letters?
A: Employers can use the Social Security Number Verification Service (SSNVS). SSA offers this free online service that allows registered users (employers and authorized third-party submitters) to verify the names and SSNs of employees against SSA records. Telephone Number Employer Verification (TNEV) is very similar to SSNVS, but it is an automated telephone service that allows registered users to verify names and SSNs over the telephone without speaking to an agent. Verifying SSNs through SSNVS and TNEV allows SSA to properly credit the correct earnings to the correct individual's earnings record. These services can only be used for wage reporting purposes. An employer’s use of SSNVS or TNEV for any other reason (e.g., to verify work authorization) is improper and may violate the anti-discrimination provision of the INA. Click here for more information or contact OSC at the telephone numbers indicated below.

Q: Do any other types of organizations send notices suggesting possible name/SSN no-matches?
A: Yes. Other organizations issue notices or provide alerts similar to SSA no-match letters. They include:

Commercial businesses that conduct employee background checks.
Third-party identity theft inquiries.
Health providers providing services to an employee under an employer-provided health plan.

Employers may receive information from these sources by mail, email, other electronic format, or telephone. Such reports or alerts, however, should be treated cautiously, and should not be used as conclusive evidence of employment authorization, as these third-party reporting entities have no legal authority to determine an individual’s work authority and may not have access to current information contained in SSA’s databases. However, as in the case of responding to no-match letters originating directly from SSA, an employer should at a minimum follow the same policies, procedures, and timelines as it does for SSA no-match letters.

When is it Appropriate to Terminate an Employee Who is the Subject of an SSN No-Match?

An employer should not terminate an employee based solely on the receipt of an SSN no-match notice. However, an employer must terminate an employee who, in response to an SSN no-match notice, admits that he or she is not authorized to work in the United States. An employer also may have grounds for termination if the employee refuses to take any steps to resolve the SSN discrepancy after having been given a reasonable period of time to do so. Employers should consult with legal counsel before taking any such adverse action against the affected employee.

How to Minimize the Risks of Civil and Criminal Enforcement Actions Relating to Immigration-Related Employment Practices

On Oct. 6, 2010, Secretary Napolitano issued a statement announcing record-breaking immigration enforcement statistics achieved under the Obama administration:

Since January 2009, ICE has audited more than 3,200 employers suspected of hiring illegal labor, debarred 225 companies and individuals, and imposed approximately $50 million in financial sanctions-more than the total amount of audits and debarments than during the entire previous administration. Click here for more information.

What can an employer do to minimize the risk of civil or criminal penalties for unfair or illegal immigration-related employment practices? The following are some suggestions for immigration compliance “best practices”:

Written Compliance Policy. Adopt a written Immigration Compliance Policy and communicate to all managers and staff the importance of adhering to this policy.
Warn Managers About Civil and Criminal Penalties. Alert managers and staff to the risk of civil and criminal penalties for immigration violations, the government’s use of undercover agents posing as job applicants, and the government’s use of current or former employees wearing a hidden wire (including illegal aliens granted amnesty in exchange for their cooperation and testimony).
I-9 Training. Train anyone who is responsible for completing I-9 forms. Centralize the completion and retention of I-9 forms as much as possible to promote uniform practices and to ensure quick and easy access to the forms in the case of an internal audit or a government audit.
Internal Audits. Conduct a regular internal audit of I-9 forms (once a year or in conjunction with other types of internal audits). The audit should be done by someone who is knowledgeable and experienced (e.g., in-house or outside counsel or a trained paralegal), but not the person responsible for completing I-9 forms on a regular basis.
Nondiscrimination. All new hires should be treated the same. Do not take extra measures for foreign-born employees or persons of certain ethnic groups. Do not require U.S. citizenship as a condition of hiring unless required by law or federal government contract. But it is permissible to ask applicants if they will be authorized to work in the United States at the time of hire and whether they will require immigration sponsorship by the employer.
Timing of I-9. In most circumstances, the I-9 form should be completed within three days after the person is hired. It cannot be used to screen job applicants. Social Security name checks also cannot be used to screen new hires.
Document Abuse. The new hire can submit any of the documents listed on the I-9 form. The employer cannot tell the new hire which documents to submit or require documents different from the ones chosen by the new hire.
False Documents. Be sure the documents submitted by new hires are originals (not copies) and that they appear to be genuine and to apply to the person in question. Ask the new hire to explain any inconsistencies or irregularities. Consult with counsel if you have reasons to doubt the authenticity of documents.
Document Retention. Keep I-9 forms in a central location separate from individual personnel files. Keep separate files for current and past employees. Discard I-9 forms three years after date of hire or one year after date of termination (whichever is later).
Reverification. If the new hire’s employment authorization has an expiration date, be sure to reverify using Section 3 of the I-9 form prior to the expiration date.
SSN No-Match Letters. Do not ignore Social Security no-match letters or other information relating to discrepancies between an employee’s name and Social Security number. Follow instructions in the SSA no-match letter and encourage the employee to resolve the discrepancy. Do not take adverse action (such as suspension or termination) based solely on an SSA no-match.
Termination of Workers Found to be Illegal. Terminate any employee immediately if you have actual knowledge that the employee is not authorized to work (e.g., if the employee confesses to having submitted false documents for I-9 purposes).
Harboring Illegal Aliens. Do not say or do anything that may be interpreted as helping or assisting an illegal alien gain employment or continue working with false documents. Recognize that an illegal worker or job applicant may be a wired informant working with the government on a prolonged worksite enforcement action, both prior to and after an immigration audit or raid.
Corrections to I-9 Forms. If you find mistakes were made on I-9 forms, correct them and date and initial the changes (do not re-do the forms with a new “original” date or try to hide the mistake and correction).
Copying Documents Submitted for I-9 Purposes. Although not required, it is permitted to make copies of the original documents submitted by the new hire during the I-9 process. Making copies will provide supporting materials in case of an agency audit and will facilitate internal audits. It may also help avoid civil fines for technical and procedural I-9 paperwork violations. Whatever you do, be consistent with all new hires.
E-Verify. If you are in an industry with high rates of SSN no-matches or a high rate of actual or suspected illegal workers, consider signing up for the E-Verify program to screen new hires against SSA and DHS databases. Click here for information on the E-Verify program.

Restaurant Joint Ventures. Is Your Joint Venture an Inadvertent Franchise?

Davis Wright Tremaine — Tue, 19 Apr 2011 14:46:29 -0800

By Rochelle Spandorf

Restaurant owners have many motivations for forming joint ventures; a primary one is to finance expansion. These arrangements go by many names, including strategic alliances and corporate partnerships, and they join complementary strengths: a restaurateur may be looking for money sources or an experienced local partner to replicate the restaurant concept in an unfamiliar market or nontraditional venue.

The joint venture participants move forward together as a new legal entity. It is irrelevant whether they choose to form a corporation, LLC, or partnership: What is relevant is that the joint venture entity is separate and apart from the legal entity through which the restaurateur owns the flagship restaurant. In the common scenario, the restaurateur retains ownership of the trademarks, brand features, and any trade secrets that make the restaurant concept special and trusts the joint venture to replicate the restaurant concept and use its brand name in a manner that upholds the high operating standards that customers associate with the restaurateur. Seldom will a restaurateur transfer ownership of the intellectual property to the new joint venture entity. Consequently, in its relationship with other venture participants, the restaurateur will wear two hats: co-owner of the new venture and intellectual property licensor. Even if the parties do not memorialize the trademark license in writing, the trademark license is implied in the joint venture arrangement.

By virtue of the trademark license, the restaurateur has probably unknowingly awarded the joint venture a franchise. It is irrelevant that the restaurateur did not intend to create a franchise, knew nothing about franchise laws, or never used the “F” word in conversations with joint-venture partners. By forming a relationship that qualifies as a franchise, the restaurateur has violated federal franchise sales laws and, depending on where the venture operates, may have violated state franchise sales laws as well.

It does not take much to turn a trademark license into a franchise: significant operating assistance or controls that affect the core of the licensed business and required payments to the trademark licensor which can take any number of forms, including profit participation. Federal law imposes an affirmative duty on trademark licensors to control the quality and uniformity of the goods and services associated with their trademarks. A licensor that fails to do so may risk abandoning its trademark rights. As a practical matter, it is often impossible to distinguish trademark quality controls that licensors must impose to protect their trademark rights from the factors that identify a franchise. As consumer-protection statutes, franchise laws are liberally construed. Furthermore, franchise laws cannot be waived by joint venture participants even if the participants are represented by legal counsel.

In some cases, joint ventures may be structured to avoid classification as a franchise or to qualify for exemptions from franchise regulations. Not infrequently, however, a single solution will not work in all jurisdictions.

Restaurant owners are mistaken if they assume that by investing in the joint venture the venture cannot be a franchise. Unless the other venture participants are truly passive investors with no say in day-to-day management and only a limited right to vote on extraordinary events such as admitting new members, significant financing transactions, or the sale of the restaurant, the venture may be a franchise regardless of whether the restaurateur is a minority or majority joint-venture investor. If the other venture participants are truly passive, the restaurateur may have violated federal and state security laws with equally serious repercussions.

So what if the restaurateur has sold a franchise?

Franchise law violations carry significant penalties even if the inadvertent franchisor knew nothing about franchise laws and had no intention of violating them. Not only is it a felony to sell a franchise without complying with a franchise sales law, but federal and state franchise agencies can freeze assets, order restitution, issue cease and desist orders, ban violators from selling franchises, and recover substantial penalties. Franchisees have private remedies for state franchise law violations entitling them to compensatory damages, attorney’s fees, and rescission. And if all that does not grab a restaurant owner’s attention, federal and state franchise laws impose personal, joint, and several liability on a franchisor’s key management and owners even when the concept owner is a business entity.

Franchise and security laws should be carefully considered when joint venture plans are first formulated so that structuring solutions and regulatory exemptions can be explored to their fullest potential to allow restaurant owners to achieve their business expansion goals without legal exposure. If the joint venture fails and participants look for ways to recover their investment, it will be too late at that point to cure inadvertent franchise status. Proper structuring requires a separate analysis of the laws in each state where the joint venture will operate or the joint-venture participants reside. While the restaurateur may complain that its competitors, indeed the entire restaurant industry, engage in these arrangements routinely, unfortunately the fact that everyone else is breaking the law will not excuse the restaurateur’s own noncompliance.

From the Buy Side: The Mini-Financing Contingency

Davis Wright Tremaine — Tue, 19 Apr 2011 14:32:36 -0800

By Sarah Tune

In an ideal buyer’s world, every potential buyer or bidder in an auction would be able to negotiate a full financing contingency as a closing condition to an acquisition. However, in a competitive bidding scenario or even in a scenario where the seller has considerable leverage in the transaction, a buyer sometimes must forgo the full financing contingency. A buyer may also choose to forgo the full financing contingency if it has room under its existing facilities and would prefer to use its bargaining power elsewhere.

Unless the buyer is sitting on a pile of unrestricted cash, this means the buyer will need to borrow from existing facilities or at least collateralize the newly acquired assets. In multi-unit restaurant acquisitions, this normally means mortgages, lender’s title insurance, SNDAs, and landlord agreements, in addition to the lender checking the box on such items as insurance, certificates of occupancy, and liquor and health licenses. Without these items as closing conditions, the buyer may face a situation in which the seller has delivered all of the buyer-seller closing deliveries, but the buyer would be closing into a default under its loan agreements. In addition, even if the loan agreements allow a period of time after closing for the buyer to obtain all of the required documentation, a significant amount of momentum, leverage, and incentive is lost after closing.

The “mini-financing contingency” is a method buyers can use to ensure they will be able to meet the lender’s conditions at closing. Unlike a standard financing contingency, the mini-financing contingency does not allow the buyer to walk if it cannot find financing; rather, it only allows the buyer to refuse to close unless and until all items on an enumerated list have been delivered. This list should be developed directly from the buyer’s loan agreements. Compare the two versions:

Regular financing contingency

“Buyer shall have received the financing on the terms provided for in the commitment letter of [Bank], dated as of [date] attached hereto as Exhibit A.” [Note that the definitive agreement may also contain representations and warranties of the Buyer with respect to the Commitment Letter.]

Mini-financing contingency

Option 1: “Buyer’s lenders’ underwriting requirements for the pledge of new collateral, each of which is identified on Schedule A, pursuant to that certain [credit agreement] shall be satisfied with respect to each Restaurant.”

Option 2: “The conditions on Schedule A shall be satisfied with respect to each Restaurant.”

In both options, Schedule A should match exactly the lender’s requirements under the credit agreement. The difference in the two options--a difference that has more “optical” than legal significance--is that one mentions the lender and credit agreement and the other does not.

The key to successfully negotiating the mini-financing contingency is to present these enumerated items as buyer conditions and not just the lender’s conditions, since a seller will be wary of a lender’s discretion. The buyer should include as many of these items as possible as due diligence requests, and negotiate them as conditions to closing early in the process.

Gift Card Regulation: A Legislative Update

Davis Wright Tremaine — Tue, 19 Apr 2011 11:59:16 -0800

By Jaymee Castrillo

Due to the popularity of gift cards in restaurants and retailers, federal and state governments have increased their role in regulating gift cards. In this legislative update we’ll focus on “closed-loop” gift cards, those that are issued by a specific store or restaurant and which may only be used at the issuing store or restaurant. (“Open-loop” cards are those that are issued by banks or credit card companies and can be used at different stores or restaurants.)

State regulations

Most states have statutes that regulate gift cards. These statutes usually address one or more of the following items:

The definition of a “gift card”
Disclosure requirements
Expiration date provisions
Fee provisions
Escheat provisions
Whether a gift card is redeemable by cash

In 2010, various states introduced legislation relating to these topics, such as requiring that consumers be allowed to redeem the remaining value of a gift card for cash when its value drops below a certain dollar amount, prohibiting the sale of gift cards with expiration dates or service fees, or eliminating escheat provisions. Additional information about existing state statutes or regarding the status of pending stage legislation is available on the website of the National Conference of State Legislatures.

Federal regulations

The federal government recently passed the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (the “Credit CARD Act”). Several provisions of the Credit CARD Act apply to issuers of gift cards. For example, Article IV of the Credit CARD Act requires that gift card issuers disclose fees, among other things, to gift card purchasers. Section 401 of the Credit CARD Act also amends the Electronic Fund Transfer Act to, among other things, prohibit the issuance or sale of store gift cards if they expire earlier than five years from the date on which funds were last loaded to a store gift card.

In addition, Section 403 of the Credit CARD Act requires that the gift card provisions and all of its related provisions become effective on Aug. 22, 2010. However, Congress amended Section 403 on July 27, 2010, to delay the effective date of certain disclosure requirements under the Credit CARD Act for gift cards produced prior to April 1, 2010, to Jan. 31, 2011 (the “Eco-Gift Card Act”). The Board of Governors of the Federal Reserve also issued a final rule to delay the effective date of these said disclosure requirements until Jan. 31, 2011. After Jan. 31, 2010, all gift card provisions under the Credit CARD Act will become effective for all gift cards.

For more information

Click here for the text of the Credit CARD Act.

Click here for the text of the Eco-Gift Card Act.

Click here for additional information regarding the Board of Governors of the Federal Reserve’s recent ruling regarding the Credit CARD Act.

Jesse Lyon on the Oregon Wine Industry, KXL's Northwest Vine Time

Davis Wright Tremaine — Mon, 15 Nov 2010 14:12:46 -0800

This is an interesting time for the Northwest wine industry. Economic recession and a sophisticated and demanding consumer market have created unique challenges and great opportunities for winemakers throughout the region. In addition, a new executive director for the Oregon Winegrowers Association will bring new ideas and direction to the industry. Jesse D. Lyon joins Northwest Vine Time host Brian Bushlach for a timely discussion on these and other issues of importance to this enormous and influential regional industry. Northwest Vine Time airs on KXL 750 AM in Portland, or on www.kxl.com online.

Segment 1 (MP3): Jess talks about his background and how he got involved with representing wineries/vineyards and other food and beverage industry businesses.

Segment 2 (MP3): Jess talks about the changes and growth in the Oregon wine industry, its unique challenges and opportunities, as well as the Oregon Winegrowers Association and its new executive director.

Segment 3 (MP3): Jess and the host discuss the economic challenges facing the industry in the wake of the current recession, and how Oregon winemakers continue to persevere despite market pressures.

Segment 4 (MP3): Jess imparts some legal advice on some basic things winemakers can do to improve their business model and opportunity for financial success.

Mateveza makes sure its "baby" isn't thrown out with Alcohol Energy Drinks

Jesse Lyon — Fri, 05 Nov 2010 14:55:47 -0800

DWT client Mateveza (an organic, naturally caffeinated beer) responded quickly to the State of Michigan's efforts to ban "alcohol energy drinks" from the market.

The rash of regulatory responses to caffeinated products is driven largely by headline-grabbing problems at a few certain campus parties (which appear to have included not only beverages in this category, but many other irresponsibly consumed substances -- including illicit drugs as well as distilled spirits sold through the state liquor control system). Neo-temperance supporters have latched on to this policy opportunity in an effort to more broadly push their agendas at the state level, even though the federal FDA continues to study the issue and has not made any safety determinations about the mix of caffeine and alcohol.

All suppliers of caffeinated beverages would be well-served to watch where this leads...

Immigration Crackdown Steps Into the Kitchen

Jim Mei — Tue, 14 Sep 2010 11:39:36 -0800

With a record number of investigations and stricter penalties for employers using undocumented workers, restaurants need to be especially careful. This NY Times article illustrates the importance of detecting fraudulent employee documents and using the e-verify system. DWT experienced immigration and employment lawyers are ready to assist restaurant owners or management teams in I-9 audits, compliance, e-verify systems, and possible employer sanction.