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Is GOOGLE Too Generic To Be A Trademark? Well, Let’s “Google it!”

By Vivek Vaidya and Nidhi Kaushal Can I get some Kleenex please! Do you have any Aspirin? How about a Q-Tip? Can you Xerox this for me? We often use and refer to popular brand names in our daily life to buy certain products or services. While it may be a company’s dream to turn its… Read More

By Vivek Vaidya and Nidhi Kaushal

Can I get some Kleenex please! Do you have any Aspirin? How about a Q-Tip? Can you Xerox this for me?

We often use and refer to popular brand names in our daily life to buy certain products or services. While it may be a company’s dream to turn its trademark into a household name, it could also could result in the death of a brand.

A trademark provides protection to the names, slogans and logos that distinguish a company’s goods and services from others. However, trademarks that become “generic” lose their distinctiveness, and in turn lose their trademark protection. A trademark becomes generic when the general public start identifying similar products or services through that single name. For instance, Kleenex have become a generic term for tissues, and Xerox has become generic for photocopying devices. When the product or service with which the trademark is associated acquires a substantial market dominance or mind share of the public, it can become victim to “genericide.”

Google faced a situation where two individuals, David Elliot and Chris Gillespie, filed a request for cancellation of the GOOGLE trademark on the grounds that it is generic. They claimed that the word GOOGLE has become synonymous with “search the Internet,” and Google should lose its trademark protection.

In May 2017, the case was heard by United States Court of Appeals for the Ninth Circuit. The court ruled that the plaintiffs were unable to show that there is no other way to describe “internet search engines” without calling them GOOGLE. The court reasoned that “not a single competitor calls its search engine a GOOGLE and because members of the consuming public recognize and refer to internet searches engines using other terms, the plaintiffs have failed to show that there is no available substitute for the word google as a generic term”. However, the court of appeals recognized the possibility that over the time a valid trademark becomes the victim of genericization when the name has become an exclusive descriptor that makes it difficult for the competitors to compete unless they use that name.

The case was submitted to the Supreme Court for review. However, in October 2017, the Court declined to hear the plaintiffs petition.

Companies spend large amounts of resources to protect and maintain their trademarks. With this victory, it is surely a celebration for GOOGLE and other companies that could fall into the “genericide” trap. However, this issue is on-going, and this case likely marks the beginning of many challenges to the trademark rights of widely used global technology companies.

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.  

 

 

 

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Catch 22: Founders Must Pay Themselves Even Before Their Company Earns Revenue

By Luthien Niland It’s a common scenario for start-up founders: a few friends join together to build a company, each working long hours without pay in exchange for a promise – or at least a hope – that the company will be successful and they will be paid back tenfold for their initial time and… Read More

By Luthien Niland

It’s a common scenario for start-up founders: a few friends join together to build a company, each working long hours without pay in exchange for a promise – or at least a hope – that the company will be successful and they will be paid back tenfold for their initial time and sacrifices. However, even though this is common practice, it may violate California law and has the potential to be very costly for the company and the directors personally if things turn sour.

Minimum Wage Requirements and a Minor Exception

All employees in California must be paid at least minimum wage, at the rate set either by the state or the city where the employee is working. While there are various factors for classifying a worker as an independent contractor versus an employee, generally someone who is working full-time or more for a company on a long-term basis is considered an employee, and so the minimum wage requirement applies to many founders.

In addition to the minimum wage requirement, which can be paid on an hourly basis or salary, employees may also be entitled to be paid overtime and receive meal and rest breaks. These additional requirements depend on if the employee is classified as “exempt” (no overtime or breaks required) or “non-exempt” (overtime and breaks required). Employees are considered “non-exempt” unless they meet certain requirements to be considered “exempt” (this blog post describes the most common exceptions to wage and hour requirements)1 and are paid a salary that is at least equal to double the minimum wage for full-time employment. For California employers with 25 employees or less, this is currently $41,600 per year, and for California employers with over 25 employees, the minimum salary amount for exempt employees is $43,680. Therefore, unless founders meet the criteria for an “exempt” employee, additional penalties can be imposed for not paying them for overtime or meal or rest breaks.

One additional exception to the non-exempt classification is that employees who own at least 20% of the company and are involved in management of the company may be classified as exempt employees. However, whether a founder is classified as a non-exempt or exempt employee, she or he must still be paid at least minimum wage or a salary equal to the applicable state or city requirements, so this exception does not release companies from paying founders that fall under this exception.

Where Things Can Go Wrong

While anyone who is starting a company likely knows about minimum wage, it is important to understand that this is an absolute requirement for any company that has employees. It is not a defense to these requirements that the company doesn’t have money to pay its employees. Further, any agreement to contract around minimum wage requirements is unenforceable, so a founders agreement or other contract waiving a founder’s right to payment or deferring compensation is useless.

While the California Department of Labor could bring a proceeding against a company for not paying its employees in accordance with wage and hour laws, the more likely scenario is that a disgruntled founder will decide to leave the company and sue for unpaid wages – and if the founder was working normal start-up hours of 60+ hours per week, between unpaid minimum wage and overtime, missed meal and rest breaks, and penalties for all of these violations (plus the time and expense of a lawsuit), the amount of money claimed by the founder can add up very quickly, especially for a start-up that still hasn’t generated much or any revenue. Additionally, if the start-up is planning to approach investors to raise capital, not only will a lawsuit look terrible during due diligence, but the investors will likely be turned off by the prospect of their investment money being used to pay the debt of the company from the lawsuit.

Personal Liability of Directors

One reason why we recommend forming a corporation is to protect the people involved from personal liability for the actions of the corporation. However, California statute specifically carves out an exception from such personal liability protection for officers and directors for wage and hour violations. Section 558.1 of the California Labor Code states that any employer, or any person acting on behalf of the employer, which includes any owner, director, officer, or managing agent of the employer, may be held liable for the employer’s violations of any provision regulating minimum wages and other directives in Wage Orders, such as unpaid overtime and denied meal or rest breaks.

The language in accompanying portions of the Labor Code suggests that such personal liability can only be enforced by the Labor Commissioner during a proceeding, not in a private lawsuit against a company by an ex-founder. However, this limitation is not explicit in the Labor Code and so there is a risk that an ex-founder may still use it as another claim in a private lawsuit brought for other reasons. Otherwise, if the ex-founder knows that the company is insolvent, it may instead opt to bring a proceeding before the Labor Commissioner where this provision can be enforced, and the officers and directors of the company may be forced to personally pay for the unpaid wages, penalties, and violations of the ex-founder.

What You Can Do

California has a reputation for being an employee-friendly state, and has crafted its wage and hour laws so that people get paid for the work that they perform. Unfortunately, no exception or defense has been created for the broke start-up that is formed with all of the founders voluntarily agreeing not to be paid until the company can generate revenue. Thus, the options to avoid the risks of a wage and hour lawsuit or proceeding are limited.

First, companies can pay their workers at least minimum wage and pay careful attention to whether the workers are non-exempt employees to whom overtime and meal and rest breaks are owed. At the very least, founders can limit the number of founders or other employees who are working for the company without pay to minimize the risk that someone will become disgruntled and pursue a suit for unpaid wages.

Second, the founders can wait to incorporate their company until they are further along in building the company’s product or services. While there may be an argument at some stage of a project that someone working on an unincorporated venture is an employee of that venture, at least initially two friends working towards building an idea together is likely not seen as creating an employer-employee relationship and so wage and hour laws would not yet apply. However, incorporation has many important tax and liability benefits, plus attracting investors and additional talent requires an established legal entity, so this strategy may only be viable in the initial stages of an idea. Additionally, a legal entity owns the IP and other work that the founders are creating, rather than each founder individually owning the IP that they create and therefore could take with them if they decided to leave the venture.

Founder compensation is seldom discussed until it is too late and the wage and hour violations have already occurred, giving a departing founder significant leverage to demand a large pay-out or equity stake in the company. Such risks should be weighed by founders when starting a company and should impact decisions about how money is allocated, how many hours are worked by each employee, and how to best expand the team.

The information provided here is not legal advice and does not purport to be a substitute for advice of counsel on any specific matter. For legal advice, you should consult with an attorney concerning your specific situation.

1 Anthony Zaller, “Five Exempt Employee Classifications All California Employers Should Understand,” 2015.

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Five Key Questions To Ask When Creating Law Firm Equity Agreements

This article first appeared on Forbes. When drafting an equity agreement, partners need to be prepared for many different issues and eventualities. That’s why it is necessary to carefully consider the terms of the agreement, from the allocation of profits and losses to the systems in place when it comes to removing a partner. We… Read More

This article first appeared on Forbes.

When drafting an equity agreement, partners need to be prepared for many different issues and eventualities. That’s why it is necessary to carefully consider the terms of the agreement, from the allocation of profits and losses to the systems in place when it comes to removing a partner.

We have helped set up several law firms, and these are the five key questions that we find partners should consider:

1. How will the profits and losses of the firm be allocated?

Many law firms equally split the profits and losses. An advantage to this approach is that the partners equally enjoy the ups and downs of the firm. For example, if the firm wins a big contingency case, all of the partners benefit.
Other firms use an “eat what you kill” system where each partner gets their net profits, but is also responsible for their losses. A pro to this approach is it may lead to less friction over time between the partners who want to work 70 hours a week and those who want to spend more time with their families, traveling or on the golf course. An eat-what-you-kill item might also create a framework that leads to less resentment if a partner decides to take off more time with a newborn child, to help a sick family member, or if they have expensive spending habits.

2. How will decisions be made?

Partners also need to decide what decisions will require a majority vote of the partners, a supermajority vote (anywhere from 67-90%) of the partners or the unanimous consent of the partners.
For example, if a majority of partners want to promote an associate attorney to be a new partner, is that sufficient?
It is important to be very clear which items require which voting threshold so there is no dispute over whether an item requires a supermajority or unanimous vote, as opposed to merely a majority vote.

3. How will equity be valued when a partner leaves?

Some law firms value a departing partner’s ownership using a formula in the partnership agreement, such as 1.0-1.5 times the prior year’s gross revenue. Other firms have a business appraiser value the ownership interest of a partner who leaves the firm.
It is important to not only plan for how the fair market value of the equity interest will be calculated, but also how the purchase price will be funded to make sure the payments do not overburden the remaining partners.

4. How can a partner be removed?

Some law firms require a majority vote of the remaining partners to remove a partner whereas other firms have a higher bar for removing a partner.

5. What powers will the managing partner have?

Some law firms like to set checks and balances on the powers of the managing partner. For example, any expenditure above $X requires the approval of a majority of the partners.

There is no one-size-fits-all answer to these questions. The key is partners having a clear equity agreement in place that provides a roadmap when these and other issues inevitably occur.

The information provided here is not legal advice and does not purport to be a substitute for advice of counsel on any specific matter. For legal advice, you should consult with an attorney concerning your specific situation.

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Raising Capital: The Different Investment Stages

You’ve hatched an idea, formed a team and now you’re ready to raise private capital to jump start your new company. One of the keys to success is understanding the general process a startup will go through as it continues to grow and expand its operations. Below you’ll find an overview of the three stages… Read More

You’ve hatched an idea, formed a team and now you’re ready to raise private capital to jump start your new company. One of the keys to success is understanding the general process a startup will go through as it continues to grow and expand its operations. Below you’ll find an overview of the three stages we see most of our startups go through on their way to raising multiple rounds of capital.

Seed Stage

A seed investment in a startup is usually between $100,000 and $1m with the primary investors being friends and family, as well as angel investors. At this stage, the company has little more than a speculative business plan and therefore is primarily selling the founders past experience, vision and long-term plan to those within their network who believe in the talents of the team.

With little operating capital, startups are looking to keep the transaction as cost effective as possible by using instruments such as convertible notes, SAFE and KISS agreements. These are all instruments that will convert to equity at a later date but do not give the holder actual ownership in the company until they do. However, don’t be fooled into think this is not a sale of a “security”, it is, and startups must be compliant at both the state and federal level when closing out this type of transaction.

Early Stage

This is the stage in which the startup actually begins its operations and is looking to raise capital to expand and continue development of its product or service. This is often the startup’s first engagement with an institutional investor (e.g. venture capitalist), and the amount sought is between $1-3m.

At this juncture, a smart startup is looking for more than just cash. No doubt, the capital is needed to fund its operations, but a savvy startup is also looking to form a relationship with an institutional investor to grant access to experts in their field who can advise on financial, strategic and operational issues, and can help lead a growth stage round down the line.

For early stage financing a startup will often sell “preferred stock”, and the investors who invested in the seed stage will convert their convertible instrument into equity during this round.  This round will often cost two to four times as much in legal and accounting as the seed stage but is hopefully offset by the much larger raise.

Growth Stage

The purpose of this round of financing is to expand the product or service to new markets, develop a new line, ramp up the team to scale, or even consider acquiring another startup/small business. While often turning a profit, or trending in that direction, the startup is often incapable of borrowing the funds it needs from a bank as they continue to look for a capital raise through another private placement round of financing.

Like the early stage, the investors tend to be large institutional investors, and the offer is for preferred Series B stock. However, unlike the early stage, the growth stage is often complicated by more complex financials and a greater number of shareholders and investors to consider. Additionally, with a longer operating history, the growth stage company is often viewed as less risky by investors.

Unlike seed or early stage startups, a growth stage company will go through an extensive due diligence process as the new investors investigate and kick the tires on the company. A lawyer familiar with the company who assisted with the first two rounds can typically keep the costs of the growth stage in the same ball park as the early stage round, however, because the overall structure has become more complicated it’s not abnormal for the round to exceed what it costs to complete the early stage round.

Having a sense of the process can aid in your discussions with prospective strategic partners, and investors. If you’re considering raising capital for your venture (big or small) please reach out to carry the conversation forward. You can contact us at info@bendlawoffice.com, or at (415) 633-6841.

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal or tax advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.

 

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Brewing Likelihood of Confusion: A Look At Coexistence Agreements

By: Erica Paige Fang When two trademark owners have developed rights to identical or similar marks, they might enter into a coexistence agreement in order to resolve a potential trademark dispute.  The agreement must clearly state in detail the rights of the respective parties and how confusion in the marketplace will be avoided.  Typically, the… Read More

By: Erica Paige Fang

When two trademark owners have developed rights to identical or similar marks, they might enter into a coexistence agreement in order to resolve a potential trademark dispute.  The agreement must clearly state in detail the rights of the respective parties and how confusion in the marketplace will be avoided.  Typically, the goods and services are unrelated, are sold in different geographic areas, or utilize different trade channels.

A consent agreement is a type of coexistence agreement that may be entered into the record of a trademark prosecution in order to obtain registration.  The consent agreement usually limits the rights of the party seeking consent, but will not thoroughly address long-term coexistence.   A consent agreement is a declaration that there will be no confusion.  Courts will consider this evidence there is no likelihood of confusion because the parties entering into the agreement are those who would most greatly be affected by potential consumer confusion.  It is important to know a court can reject a coexistence agreement if it fails to provide sufficient detail regarding avoidance of confusion and if they believe consumer confusion is unavoidable.

In re Bay State Brewing Company, Inc. (TTAB 2016) the Board determined the consent agreement was not sufficient to avoid confusion and affirmed the 2(d) refusal on likelihood of confusion.  As discussed above, a consent agreement usually carries great weight in the likelihood of confusion analysis.  The consent agreement relates to the market interface between the parties, and is number 10 of the du Pont factors. Here, Bay State Brewing Company (“Applicant”) filed to register TIME TRAVELER BLONDE (BLONDE disclaimed) as a standard word mark for beer, but was refused based on prior registered standard word mark TIME TRAVELER for beer, ale and lager.   The consent agreement limited the applicant to the geographic area of New York State and the New England area, whereas there were no geographic limitations on the Registrant.  The board found the restriction on use only limiting one party effectively allows for simultaneous use by both parties in the same regions, here New York State and the New England area.   Ultimately, the Board determined the restrictions set forth in the parties’ consent agreement would not eliminate confusion in the marketplace.  Further, the Board held the mark TIME TRAVELER for beer, ale and lager is an arbitrary mark entitled to a broad scope of protection.

In re Four Seasons Hotels, Ltd., 987 F2.d (Fed. Cir. 1993), the Federal Circuit found no likelihood of confusion between FOUR SEASONS BILTMORE and THE BILTMORE LOS ANGELES, stating the parties’ coexistence agreement passed the scrutiny because the marks were sufficiently different, the services were not identical and the marks had coexisted in the marketplace for years without confusion.  The Board evaluating Bay State Brewing Company distinguished from this case because the goods, beer, were the identical, and the marks were virtually identical minus the disclaimed and descriptive term for beer, BLONDE.

Parties should weigh future conflicts when considering a coexistence agreement.  Some important considerations include:  1) term of the agreement; 2) rights to license or assign the mark; and 3) potential expansion, particularly into new geographic areas or into new goods and services.  Further, a party should consider whether their mark is arbitrary, or fanciful in relating to the goods or services, allowing for a broader scope of protection.   Allowing other coexistence could dilute the mark and weaken the strength of protection.  However, in the right circumstances, a clear coexistence agreement detailing how the parties will avoid likelihood of confusion in the marketplace can help avoid any brewing of confusion, as was the case for the parties in the Four Seasons Hotel.

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.

 

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The Top Mistakes Of Selling A Business And How To Avoid Them

This article first appeared on Forbes. If done correctly, selling your business, just like selling your home, can increase your net worth. But if done incorrectly, you can leave a significant amount of money on the table. In my experience assisting with the buying and selling of dozens of businesses, I have discovered that the same pitfalls… Read More

This article first appeared on Forbes.

If done correctly, selling your business, just like selling your home, can increase your net worth. But if done incorrectly, you can leave a significant amount of money on the table.

In my experience assisting with the buying and selling of dozens of businesses, I have discovered that the same pitfalls arise time after time. But by understanding what they are and how to avoid them, you can be satisfied with the sale of your business — not just when you hand the keys over, but for years to come.

Below are my top three tips for avoiding the most common mistakes that befall sellers:

1. Carefully craft the non-compete provision.

If there is a non-compete provision, be sure to include a safe harbor for any business ideas you might want to pursue after the sale of your business. The safe harbor should not only create an exception for any similar businesses you would like to work on, but also for any businesses you would like to invest in.

Additionally, the non-compete should include the specific timeframe in which you are prohibited from operating a similar business, as well as the geographic scope. For instance, when selling a business, cap the non-compete at four years within a 40-mile radius of the location.

 

2. Get as much of the purchase price at closing as possible.

Never was the saying “one in the hand is worth two in the bush” more true than in the payment of the purchase price for the sale of a business. A buyer is not likely to run the business as well as you have and they might have trouble making payments that are stretched over time.

In addition, by getting as much of the purchase price as possible at closing, you will have the opportunity to invest that capital or enjoy it yourself.

If payment is stretched out over time, be sure that it is secured by the assets being purchased, and ideally by other collateral to help make sure you will get the full sale price.

3. Hold the buyer personally accountable.

Ideally, when the buyer signs the purchase agreement, you want them to sign it both on behalf of their company and as an individual. That’s because if the buyer only signed on behalf of their company and that company is dissolved, you have no way to hold them personally accountable for the agreement and you could lose out.

However, as long as the buyer has signed the agreement as an individual, you can still hold them personally accountable if their legal entity (the company) is dissolved. This ensures that the agreement is fulfilled independently of the fate of the company.

Although the terms and pitfalls of selling a business vary from deal to deal, one consistent element is that navigating the sale can often be tricky. However, if you follow the tips above and work with an attorney and a CPA, you can help ensure that you will get as much money as possible for the sale of the business you have invested your hard work, time and capital in.

The information provided here is not legal advice and does not purport to be a substitute for advice of counsel on any specific matter. For legal advice, you should consult with an attorney concerning your specific situation.

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East Bay Ordinances Place Restrictions on Service Charges for Restaurants

As Bay Area cities adopt revised minimum wage ordinances, restaurant owners are working to come up with innovative ways to both meet these increasing payroll requirements and, in many cases, provide for more equitable compensation between Back Of House (cooks and dishwashers) and Front Of House (servers) employees. While many owners are considering adding a… Read More

As Bay Area cities adopt revised minimum wage ordinances, restaurant owners are working to come up with innovative ways to both meet these increasing payroll requirements and, in many cases, provide for more equitable compensation between Back Of House (cooks and dishwashers) and Front Of House (servers) employees. While many owners are considering adding a service charge to the customer’s bill that they can then distribute among all of the workers, rather than the traditional model of customers leaving tips that are only or primarily given to servers, provisions in the minimum wage ordinances for some cities place restrictions on this option. Berkeley and Oakland are two of the largest cities to pass ordinances restricting employers’ use of service charges.

Minimum Wage Ordinances

With the passage of Measure FF, Oakland set the city’s minimum wage at $12.25 per hour, effective March 2, 2015. This rate increases on January 1 of each year by an amount corresponding to the prior year’s increase, if any, in the Consumer Price Index (“CPI”) for urban wage earners and clerical workers for the San Francisco-Oakland-San Jose metropolitan statistical area. The current Oakland minimum wage is updated here (as of January 1, 2017, Oakland’s minimum wage is $12.86 per hour).

Similarly, on August 16, 2016, the Berkeley City Council adopted a revised Minimum Wage Ordinance, No. 7,505-N.S., B.M.C. Chapter 13.99, which took effect on October 1, 2016. This ordinance raised the minimum wage in Berkeley to $12.53 effective October 1, 2016; $13.75 effective October 1, 2017; and $15.00 effective October 1, 2018. After 2018, the minimum wage will increase annually based on the annual increase in the CPI. Employers should note that they are required to post a notice of the minimum wage rates where employees can easily read it, and sample notices are available here for Berkeley and here for Oakland.

Service Charge Provisions

An important change in both the Oakland and Berkeley minimum wage ordinances was the introduction of sections regarding “Hospitality Service Charges” (Section 13.99.050 in Berkeley’s ordinance and Section 5.92.040 in Oakland’s ordinance). These provisions regulate service charges, which are defined as separately-designated amounts collected from customers that are for service by employees, or are described in such a way that customers might reasonably believe that the amounts are for those services or in lieu of tips.

Berkeley and Oakland use different language to describe how service charges may be used, but the end result is the same: the money must be paid to the employees providing the service for which there is a charge applied, and the service charge cannot be retained by the employer. Oakland’s ordinance requires service charges to be “paid over in their entirety to the Hospitality Worker(s) performing the services for the customers,” and Berkeley’s ordinance states that services charges “shall be used by the Employer to directly benefit the Employees.”

Prior to the passage of these ordinances, there was no language related to service charges in the Berkeley or Oakland ordinances (or in any local laws except a minor law related to hotel workers in the LA area), so restaurants collecting service charges were free to collect and distribute this money in any way they chose.

Implementation

Both Oakland’s and Berkeley’s ordinances require restaurants to document how and why service charges are distributed to employees, and through such documentation these charges may be used to compensate both FOH and BOH employees. Specifically, Berkeley’s ordinance requires the employer to “define the chain of service and associated job duties entitled to a portion of the distributed service charges and notify the employees of the distribution formula as well as provide in writing to each employee its plan of distribution of service charges to employees.”

Thus, a restaurant could define “service” as starting with the host who seats the guest, then to the server who takes the order, then the bartender who makes the drinks, the cooks who cook the food, the runners who run the food, the bussers who clear the plates, and the dishwasher who makes sure that the dishes are clean. Berkeley’s ordinance does not exclude supervisors from being able to receive a portion of the service charge, but Oakland’s ordinance does not permit service charges to be distributed to supervisors for work they do in supervisory positions.

While neither ordinance gives any further information about implementing this requirement, the Oakland City Attorney provided the following guidance regarding what should be included in the written policy that is distributed to employees, which complies with the Oakland measure and also appears to fulfill the requirements of the Berkeley ordinance:

  1. A complete definition of “service,” including a reasonable and thorough description of why and for what the employer is charging the service charge;
  2. Each employee position that is included in the chain of service;
  3. The percentage that each employee shall receive from the service charge, which shall be equitably based on their contribution in the chain of service;
  4. Written notice that supervisors shall not receive a portion of the service charge unless they perform nonsupervisory work in the chain of service (Oakland only);
  5. A statement that the service charges will be paid to employees no later than the next payroll following the work or collection of the service charge from the customer, whichever is later (Oakland only); and
  6. Written notice, including the identity of an individual or employment position, to whom employees may direct questions or complaints regarding the payment (or nonpayment) of services charges.

Additionally, employers should provide adequate, written notice to its customers of, at a minimum, the amount of the service charge, what the service charge is for, and who shares in the service charge. At least 15 days’ written notice should be given to employees if the policy changes.

Conclusion

With the passage of these ordinances, restaurant owners may use service charges to collect a specific amount for service on each guest check and then distribute these amounts among FOH and BOH employees, but such charges will not help the owners meet minimum wages requirements. Under state law (and different than many states), neither tips or service charges can count towards the employer’s minimum wage obligations. Therefore, owners may need to find other creative solutions to meet rising minimum wage obligations at a time when food, rent, and other costs are also rising.

 

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal or tax advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.

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