Brewery // Restaurant Law

It's Five O'Clock Somewhere - but not in North Carolina

There are few basic rules that most folks in the business of serving booze know.  No selling to anyone under the age of 21. No selling to people who have already had too much to drink. Last call is at 2:00 a.m. However, with the meteoric rise in the number of bottle shops, breweries, tap rooms, bars, distilleries, and tasting rooms, most of which have an on-premises serving component, all trying to fill seats at the bar, it makes sense to take a look at the do’s and don’ts of promoting on-premise sales.  

 

Alan Jackson and Jimmy Buffett were right that It’s Five O’Clock Somewhere, but not in North Carolina.

For most states across the county five o’clock signifies the start of the discounted booze binge known as happy hour.  North Carolina has no need for this end of the workday tradition because jobs in North Carolina offer a much greater level of personal fulfillment than jobs in other states.

 

So what exactly are the rules related to "happy hour?" 

1.     An on-premise permitee cannot sell more than one drink to a patron for a single price. While BOGO promotions are certainly legal at your local grocery store, they are prohibited at your local bar.

2.     A permittee cannot establish a single price based upon the required purchase of more than one drink.  This rule prohibits offering a discount if the bar patron agrees to drink in bulk.

3.     No delivering more than one drink at one time to a patron for his consumption. Basically, a guy cannot come up to the bar and order 3 beers for himself, and get all three at the same time.  However, this does not prohibit the same guy from going up to the bar and buying three beers, one for himself, and one for his two buddies. Additionally, this rule does not prohibit the sale of pitchers and bottles of wine to two or more patrons.

I know what you’re thinking all my boilermaker aficionados, that your local bar has been breaking the rules just for you. No. A “drink” can include two different alcoholic beverages severed separately at the same time to a single patron if such “drink” is a customary combination.

 

So what can you do to get the people going?

North Carolina allows a permittee to offer free or discounted drinks, with the kicker being that if an on-premise permittee wants to sell or give away a drink “at a price that is different from the usual or established price” they must offer the discount for the full business day.  Additionally, a permittee can charge a single price for a meal/drink combo, but the total price must reflect the actual price of the alcoholic beverage and not a reduced price. 

Don't Drown in the Tip-Pool: Tips & Tricks for Making Sure your Tip-Pool is Legal

Courtesy of Buzzfeed.

Courtesy of Buzzfeed.

For many restaurants, bars, and hospitality companies, tip-pooling is a common practice.  Contrary to what many believe, "tip-pooling" is a concept heavily regulated by the Fair Labor Standards Act ("FLSA") and the North Carolina Wage and Hour Act ("NCWHA").  Not surprising is the fact that the tip-pooling rules are convoluted, subject to varying court interpretations, and therefore difficult for even the brightest of minds. 

What is a "Tip-Pool" and How do I Get One?

For all my servers out there, the tip-pool is the part of your day where you become extremely annoyed that you have to "share" some of your tip money with the bussers you have argued with all night for not keeping your tables clean.  (For the bussers out there, the "tip-pool" is how you seek revenge).  The U.S. Department of Labor defines a "tip-pool" as an arrangement to share a certain percentage of one's tips among employees who customarily and regularly receive tips.  Its a socialistic method to even up the playing field among tipped employees by ensuring the Employer gets a tip credit for all those working below minimum wage.  (See last week's blog for more info on tip credits). It may also help employees work as a team.

Who is Eligible to Dive in the Tip-Pool?

Only employees who "customarily or regularly receive tips" are eligible to participate in a tip-pool.  The key here is "CUSTOMER INTERACTION."  If an employee does not regularly interact with customers, then they should be omitted from any tip-pool (THINK: back-of-house staff like chefs, dishwashers, cooks, janitors, etc).  If the employee regularly interacts with customers (THINK: front-of-house staff like servers, bartenders, hosts, bussers, etc), then he or she can participate in a tip-pool if they customarily and regularly receive tips.  

Can the Employer Swim in the Tip-Pool?

No, no, and no.  One of the trade-offs with the tip credit is that the employee has 100% ownership of his or her tips, absent a valid tip-pooling arrangement.  This means that employers using the tip credit to fulfill their minimum wage requirement cannot participate in a tip-pool.  One other thing,  "employer" has a broad definition in the FLSA and is defined as: "any person acting directly or indirectly in the interest of an employer."  Therefore, be careful when managers, floor supervisors, trainers, or employees with sufficient managerial/supervisory authority are in a tip- pool because this may be violating the FLSA. 

Voluntary vs. Mandatory Tip-Pools. 

If a tip-pool is voluntary, participation by the employee is optional.  Optional means without retaliation, coercion, control, or employer involvement.  In other words, if the tip pool is voluntary, it better be truly voluntary and perceived as such by your employees.  The U.S. Department of Labor is still unsure if an employer can take a tip credit in connection with a voluntary tip-pool (surprise, surprise).   You should also know that despite the hands-off nature of a voluntary tip- pool, the employer must continue to keep an accounting of the tips being distributed.  So the employer cannot be in the pool but they should at least function as a lifeguard. 

If a tip-pool is mandatory then it is required as a condition of employment.  READ:  It better be clearly stated in your Employee Handbook.  Only those who regularly or customarily receive tips can be in a mandatory tip-pool.  The employer is required to notify employees of the amount of tips they must submit to the tip pool and the employer can only take a tip credit for the tips each employee actually receives as part of the tip pool.  Finally, the employer cannot retain an employee's tips for any reason other than the required tip-pool. 

What about NC? 

North Carolina says tip-pooling is okay for those who regularly and customarily receive tips, so long as no employee is forced to relinquish more than 15% of his or her tips.  If you do the math, this means employees should be leaving the pool with at least 85% of their tips.

Free Advice! 

1. NOTICE NOTICE NOTICE:    Although there no absolute remedies against lawsuits, putting policies in writing is always a good start.   If you want to have a mandatory tip-pool, thats totally fine. But you need to put that policy in writing and circulate it among employees.  If you want to earn an A++, you'll have each employee sign an acknowledgment stating that they understand the tip pool is mandatory and have been told the percentage of tips required.  

Similarly, if you want to have a voluntary tip-pool, you should also verbalize the voluntariness of the tip-pool in a written policy and practice what you preach. No retaliation against employees who do not wish to participate.   

2. CONSISTENCY:  The percentage contribution should be the same for all participants.  Otherwise, you are setting yourself up for disaster in the form of a discrimination lawsuit. These typically never end well. 

3. EVALUATE THEN REEVALUATE THEN EVALUATE AGAIN:  Only those employees who customarily and regularly receive tips can participate in a mandatory tip-pool.  Remember: CUSTOMER INTERACTION is key to this analysis.  People who do not regularly interact and  engage with customers are probably ineligible to participate.  People who regularly interact and engage with customers are probably eligible, so long as they are not managerial so as to be considered the "Employer."  Because people's roles change over time and because in the service industry employee turnover is always high, it is important to reevaluate mandatory tip-pools every few months to make sure you are still in compliance.  You will also want to make sure employees in the tip pool are still maintaining 85% of their tips.  

If you need a written policy, want help notifying employees, or have found yourself confused, let me know. I like to talk and as long as you like to listen, you may learn a lot!

Overtime, Minimum Wage, and the Restaurant Biz: $100,000 Fines & Other Lessons Learned

Yesterday it was announced that a Clayton restaurant was ordered by the United States Department of Labor to pay over $100,000 in back wages for failure to pay workers a minimum wage and in many circumstances, overtime.  Since next week is the North Carolina Restaurant & Lodging Expo, now may be a good time to review employment law for restaurants and remind ourselves that this Clayton situation is not a new one. 

Minimum What?

Minimum wage is the lowest wage an Employer can pay its Employees on an hourly basis.  Currently, the feds have set the minimum wage at $7.25 per hour.  Thanks to President Obama's Executive Order, federal contractors must be paid a minimum wage of $10.10 per hour.  North Carolina is not so creative and also has a state minimum wage set at $7.25 per hour.  Many people argue, with some pretty solid support, that $7.25 an hour is simply too low and below the poverty line for most Americans.  This is why Congress is hearing things like "raise the wage" on the Senate and House floors.  

For restaurants and other tip/commission-based businesses, minimum wage is a bit more tricky.  For those of us who have worked in the restaurant industry, you probably were paid on an hourly rate of about $2.13 per hour.  This is legal... SO LONG AS YOUR TIPS AND/OR COMMISSIONS ADD UP TO $7.25 AN HOUR.  If you have a really bad night/day/week and your paycheck divided by the hours worked does not equal $7.25, then the employer is obligated under federal and state law to make up the difference. PERIOD. Keep in mind that wages are determined on a "workweek" basis, which is defined as any 7 consecutive days (i.e. Monday through Sunday).  

Also, as a side note, a "tipped employee" is defined by the Fair Labor Standards Act as an employee who "customarily and regularly" earns more than $30 of tips per month.  If your employees do not meet the $30+ threshold, then their hourly rate must be $7.25. 

Overtime & Tips

If you are unfamiliar with overtime, I recommend you check out my blog post from last week on overtime and proposed overtime reform.   

If an employee is non-exempt (which for purposes of this blog post would likely include all hourly employees) then you have to pay them time and one-half their regular rate of pay for every hour in excess of 40 worked in a workweek.  Lets break that one down:

Regular Rate of Pay:  For most people, its going to be the flat hourly rate you pay them for each hour worked. For tipped employees with a base hourly rate of less than minimum wage, the "regular rate of pay" for purposes of calculating overtime will be minimum wage or $7.25.

Time and One-Half the Regular Rate of Pay:  This takes the regular rate of pay and multiplies it by 1.5.  If the Regular Rate of Pay is minimum wage ($7.25) then Time and One-Half is $10.88.  If the employer functions with a "Tip Credit," the tip credit will be subtracted to the time and one-half calculation.  

Tip Credit:  For tipped employees, many employers practice what is called a "Tip Credit." A Tip Credit means that in exchange for allowing employees to keep all of their tips (except in cases of a legitimate tip pooling arrangement), the employer is permitted to count $7.25 minus the actual hourly wage ($2.13) towards minimum wage requirements.  For purposes of calculating overtime, the Tip Credit is subtracted from the Time and One-Half calculation to get the overtime rate of a tipped employee. This amount will then me multiplied by the number of hours in excess of 40 to determine the total amount of overtime owed to the employee. 

Just in case you are trying to be creative with numbers, the maximum tip credit is $5.12 ($7.25 minus $2.13).  There is also an obligation on the employer to tell its employees about the tip credit and show how minimum wage will be guaranteed (read: good record keeping skills). 

Now may be a good time for an example:

Sally works for the Greatest Restaurant on Earth as a server.  Her hourly wage is $2.13 an hour and she is permitted to accept tips from patrons.  The Greatest Restaurant of Earth has notified Sally that they use a Tip Credit towards their minimum wage obligation.  This past week, Sally was killin' it at work and clocked a total of 45 hours in a workweek.  Her total amount of tips for the week is $500.  (a) How much in overtime is Sally owed? (b) What is Sally's total paycheck for the week?

  • Sally's regular rate of pay must be at least minimum wage (even though she is paid $2.13 legally) so her regular rate of pay is $7.25.
  • Time and one-half Sally's regular rate of pay is $7.25 x 1.5 = $10.88
  • Sally's employer uses a tip credit to fulfill their minimum wage obligations.  The tip credit is equal to $7.25 minus $2.13 or $5.12.
  • The tip credit is then subtracted from the time and one-half amount to determine the overtime rate:  $10.88-$5.12 =$5.76 overtime rate.
  • Sally worked 5 hours more than 40.  5 x $5.76 = $28.80. Sally is therefore owed $28.80 in overtime. 
  • For the non-overtime hours, Sally is owed $2.13 x 40 = $85.20
  • The non-overtime amount AND overtime amount are added together to get the total paycheck:  $85.20 + $28.80 = $114.00

Hiring Youths

Hiring students and people under 18 years old creates a whole new set of employer obligations.  For a summary of youth employment laws in North Carolina, check out this blog post.  

Why do I care?

I get it.  You're not the Clayton restaurant and you've never known a business who actually got busted for sub-par wage and hour practices.  But if you want a reference for what its like to be forced to cough up hundreds of thousands of dollars in back wages and fines (and attorneys' fees), just ask these guys, these guys, these guys, this big guy, and this beloved NC restaurant

I'm here to help if you need me and sometimes I help for free! If you want to sign up for a FREE Overtime seminar, fill out the info below:

Hit me with some Overtime knowledge!

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ABC Omnibus Legislation – What HB 909 (now SL 2015-98) means for the North Carolina Beer, Wine, and Spirit industry.

Back in June, HB 909 was signed into law (Here, for full text). For most, summertime is a busy time of year, and you might not have had time to catch-up on the doings of the North Carolina Legislature. Not to fear, this post highlights some of the most important provisions from booze focused HB 909.

 

Powdered Alcohol

North Carolina has decided that powdered alcohol is completely illegal. The prohibition includes manufacturing, selling, importing, consuming, and even the possession of powered alcohol.

Tribal ABC Commission

 The new law authorizes the Eastern Band of Cherokee Indians to establish an independent tribal alcoholic beverage control commission to regulate the purchase, possession, consumption, sale, and delivery of alcoholic beverages within Indian Country. Additionally, the law allows the Tribal ABC to issue both commercial and retail ABC permits. The tribal ABC will have sole jurisdiction for all alcohol related matters within Indian Country, but will also recognize all permits granted by North Carolina ABC.

On Site Distillery Sales

North Carolinians, there is now an alternative to visiting you local ABC store for all your liquor needs… you can go on a distillery tour! Prior to this law, all liquor had to be purchased from an ABC store. Now, distilleries that produce less than 100,000 gallons of booze per year can sell one commemorative bottle per year to each customer visiting the distillery. Not surprisingly, the distillery must still collect and remit the 30% liquor tax.

Wine Growlers

If the establishment has the correct permits, you can now purchase a wine growler. No seriously… you can fill a growler up with wine and take it home.

Alternating Brewery Proprietorships

I am especially excited to say that this law clears the way for fledgling breweries to share space and equipment (but that’s it, not malts) with established breweries. This clarification of the old law makes way for projects like the Rocky Mount Brewmill, which is North Carolina’s first beer incubator.

Contact Brewing

Another friendly statue for start-up and growing breweries. This law clarifies that it is permissible for a brewery to receive beer that the receiving brewery contracted with another brewery to produce. After receiving the contracted for beer, the brewery may basically treat it as if it had been brewed right there in their own brewery.

Thoughts

With the exception of the prohibition on powdered alcohol, HB 909 is overall favorable for the beer and wine industry. Clarifications in alternating brewery proprietorship and contract brewing laws, not only make it easier for start-up breweries to share resources with bigger more established breweries, but it also gives established breweries the flexibility to coordinate efforts with other breweries to increase production and satisfy demand. While it is extremely difficult to foresee all the economic consequences of this legislation, this new law certainty makes it easier for newcomers to join North Carolina’s booming craft beer industry. 

 

Raleigh's New Outdoor Seating Ordinance: What Local Businesses Need to Know

"51 Complaints involving Calls for Service to RPD and Complaints to City Staff
- One of the reasons cited in the Raleigh City Council's August 11, 2015 presentation on the proposed Raleigh Outdoor Seating Ordinance - dubbed by locals as the "Save the Patio" campaign.  

Like it or not, the Raleigh City Council passed the Outdoor Seating Ordinance, causing concern for many Raleigh restaurants and bars and their loyal patrons.  Because this will impact most of Raleigh's nightlife, here is a summary of what you need to know:

Outdoor Seating Permits Required:

If you are an "Eating Establishment," "Food Business,"  or "Private Club,"  you must apply for an outdoor seating permit if you wish to use City sidewalks.  

  • Eating Establishments ("EEs") are defined as "any establishment engaged in the business of regularly and customarily selling food and non-spiritous liquor, to be consumed on the premises." EEs include restaurants, cafeterias, cafes, lunch stands, grills, snack bars, fast-food, and drug stores with lunch counters.  See revised §12-2121(a)(2) of Raleigh City Ordinance. 
  • Food Businesses ("FBs") are defined as "an establishment engaged in the business of regularly and customarily selling food and non-spiritous liquor, primarily to be consumed off the premises." FBs include groceries, drugstores, and convenience stores. See revised §12-2121(a)(3) of Raleigh City Ordinance. 
  • Private Clubs ("PCs") are defined as "an establishment that is organized and operated solely for a social, recreational, patriotic, or fraternal purpose and that is not open to the general public, but is open only to the members of the organization and their bona fide guests as set forth in G.S. §18B-1000."  See revised §12-2121(a)(4) of Raleigh City Ordinance. 

Only the property owner can apply for the Outdoor Seating Permit (so if you are leasing property, you will need to talk to the property owner before applying).  Also, if you are in a multi-floor building, the first floor will always have the right of first refusal and you must have direct access to the sidewalk in order to apply for the permit/ use the sidewalk for seating.  In other words, if you are not on the first floor but you have direct access to the sidewalk (a la The Hive), be nice to your first floor neighbors. 

Applications must include things such as a scaled drawing of the proposed outdoor seating area, hours of operation, evidence of a valid insurance policy with minimum liability of $1M, an indemnity statement to hold the City of Raleigh harmless, and all permits applicable to your establishment.  There is also a $300 permit fee.  A copy of the application can be found here.

Outdoor Seating Hours & Other Restrictions

Hours of Operation:   If your business is closed, your outdoor seating must be closed too.  You can allow patrons to dine and drink outside until 1am on Fridays and Saturdays and 12:00am on all other days of the week.  You can still serve alcohol until 2am- it just has to remain inside the establishment. 

Boundaries:   If you allow alcohol in your outdoor seating area, you must clearly show the boundaries of the seating area so people do not wander with their beers into "public" territory.  You must also post signs at all "designated exit points" that clearly state it is illegal to remove alcohol from the specific outdoor seating area.  You as the establishment (and those that operate it) are responsible for any alcohol that makes its way outside of these boundaries. 

Pedestrian Right of Ways:  Pedestrian clearances are also mandated under the new ordinance.  You must have a 5 foot wide (unobstructed) pedestrian corridor at all times through the "public right of way."  If your are located on Fayetteville Street, as many of you are, your unobstructed pedestrian corridor must be 7 feet wide.   There is also a chance additional restrictions may apply under the Americans with Disabilities Act and the NC Building Code. Talk to your attorney for more information.

Occupancy:   Occupancy of outdoor seating areas are based on actual seating capacity and must comply with the Maximum Floor Area Allowances under Table 1004.1.1 of the NC Building Code.  Outdoor Seating areas cannot include cash registers, minibars, tents, or similar appurtenances.  

I got the Permit, Now What?

Outdoor Seating Permits are valid for one-year and expire on June 30th of each year.  Renewal applications must be received no later than June 30th.  These permits are NOT assignable.  This means if the establishment changes ownership, the permit follows the Permit Holder and may be rendered invalid.  The new ordinance defines a "change in ownership" to include "any change in the ownership of shares in a privately held corporation, [the] sale of all or part of a sole proprietorship, or any change in the membership of any form of [LLC]."  If you are publicly traded, an acquisition of more than 10% of stock also equates to a "change in ownership."   Talk to an attorney if you are unsure whether this applies to you. 

Violations

Now for the stuff you really care about: what happens if I don't comply.  Violations can lead to a $100 penalty for first time offenders, $500  penalty + suspension for 30 days for second time offenders, and revocation for 12 months for third time offenders. 

The full text of the new ordinance can be found here. 

Getting "Schooled" on Youth Employment

Alas, for many students in North Carolina, school has returned.  As many of these students look for part-time jobs to pay for their off-campus lunches and date nights at the movies, many employers will be looking to take advantage of their spare time and eagerness to work.  Before hiring an employee under the age of 18, I recommend refreshing yourself on North Carolina's law regarding youth employment.  Lucky for you, this blog post is just the refresher I am talking about!

In addition to your Form I-9, W-2, and NC-4, make sure youth employees have a Youth Employment Certificate:

Employees who are under the age of 18 generally need a youth employment certificate, also called a YEC by the N.C. Department of Labor.  YEC's are obtained by the employee through the N.C. Department of Labor and can be found here.  

Youth Employment in General:

For all youth employees, during the school term employers cannot employee students in 12th grade or lower between the hours of 11pm and 5am when the following day is a school day.  If the employee is 16 or 17 years old, they may be able to work during this time if their parent/guardian AND the school principal give written permission.  Keep in mind that if the employee is 18 years old, they are not covered under this statute. 

All youth employees must be given a 30 minute break after every 5 consecutive hours of work.  Any break period that is less than 30 minutes is NOT considered a continuous workday interruption, which is important for the calculation of hours worked and overtime. 

Employees: Ages 14 & 15

If the employee is 14 or 15 years old, they can only be employed in jobs approved by the Fair Labor Standards Act (FLSA).  Some of the approved jobs include:  cooking, office/clerical, cashiering, cleanup, lifeguarding, car cleaning, etc.  Some of the unapproved jobs include manufacturing, mining, and transportation.   A full list of approved and unapproved occupations under the FLSA can be found here.  It is also important to note that both the U.S. and N.C. Departments of Labor prohibit the employment of people under the age of 18 in "hazardous" jobs (a.k.a. no coal mining for America's youths).  

In addition to restrictions on the type of job, employees 14 or 15 years of age also have restrictions as to when they can work.  Under North Carolina law,  when school is in session, 14 and 15 year old employees can only work up to 3 hours per day, between the hours of 7am and 7pm, and a maximum of 18 hours per week.  When school is not in session, 14 and 15 year olds can work up to 8 hours per day, between the hours of 7am and 7pm, and a maximum of 40 hours in a workweek.  During the summer months when school is not in session, 14 and 15 year olds can work until 9pm.  Regardless, all employment must be outside school hours (meaning you cannot expect a student to work during his or her lunch hour or expect them to skip class to pick up extra shifts).  

Employees: Ages 12 & 13

Employees who are under the age of 14 can only work in the distribution of newspapers to consumers for a maximum of 3 hours per day.  Children under 12 are not permitted to be employed at all.  

Special Circumstances:

Waivers:   For employees who are at least 13 years old, they may seek a waiver to the above restrictions by submitting a letter from a qualified official stating the waiver sought is in the child's best interests, evidence that the health and safety of the child will not be materially affected by the waiver, and written consent from the child's parent or guardian.  

Performing Arts; Parental Employment:   If a youth is employed for dramatic production purposes (think: lighting tech, costume design, stage prep, etc), then he or she is exempt from all the above except for the YEC certificate.  The same is true for models, actors, and performers and children employed by their parents.  

Drivers:   If a youth is at least 16 years old and has a valid North Carolina drivers license, they may be employed in a job that requires the operation of a motor vehicle.  However, the vehicle cannot exceed 6,000 pounds and all driving must be contained to a 25-mile radius around the place of employment.  

Some of these regulations can be tricky from an HR perspective so we encourage anyone who employees local teens to review the laws and reach out to an attorney or consultant when they need help.  Civil penalties for violations can range from $500 to $1,000 PER VIOLATION so be knowledgable and be prepared.  If you want to know how bad it can get, just ask these guys. #themoreyouknow.