If you’ve shut your doors to the general public because of COVID-19, there is a silver lining. Many food retailers and restaurants are considering implementing either a ghost kitchen (also known as dark kitchens, cloud kitchens and virtual restaurants) or a delivery-only model. These models can be implemented by entering into a relationship with any of the popular third-party delivery service providers. We previously wrote about ghost kitchens and delivery agreements in our Retail Law Resource blog last year: Ghost Kitchens: Considerations in Negotiating Agreements with Third Party Delivery Services and Restaurants on Wheels. This alert updates those posts for restaurants and retailers, with COVID-19 in mind.
As you roll out or expand your delivery model, we suggest that you consider the following issues when contracting with delivery providers:
- Control Your Brand and Define Your Relationship. Many of our restaurant family and retail clients contract with several delivery providers to maximize end-user coverage. Negotiating these agreements—rather than simply adopting the terms on the provider’s website—enables the customer to exercise some influence over key elements of the service that impact its brands. Putting aside COVID-19, that effort often focuses on maintaining consistent pricing across platforms, procedures for handling customer complaints, in-store and on-the-road operational logistics, and drawing bright lines of legal responsibility between the restaurant and the provider. From a legal perspective, a well-crafted agreement helps prevent courts from implying an agency relationship between the restaurant and the delivery provider and its drivers and making the restaurant liable for their acts and omissions. While maintaining an arm’s-length relationship helps avoid the agency inference, it also weakens the restaurant’s ability to control a critical element in the quality chain between it and its customer. If third-party delivery services now will handle a substantial majority of your customer interactions—and could be unwitting vectors for transmission of coronavirus—your existing and new agreements with those providers assume a new importance.
- Allocate Responsibility for Drivers. Your agreement should appropriately allocate the risk for claims that may arise due to the drivers’ actions. While the question remains unsettled in the courts, third-party delivery service providers argue that their drivers are independent contractors and not employees when negotiating an agreement with a merchant. If that argument holds, merchants could be the only available “deep pocket” left to pay for the drivers’ missteps. However, by incorporating strong indemnification obligations and insurance requirements to cover the drivers’ acts and omissions, the merchant can try to allocate these risks away from itself and back to the delivery service provider. Consider how your own online delivery terms might be adapted to further reinforce that allocation.
- Basic Policies and Procedures Regarding Food Handling. Cold food is one thing, but who is at fault if a driver delivers food two hours late or if the temperature maintenance procedures on delivery packaging fails and a customer gets sick? Because these drivers and restaurants are handling the food products, it is also important to include language addressing the delivery service provider’s compliance with restaurant policies or the delivery service provider’s own policies. This provides clear obligations with respect to quality control and food safety. In addition, incorporating some method for tracking orders can also be helpful to establish a chain of custody, in the event that any issues arise relating to foodborne illnesses. Adherence to a well-crafted policy will also go a long way in ensuring customer satisfaction.
- Dealing with COVID-19 Concerns. Beyond these basics, COVID-19 raises a range of additional risks, since poor practices could lead to nightmare scenarios involving customer illness and significant brand damage. First, consider your own practices for maintaining a safe and healthy workplace and protecting your customers. The FDA, CDC, EPA and many state and local public health authorities have all issued guidance in this area that should be consulted and our Labor & Employment Pandemic Resource Center tracks developments continuously. We have worked with industrial hygienists to help clients generate protocols addressing transmission concerns, which can be done quickly and cost-effectively and can help manage risks if carefully observed. Second, consider implementing the following measures to enlist your delivery providers in managing these risks:
- Require providers to certify compliance with applicable law, guidance of governmental authorities (including OSHA, the CDC, the EPA and other federal, state and local agencies) and industry best practices regarding food handling and infection control, and to adopt policies requiring delivery personnel to do the same.
- Require providers to adopt policies consistent with any specific delivery models you believe are most consistent with your brand image and prudent practice, such as “contactless” delivery, online payments and compliance with drop-off rules instituted by locations where customer deliveries are to occur.
- Consider requiring service providers to adopt policies that encourage workers not to come to work when they are or think they might be ill.
- Require delivery personnel to comply with your own in-store pickup practices consistent with prudent infection control practices.
- Consider requiring providers to report periodically on the overall health status of their workforces and specifically with respect to workers who have interacted with your staff or customers who are self-quarantining or have tested positive for COVID-19.
- Consider requiring service providers to cooperate with contact tracing and other public health initiatives involving their workers who have interacted with your staff or customers.
For those of you with existing agreements, consider requesting assurances from your provider regarding these measures and entering into an appropriate amendment to document your expectations.
Food delivery and relationships with third-party delivery service providers are a critical way to sustain sales during the uncertainty of the COVID-19 pandemic. As merchants adapt to these models, it is important to be mindful of the risks involved in using these third-party delivery service providers and to structure a relationship and a contract that protects the merchant while fairly allocating the risks and reaping all of the benefits these services have to offer.