As a restaurant owner, you have plenty to manage on a daily basis: picky customers, kitchen mishaps, 86’d items, and more. By consulting an attorney, you can spare yourself legal headaches, reduce the risk of having to pay unexpected fines, and save on expenses in the long-run, leaving you free to concentrate on what you’re most passionate about – food and beverage.
Here are some of the most common legal issues you might face:
Choosing a business structure is one of the first important decisions for a restaurant owner to make, and a comprehensive understanding of the benefits and limitations of the different types of business structures is critical for making an informed decision that best serves your vision for the future of your restaurant. A lawyer can analyze the specific needs of your business, help you select the most advantageous entity for your restaurant, and file all the necessary paperwork.
- LLCs versus Corporations: The majority of restaurant owners choose to structure their business as an LLC (limited liability company) or a corporation. While both protect you from personal liability, LLCs are considered more flexible when it comes to taxation and distribution of profits. Corporations have more complex administrative obligations, but many investors require your company to be structured as a corporation before they decide to purchase shares. Should you decide later to restructure your company as a corporation, you will need a lawyer to guide you through the process. Bottom-line: talk to a lawyer about your situation and plans, and he or she can advise you on the appropriate form.
- Franchises: Opening a franchise restaurant presents its own set of challenges. Purchasing a franchise is an intricate process, and as a franchisee, a business owner must sign contracts to obtain the rights to a franchisor’s various products and trademarks. Buying a franchise restaurant requires a lot of research, as many contracts compel business owners to meet sales quotas and obtain supplies exclusively from the franchisor. Additionally, franchise restaurants have separate, complex tax laws and requirements. A lawyer can help business owners disentangle the confusing process of opening a franchise restaurant, and determine whether or not buying a franchise is profitable in the long run, and if it is worth the inevitable challenges to come.
Restaurants face numerous potential liabilities, and buying insurance is necessary to manage operational risks and prevent litigation. Accidents happen frequently, and various types of insurance -- personal injury, property insurance, liquor liability, auto liability, and workers’ compensation, to name a few -- are vital. A lawyer can aid restaurant owners in the claim process, and provide advice on the content of insurance policies.
Restaurants are obligated to acquire numerous licenses and permits -- typically, a general business license, a liquor license, a food service establishment permit, and a food safety permit, at the very least. Requirements differ across states, and health department inspections are conducted on a routine basis; a lawyer can pinpoint the specific licenses and permits that are needed, and assist restaurant owners to ensure that they comply with the various laws.
Commercial leases are far more complicated than residential leases, and can make or break a business. For instance, commercial leases lack several consumer protection clauses that are present in residential leases, do not have standard forms and agreements -- each commercial lease is adjusted to fit a landlord’s needs and whims – and, hence, are very negotiable and flexible. A lawyer is invaluable during the process of arranging the terms of a commercial lease, as landlords often attempt to lock-in small businesses for long periods of time, and sneak in extra expenses like maintenance fees and upkeep for shared facilities. Furthermore, business owners need to be clear on precisely what areas of the property are included in the lease, where they can hang signs, as well as whether or not they have the right to modify the space, and who must pay for these improvements. To avoid other penalties, the terms of eviction or terminating the lease must also be explicitly clarified. It is extremely beneficial to have a lawyer review the contract prior to signing your lease.
Employee turnover is fast in the restaurant business, which means that restaurants typically experience ongoing (and often confusing) staffing problems. Restaurants work with in-house staff as well as independent contractors, and misclassifying employees or attempting to lessen payroll taxes by listing servers, bartenders, or cooks as independent contractors rather than employees can result in large penalties and tax consequences. Between the numerous federal, state, and city regulations, hiring an attorney is vital, as creating clear company handbooks and employee agreements can prevent possible lawsuits.
- Workers’ Compensation: Many physical injuries can occur on the job at a restaurant. Employers can avoid legal hassles by carefully complying with the Occupational Safety and Health Act (OSHA) laws.
- Labor Laws: Wage and hour cases are the most common types of litigation associated with the workplace. Restaurants must meticulously keep track of their employees’ hours, and strictly abide by the laws regarding minimum wage, overtime pay, recordkeeping and more, as regulated by the Fair Labor Standards Act (FLSA). On a related note, restaurants must also familiarize themselves with labor laws and take precautions when it comes to hiring minors.
- Other Disputes: Restaurants may also have to deal with claims of harassment, discrimination, and wrongful termination. Employee contracts should clearly spell out the terms of employment in order to avoid or minimize employer/employee disputes.
- Paid Sick Leave: Because many restaurant staff members work part-time -- and businesses with 50 or fewer full-time employees do not have to provide health coverage -- many restaurants do not offer medical and dental insurance. Restaurant owners are also reluctant to offer paid sick leave, preferring instead to force their employees to swap shifts, but laws are constantly changing, and business owners must be up-to-date with state requirements. For example, in 2011, Connecticut became the first state to mandate paid sick leave, and New York City recently issued the Earned Sick Time Act (ESTA) to delineate the terms for both paid and unpaid sick leave.
- Immigration Issues: Many restaurant workers, especially "back of the house" employees, have immigrated to the United States. Restaurant owners are responsible for verifying that everyone on their staff is legally authorized to work in the U.S. Failure to do so will lead to severe consequences, and your business can even be shut down.
Keep in mind that these are only a small selection of the major legal issues that a restaurant will have to deal with -- for example, disputes with vendors, noise complaints from neighbors, and other issues are likely to crop up at one point or another as well.
Consult a Priori lawyer to mitigate the potential legal problems that come alongside the restaurant business.
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