The Learned Concierge

Welcome to your monthly legal insights on the trends impacting the Retail, Hospitality, and Food & Beverage Industries.

Labor and Employment:  

Child Labor Compliance and “Hot Goods”

Many employers may think that child labor abuse is not a domestic (internal to the US) problem. However, statistics gathered by the US Department of Labor Wage and Hour Division (WHD) reports that 835 of the employers investigated had violated child labor laws affecting over 3,800 children. Today, the WHD issued Field Assistance Bulletin No. 2023-3 outlining the prohibitions on “hot goods” under the Fair Labor Standards Act (FLSA) for covered establishments (a physical place where goods are produced in the US). Notably, WHD includes a review of child labor compliance in every investigation it conducts.

What are “hot goods?” The WHD Field Assistance Bulletin states: “If oppressive child labor occurred ‘in or about’ an establishment, then the products at that establishment may be ‘hot’ regardless of whether the children in question worked directly on the goods themselves.” Hot goods are barred from being shipped in interstate commerce. The WHD can request that a company voluntarily refrain from shipping suspected hot goods even before a finding of a violation; and if voluntary agreement is not reached, the Department of Labor (DOL) can institute a civil suit to enjoin shipment through a temporary restraining order of preliminary or permanent injunction. The DOL can also compel any downstream producers, manufacturers, or dealers in possession of goods to cease shipment. The DOL can also seek monetary penalties.

The FLSA has a good faith defense for purchasers who inadvertently buy hot goods if they rely in good faith on written assurances that goods were created and sold in compliance with child labor laws. What businesses are covered by the hot goods provisions of the FLSA? Producers, manufacturers, or dealers who:

• Produce, manufacture, handle, or in any other manner work on goods in any state; or
• Transform raw materials or semi-finished goods into new or different articles; or
• Buy, sell, trade, distribute, deliver, or deals in goods, such as a broker, wholesaler, or retailer.

The FLSA provisions regarding “hot goods” may catch retailers off guard because they are not manufacturers or wholesalers. However, the WHD and DOL reach is very broad to deter and remedy child labor abuse in the US. For more information click here.

Pregnant Worker and Nursing Mother’s Protections and Enforcement Targeted to the Retail and Hospitality Industry

Both the EEOC and the US Department of Labor are focusing their attention upon the rights of nursing mothers and accommodating pregnant employees in the workplace.

The US DOL is providing education specifically targeted to retail and restaurant workers under the Pump at Work Protections under the Fair Labor Standards Act in an upcoming webinar on October 19, 2023. To attend the webinar or for more information, click PUMP at Work Protections under the Fair Labor Standards Act in the Retail and Restaurant Industry registration – WebEx Enterprise Site.

Similarly, Retail, Hospitality and Food & Beverage Employers may want to take note of the Equal Employment Opportunity’s proposed regulations under the Pregnant Worker’s Fairness Act. See Clark Hill’s Shauna Duggan’s article here.

5 Things Employers Should Know About the DOL’s Proposed New Overtime Rules

On Aug. 30, the U.S. Department of Labor issued its much-anticipated notice of proposed rulemaking (“NPRM”) to update the Fair Labor Standards Act’s overtime exemptions. If finalized, the rule would raise the salary threshold to qualify for the executive, administrative, and professional (EAP) exemptions to $55,068 per year — up from the $35,568 annual salary under the current rule.

Beyond the salary increase for the EAP exemptions, the rule also proposes a salary level increase for the “highly compensated employee” (“HCE”) exemption; an automatic update to these earnings thresholds every three years; application of the standard salary threshold to U.S. territories subject to the full federal minimum wage; an increase of the special salary levels for American Samoa (84% of standard salary level) and the motion picture industry ($1,617/week or a proportionate amount based on the number of days worked); and, maintenance of the existing duties test for executive, administrative and professional employees.

Employers have 60 days from the date the NPRM is published in the Federal Register to submit comments regarding the NPRM. The DOL may make adjustments after reviewing the comments submitted and the rules may also be the subject of legal challenges. Nonetheless, employers should begin reviewing their practices now to determine whether changes would need to be made to comply with the new rule and consult with their counsel regarding how best to implement those changes if and when the rule is finalized.

To read about the proposed Overtime Rule Changes in greater detail, see Clark Hill’s Anne-Marie V. Welch’s article here.

International Trade: 

Forced Labor and Fast Fashion

The fight against forced labor in trade is not a new concept. For decades, the United States has banned the importation of goods produced with forced labor through the U.S. Tariff Act of 1930 (“Tariff Act”). What is relatively new, however, is the fight against forced labor in China, specifically the Xinjiang Uyghur Autonomous Region of China (“Xinjiang”), under a 2021 act, the Uyghur Forced Labor Prevention Act (“UFLPA”).

The UFLPA establishes a rebuttable presumption that any goods or products coming from Xinjiang are deemed to be produced with forced labor using Uyghur minority Muslims. Therefore, all such products are prohibited from entering the United States, unless the importer can rebut the presumption with clear and convincing evidence. The UFLPA also created the UFLPA Entity List, which identifies specific companies and entities that are known to engage in forced labor practices in Xinjiang.

Notably, forced labor allegations have rapidly increased against certain fast fashion companies. Such companies, however, have not been subject to many of the laws passed to prevent forced labor because of an exemption for low-value shipments, $800 or less. Many fast fashion shipments are not explicitly subject to the UFLPA targeting goods made with forced labor and it has been alleged that fast fashion companies are able to grow tremendously, despite being faced with forced labor allegations. For example, two fast fashion companies, Shein and Temu, are currently facing such allegations while reportedly remaining the first and second most downloaded fast fashion shopping apps in the United States, as of May 2023. Two bipartisan bills have been introduced to eliminate the de minimis exemption or modify its applicability. Thus, it may be wise for companies to trace and analyze their supply chains to determine if there are any connections to the Xinjiang region (or other possible forced labor regions) as it is only a matter of time before the above proposed measures are passed into laws and enforced.

For more information, read Clark Hill’s Jonathan Roffe and Sally Alghazali’s news alert here.

Compliance Issues: 

What Online Retailers Need to Know About the New “INFORM Consumers Act”

On June 27, 2023, the U.S. government enacted the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (the “INFORM Consumers Act”). The INFORM Consumers Act aims to prevent the sale of counterfeit products, promote accurate product information, enhance consumer trust in e-commerce transactions, and protect consumer rights.

Over the past decade, counterfeit goods have become a persistent issue with respect to those involved in the e-commerce business. Counterfeit products, which can be sold as an identical copy or a cheap imitation that looks and feels like the original product, can hurt many businesses and consumers. Businesses can suffer dramatic financial losses when a counterfeit good hurts the company’s brand reputation, and consumers can waste their money on substandard products that potentially pose serious health risks such as allergies, skin rashes, etc.

Counterfeiters are continually finding new ways to evade detection and continue to sell their fake products, often at lower prices than legitimate products. Online marketplaces and social media platforms have become a hotbed for counterfeiters to sell their fake goods, and these platforms can be difficult to regulate effectively.

Additionally, INFORM was designed to help prevent organized crime groups from using online retail sites as an easy avenue to resell stolen goods. While costs for these retail sites will increase as new measures are implemented, accountability of online marketplaces may serve as the first line of defense in reducing online retail crime.

For greater detail on the compliance obligations online retailers face, and for some key takeaways, read Clark Hill’s Jonathan Roffe and Natalie A. Remien’s article here.

Food and Beverage News:

“Ninth Circuit Issues Decision Clarifying Protein Labeling Requirements”

On Aug. 14, the Ninth Circuit issued its decision in Nacarino v. Kashi Co., providing some much-needed clarity to the FDA’s protein labeling requirements. The decision dealt with two separate cases from the Northern District of California that were consolidated on appeal. Both cases involved state law claims that took issue with the defendants’ use of protein content claims on the front packaging of its products. Specifically, plaintiffs alleged that listing the protein quantity on the front of a label (i.e., “11g Protein” or “PROTEIN 15g”) without including a quality-adjusted percent daily value is false and misleading in violation of state and federal law. The plaintiffs also argued that use of the “nitrogen method,” also known as the “Kjeldahl method” of measuring protein content, is misleading to consumers. Plaintiffs contended that the claims overstated the products’ protein content and ignored the imperfect quality of the protein, deceptively implying in violation of state law that all of the protein contained in the products was usable by the human body.

Rejecting plaintiffs’ arguments in a 3-0 decision, the Ninth Circuit affirmed the District Court’s orders dismissing the claims holding that the plain language of the Nutrition Labeling and Education Act (sections 101.13 and 101.9) allows manufacturers to list protein quantity outside of the Nutrition Facts Panel (“NFP”) without the Protein Digestibility Corrected Amino Acid Score (“PDCAAS”)-adjusted percent daily value so long as the adjusted percent daily value is disclosed within the NFP. The Court also held that the nitrogen method is explicitly allowed under FDA regulations.

The Nacarino decision demonstrates the Court’s understanding that FDA regulations reflect “a balance that [keeps] costs low for manufacturers without allowing consumers to be misled.” The Court noted that while it is widely accepted that protein has important nutritional value, the FDA has found that protein deficiency is not common in the United States. Taking this into account, the Court concluded that the FDA struck a balance between consumer access to nutritional information and costs to manufacturers when promulgating section 101.9(c)(7), which only requires manufacturers to incur the additional costs of calculating and disclosing PDCAAS if they choose to “market to protein-conscious consumers.”

For more detail on this case and its insights for food and beverage manufacturers and labelers, see Clark Hill’s Jack McCaffrey’s article here.

News on Contracts and Licensing:

“What to Consider When Negotiating License Agreements”

License agreements serve as powerful tools for leveraging intellectual property assets for consumer goods and fashion companies. Various types of license agreements enable businesses to expand market reach, enhance brand value, and drive revenue. But to get the most value out of these agreements, it is crucial to understand and negotiate the terms in detail. This includes identifying the parties’ needs, assessing the value of the property being licensed, deciding proper financial terms, defining the scope of the agreement, addressing quality control, and determining what will happen at the end of the term of such agreement.

Before initiating negotiations, it is essential to clearly define the objectives and obligations of the parties. This involves identifying the specific intellectual property assets to be licensed, deciding the scope of the license (e.g., territories, duration), and determining the desired level of control and exclusivity the licensee and/or licensor need to have over the term of the agreement. Identifying these needs provides a solid foundation for negotiation and helps both the licensee and licensor align their expectations.

For additional tips on negotiating and drafting license agreements, see Clark Hill’s Jonathan Roffe’s article here.

New in the Liquor Market:

Illinois Liquor Control Board Adopts a Permanent Rule Regulating Placement and Display of Co-Branded Alcoholic Beverages in Retail Establishments:

On September 21, 2023, the Illinois Liquor Control Commission (ILCC) adopted a permanent rule regulating the placement of co-branded alcoholic beverages on retail sales floors. The regulation is designed to prevent consumer confusion between alcoholic and non-alcoholic beverages. For more information visit here.

The Brewers Association Believes Consumers Are Drinking Less Craft Beer

After a decade-plus of unprecedented growth, the craft beer industry is starting to experience some growing pains. Indeed, as Forbes.com previously reported, over the first half of 2023 craft beer sales numbers declined by 2% according to the Brewers Association — the first time the industry saw a decline other than in 2020 since these stats have been tracked. For insights on this declining trend visit here.

California Restaurants Target Over-Indulgent Guests

Several eateries in the San Francisco area have adopted a new policy of charging a $50 cleanup fee for anyone who vomits in their restaurants.

According to a report from SFGate, vomit incidents have become enough of a problem that popular brunch spots like Kitchen Story and Home Plate have implemented the new fee.

U.S. Supreme Court to Hear Case on Out-of-State Wine Shipments

The U.S. Supreme Court will hear a case brought by the Ohio State Attorney General seeking to ban the sale of wine in Ohio by shippers that are located out of state. The case should address the interplay of the U.S. Commerce Clause and the right of states to regulate the sale of liquor within their boundaries. For more information visit here.