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Jan 27 2014

NY Restaurants and Bars Must Obtain a License to Play Music.

party-disco-restaurantMusic is protected by copyright law, which provides exclusive rights to copyright owners to perform or play their songs. If a restaurant or bar plays music without permission, they are infringing on the copyright, and copyright law allows the owner to recover damages ranging from $750 per violation, to $150,000 if a court decides the infringement was willful.

In Range Road Music, Inc. v. East Coast Foods, Inc., the Court of Appeals found a restaurant violated copyright laws when it played music without a license. The court awarded the Performing Rights Organization (PRO) nearly $200,000 in damages and attorney’s fees. PROs employ investigators that visit businesses to see whether songs are played without a license.

One exception to the rule allows restaurants or bars under 3,750 square feet to play music from a radio, television, or similar household device without a license, provided there are fewer than six speakers (with limits on the placement of speakers), and customers aren’t charged to listen.

Songwriters, composers and music publishers generally join one of three Performing Rights Organizations that license their work to the public: the American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music, Inc. (BMI), and SESAC . The PROs send royalties to the copyright owners.

However, obtaining a license from one PRO doesn’t necessarily mean you’re in the clear — you only have a license for that PROs copyright holders. For example, the composer of a song may be represented by ASCAP, while the lyricist may be with SESAC. To avoid this problem, most restaurants and bars choose to purchase a blanket license from each of the PROs, which allows the licensee to play any of the music from each PROs library. Blanket licenses can range from the low hundreds to several thousands of dollars per year.  Like most other agreements, these licenses are fully negotiable. When it comes time to securing one of these PRO licenses, hire an experienced attorney as they will be able to negotiate the best price for your specific establishment.

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Jan 10 2014

Mandatory Tip Policy? Consider Ditching it.

money tips

In January of 2014, the IRS will begin cracking down on how restaurant owners pay out mandatory tips (e.g. the typical 18% mandatory tip for parties of 6 or more).  Going forward, these tips must be classified as service charges that are taxable as regular wages and subject to payroll tax withholding (aka more paperwork and accounting), rather than pooled into the tip cash servers divide at the end of their shift (which has been common practice until now).

Though the policy isn’t a new one, having been issued in June 2012, the implementation was delayed until 2014 to give restaurants time to comply.  Some restaurateurs have already chosen to ditch the mandatory tip altogether rather than having to deal with the increased paperwork and fees.

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Jan 10 2014

HOW TO BUY A RESTAURANT IN NEW YORK

There are a two ways to buy a restaurant in New York. You can do it by purchasing the ownership shares of the seller or you can purchase the assets of the seller. Each has its advantages and disadvantages in New York but an asset purchase is almost always more beneficial for the buyer. With an asset purchase, the buyer is only assuming certain specified liabilities of the seller. With a purchase of the ownership shares (stock certificates if seller is a corporation and membership interests if seller is a Limited Liability Company), the buyer will be assuming ALL of the liabilities of the seller, known and unknown. In either scenario, a lien and judgment search must be performed on the seller’s business.

GENERAL RULE: Buy the restaurant by means of a bulk asset sale / purchase rather than a purchase of the ownership shares.

You must review the existing lease carefully to determine if the seller is able to assign it to you. If they are able to assign it, you must determine whether the existing clauses are acceptable to you including the term remaining on the lease, the rent amount, the security deposit, the personal guaranty, etc. If they aren’t able to assign the lease, the landlord needs to be contacted to inquire if they are willing to let the tenant off the hook and issue a new lease directly to you.

The purchase agreement, which will either be a stock purchase agreement or bulk asset purchase agreement, will need to state all of the terms of the sale including, but not limited to, the purchase price, the amount being held in escrow, the amount to be paid at closing, the specific assets being purchased, the date for closing, any contingencies to closing (e.g. liquor license granted to Buyer), and any personal representations and indemnifications. A Bill of Sale should accompany the purchase agreement along with a corporate resolution from the seller authorizing the sale. Remember, even with an asset purchase agreement, the buyer will be responsible for any unpaid New York State sales tax owed by the seller. This is why it’s very important to (i) file the appropriate bulk sales notice (form AU 196.10), (ii) have the seller personally represent that no taxes are owed and have him/her agree to personally indemnify the buyer for any unpaid taxes, or other liabilities, that were incurred on or before the closing date, (iii) set the closing date to occur after a tax release letter is received from the New York State Department of Taxation stating that no taxes are owed, and/or (iv) have a large portion of the purchase price held in escrow until the release letter is received from the Department of Taxation. This article is intended to give you a general idea regarding what to look out for but you should retain an experienced restaurant attorney if you are considering purchasing a restaurant or bar in New York.

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Jan 09 2014

RESTAURANT LEASES – Key Terms

When considering the execution of a commercial lease, all of the clauses must be given careful consideration. However, when taking a space for a bar or restaurant, there are certain lease clauses that warrant special attention. Following are some key clauses that are a crucial part of every restaurant/bar lease and, if negotiated properly, will allow the restaurateur/bar owner to increase the value of his/her establishment even prior to its opening and to operate with a greater peace of mind.

1) Duration of Lease: Generally, the longer the duration of the lease the better. Especially if given the ability to assign the lease with a minimum of Landlord intervention. Typically, I attempt to negotiate for a 15-year initial term with an annual increase of no more than 3%, and an option to renew the lease for another five-year term exercisable at the discretion of the restaurateur. Do your homework to determine the fair market rental value for the premise.

2) Assignment: Always attempt to retain the ability to assign the lease to a third party (e.g. in the event you want to, or are forced to sell your restaurant). The Landlord will insist that he must give his prior written consent for any assignment to be valid, but you must in turn, insist that his consent can not be unreasonably withheld, delayed or conditioned. Too many restaurateurs do not realize the importance of having the ability to assign their lease until they are at the point where they have decided to sell their restaurant. At that point, the sale of the restaurant will be thwarted because they will not have the ability to offer the lease to the potential purchaser and the Tenant will be forced to just walk away from the premise with nothing. Also be sure that the lease and personal guaranty shall void in the event of a valid lease assignment. Otherwise, you remain liable for any damages, included but not limited to unpaid rent, caused by your Assignee.

3) Liquor License Contingency Clause: If you intend to apply for a liquor license for your premise, most restaurant attorneys strongly advise that you insert an escape clause in your lease in the event that your liquor license application is rejected by the NYSLA. A fair escape clause would be that the tenant gets to void the lease in the event their NYSLA application is rejected BUT are required to pay all rent incurred (included any abated months) to the date of rejection. The personal guaranty, if any, must also void as of that date.

4) Free Rent: Attempt to get the premise rent-free until the latter of (i) the day Tenant opens the establishment to the public, or (ii) the date Tenant receives its liquor license from the NYSLA. Most landlords will agree to this request with some limitation or outside rent commencement date depending on the present demand for the premise and the caliber of the proposed restaurant tenant.

5) The Personal Guaranty: Generally, if the lease is going to be signed in the name of a corporation, all landlords will ask for your personal guaranty. Most landlords, however, will waive this personal guarantee if he/she is presented with other options that may reduce his/her risk in the event of your breach. For example, if you request that the landlord remove the personal guarantee clause and he/she initially refuses, you can offer him a larger security deposit in exchange for eliminating the clause. The larger security deposit will give him/her a greater level of comfort in the event of your default; his goal for including the personal guarantee in the first place. If you don’t have the capital to offer a greater security deposit, then you can offer to compromise and provide the Landlord with a limited personal guarantee or a Good Guy Clause which provides that you will be personally liable only up to the date that you surrender the premises back to the Landlord (a/k/a give him the keys).

GENERAL RULE: Lock in the longest lease term possible with the right to assign the lease.  Get a Liquor License contingency clause and make sure the lease and guaranty void in the event of an assignment or a failure to obtain the Liquor License.

There are many other clauses in a commercial restaurant lease and just because I highlighted the ones above does not mean that the others don’t warrant great attention.  A restaurant lease negotiation and review should be handled by a qualified restaurant attorney.

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Jan 07 2014

BYOB: Not Legal in New York

unlimited_drinks_NYSLA

BYOB, or Bring Your Own Bottle, where owners of establishments allow their customers to bring alcoholic beverages to their premises to be consumed on site, is NOT PERMITTED in unlicensed businesses in New York State unless the Certificate of Occupancy for the premise is for less than 20 people.

GENERAL RULE: BYOB is illegal in New York.

You MUST have a license or permit to sell/serve beer, wine or liquor to the public. Venues without a license or permit may not allow patrons to bring their own alcoholic beverages for consumption.  In addition, owners of businesses may not give away alcoholic beverages to their patrons. Those that do are in violation of the NYS Alcoholic Beverage Control Law.

Applicants should be aware that allowing BYOB without a license may jeopardize their chances for approval of their license.

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Jan 01 2014

NYC DEPARTMENT OF HEALTH – LETTER GRADE REQUIREMENTS

The New York City Health Department requires that restaurants publicly post A, B, or C letter grade cards that summarize their sanitary inspection scores.  Not posting a grade card or posting it incorrectly is a serious violation that may result in large fines or loss of your permit. To avoid penalties, food service operators and their representatives and attorneys should follow these instructions carefully.

1. Where does the grade card have to be posted?
The grade (or grade pending) card must be posted on a front window, door or outside wall where it is easily seen by people passing by. The card must be within 5 feet of the entrance and from 4 to 6 feet off the ground or floor. If there is no direct entrance to the street, the Health Department sets the place to post the card. The Health Department tracks each grade card by its serial number. It may issue a Notice of Violation to any establishment that fails to post the right card, or posts it in the wrong place.

2. When am I required to post the grade or grade pending card?
The restaurant must post the grade or grade pending card as soon as the inspector provides it. If the restaurant receives both a grade card and a grade pending card, the operator has the choice of posting one of these two cards immediately, until it has had the chance for a hearing at the Administrative Tribunal.
3. Are there penalties for failing to post the grade card, or posting it incorrectly?
Yes. Not posting a grade card can result in fines of up to $1000. Posting the grade card incorrectly can result in a $200 fine. Repeated violations may result in loss of your permit.
4. How do I get a hearing at the Administrative Tribunal?
Everyone who receives a Notice of Violation has the right to a hearing at the Administrative Tribunal. Your scheduled hearing date is printed on the front of the Notice. Directions for how to respond to the Notice are on the back.
5. I had my hearing, and I was given a new grade card. What should I do with it?
When a restaurant receives a grade card at the Administrative Tribunal, it means that the Hearing Examiner’s decision changed the restaurants inspection score enough to change its grade.
You must immediately:
Post the grade card issued by the Tribunal, and
DESTROY the letter grade card and grade pending card that the inspector gave you
at the inspection.
6. I had my hearing, but I was not given a new grade card. Which card do I post now?
If you did not receive a new grade card at the Administrative Tribunal, it means that the Hearing Examiner’s decision did not change the restaurants inspection score enough to change its grade.
You must immediately:
Post the grade card that the inspector gave you at the inspection, and
DESTROY the grade pending card.
7. My restaurant accepted a settlement offer. Which card do I post now?
If you accepted a settlement, your inspection score and grade did not change.
You must immediately:
Post the grade card that the inspector gave you at the inspection, and
DESTROY the grade pending card.
8. What if I miss my hearing date at the Administrative Tribunal?
If you do not respond to your Notice of Violation by 1) accepting a settlement offer;
2) appearing at the Tribunal on your hearing date; 3) writing to the Tribunal for a hearing by mail; or 4) asking on or before your hearing date for an adjournment:
You must immediately:
Post the grade card that the inspector gave you at the inspection, and
DESTROY the grade pending card.
9. I asked for a new hearing date (“adjournment”). What card do I post in the meantime?
If this is the first adjournment you requested, you can continue to post your grade card, or grade pending card. If you ask for another adjournment or miss your second hearing date, you must post the letter grade card the inspector gave you at the inspection.
10. What if I receive a default decision?
If you received a default decision, it means that you did not respond to your Notice of Violation. You were required to post your grade card on the day you missed the hearing. If your grade card is not posted when you receive a default decision:
You must immediately:
Post the grade card the inspector gave you at the inspection, and
DESTROY the grade pending card.
11. Do I have to post the actual grade card? Can I post a photocopy or fax instead?
You must always post the actual letter grade card as required (see Question 1). You cannot substitute a photocopy or fax for the real grade card.
12. How do I replace a lost or damaged card?
You can get a new card at the Health Department’s Bureau of Food Safety and Community Sanitation, 253 Broadway (between Murray and Warren), 12th Floor, in Manhattan.

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May 15 2013

NYC Mobile Food Vendors v. NYC Restaurants

food cart

Seems the ongoing battles between brick and mortar restaurants and mobile food vendors may soon be calming down.  Most of the tension between these parties is caused by proximity (i.e. how close the mobile cart is located to the restaurant).

The New York City Council just enacted legislation which will (commencing June 2013) prevent mobile food vendors from setting up shop within 20 feet of any entrance or exit, including service entrances and exits, of any restaurant.  The soon to be prior law just prevented mobile food vendors from setting up within 20 feet of the establishment’s main entrance/exit.

This new law should go a long way towards easing some of the existing tension between the mobile vendors and brick and mortar restaurants.

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Dec 07 2012

NEW WAGE NOTICE OBLIGATIONS TO EMPLOYEES

Published by under Taxes,Uncategorized,Wages

notice

Employers with New York employees must ensure that they provide them with an annual wage notice form by February 1, 2013, as required by the New York Wage Theft Prevention Act (the Act). This Act, which became effective in April 2011, significantly increases employers’ wage notice obligations to New York employees.

The Act requires private sector employers to provide each New York employee, upon hire and every year, with a detailed notice form setting forth that employee’s pay rate and the employer’s pay practices. Notice to current employees must be provided between January 1 and February 1 of each year, beginning January 1, 2012. Notice must also be given to employees within seven days following a reduction in their wages (or, if an employee works in the hospitality industry, following any wage change). Notice must be given to both non-exempt and exempt employees, and must contain the following information:
– the employee’s rate of pay and, if non-exempt, overtime rate of pay;
– the basis of the employee’s rate of pay (e.g., salary, commission or hourly);
– the employee’s regular pay day (employees are also advised to state the frequency of pay periods-e.g., weekly, bi-weekly or other);
– the employer’s name and any “doing business as” names;
– the employer’s telephone number and the address of its main office or principal place of business (and, if different, mailing address); and
– any allowances the employer intends to claim as part of the minimum wage (e.g., tip, meal or lodging allowances).

This means that, no later than February 1, 2013, all private sector employers must give ALL of their New York employees a written notice containing the above information.
Employers may provide this notice by hard copy or electronically, provided that employees are able to print out a copy of the notice. Employers must also obtain a signed acknowledgement from employees, acknowledging that they have received the notice. Although an employee’s email response confirming receipt of the notice is sufficient for acknowledgement purposes, an automated “read receipt” would not be sufficient. All notices must be retained by employers for six years.

The New York Department of Labor (the DOL) requires that employers provide the notice in an employee’s primary language for workers whose primary language is English, Spanish, Chinese, Korean, Creole, Polish or Russian. The DOL has notice templates available on its website for each of these languages. However, employers are not required to use the DOL-created templates. They can develop their own notice forms, provided that they contain all of the legally-required information described above.
Employers should be aware that the notice must be a separate form. As such, new hires should receive a separate, stand-alone notice form in addition to (or attached to) any offer letter or employment agreement they may receive. Moreover, if an employee works on a commission basis, the commission agreement should be attached to the notice form. An employer who fails to provide required notices to its employees may be subject to significant penalties. Individual employees may recover up to $2,500 in a lawsuit, and the DOL may assess a penalty of $50 per week, per worker.

Employers are also advised that, in addition to the new stringent notice requirements, the recently enacted Act also contains provisions regulating recordkeeping, payroll records and paystubs.

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Dec 02 2012

TIP SHARING … OR TIP STEALING?

A recent onslaught of lawsuits involving illegal tip sharing amongst restaurant employees is rocking the restaurant industry. These lawsuits are not new to the industry but they have recently increased in numbers as a result of a few recent, and very substantial, plaintiff/employee successes.

A class action suit brought by New York restaurant employees, employees sued Starbucks for violating a law that prohibits management from receiving part of workers’ tips. At Starbucks, “shift supervisors” shared the pooled tips with baristas, prompting a suit from a former barista, on behalf of at least 2,000 Starbucks baristas in NY who are allegedly owed over $5 million. The lawsuit was commenced almost immediately after a California ruling, where a state judge found Starbucks liable for $105 million, finding Starbucks illegally enabled shift supervisors to take a share of the tips.

GENERAL RULE: Restaurants in New York State are allowed to pay employees who receive tips as little as $5.00 — less than the federal minimum wage of $5.85 per hour and the New York State minimum wage of $7.15. However, To use this “tip credit”, amongst other things, employers are not permitted to share tips among agents of the employer.

This general rule seems straightforward, but it’s not. The law fails to define who constitutes an agent of an employer. An owner, officer of the corporation, or a general manager clearly fit this bill and cannot share in tips. But, what about a maitre’d? a shift supervisor? or an assistant manager? The answer is . . .it depends on their job tasks and responsibilities not their job title. The Department of Labor (DOL) has stated that an agent, does not include a mere supervisory employee who does not have the authority to hire or fire. And just because a maitre’d has supervisory responsibilities over the rest of the dining room personnel does not necessarily mean that the maitre’d cannot share in employee tips. The DOL will look at each situation on an individual basis, and pay particular attention to whether the maitre’d (or another employee) acts in the place of the owner, by performing such functions as hiring and firing employees, or other managerial responsibilities such as disciplining and setting wages or work schedules.

In its defense, Starbucks argued in California court and again in New York that it’s shift supervisors are not managers (although they are in charge when managers are away and can evaluate baristas in performance reviews), because (i) the customers cannot differentiate between the shift supervisors and the baristas, (ii) the shift supervisors often do the same work as baristas including serving the customers, and (iii) the shift supervisors pay is only 22 cents more per hour. However, the California Court ruled that the tasks and responsibilities given to these shift supervisors did indeed make them agents of the employer and hence, they were prohibited from sharing in the tips.

Thus, the prohibition of sharing tips with an “agent” of an employer must be very carefully adhered to as the penalties can be severe. As in the Starbucks cases and many others, the definition of what constitutes an agent is presently being defined and redefined by the courts. If you are an employer and employ a Maitre’d, Assistant Manager, captain, or shift supervisor, play it safe, compensate them fairly or even magnificently – but keep their hands out of the tip jar.

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Nov 22 2012

LIQUOR LICENSE: THE 500 FOOT RULE

When applying for a liquor license, the application of the 500 foot rule often results in the application being rejected. It is imperative that an applicant know whether the rule will apply to their license application and, if it does, to prepare accordingly.

GENERAL RULE: No license for on-premises liquor consumption may be granted for any premise within 500 feet of three or more existing premises licensed and operating with an on-premises liquor license. BUT the State Liquor Authority, in it’s discretion, may still issue the license if they determine that the license would be in the public interest after consulting with the local Community Board and holding a public hearing upon notice (a/k/a The 500 Foot Hearing).

Factors the Liquor Authority consider relevant when determining if the license would be in the public interest include the type of the proposed establishment (i.e., restaurant or bar), and the number, classes and types of businesses licensed within 500 feet of the proposed premise. They also consider whether the applicant has had prior violations or complaints at other establishments and quality of life issues such as anticipated increased traffic, potential parking problems and noise issues.

The 500 foot hearing is held at the Liquor Authority and individuals and community groups may appear to challenge the granting of a license. A consultation with an experienced liquor license attorney is highly recommended prior to attending this hearing. But in general, wear a suit and be prepared to answer any and all questions regarding your proposed establishment. Bring a copy of your completed liquor license application with you along with all supporting documents filed therewith.

NOTE: The 500 Foot Rule is not applicable if the premises has been continuously licensed on or prior to November 1, 1993 or if the County has a population of less than 20,000.

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