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Introduction

Owning and running a restaurant has to be one of the most tiring yet rewarding businesses to run. Often stemming from one’s own cooking passion or beliefs, a family tradition or heritage, a restaurant is most likely a very personal venture. This is why you should take no chances in making sure your contracts and legal arrangements are watertight and that you fully understand them. A lack of success can often be down to not having the right restaurant in the right place at the right time, marketing it wrong, running out of money or poor management (amongst many other things). However, a lot of these common problems can be alleviated, and you can protect yourself through knowing your rights and obligations with regards to the law and having the correct contracts in place. At the end of 2016, YouGov interviewed over 1000 UK SMEs and we had the stats analysed by the Centre of Business and Economics Research (CEBR). According to this research, the Food and Beverage Sector loses over £1.5 billion through not taking care of their legal business. Ignoring the law means legal problems will eventually bite, and we cannot express how important it is to protect your ideas and the foundations of your restaurant from the outset and throughout. We hope you enjoy this plain-English LawBite (we realise our name is quite apt here!) guide that we have created for running a restaurant with the business’s legals in mind. Please note, some of these stages will of course over-lap and some things may not necessarily apply to you...

Suppliers

Catering equipment and furniture supplies

If you’re just starting out and would like to keep costs low, you might want to consider hiring catering equipment and furniture. Whilst this of course comes with the benefit of not having to commit a lot of money up-front, hiring used equipment also comes with its own risks you should be aware of. For example, in one disastrous scenario, an oven might cease to work on the busiest night of the week. Therefore, check to see if the company that supplied you the equipment has contingency plans in place to prevent the problem i.e. do they offer any guarantees on the equipment? Or, have you checked that there aren’t any hidden costs associated with the equipment? It goes without saying too that you should thoroughly check the equipment and furniture first to make sure it is exactly as described and is fully functional. Therefore, there should be an agreement in place which covers you for every eventuality. Ultimately, you must make sure that you understand all the terms in the agreement you have been given so you do not leave yourself open to risk.

Food and drink supplies

Paramount to the success of your restaurant, finding and keeping the best supplier under the right terms for you will be one of the most important things you do. Prior to starting any negotiation, you should have already done the maths to know how much you can spend on supplies relative to how much you price items on your menu, taking general running costs into account and leaving room for factors such as wastage. All this should be signed off by both sides with a solid contract, which you understand in its entirety. Here are four key points you should consider before your initial discussion:

  1. Price: Of course you should be able to afford the produce BUT don’t compromise quality or other terms as this will be sure to hurt you financially later on when customers don’t return.
  2. Payment terms: Linked to the cost is how your invoice is paid- will it be in one lump sum or in instalments? If you have gone for better quality products, you might want to negotiate favourable instalments to keep cash-flow under control.
  3. Quality: This is vital here- if the price for the goods is suspiciously low, this should set off warning bells.
  4. Delivery: One key to this is location. If they are importing from overseas, shipping costs will add to the bill and if any goods get held up during the process it could pose a problem for you.

There are plenty of other things you should be thinking about too. For example, should you put all your eggs in one basket (there’s a pun there somewhere) or spread your needs across two or more suppliers?

Developing a good two-way relationship with your supplier(s) is absolutely vital and in doing so there is certainly scope for re-negotiating terms so that they are more favourable to your business. Additionally, when the time comes to order more you will be in a good position for expansion. Reliability is key here. Therefore, you might consider whether you want a smaller supplier who you’re likely to develop a closer relationship with or one which is larger but may be cheaper. There are benefits to both.

It is also helpful to keep a file where you print out web pages, or retain emails that you wrote when you were doing your research about which supplier to use, or which manufacturer to go with. This will be very helpful to show why you chose a particular product, and what representations were made to you to encourage your purchasing decision.

With whatever supplier(s) you choose, make sure to have a Supply of Goods contract in place and have a lawyer look over the key considerations within it. At the end of the day what you need is for your goods to arrive in great condition, are fit for purpose and that both parties are happy.

Hiring Staff

Unless you’re going to be the chef, take orders, serve the food, whilst managing the restaurant too, there’s a rather large chance you’re going to need people working for you in these roles. There are different ways in which people could be hired. The most obvious of these is as an ‘employee’ either full-time or part-time. You can also hire ‘casual or zero hours workers’ or agency staff. There is also the option of hiring consultants or contractors (though it is unusual for this type of business to have staff of this nature operating within the daily functions). In general, if you’re hiring staff, there are several practical matters you should be aware of but in short:

  • If you have ‘employees’ then you must have employers liability insurance.
  • You will need to set up payroll and ensure that people are paid on time and taxes are deducted (though this doesn’t apply to agency staff as they will be paid by the agency, who you will pay).
  • It is recommended that they have clear contracts in place.
  • You have to provide certain information to an ‘employee’ about their employment within two months of the beginning of their employment. It is recommended that all employees sign contracts of employment containing this information and other terms that protect your business.
  • You should also ensure you comply with health and safety legislation.
  • A commitment to equal opportunities when hiring staff means that you will attract the widest pool of talent; there is credible evidence that this will benefit your business in the long-run.
  • It is recommended to have a range of well-drafted policies to provide sensible and appropriate guidance as to how people should behave within the organisation.

'Employees'

Here are some of the issues to consider with employees;

  • Have a contract in place which states the conditions of the employee’s employment e.g. rate of pay, other benefits, working hours, holiday, maternity/paternity leave, Term, notice period, location, confidentiality, any post-term restrictions etc
  • There is a raft of legislation affecting employees which you need to be aware of, including; Legislation on the National Minimum Wage (as of April 2017, £7.50 for 25 & over), but you should check for updates).
  • The Equality Act 2010 which prevents discrimination on the basis of age, disability, gender, race, religion, sex, sexual orientation, marriage and civil partnership, pregnancy and maternity.
  • The Equality Act 2010 which prevents discrimination on the basis of age, disability, gender, race, religion, sex, sexual orientation, marriage and civil partnership, pregnancy and maternity.
  • Generally, it is more difficult to dismiss an employee after two years of employment
  • Legislation on holiday pay, flexible working, statutory sick pay
  • The Working Time Regulations
  • The Health and Safety at work Act 1974
  • The Management of Health and Safety at Work Regulations 1999 (which govern risk assessments)
  • Legislation on shared parental leave

New pension guidelines

One point to highlight here would be the recent pension legislative changes. Following on from the Pensions Act, 2008 ‘auto-enrolment’ means that you must now develop a pension scheme for your workers/employees (though employees can opt-out). You also have to contribute an amount up to 3% of their qualifying earnings to that pension. This has been a phased process since 2012 and it is now catching up with smaller businesses too. Do not underestimate how much planning is needed to successfully do this. Importantly, you will have to account for the fact you are contributing into the scheme in your budgeting.

‘Self-employed’ or ‘Contractor’

  • If you take on someone who is ‘self-employed’ or a ‘contractor’ they do not have a contract of employment with your organisation, but need their own agreement to provide a certain service. This will specify the length of time and for what fee they are working, and the nature of the task they are asked to carry out.
  • They do not have as many automatic rights as an employee, but do have some legal protection. For example, they have the right to not be discriminated against and are entitled to a safe and healthy environment to work in.

IR35 - don’t get caught out!

We hear a lot about what IR35 is and who is liable for it. In short, it targets contractors who might be avoiding paying the tax they should be paying by presenting themselves as self-employed rather than as employees. Contractors are technically self-employed and as such are not taxed in the same way as general employees; they take dividends from their company and pay less in NI contributions. HMRC sometimes sees these people instead as disguised employees who should be taxed in the same way as a general employee. The legislation looks here to stay and it is vital for contractors and businesses alike to be aware of it and stay compliant to avoid financial penalties. Contractors need to stay within the all-important definition of ‘self-employed’ to beat the IR35 rules, but this is not always as easy as it sounds. So first of all, consider whether IR35 applies to you. You can do this on the government website here. In essence, the more your contract looks like a contract of employment, the less likely your service-provider will be regarded as a contractor. Here are some give-aways;

  • Is the person working exclusively for you?
  • Do they have a choice of whether to do the work or not?
  • Do they have a choice of how to do the work?
  • Can they appoint a substitute?
  • Do they receive employee benefits like paid holidays and sick pay?
  • Are they on an indefinite or rolling term?

In general, however you choose to hire someone, make sure you have contracts in place that clearly defines this relationship. Trust us, it will save yourself and your business a lot of future headache!

Marketing and Advertising: Promoting Your Business

Adverts

Even if you have a delicious menu, great location and a wonderful team raring to go, you’re likely going to want to promote your restaurant as much as you can to get as many people through the door as possible. Too many customers is a great problem to have! Whilst carrying out these activities, there are certain legal considerations you should think about - most are common sense but certainly worth mentioning. The government website quite plainly states what you can and cannot do:

All marketing and advertising collateral (e.g. flyers, online ads, business cards etc) must be:

  • An accurate description of the product or service. To elaborate further, to provide an ‘accurate’ description’ means that you are easily able to prove what you say. This also includes the price of the product, so if you’re charging VAT but fail to mention that in the pricing, that’s not accurate.
  • Legal;
  • Decent;
  • Truthful;
  • Honest;
  • Socially responsible (not encouraging illegal, unsafe or anti-social behaviour).

Direct marketing

With regards to ‘direct marketing’, there are rules you must comply with if you will be contacting your database via phone or by email (if you are collecting this information from your website):

  • Consent is the new issue that the regulators are keen on. It is crucial that if you ask someone if they consent to being contacted, that you record that consent. Consent is supposed to be clear, informed, unambiguous and specific. So just because someone ticks a box on a web page to be contacted with marketing material, does not mean that they consent to you passing your information on to someone else. Be careful if you purchase a list of names from a third party agency, as the people may not have consented to their information being sold to others.
  • Cookies: As mentioned before, if you have a website, you must have a cookies policy which is easily understandable and states what you intend on using them for.
  • As a general rule, you must check to see if the person you are trying to contact is happy to be contacted by phone/fax/post/email and also give them the chance to object. If someone does object, make sure you alter your database. Remember that if you keep personal information, you have a duty to review it from time to time to ensure that it is accurate and still current.
  • When you do collect their details and would like to send them other offers and promotions e.g. ‘50% off all cocktails every Thursday! Use code THURSFUN to claim’, you must get permission.
  • If another organisation e.g. an affiliate partner would also like to promote offers, in an email perhaps, you must make sure they are happy for you to share their information to a third party.
  • They should also be able to ‘opt-out’ if you are sending too many emails or texts, for example. It should be easy and obvious to do so.
  • A point to note is that if you are buying or renting databases, do ask the supplier if you have the right to use it based on the above criteria. The person or business must have specifically opted-in to use it, otherwise it’s not legal.

Remember: If a person is unhappy about receiving unsolicited correspondence from your business, they could submit a formal complaint and you’re likely to get fined. Don’t get caught out! We would recommend you also check out Part 1 of our Restaurant Guide series 'Setting Up Your Business', which goes into detail about Data Protection and GDPR which is coming into force in 2018.

Partnerships

Another effective way in which you could market and advertise your business is through an affiliate network or ‘partnerships’. These are people or businesses who don’t directly work for your business but would be happy to recommend the service if they feel their friends or customers could benefit. Sometimes there is a referral fee for the recommendation. If you intend on marketing in this way it is sensible to draw up an affiliate agreement or partnership contract which will clearly set out the parameters of the relationship and how the partnership will operate in practise. It doesn’t have to be complicated, just so everyone is clear about how it will operate, particularly when it comes to any monetary exchanges for referrals and understanding any activity that is planned.

Conclusion

We hope you enjoyed Part 3 of our plain-English guide to setting up a restaurant. Parts 1 and 2 will go into detail about setting up, IP, property and complying with regulatory requirements so do have a look at them too. Of course none of this information is a complete substitute for professional legal advice so if you’re confused about any of the above or would simply like the reassurance of a solicitor, LawBite offers a free 15-minute consultation, which you can access by submitting an enquiry here. Good luck!

Contributors:

Lizzie Knight, Head of Marketing
Jeremy Barnett, Regulatory and Food Safety Barrister
Hannah Newell, Corporate and Commercial LawBrief (LawBite lawyer)