You've Found The Best Space for Your Restaurant, So You Call Up Your Lawyer...

Read Part 1: You're Opening A Restaurant In NY and Need to Talk to a Lawyer...

A broker or realtor has shown you a spot in the city or Long Island that is perfect for your food and your likely clientele. And the price per square foot seems reasonable to you. Is it time to make an offer?

Lease Terms

Before plunking down a binder, you need to know so much more than the cost of rent. This is a complex operation you're starting up, even if you're opening a tiny "hole-in-the-wall." When checking out different places with your realtor, have you gotten a copy of a sample lease?  Do you know the terms of the lease? How long will you have the space for?  Understand that it often takes time to become an "overnight success."  You don't want a landlord wielding too much leverage just when you get goin'. Is there an option to renew? What if you want to sell the restaurant--will the landlord let you? Will you have to sell it as the exact same restaurant that you set out to launch? These are questions that you may have the answers to, but an attorney can negotiate on your behalf.

Good Guy Guarantee

Often, in addition to the aforementioned lease terms, a restaurant's landlord will push for a "good guy guarantee."  What is a good guy guarantee?  It's an agreement or rider that demands one (or more) of the tenant’s deep-pocketed backers to guarantee lease obligations through the date that the tenant leaves the leased space, even if the lease hasn't yet expired.

New York Employment Laws

Restaurant managers must become well-versed in rules and laws governing employment, because the New York Department of Labor has made it clear that the hospitality industry is being monitored for compliance. The recent New York State Hospitality Industry Wage Order made clear the breadth of attention paid to restaurants and hotels.  

The term restaurant was defined as: any eating or drinking place that prepares and offers food or beverage for human consumption either on any of its premises or by such service as catering, banquet, box lunch, curb service or counter service to the public, to employees, or to members or guests of members, and services in connection therewith or incidental thereto. The term restaurant includes but is not limited to restaurant operations of other types of establishments, restaurant concessions in any establishment and concessions in restaurants.

Tips and gratuities are subject to New York Labor Law § 196-d, which states: 

No employer or his agent or an officer or agent of any corporation, or any other person shall demand or accept, directly or indirectly, any part of the gratuities, received by an employee, or retain any part of a gratuity or of any charge purported to be a gratuity for an employee. This provision shall not apply to the checking of hats, coats or other apparel. Nothing in this subdivision shall be construed as affecting the allowances from the minimum wage for gratuities in the amount determined in accordance with the provisions of article nineteen of this chapter nor as affecting practices in connection with banquets and other special functions where a fixed percentage of the patron's bill is added for gratuities which are distributed to employees, nor to the sharing of tips by a waiter with a busboy or similar employee.

However, employers may take a "tip credit" and pay tipped food service workers a minimum of $4.60 per hour provided that the combination of the worker's gratuities and direct wages equal or exceed the state minimum wage rate.

You may not pay waiters or barbacks a weekly salary; it has to be hourly. And make sure you're paying "on the books"--your establishment is subject to spot inspections and visits from NYS and federal authorities, and you should expect them at any time. Vet the I-9s properly, and make your life infinitely easier by using a payroll service. Keep good records!

Other laws include requirements that employers must compensate employees for time spent changing clothes or washing up at the restaurant if the actions are a necessary part of their jobs. Also, employers operating a restaurant must provide 24 hours of consecutive rest each calendar week. New York restauarnt owners are also bound by civil rights laws, disability laws, and general labor laws.

The Wage Theft Prevention Act (WTPA) took effect on April 9, 2011.  The law requires employers to give written notice of wage rates to each new hire. The notice must include:

  • Rate or rates of pay, including overtime rate of pay (if it applies)
  • How the employee is paid: by the hour, shift, day, week, commission, etc.
  • Regular payday
  • Official name of the employer and any other names used for business (DBA)
  • Address and phone number of the employer's main office or principal location
  • Allowances taken as part of the minimum wage (tips, meal and lodging deductions)

The notice must be given both in English and in the employee's primary language (if the Labor Department offers a translation). The Department currently offers translations in the following languages: Spanish, Chinese, Haitian Creole, Korean, Polish and Russian.

Restrictive Covenants

When hiring an employee, that employee may become privy to confidential recipes or trade secrets. What is a trade secret? It is information that is well-gurded, confidential, not publicly known or readily available or easily ascertainable outside of the business, valuable, and provides a competitive advantage.

A good employee policy manual combined with an employment agreement should often have a "non-compete" and "non-disclosure" agreement. In New York, there is no statute or regulation governing non-competes in employment. A non-compete can be enforced only if it:

  • Is no greater than required to protect an employer's legitimate protectable interests.

  • Does not impose undue hardship on the employee.

  • Does not cause injury to the public.

  • Is reasonable in duration and geographic scope - in NYC, that could be within a certain number of blocks, while on Long Island, it could be within many miles.

Vendor Agreements

Did you think the restaurant space was the only lease you would be dealing with?  Not likely. Even if you are taking over a space previously used by another food establishment, the landlord might have had the prior tenant restore the premises to "white box." Often, you must lease, rather than buy, kitchen equipment. Vendors may put a lien on equipment if you fail to pay. In turn, this lien could create problems for you with your landlord. Agreements may appear to be "boilerplate," but must be read carefully and vigorously negotiated to avoid a tangled web of conflict later.

Liquor License

Beverage sales can often drive business for new restaurants. Liquor sales can sometimes exponentially recoup loss-leading entrees. But acquiring a liquor license may create new headaches for you and your landlord. While a strong business is beneficial for the owner of the property, there will naturally be noise and intoxication concerns. A New York State liquor license is given by the New York State Liquor Authority to a restaurant in a specific location; if you leave these particular premises, you will have to reapply.

The Alcoholic Beverage Control Law requires that, in connection with the submission of certain types of on premises alcoholic beverage applications to the State Liquor Authority, the new applicant (or the licensee-applicant in the case of a renewal) must provide a 30-day advance notice to the Local Municipality or Community Board that such an application is being submitted.

The 30-day advance notice requirement is intended to provide Local Municipalities and Community Boards with an opportunity to make their views known to the State Liquor Authority.

Recent legislation directed the State Liquor Authority to develop standardized forms by which a new applicant (or licensee-applicant in the case of a renewal) may provide notice to the Local Municipality or Community Board that an alcoholic beverage license will be applied for.

Intellectual Property

In addition to trade secrets, your restaurant may have protectable intellectual property in its trademarks, trade dress, and sometimes copyright. A name or design may be a registered mark, which is protectable if it is not generic, or otherwise is descriptive, suggestive, arbitrary, or fanciful and is not confusingly similar to a mark already established in commerce. Trade dress is the distinctive appearance of a product or a restaurant. An example of protected trade dress in a restaurant would be the color and design scheme of TGI Friday. Copyrighted materials are original creative works; if you designed an original logo for your restaurant, that is also protected by copyright, but should be registered with the U.S. Copyright Office, as well as the USPTO.

These categories are just an overview of some legal issues that affect restaurants. Restaurant owners should not attempt to practice law, draft contracts, or handle legal matters without the assistance and guidance of an attorney.

Related: Startups, Small Business and 7 Legal Trends from 2014