Responding to health concerns, state and local legislatures across the country have begun to ban the use of trans fats and mandate the disclosure of nutritional information at local restaurants. Although most successful at the city and county level to date, efforts to push statewide legislation have increased, particularly in California and New York. As the specific requirements of these regulations vary among jurisdictions, it is vital that the franchise community stay apprised of and active in these developments to oppose these mandates and, if unsuccessful, to avoid running afoul of them.

Trans Fat Bans

In July, the California state legislature passed a law designed to eliminate the use of trans fats statewide. The law amends the California Retail Food Code to require (1) that all food facilities keep the label onsite for any food product that includes any fat, oil or shortening for as long as this product is stored, used or served in that facility, and (2) that most restaurants in the state gradually phase out trans fats.

The law mandates that starting January 1, 2010, a food facility may not store, distribute, serve or use any oil, shortening or margarine containing trans fat for use in spreads or frying, except for deep frying yeast dough or cake. Starting January 1, 2011, the ban will apply to all oil, shortening and margarine. The law, which does not apply to food sold and served in original manufacturer packaging, would carry a fine ranging from $25 to $1,000 per violation. The law defines "food facility" to include restaurants of all varieties, food storage facilities and farmers' markets.

While California is the largest jurisdiction and the first state to enact such a ban, other county and city lawmakers have been active in passing similar legislation. For example, New York City's trans fat ban took full effect on July 1, 2008. The ordinance, which previously only applied to spreads and frying oils, and excepted oils used for deep frying cake batter, now forbids all food containing partially hydrogenated vegetable oils, shortenings or margarines with 0.5 grams or more trans fat per serving from being stored, used or served by food service establishments in the city. As in California, prepackaged foods are excepted from New York City's law. City authorities report that compliance with the ordinance so far has been at 98 percent.

Similar phaseouts of trans fats have been passed in Philadelphia, Boston, King County, WA, Albany County, NY, Montgomery County, MD and elsewhere. Although these ordinances often take similar, two-phased approaches, individual variations in wording and scope do exist. A statewide trans fat ban similar to the California and New York City models is currently pending in the Massachusetts legislature.

Although trans fats are being, or have been, phased out from the cooking oils of many of the largest restaurant chains in the U.S., smaller franchisors, or those without outlets or franchisees in affected jurisdictions, may not have made the switch. The trend of passing such bans seems only to be spreading. Franchisors who have not begun planning for a trans fat phaseout should stay abreast of the enacted and proposed regulations in each jurisdiction where they have outlets in order to know whether, and how quickly, they should start their transition.

Menu Labeling Requirements

Another widespread trend in restaurant regulation is the requirement that restaurants disclose specific nutritional information to their customers about food products sold on their premises. These laws typically single out chain restaurants for heightened regulation. One such law, enacted by New York City, has received significant attention. As discussed in the May 9, 2008, Franchise Alert, New York City's labeling law went into effect on July 18, 2008, notwithstanding an appeal pending in the United States Court of Appeals for the Second Circuit challenging the validity of the law. The Court of Appeals heard oral arguments in the case on June 12, 2008, but did not issue a decision before the ordinance went into effect. The law, which requires restaurants to display the caloric content of food items on their menu boards, attempts to target fast food chains by applying only to establishments with 15 or more locations that do business nationally, offer substantially the same menu items in standardized portions, are under common ownership, are franchised outlets or do business under the same name. Restaurants that fail to provide full caloric disclosure as required by the law will be subject to fines of up to $2,000 and may face deductions from their health code inspection scores.

Other jurisdictions are considering proposals similar to New York City's ordinance. Two bills currently before the California state legislature illustrate the variations in the definitions of regulated restaurants and the scope of disclosure required by restaurants. SB 1420 would apply to any food facility that shares common ownership with at least 14 other such facilities within the state and would require such restaurants to provide information disclosing the amount of calories, carbohydrates, sodium, saturated fat and trans fat in each food product, and to publish calorie information on menu boards. Another bill, AB 2572, sets the common ownership requirement at 21 facilities and allows for the display of the information in a variety of ways, including publication in a menu, food packaging, tray liner, poster or brochure, with no menu board requirement.

The New York state legislature is also considering legislation that would impose labeling requirements. This bill, proposed by Assemblyman Felix Ortiz, would apply to chain restaurants with 15 or more locations anywhere, five of which must be in the state of New York, and would require that such restaurants display the number of calories for each food item on their menus.

As with the bans on trans fats, local governments have been more successful in enacting menu-labeling regulations than their statewide counterparts. City and county menu labeling requirements have passed in San Francisco, King County, WA and Santa Clara County, CA, among other places, and have been proposed in Philadelphia as well as many other jurisdictions. These regulations have come under scrutiny and faced legal challenges, however, as illustrated by the challenge to the New York City ordinance and a similar suit facing the San Francisco menu labeling ordinance.

A primary criticism of menu labeling legislation at the local level is that the "patchwork of local ordinances would be challenging and confusing for restaurants and their customers." In recognition of this potential problem, the state of Georgia has taken a different approach. In April 2008, Governor Sonny Perdue signed a law, believed to be the first of its kind, that specifically prohibits counties in the state from mandating on-menu disclosure of nutritional information. The goal of this measure is to protect restaurants from the threat of inconsistent regulation.

Because of public concern about health issues, especially childhood obesity, it is likely that similar legislative actions will continue at all levels of government. For example, the Los Angeles City Council recently unanimously voted to impose a one-year ban on the opening of any new fast food restaurants in a 32-square mile area of Los Angeles, which encompasses the city's poorest areas. This ordinance is awaiting approval by the mayor. As such regulations are adopted and legal challenges progress at the state and local levels, franchisors must decide how to respond. Because the new rules require changes to key aspects of the franchise system—including food preparation and menu design—franchisors should plan to work with currently and potentially affected franchisees to develop a strategy for addressing these issues. Additionally, franchisors who operate company units in affected jurisdictions will be directly impacted and may have to modify operations accordingly.