By: Jonathan M. Weis
(This article was originally published in the Spring 2014 Editions of Next Course: The Magazine for Customers of Gordon Food Service.)
The U.S. catering industry generates over $5 billion in revenue a year. Most of the sales are generated through off-site events, such as weddings, business functions, bar and bat mitzvahs and holiday parties. There are numerous legal issues an operator needs to consider in the business of off-site catering. In addition to focusing on excellent customer service, responsiveness and producing an excellent product, you also want to be sure to take care of the legalities (some unique to catering and some not) of owning and operating a catering business. The purpose of this article is to highlight certain of the legal issues on which catering companies should focus in order to be successful. Please keep in mind that this article is for informational purposes only and is not legal advice and is no substitute for an acutal attorney consultation; operators should always consult an attorney regarding their specific situtions.
Type of Business Entity
While many catering companies may operate as sole proprietorships, it is always better to operate under the umbrella of a legal entity that will protect you as the owner from personal liability. This is particularly so in the catering business where you are feeding people and interacting with a multitude of guests and employees. Typically, a corporation or limited liability company is the way to go. Generally speaking, a traditional general partnership is not advisable since it is likely that you and each of your partners will have personal liability, in addition to your partnership assets being at risk. Assuming you maintain the distinction between yourself as an individual and legal entity (e.g., maintenance of separate bank accounts), you will generally be insulated from personal liability. Catering often involves practicing your craft in someone’s place of business or home, and serving large numbers of people eating food that you have prepared, and employees engaged in physical activity. All of this can increase the chance that someone could be injured, or their property damaged, in which case you will want your catering business, not you personally, to be responsible for any potential liability. For example, if at an off-site catering event, a guest comes down with food poisoning or an employee drops a heavy tray on a guest’s head, with a corporation or limited liability company, only the assets of the company would be at risk. However, if you operate as a sole proprietorship, your personal assets could be at risk (e.g., your home and personal bank account), as well as materials and funds you only use for your catering business. Business formation law varies from state to state, so it is a good idea to speak with an attorney before determining which type of entity is right for you.
Permits and Licenses
In addition to organizing a business entity for your catering operation, you will also need to obtain all appropriate permits and licenses for your company. The permitting and licensing process varies widely from state to state and even city to city and county to county. Often local government offices can be a great resource for determining what type of licensing and permitting you will need for your catering business. In addition, you will likely need additional licensing if you serve alcohol. (Often-times the process to obtain a license to pour alcohol can be more extensive than that for food service permits and may require interaction with a local liquor control commission.) Your catering business may also be subject to food and safety health inspections – similar to what a restaurant undergoes. This could include food inspection and refrigeration and cooking equipment inspection. Depending on the complexity of your local food handling and catering related ordinances, you may want to consider hiring a consultant to assist you with the process. In addition, you will want to pay close attention to the safety of your employees and ensure that they have appropriate eye, face and hand protection where necessary. It is also advisable to provide your employees with proper training with respect to their particular job responsibilities. This way, you will be able to provide excellent customer service, but will also better protect your company and employees.
When it comes to employees, you will want to be sure to properly screen all job applicants. This is particularly so in off-site catering because many of your employees will be working in a client’s home or place of business where clients’ personal possessions are kept and at risk. Look for employees with some track record in the food service industry, consider criminal background checks for certain (if not all) employees – particularly ones that may be handling client funds. Always check references and ask interview questions that are useful and applicable to your business, rather than only asking generic check-list type questions. Of course, in dealing with employees, you want to be sure not to ask any illegal questions (e.g., about their race or national origin) and not to discriminate based on race, gender, national origin or other protected classes. Also, be sure to understand the difference between independent contractors and true employees. While you may see these terms use interchangeably, for purposes of federal and state labor laws, they are not and can impact various labor and payroll tax issues. There are reference books you can review when it comes to employment policies and employment attorneys with whom you can consult.
Once you have your business organized, your permits and licenses in place and employees trained, you will want to focus on generating business. From a legal perspective, you should have a contract in place with your clients so each of you know what your expectations are of the other. It is important to have your customer agreements in writing – not because you are not able to trust one another — but because memories fade and disputes do sometimes arise. And it is a good business practice. It can also be reassuring to be able to fall back on a written agreement signed by you and your client if differences arise. If you have a website or a LinkedIn or Facebook page, you should also consider posting any general policies that guide your business and that apply to the catering services you offer. For off-site catering or catering in people’s homes, your contract should outline:
- venue arrangements (who is contracting with the venue and related issues);
- where will the food be prepared;
- how much the client is going to pay and when;
- who will purchase the raw food;
- waste disposal and clean-up issues;
- gratuities for servers;
- limitations on liability (if you are being paid $2,500 for an event, you do not want to be sued for $250,000);
- cancellation policy.
You should also consider each client’s particular needs and keep in mind that when it comes to written agreements, one size rarely fits all. Consider keeping your ‘form contract’ saved in your laptop computer that you bring with you to client meetings; that way you can quickly and easily revise it when the need arises. There are a variety of other provisions that can be included in your contract – some of which may be specific to the services you offer and others which may be more universal and legal in nature. When drafting a contract on which your business rests, it is almost always best to get professional legal advice.
While forming a corporation or limited liability company, getting the necessary permits and training employees are all necessary and excellent practices, despite the best laid plans, accidents do happen. So you must have insurance. Many clients will not consider hiring you if you do not have insurance in place and, in any event, you want to have insurance to protect your company in the event an accident does happen. With off-site catering, there are many obvious risks: employee injury, guest injury and damage to the property where the event is being held. There are also the general risks that most businesses face, such as employee theft and other types of property damage and personal injury. The best place to start when it comes to insurance is with a qualified insurance agent – preferably one who understands the food service and catering industries.
With the foregoing in mind and, of course, always maintaining superlative customer service, facing the legal side of the catering business does not have to be daunting and will provide you with the security you need.