The guys kick off the week by discussing the Red Bull lawsuit over false advertising. They then answer, “My employees are receiving small tips on credit card receipts and we get hit with a processing fee each time. Can we deduct the fee from our employees’ tips?”
NASIR: Welcome to Legally Sound Smart Business. This is Nasir Pasha.
MATT: This is Matt Staub.
NASIR: Welcome to the business legal podcast that covers business in the news and also answers some of your business legal questions that you, the listener, could ask a question at email@example.com.
NASIR: By sending in an email address.
MATT: Terrible intro.
NASIR: Actually, the intro was good, but the conclusion of the intro was a little faulty.
MATT: It’s all right. I mean, there’s a little bit of leeway on Monday so I’m not going to hold it against you.
NASIR: True, just getting warmed up.
MATT: I shouldn’t give you the leeway because this isn’t being recorded on a Monday morning but people are listening to it on a Monday morning so maybe they’re not firing on all cylinders. They won’t even notice how bad that intro was – other than the fact that I’ve gone on about it for another minute.
NASIR: People are still trying to figure out if it’s Monday or not. I’m still trying to figure that out at least.
MATT: All right. Well, actually, we’ve got a good story that’ll help people wake up I guess indirectly – a lawsuit involving Red Bull – more accurately, a false advertising lawsuit. There’s a possible settlement, that’s not as important but basically it boiled down to this. It was a false advertising claim. I think everyone knows what Red Bull is, it’s an energy drink.
NASIR: It gives you wings.
MATT: Yeah, it gives you wings which does sound like false advertising right there, but the actual false advertising claim was it provided more benefits to consumers than a cup of coffee or a caffeine pill. And so, basic arguments – breach of express warranty, unjust enrichment, violation of other acts, things of that nature. I guess the moral of the story is, for any business, you have to watch out what you assert in terms of what your product or service can do for the customer.
NASIR: Yeah, also note that they’re alleged to have violated 30 different state consumer protection acts and we have a lot of clients and a lot of businesses sell their products and services – they also spell their products and services – they sell it on a nationwide basis and, though the consumer protection acts are pretty similar in the sense that what they intend to protect, there are differences. For example, California and New York are inherently more consumer-friendly than some of these other states. At the end of the day, especially when you’re selling on a national, you need to think about being very conservative of how you’re selling your product. What were their statements as far as what was told to be false?
MATT: I don’t know the exact quote but more benefits than a cup of coffee or a caffeine pill which I used to drink Red Bull a lot back in college but, if you’ve ever looked at the actual liquid or tasted it, there’s no possible way it’s going to be more beneficial than coffee. I mean, I don’t know about a caffeine pill but it just doesn’t seem natural. It has that Taurine in it which is supposedly very bad for you, so they say.
NASIR: Every time I drink it, it literally tastes like toxic waste to me. I feel like I’m drinking some chemicals. And the fact that it says that they provided more benefits compared to a cup of coffee and caffeine pill, that implies that Red Bull has benefits. It seems awkward to say that for some reason to me.
MATT: Yeah, and have you seen – and this is fresh on my mind because I watched the beginning of it the other day – the movie Role Models? The two main guys, their job – at least in the beginning – is going around, speaking at schools, talking about energy drinks.
NASIR: Is that the one where they go to the LARP?
MATT: Paul Rudd and Seann William Scott.
NASIR: Yeah. I mean, it just seems ridiculous. We’ve all seen those Monster drinks and those energy drink guys out there trying to promote this stuff. It just seems like anything that they would say – besides it giving you wings – would be considered false advertising. Obviously, I joke around the wings aspect because no one actually believes that it does give you wings but, if they truly claim that was the case and it was reasonable to assume that’s what they were saying, then obviously that would be false advertising.
MATT: I’m reading the complaint now. It’s actually stated in there. The defendants spend millions of dollars misleading people about the superiority of their “functional beverage” and its ability to “give you wings” and provide energy and vitality. Red Bull states that, because of its unique combination of high-quality ingredients, Red Bull energy drink revitalizes body and mind. Interesting. We’ll link the complaint.
NASIR: Yeah, I’d like to see the complaint.
MATT: Obviously, no one would expect it gives you wings but the part about it being better than coffee or a caffeine pill… I’ve never taken a caffeine pill so I don’t know. I imagine it’s a similar sort of thing.
NASIR: That’s kind of a statement of fact, right? You have to kind of back that up that, okay, if you’re saying there’s more benefits, how and what’s your basis for that? We’ve all seen marketing kind of give a lot of leeway to these kinds of statements but whenever you make a comparison, you have to be very careful with this. One of the reasons why this happens very often with big companies – because, again, you would think, okay, there’s a whole team of lawyers that are reviewing this stuff but, in reality, it’s just like a small business. When you have the marketing end of things, they’re not the gatekeepers of what goes through. You know, the lawyers, the accounts are the gatekeepers. The marketing people are the doers. They just want to make the sale and get it done and those are competing kind of interests. And so, from a practical perspective, you do have to kind of put that into consideration when you’re dealing with marketing people.
MATT: That’s a really good point. If you have a legal team, you have a marketing team, I think their thoughts on this are going to be a little bit different in this. I’m going to go on one more thing because I think this question is going to be able to be answered pretty quickly so I’m not worried about that. I don’t know if you’ve ever seen the show on Comedy Central, Nathan for You with Nathan Fielder.
NASIR: I have not.
MATT: It’s a comedy show and he goes around trying to improve small businesses with extreme ideas. It’s kind of joking. One of his ideas – and it’s all in LA – some burger place and it advertised like, “The Best Burger in LA” or something like that and he went on the radio with this guy, the business owner, who was kind of just going along with it. He’s like, “You come to our place, if you don’t think it’s the best burger, we’ll give you a full refund.” It went out to millions of people. It’s hard to explain without seeing the show but it’s really funny. But that’s the whole point of this advertising. It has to be within reason.
NASIR: Yeah. Actually, we should cover the legal issues surrounding saying that you have the best coffee in Seattle or the best coffee in the world, best pizza in the world, best pizza in the country, you know. We’ll do that one day.
MATT: We can do that, that’s not a problem.
NASIR: I’m not saying it’s a problem.
MATT: I’ll have to link the other Nathan for You thing too. It’s pretty funny.
NASIR: No, I think we should just have a brainstorming session of topics for the future.
MATT: That’s what everybody wants.
MATT: Question of the day.
NASIR: Question of the day.
MATT: “My employees are receiving small tips on credit card receipts and we get hit with a processing fee each time. Can we deduct the fee from our employees’ tips?” This comes from someone in Santa Barbara.
NASIR: California. You know, actually, in some states, this is actually allowed. There was just a story, it seems like it was this week or even before then, I think it was a Minnesota company that was actually doing this because they were trying to get around the minimum wage increase and so forth and I don’t know the details of that case but, in Minnesota, apparently, it’s allowed. But in California? Definitely not.
MATT: Yeah. I mean, that’s the answer and, since this person’s in California, that’s pretty clear cut. That’s in the labor code that you can’t do this as an employer. I mean, why would you anyways? I don’t know how it works. Do they run the credit card and they go back and type the tip in later? Is it run two separate times or is it all considered one transaction? I don’t know the answer to that.
NASIR: I think I know the answer to that and, if anyone owns a restaurant, they can clarify. Basically, they run the credit card and it puts some kind of hold and then, at the end, they put in the actual number and they do some batch processing or something to that effect for the tips, right?
MATT: I think you’re right because, if you go back and look at your transactions, I think 95 percent of the time, it’s just one transaction. It’s very rare that you’ll have two transactions.
NASIR: Yeah, it’s always one transaction.
MATT: One with the thing and one with the tip. Occasionally, I’ll have that.
NASIR: Oh, really?
NASIR: They may just be overcharging you like, “Let’s just charge him for another dessert or something.”
MATT: Probably are. It’s a scam.
NASIR: I don’t know why you would either. I understand the sentiment because those credit card fees do add up. For those of you that don’t necessarily sell products or accept credit cards, merchant fees are very simple. Sometimes, they have a monthly fee, they almost always have a per transaction fee, and then they have a percentage fee of the actual ticket and so those three items are always negotiable and these credit card processors play with all those rates. But, generally, I think restaurants, because of the volume that they’re doing, the number of transactions, they usually try to keep the per transaction fee very low and the percentage maybe a little bit higher. I think that ranges three to five percent a lot of the time and three to five percent for each sale, that can add up, but I don’t know if you want to take that away or I guess just pay them less overall. It just seems strange to take that off the top of the waitresses or waiters.
MATT: Yeah. I mean, if you’re really that concerned, just put a minimum that people have to do to charge a credit card or just be a cash-only place.
NASIR: Yeah, and that can always kind of backfire too, obviously. I get frustrated with that kind of stuff sometimes. I don’t carry cash. For my sake, don’t do that.
MATT: Places like that usually have an ATM inside their place.
NASIR: Yeah, but then they charge like $2.50 or $3.50, right?
MATT: Yeah, that’s the challenge.
NASIR: Gosh. I feel poor all of a sudden. I need more cash.
MATT: When those situations arise and I don’t have cash, I just trade services for services.
NASIR: Yeah, that’s what I do, too.
MATT: I go back and wash dishes for 25 minutes.
NASIR: It would be kind of cool if you could do that. Why not?
MATT: Why not?
NASIR: All righty. I think that’s our episode, ending on a very high note.
MATT: With you talking about specific percentages of credit card fees. That’s what everyone wants to hear on a Monday.
NASIR: Well, I don’t know, I find it interesting because I know a lot of our clients, they get calls all the time wanting them to switch and they’re always trying to undercut over and over again the competitor. Well, anyway, okay, should we end it or should we just start talking for another five minutes?
MATT: Yeah, I’m going to drink a bunch of Red Bulls between this episode and the next.
NASIR: All right, it’ll give you wings. Have a good day, everyone!
MATT: Keep it sound and keep it smart.