Legal advice

Legal issues restaurant franchisees face

by Jason Power

Owning a restaurant can be a fun way to make money. Like any other business though, a restaurant franchise comes with its own set of legal issues that you, as the owner, must manage. Before you open your restaurant, talk with both a franchise attorney and an attorney who is well versed in the local laws in your state and those laws relating to restaurants. Here are five legal issues that restaurant owners typically encounter.

BUSINESS STRUCTURE

Your business structure—the actual place where your business is run—is important whether you are opening a restaurant franchise or any other type of business. When choosing your type of business structure, you should always talk with an attorney and an accountant. An attorney can assist with setting up your business entity and making sure all the proper documentation is filed and signed by all owners. An accountant can help you navigate state and IRS regulations to determine if one business structure has a more advantageous tax status for you.

PERMITS AND LICENSES

When preparing to open your restaurant, research the laws of your city, county, or state. Any or all of these local governing bodies may require permits or licenses, which include a food-service permit, alcohol license, business license, and a food-safety permit. It can take several weeks to get approved for licenses, so you should apply for these as soon as possible.

EMPLOYEES

Employees can be one of the most frustrating issues with your restaurant, so you must be careful when hiring staff. All states have laws relating to employee wages and overtime, hours, and general working conditions. These laws, specifically those relating to employee wages, are why many fast-food restaurants are beginning to have customers use touch-screen computers for ordering, instead of paying higher wages for employees.

When working with employees, you must consult with your attorney and an insurance agent. The Affordable Care Act requires that you, as the employer, offer health benefits if you have more than 50 full-time workers or pay high penalties.

In addition to these concerns, you also need to ask each employee before you hire them whether they have any non-competition clauses with a former employer. If you hire an employee who is restricted by a non-competition agreement with a former employer, you could be liable to the former employer if they bring a lawsuit.

UNIFORMITY

Because your restaurant is part of a franchise system, you will be required to follow the franchisor’s systems and procedures. This means that you will need to build your restaurant to the franchisor’s design standards. You will also need to use the franchisor’s menu, suppliers, recipes, etc. These systems and procedures imposed by the franchisor are designed to give customers a similar experience, no matter which franchised location they visit.

CUSTOMER DATA SECURITY

Everyday there are stories about a restaurant or retail chain with a data breach. This can be devastating for customers who have their credit-card information stolen, and it can cripple any business who is the victim of this breach. When speaking with the franchisor and your credit-card processing vendors, you need to understand PCI compliance and ensure your point-of-sale system is safe with proper encryption. Additionally, you would benefit from talking with your insurance agent about additional insurance coverage for data breaches.

Jason Power exclusively practices franchise law as a partner at Barber Power Law Group in Charlotte, North Carolina. He has assisted hundreds of franchisees with their FDDs and buying into franchises all over the country. Power also represents emerging and established franchisors. Contact Power at jpower@barberpowerlaw.com or by calling 980-202-5679. Visit www.barberpowerlaw.com.