CA's Nutritional Labeling Law: Raising Stakes for National Legislation

When California's nutritional-content disclosure law goes into effect on July 1, it will mark a new stage in labeling requirements imposed on restaurant chains. For the first time, nutritional labeling will be required across an entire state, instead of by a single city or county.

While affected restaurants in California focus on meeting the compliance deadline, the franchise and restaurant industries at-large have a greater concern: an emerging patchwork of laws that are raising the complexity and cost of meeting the public's demand for more nutritional information. As a result, restaurant industry trade groups, with support from the International Franchise Association (“IFA”), are seeking a single federal standard for restaurant nutritional labels.

“We think that having multiple states and localities each creating a different structure and mechanism for public information is not a good idea,” said Troy Flanagan, IFA director of government relations. “We think there should be a national, uniform solution.”

California's Law

California SB 1420, which amended the California Retail Food Code (Health and Safety Code, '114094), requires that California food facilities must disclose the number of calories, at the point of sale, for each menu item. All retail food facilities with 20 or more units (nationwide) that share common ownership or control or operate under the same brand name and/or same or similar menus, are covered. Franchised restaurants fit squarely into that definition.

The law allows for options for compliance during a two-year phase-in. A food facility can disclose calorie content on menu boards and signs, or it can create a brochure that customers can request. The brochure must contain information about each item's saturated fat, carbohydrate, and sodium content, as well as calorie content. After two years, all the nutritional information will be required.

“Our members are working hard on compliance,” said Lara Diaz Dunbar, Esq., senior vice president for government affairs and public policy, California Restaurant Association (“CRA”). “Many members of the restaurant industry had been opposed to nutritional labeling when it came up in the legislature year after year. But they saw the writing on the wall when localities, such as San Francisco and Santa Clara County, started passing laws ' We prefer a statewide approach.”

CRA lobbied successfully to minimize the liability issues under the statute, which Dunbar said was its members' other major concern. “The law states that it 'shall not be construed to create or enhance any claim, right of action, or civil liability that did not previously exist under state law or limit any claim, right of action, or civil liability that otherwise exists under state law,'” she said. “This isn't perfect, from our perspective, but it's reasonable. We view it as a win.”

Enforcement will be conducted by local health inspectors, and fines for violations are $50 to $500.

National Solution?

California's pre-emption of local regulations is the same solution that the National Restaurant Association (“NRA”), IFA, and others are seeking for the nation as a whole. The national solution, in the form of the Labeling Education and Nutrition Act (“LEAN Act”), was introduced in Congress in 2008, but it did not get much attention. It will likely be reintroduced this year. IFA, NRA, and more than 20 additional trade groups and companies (including McDonald's, Burger King, Domino's Pizza, and Dunkin' Brands) have created the Coalition for Responsible Nutrition Information to press for passage of LEAN this year.

One possible solution would be for states to agree on model legislation, and either pass the same law or not require nutritional labeling. However, in January, the Coalition for Responsible Nutrition Information successfully lobbied the Council of State Governments' Suggested State Legislation Committee not to adopt California's law as model legislation. The Coalition argued California's law is flawed, and that a federal approach would be superior to adopting California's law state-by-state. (The same committee did vote to incorporate in its 2010 model regulations a new California law that bans the use of trans fats by most food preparers in California, effective Jan. 1, 2011, which itself builds on a law that banned trans fats in schools several years ago.)

Experience at Local Level

Meanwhile, franchises from New York City to Seattle face nutritional-labeling laws today. Their experiences show the impact of the laws and the likely benefits of having uniform standards.

“Franchisors are taking responsibility for compliance with the King County [Seattle metro area] ordinance,” said J. Riley Lagesen, Davis Wright Tremaine LLP (Portland, OR), about a law that went into effect on Aug. 1, 2008. “They are making sure they communicate with the franchisees who are affected by it.”

Lagesen used Dairy Queen's Washington-Oregon master franchise, which is one of his clients, to illustrate what the franchise industry is doing. The DQ franchisee owns about 150 restaurants, only a fraction of which are in the single county in the Seattle area that is covered by the nutritional-label law. For those stores, the franchisee obtained nutritional information and designed menu boards. “Interest in compliance has been strong, from the top-down,” said Lagesen.

But the franchisee's other restaurants outside King County do not have labeling requirements at this time. And if labeling requirements are passed, they might not be the same as King County's, so the company will have to go through the process again, at additional cost, Lagesen said.

The DQ master franchise company bore the cost of compliance, but it was not required to do so ' even though legislators assume that's what franchisors or master franchises will do, according to IFA's Troy Flanagan. California's law exempting chains with fewer than 20 outlets is designed to push compliance on chains that are most able to bear the cost. But the law does not mandate that franchisors take the lead. “What if the franchisor doesn't pay?” Flanagan said. “Then the burden is on individual franchise owners. It's costly.”

Even when commitment comes from the top, assessing the calorie content of a menu item is not as easy as it seems. Lagesen used a national pizza chain as an example. “Think of the variations of pizza that are available, the toppings and pizza sizes,” he said. “Pizza chains have decided to post calorie ranges ' and they can be very broad. So far, that has passed muster with regulators, but is it meaningful to consumers?”

Varying interpretations of menu items or the inevitable deviations from the menu in actual food production remain concerns for all restaurants, added Flanagan. “The California law leaves restaurants open to enforcement or even a private right of action for a minor variation due to human error,” Flanagan said.

To be sure, California's law has been written expressly to avoid such lawsuits: Its declaration that it does not create a new right of action was written precisely for this reason, said Dunbar. But she acknowledged that the limits of restaurants' liability have not yet been tested, and it may take some time after the law is in effect before restaurants face a legal challenge.

Regardless, all parties agree that nutritional-label requirements are here to stay. It's only a question of what form ' local, state, or federal ' they will take.

Kevin Adler is the associate editor of FBLA.

When California's nutritional-content disclosure law goes into effect on July 1, it will mark a new stage in labeling requirements imposed on restaurant chains. For the first time, nutritional labeling will be required across an entire state, instead of by a single city or county.

While affected restaurants in California focus on meeting the compliance deadline, the franchise and restaurant industries at-large have a greater concern: an emerging patchwork of laws that are raising the complexity and cost of meeting the public's demand for more nutritional information. As a result, restaurant industry trade groups, with support from the International Franchise Association (“IFA”), are seeking a single federal standard for restaurant nutritional labels.

“We think that having multiple states and localities each creating a different structure and mechanism for public information is not a good idea,” said Troy Flanagan, IFA director of government relations. “We think there should be a national, uniform solution.”

California's Law

California SB 1420, which amended the California Retail Food Code (Health and Safety Code, '114094), requires that California food facilities must disclose the number of calories, at the point of sale, for each menu item. All retail food facilities with 20 or more units (nationwide) that share common ownership or control or operate under the same brand name and/or same or similar menus, are covered. Franchised restaurants fit squarely into that definition.

The law allows for options for compliance during a two-year phase-in. A food facility can disclose calorie content on menu boards and signs, or it can create a brochure that customers can request. The brochure must contain information about each item's saturated fat, carbohydrate, and sodium content, as well as calorie content. After two years, all the nutritional information will be required.

“Our members are working hard on compliance,” said Lara Diaz Dunbar, Esq., senior vice president for government affairs and public policy, California Restaurant Association (“CRA”). “Many members of the restaurant industry had been opposed to nutritional labeling when it came up in the legislature year after year. But they saw the writing on the wall when localities, such as San Francisco and Santa Clara County, started passing laws ' We prefer a statewide approach.”

CRA lobbied successfully to minimize the liability issues under the statute, which Dunbar said was its members' other major concern. “The law states that it 'shall not be construed to create or enhance any claim, right of action, or civil liability that did not previously exist under state law or limit any claim, right of action, or civil liability that otherwise exists under state law,'” she said. “This isn't perfect, from our perspective, but it's reasonable. We view it as a win.”

Enforcement will be conducted by local health inspectors, and fines for violations are $50 to $500.

National Solution?

California's pre-emption of local regulations is the same solution that the National Restaurant Association (“NRA”), IFA, and others are seeking for the nation as a whole. The national solution, in the form of the Labeling Education and Nutrition Act (“LEAN Act”), was introduced in Congress in 2008, but it did not get much attention. It will likely be reintroduced this year. IFA, NRA, and more than 20 additional trade groups and companies (including McDonald's, Burger King, Domino's Pizza, and Dunkin' Brands) have created the Coalition for Responsible Nutrition Information to press for passage of LEAN this year.

One possible solution would be for states to agree on model legislation, and either pass the same law or not require nutritional labeling. However, in January, the Coalition for Responsible Nutrition Information successfully lobbied the Council of State Governments' Suggested State Legislation Committee not to adopt California's law as model legislation. The Coalition argued California's law is flawed, and that a federal approach would be superior to adopting California's law state-by-state. (The same committee did vote to incorporate in its 2010 model regulations a new California law that bans the use of trans fats by most food preparers in California, effective Jan. 1, 2011, which itself builds on a law that banned trans fats in schools several years ago.)

Experience at Local Level

Meanwhile, franchises from New York City to Seattle face nutritional-labeling laws today. Their experiences show the impact of the laws and the likely benefits of having uniform standards.

“Franchisors are taking responsibility for compliance with the King County [Seattle metro area] ordinance,” said J. Riley Lagesen, Davis Wright Tremaine LLP (Portland, OR), about a law that went into effect on Aug. 1, 2008. “They are making sure they communicate with the franchisees who are affected by it.”

Lagesen used Dairy Queen's Washington-Oregon master franchise, which is one of his clients, to illustrate what the franchise industry is doing. The DQ franchisee owns about 150 restaurants, only a fraction of which are in the single county in the Seattle area that is covered by the nutritional-label law. For those stores, the franchisee obtained nutritional information and designed menu boards. “Interest in compliance has been strong, from the top-down,” said Lagesen.

But the franchisee's other restaurants outside King County do not have labeling requirements at this time. And if labeling requirements are passed, they might not be the same as King County's, so the company will have to go through the process again, at additional cost, Lagesen said.

The DQ master franchise company bore the cost of compliance, but it was not required to do so ' even though legislators assume that's what franchisors or master franchises will do, according to IFA's Troy Flanagan. California's law exempting chains with fewer than 20 outlets is designed to push compliance on chains that are most able to bear the cost. But the law does not mandate that franchisors take the lead. “What if the franchisor doesn't pay?” Flanagan said. “Then the burden is on individual franchise owners. It's costly.”

Even when commitment comes from the top, assessing the calorie content of a menu item is not as easy as it seems. Lagesen used a national pizza chain as an example. “Think of the variations of pizza that are available, the toppings and pizza sizes,” he said. “Pizza chains have decided to post calorie ranges ' and they can be very broad. So far, that has passed muster with regulators, but is it meaningful to consumers?”

Varying interpretations of menu items or the inevitable deviations from the menu in actual food production remain concerns for all restaurants, added Flanagan. “The California law leaves restaurants open to enforcement or even a private right of action for a minor variation due to human error,” Flanagan said.

To be sure, California's law has been written expressly to avoid such lawsuits: Its declaration that it does not create a new right of action was written precisely for this reason, said Dunbar. But she acknowledged that the limits of restaurants' liability have not yet been tested, and it may take some time after the law is in effect before restaurants face a legal challenge.

Regardless, all parties agree that nutritional-label requirements are here to stay. It's only a question of what form ' local, state, or federal ' they will take.

Kevin Adler is the associate editor of FBLA.