GDPR is Coming: If Your Business is Online, Beware the New EU Privacy Regulation

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If you sell or offer goods to EU residents, even from the U.S., it is now necessary to re-examine your data processing and privacy procedures. There is a new EU privacy law that will go into effect on May 25, 2018, with significant penalties for violations. The EU General Data Protection Regulation, or “GDPR,” covers any website, including a U.S.-based website, selling to EU residents and processing personal data of those EU residents.  Here are some basic questions and issues to address concerning your online presence:

Do you collect, store, or use Personal Data? You are subject to this regulation if your website collects, organizes, stores, disseminates, uses or otherwise processes personal data of EU residents, regardless of where your website keeps or uses such information.

“Personal Data” will likely be broadly interpreted. The GDPR defines “Personal Data” very broadly to include any information that can be used to identify an individual. This can include all sorts of data, like names, e-mail addresses, office addresses, and even IP addresses.

Can your users easily revoke consent? The GDPR takes consent seriously. The GDPR requires you to demonstrate consent was “freely given, specific, informed and unambiguous” by a “clear affirmative action” on the part of the user for the processing of personal data. When you ask for the user’s consent, you must articulate “specified, explicit, and legitimate purposes” for processing the data. Limit the data you collect to what is necessary to achieve these articulated purposes. Be extra careful if you are collecting sensitive personal data – the GDPR raises the bar for obtaining consent to process “special categories of personal data.” And make sure it is as easy for the user to withdraw consent as it is to give consent.

Can you respond quickly and effectively when the user exercises rights under the GDPR? The GDPR grants users, or “data subjects,” quite a few rights, including but not limited to knowing where and why you are taking the data and anything that happens to it, objecting to its collection or use, obtaining a copy of it, correcting or erasing it, or restricting its use. Make sure you have procedures in place to respond appropriately in the event a user exercises rights under the GDPR.

Penalties for failure to comply can be steep. Failure to comply with the GDPR can expose companies to administrative fines of up to 20 million Euros or 4% of the total worldwide annual turnover of an “undertaking” of the preceding financial year, whichever is greater. Even if you use vendors to process your data, you are still responsible for monitoring compliance. You are required to “implement appropriate technical and organizational measures to ensure and to be able to demonstrate that processing is performed in accordance with this Regulation.”

The EU GDPR is a minefield of regulatory requirements that require a close examination of your data processing and privacy procedures. Some companies, such as Microsoft, are implementing a single system worldwide to comply with the EU’s requirements, effectively granting greater-than-required  rights to non-EU residents.  There will likely be considerable uncertainty and confusion as the GDPR requirements are implemented and enforcement begins.  Contact Conkle, Kremer & Engel to help bring your data processing and privacy procedures into compliance.

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The Conkle Firm Presentation at 2018 PCPC Legal & Regulatory Conference

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On May 9, 2018 Conkle, Kremer & Engel attorney John A. Conkle presented on “The State of the States” panel at the 2018 Personal Care Products Council’s Legal & Regulatory Conference.  The panel focused on the increasingly strong role of state legislatures and state regulatory bodies in addressing issues of importance to the personal care products and cosmetics industries.  The panel featured lively discussion of issues arising from the evolving patchwork of laws and regulations among numerous states, including California’s infamous Proposition 65, slack fill laws, and labeling and ingredient disclosure regulations, ingredient phase-out requirements and outright bans, volatile organic compound limitations to protect air quality, and animal testing regulations.  The discussion included the importance of preservation and presentation of evidence to support manufacturers’ positions, including testimony in depositions and at trial.

The panel’s presentation is available here for review.  Contact John Conkle to discuss the latest issues affecting the state of the personal care products and cosmetics industries.

 

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CKE Attorneys Attend Craft Brewers Conference in Nashville

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From April 30 to May 3, 2018, attorneys Evan Pitchford and Zach Page of Conkle, Kremer & Engel attended the Brewers Association’s Craft Brewers Conference in Nashville, Tennessee.  The Conference, with nearly 15,000 attendees, is the premier trade show, educational, and networking event for the craft brewing industry.  At the Conference, Mr. Pitchford and Mr. Page participated in numerous business and legal affairs seminars and conferred with brewery operators and executives, suppliers, attorneys, accountants, and consultants from California and across the country.

While the main theme of the Conference was solidarity and cooperation between independent craft brewers and their networks, prominent legal and business issues discussed among attendees often focused on the increasingly crowded space of the craft beer market.  This increasing competition has resulted in intellectual property conflicts and disputes (for example, regarding trademarks for brewery names or branding for particular beers) that craft brewers need to plan around when starting their business and expanding their portfolios.  CK&E has attorneys like Mr. Page and Mr. Pitchford who are experienced in assisting clients in selecting, registering, and enforcing trademarks and trade dress in many consumer product industries.

Another hot business topic concerned distribution models for small breweries.  In several states (including California), self-distribution is available for small breweries (California allows for self-distribution regardless of volume), but as our previous blog noted, oftentimes a small brewery reaches a point where it cannot handle its own distribution and must seek out a distributor.  And, of course, in many other states, self-distribution is not permitted at all, necessitating the involvement of a distributor when a brewery wishes to sell draught beer or package their products.  Many small breweries are concerned not only with the myriad choices of distributors, but also with finding a distributor that is the right fit and will actively promote their portfolio, and with the often restrictive laws that are involved in manufacturer-distribution relationships.  Breweries should certainly be choosy about their distributors when possible, and in many jurisdictions there are an array of potential contractual provisions (for example, regarding sales goals, chain vs. independent accounts or other account stratification, marketing, plans for brand growth, audits, etc.) that can help shape a distributor relationship before it starts.  It pays to consider and discuss as many contractual parameters as possible before signing a distribution agreement.

Additional hot topics at the Craft Brewers Conference included new Tax and Trade Bureau funding for enforcement, government regulations of taprooms and brewpubs, off-premise sales, and licenses for short-term out-of-state sales (e.g. for festivals or competitions).  As the craft brewing industry continues to grow in footprint and sophistication, look for business and legal issues to be pushed even further to the forefront of the discussion.

Contact Conkle, Kremer & Engel for assistance with your brewery business or distribution needs.

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Common Legal Mistakes Made in Social Media Influencer/Brand Relationships

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With over 2.5 billion social media users worldwide, it is no surprise that social media marketing is booming and partnerships between brands and social media influencers (i.e. individuals with large followings on social media platforms) are becoming increasingly popular.  These partnerships can be great opportunities for both parties – on the one hand, the brand gets promoted to the influencer’s thousands or millions of followers by a person they admire and trust, while the influencer gets compensated for this promotion.  However, these brand/influencer relationships can also expose both parties to lawsuits and fines from the Federal Trade Commission (FTC).  Although social media may seem like an informal marketing platform, the FTC has determined that its Guides Concerning the Use of Endorsements and Testimonials in Advertising apply to social media marketing, just as they apply to other forms of marketing.  This article outlines how to avoid a few of the common legal issues that arise in the course of a brand/influencer relationship.

Disclose the relationship between the influencer and brand. Part of the appeal of hiring an influencer for a marketing campaign is the authentic feel of the endorsement.  However, the FTC’s the Guides Concerning the Use of Endorsements and Testimonials in Advertising require influencers to disclose “material connections” that they have with the brand they are endorsing.  A connection is deemed “material” when the relationship between the influencer and brand may materially affect the weight or credibility of the endorsement from the influencer. 16 C.F.R. § 255.5 (2009).  An obvious example of a material connection is one where the brand is paying the influencer to endorse or review a product, but even friendships or familial relationships between the influencer and brand are material, as the influencer may be more likely to give a product a positive review because of this relationship.  

The disclosure of the material connection must be clear and conspicuous.  For example, a disclosure that consumers can only see if they click to see more of a post, or ambiguous hashtags such as “#ambassador” or “#collab,” are insufficient to meet the FTC’s disclosure requirement.  On the other hand, the FTC has stated that “#ad” close to the beginning of a post is a sufficient disclosure.  Both the influencer and the brand may be liable for the influencer’s failure to disclose a material connection, so brands must be sure to inform influencers of the duty to disclose and monitor the influencers’ posts to ensure compliance with the FTC Guides.

The claims in the endorsement must be truthful.  Claims made by a social media influencer in an endorsement must be truthful and substantiated.  This means that advertising claims cannot be misleading to the average reasonable consumer, and any statements made about a product or service must be supported by evidence.  Even if the influencer makes a misleading or unsubstantiated claim about a product without consulting the brand, the brand will still be liable the influencer’s statements. Again, this highlights the importance of monitoring the influencer’s posts and providing the influencer with guidelines about what claims he or she can legally make about the product or service being advertised.

Determine who owns the intellectual property rights in the content.  In a typical company/influencer relationship, the influencer will post a photograph and accompanying text exhibiting the brand’s products or services on the influencer’s social media account.  If the influencer created this content, the influencer owns the copyrights to it, and the brand could be liable for copyright infringement if it reuses this content without the influencer’s permission.  To avoid this issue, the brand should ensure that there is an agreement in place between with the influencer assigning the copyright to the brand.

Obey the reposting rules from each social media platform.  It’s a common misconception that all of the social media platforms have the same rules regarding reposting content from another user.  The reality is that reposting user content on some platforms is perfectly acceptable, while on others it constitutes infringement.  For example, on Twitter you may freely repost Tweets from other Twitter users.  By becoming a Twitter user, you agree to Twitter’s Terms of Service, which permit you to “Retweet” the content of other Twitter users and allows other Twitter users to Retweet your content.  Instagram, on the other hand, does not include any such provision in its terms of service, and even requires users to “agree to pay for all royalties, fees, and any other monies owing any person by reason of Content you post on or through the Instagram Services.”

Make sure the content does not infringe a third party’s rights.  Even if the brand and influencer have reached an agreement regarding the ownership of the content in a social media endorsement post, the post may infringe the rights of a third party if it includes a third party’s image or artwork.  If someone’s image is used in the endorsement, this person may claim a violation of his or her publicity rights.  Similarly, the use of another’s artwork in the content of the endorsement may constitute copyright or trademark infringement, subject to the fair use defense (which is less likely to apply to a social media post that is clearly an advertisement).

To learn more about the formation of and legal pitfalls to be avoided during the course brand/influencer relationships, contact Heather Laird-Vanderpool or Aleen Tomassian.

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The Conkle Firm to Present at 2018 PCPC Legal & Regulatory Conference

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Conkle, Kremer & Engel attorney John A. Conkle will be on the panel opening the 2018 Personal Care Products Council’s Legal & Regulatory Conference.  The panel will present “The State of the States,” which will focus on the increasingly strong interest of state legislatures and state regulatory bodies in addressing issues of importance to the personal care products and cosmetics industries.

States have come to recognize that, with the U.S. Congress largely gridlocked and federal regulatory agencies in a deregulation mood, the path is open for the states to regulate consumer industries in manners that they deem fit.  The result is a continuously evolving patchwork of laws and regulations that can be difficult for industry participants to navigate.

Issues to be discussed at the May 9, 2018 panel presentation include California’s infamous Proposition 65, slack fill laws, and labeling and ingredient disclosure regulations that include even public databases disclosing products’ ingredients found by state governments to be detrimental.  Further, state regulations can include ingredient phase-out requirements and outright bans, volatile organic compound limitations to protect air quality, and even animal testing regulations that can affect industry participants’ ability to compete in international trade.

A lively discussion is inevitable given the rich and topical subject matter and the vital industry interests affected.  The rest of the Legal and Regulatory Conference program should be just as engaging, covering topics such as employment law, cannabis (THC, CBD, marijuana extracts and hemp) in cosmetics and personal care products.  The many other topics to be covered in the three-day conference in Savannah, Georgia can be found in the conference program.

 

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California’s New, Stricter Test for Independent Contractors and Employees

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Does Your Business Pass California’s New, Stricter Test for Independent Contractors Rather Than Employees?

On April 30, 2018, the California Supreme Court issued a decision in Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County that will make it more difficult for employers to classify their workers as independent contractors.  Under the new Supreme Court test, workers are presumed to be employees, not independent contractors.  Incorrect classification can have serious consequences.

Previously, many California employers thought an agreement stating a worker was an independent contractor was enough.  No more.  The Supreme Court has adopted a strict “ABC” test to determine whether a worker is properly classified as an “employee” or as an “independent contractor.”  Under this test, the Court presumes a worker is an “employee” unless the hiring business can establish that the worker meets all three conditions of an independent contractor:

(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;

(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) apart from the independent contractor relationship, the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

The presumption means that when in doubt employers should err on the side of classifying their workers as employees.  An employer that misclassifies a worker as an independent contractor can be liable for back wages and wage and hour penalties, including willful misclassification penalties that can range from $5,000 to $25,000 per violation.  These issues may be raised by the worker after the “independent contractor” relationship has ended.

If your workers do not meet this new 3-part test for independent contractors, make sure you re-classify them as employees and pay them all the wages and benefits given to your employees under the wage and hour laws, deduct payroll taxes, cover them under your worker’s compensation insurance, and generally treat them like your other employees.

If you have questions about how the new decision applies, or whether your workers meet the new strict ABC test for independent contractors, you should promptly consult with experienced employment counsel.  Conkle, Kremer & Engel attorneys have years of experience in employment matters, advising businesses and litigating and arbitrating disputes, including class actions.

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Do You Have to Pay Your Summer Interns?

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Do I Have to Pay My Interns?

Spring will soon draw to a close.  As you prepare for the arrival of your summer interns, make sure you have asked yourself this question: Do I need to pay my interns?

The easiest answer is generally, YES!  But the easiest answer is not the whole story, because you do not have to pay your interns in accordance with wage and hour laws if the company-intern relationship meets the federal (and state, as applicable) test.

The U.S. Department of Labor’s New Test

Earlier this year, the U.S. Department of Labor helped private businesses out.  It announced that it would be using a new (more employer-friendly) test to determine whether an intern is an “employee” that must be paid in compliance with wage and hour laws.  Whether an intern must be paid in compliance with federal wage and hour laws now depends on seven factors:

  • The extent to which the intern and the company clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa;
  • The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions;
  • The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit;
  • The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar;
  • The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning;
  • The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern; and
  • The extent to which the intern and the company understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

According to the DOL, “no single factor is determinative.”  Thus, companies need to conduct a case-by-case analysis of each internship position to determine whether that intern should be paid.

I’m Located in California.  Do I Need to Be Concerned About State Laws Controlling Wage and Hour Requirements?

Here, the clear answer is YES!  For many years, the California Department of Labor Industrial Relations, Division of Labor Standards Enforcement (“DLSE”) has relied on the DOL’s old six-factor test.  For now, California businesses should also look to the DOL’s old six-factor test to determine whether they need to pay their interns.

The DOL’s adoption of this new seven-factor test this year followed a decision in the Ninth Circuit (which covers California).  In 2017, the federal Ninth Circuit Court of Appeals made a predictive statement, that the California Supreme Court would no longer use the old DOL test, and would instead apply a test more similar to the one set forth above.  Benjamin v. B & H Educ., Inc., 877 F.3d 1139 (9th Cir. 2017).  However, this statement is only predictive of what the federal court thinks the California courts would do, so it is not actually controlling law in California.

Thus, until the California state agencies and courts take a position on whether they will follow the Ninth Circuit and the DOL, companies should also check that they have considered the DLSE’s interns test to make their decision to pay (or not pay) interns.  That requires an analysis under the DOL’s old six-factor test:

  • The internship, even though it includes actual operation of the facilities of the company, is similar to training which would be given in an educational environment;
  • The internship experience is for the benefit of the intern;
  • The intern does not displace regular employees, but works under close supervision of existing staff;
  • The company that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  • The intern is not necessarily entitled to a job at the conclusion of the internship; and
  • The company and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If you have not examined your internship programs with these federal and state legal considerations in mind, you should do so immediately, before your summer interns arrive.  Review your internship materials, including your recruitment postings, company policies, and any other documents you anticipate having the intern sign before starting the summer program.

Conkle, Kremer & Engel attorneys are experienced with counseling employers in the face of a constantly changing legal landscape in employment law, and with helping companies identify and reduce areas of exposure to liability for employment claims, including wage and hour, discrimination, harassment, and retaliation claims.

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The Conkle Firm to Attend Craft Brewers Conference and BrewExpo America

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Attorneys Evan Pitchford and Zachary Page of Conkle, Kremer & Engel will be attending the 2018 Craft Brewers Conference and BrewExpo America in Nashville, Tennessee from April 30 to May 3.  The Conference, presented by the Brewers Association trade group, is one of the largest craft brewing-centric trade shows in the world, with thousands of industry professionals and exhibitors in attendance annually.

Mr. Pitchford and Mr. Page will attend to take meetings and keep abreast of the latest industry trends, including legal developments, craft brewing distribution and business issues, and evolving beer styles.  Conkle, Kremer & Engel brings its expertise to bear on a number of beer industry-specific issues, such as brand protection and intellectual property, distribution and vendor relations, regulatory issues, advertising and labeling, employment law, and litigation and alternative dispute resolution in state and federal courts.

If you’re an industry professional or craft beer-related business who will be at the Craft Brewers Conference and would like to connect with Mr. Pitchford and Mr. Page before, during, or after the event, please contact them at e.pitchford@conklelaw.com and z.page@conklelaw.com.  They would be happy to arrange initial discussions about particular issues you may be facing.

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Consumers are Exposed to Extreme Risks from Counterfeit Products

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Some consumers may view offers of brand name goods from sellers not within the manufacturer’s regular distribution chain as just a way to “get a good deal.”  But those offers can result in purchasers receiving counterfeit products, which are no bargain and can expose unknowing consumers to some of the worst risks imaginable.

At the very least, counterfeit products are frauds – they are not from the manufacturer whose trademark appears on the product, so the consumer is cheated out of the quality that the brand represents.  But in reality, the consumer has absolutely no idea what the contents and construction of a counterfeit product may be – it is a product of unknown origin, regardless of whether the consumer purchased from a known reseller.  Because virtually any product a consumer can purchase can be counterfeited, consumers can be placed in great danger from unknowingly purchasing substandard products.  A couple of recent events in the news highlight the extreme risks of counterfeit products.

In April 2018, the Los Angeles Police Department announced that it had raided sellers of supposedly discount brand name cosmetics, and seized $700,000 of counterfeits.  Consumers had complained to the brand manufacturers that makeup products they purchased were causing rashes and bumps on their skin.  The products were determined to be counterfeits that tested positive for high levels of bacteria and animal waste.  This is undoubtedly because the counterfeits are not manufactured with any quality controls or regulatory oversight – they are the result of a black market, pirate operation.  LAPD Detective Rick Ishitani was quoted in the press as saying, “Those feces will just basically somehow get mixed into the product they’re manufacturing in their garage or in their bathroom — wherever they’re manufacturing this stuff.”  One of the brands asserted to be counterfeit was Kylie Cosmetics. Kylie Jenner’s sister, Kim Kardashian West, tweeted:  “Counterfeit Kylie lip kits seized in LAPD raid test positive for feces. SO GROSS! Never buy counterfeit products!”

The risks to consumers of counterfeits unfortunately do not stop even there.  An even more extreme case of product counterfeiting hit the press a few days later.  Tragically, famed rock artist Prince died in April 2016.  It was soon determined that he had died from an overdose of fentanyl, an extremely powerful and dangerous synthetic opioid.  But in April 2018, local prosecutors announced that Prince had consumed the fentanyl by taking tainted counterfeit Vicodin, a brand name medication of AbbVie, Inc.  There was no determination as to how Prince obtained the counterfeit Vicodin pharmaceuticals.  “In all likelihood, Prince had no idea he was taking a counterfeit pill that could kill him.  Others around Prince also likely did not know that the pills were counterfeit containing fentanyl,”  Carver County, Minnesota Attorney Mark Metz was quoted as saying at a news conference.

Some believe that counterfeits can be identified by the price alone, and warn against buying brand name products at steep discounts.  While an inexplicably low price is certainly a red flag of a potential counterfeit, in fact counterfeit products are often sold to consumers at prices very close to those of the brand name product.  This is often because many intermediaries have handled the product, taking a profit with each transaction, in the course of a murky gray market distribution process.

The popularity of online sales make the risks even worse for consumers, as it is nearly impossible for the consumer to inspect the product before purchase and delivery, and it is often very difficult for consumers to determine who is actually selling the product online.  For example, many popular online sellers act as marketplaces for innumerable third party sellers, and a purchaser cannot always determine which seller will actually deliver the product purchased.

If you are a consumer, you really need to exercise great caution when considering purchases of brand name products from sellers who are not in that manufacturer’s authorized distribution channels.  It generally matters little whether the seller is known to the consumer – it only matters where the seller obtained the product.

If you are a brand name manufacturer or trademark holder who suspects that unauthorized parallel market sellers may be offering counterfeit products, you are well advised to promptly contact counsel well-versed in the issues and methods of enforcement of your intellectual property rights.

 

 

 

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2018 Changes to the California Alcoholic Beverage Control Act

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Each year brings changes to the California Alcoholic Beverage Control Act, and 2018 is no exception.  Most of the changes for 2018 are quite esoteric, relating only to the provision of licenses in particular counties or venues, or allowing some additional rights to non-profit corporations who use temporary licenses for events.

However, a chief new feature of the ABC Act that will have state-wide impact is the Responsible Beverage Service (RBS) Training Program Act of 2017 (California Business and Professions Code § 25680 et seq.).  The RBS Act provides that the California ABC will develop a best-practices training program by 2020 that all on-premises servers of alcohol (and their managers) throughout the state will need to complete in order to be certified to serve alcohol.  Servers employed prior to July 1, 2021 must complete the program by August 31, 2021, and all servers hired after July 1, 2021 must complete the program within 60 days of being hired.  ABC advisories indicate that food servers, bartenders, cashiers, doormen, and bouncers all may be considered “servers” for purposes of the RBS Act.

The RBS law appears to encompass a wide manner of licensees that operate on premises – bars, restaurants, brewpubs, tasting rooms, clubs.  For non-profit special events/temporary licenses, the licensee is required to designate one certified server who must remain on site for the entire event.  Covered licensees are required to maintain records of their various certifications, and violators are subject to unspecified “disciplinary action.”

The 2018 ABC Act also permits for the first time beer manufacturers to provide free or discounted ground transportation rides for consumers (i.e. from the brewery taproom to local hotels, etc.) for purposes of public safety.  (California Business and Professions Code § 25600.)  This harmonizes the treatment of beer manufacturers with winegrowers and distillers.  The manufacturer cannot, however, make the transportation contingent on the purchase of an alcoholic beverage, and beer wholesalers cannot have any interest in the transportation arrangement.

In instances where small beer manufacturers (License Type 23) and winegrowers have adjacent production facilities, the 2018 revisions also permit a common-licensed area in which consumers can drink both wine and beer.  (California Business and Professions Code § 25607.)  This is a new exception to the general prohibition of anyone possessing alcoholic beverages on a manufacturer’s premises other than the types that manufacturer is licensed to produce.

Staying up to date on laws and regulations affecting the industry is vital to successfully protecting and growing alcoholic beverage businesses.  For assistance navigating beer-industry specific legal issues, contact Conkle, Kremer & Engel.

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