Despite moderately increased sales and rising consumer confidence in the safety of dining out, restaurants in the U.S. and Canada are still facing a major hurdle in their efforts to reopen: they do not have enough workers. Restaurants employed 1.5 million fewer workers in May of this year compared to pre-pandemic levels, TIME magazine recently reported, and one survey found that more than half of restaurant workers were thinking about leaving their job. For an industry that has already lost 1 in 10 restaurants to permanent closure during the pandemic, the shortage means a full recovery is not yet attainable.
“The labor shortage is a pretty serious problem,” said Bonnie Steen, Vice President, Managing Director, Burns & Wilcox, New Orleans, Louisiana. “We can finally seat our restaurants to full capacity, but when you do not have the staff to serve the customer, it is a problem.”
It is not only labor shortages straining the hospitality industry, either. A recent report in the Wall Street Journal highlighted how rising supply costs and the unpredictable availability of certain foods are also having an impact.1 As these businesses struggle to maintain operations, carrying the right insurance policies becomes even more important — particularly when short-staffing or an inexperienced workforce could increase the probability of a loss. This includes Commercial Property Insurance, Commercial General Liability (CGL) Insurance, and Workers’ Compensation Insurance.
The labor shortage is a pretty serious problem. We can finally seat our restaurants to full capacity, but when you do not have the staff to serve the customer, it is a problem.
“Anytime you put inexperienced workers in any role, there is always a greater risk for injury to the employee or for service to suffer,” Steen explained. “You can transfer some of that risk by buying insurance. At the end of the day, you are trying to protect the financial interest of your company.”
Untrained staff could add to concerns of foodborne illness, spoilage
Foodborne illnesses are estimated to sicken about 48 million Americans and 4 million Canadians each year.2,3 Proper food safety procedures can help prevent these outbreaks, which have frequently been linked to restaurants.4,5 With workers leaving hotel and restaurant jobs at the highest rate on record, however, staff training is essential in order to get new, less experienced workers up to speed on food safety procedures.6 “An inexperienced chef could leave food out for too long before cooking, for example,” Steen explained.
In addition to cooks and other food-handlers, employees responsible for washing dishes also play a key role in keeping customers safe. “If they are not properly sanitizing dishes, for example, customers could get sick,” Steen said, adding that similar risks are present with housekeeping workers in understaffed hotels. “You would not think that these employees could have that kind of impact, but it is possible.”
Anytime you put inexperienced workers in any role, there is always a greater risk for injury to the employee or for service to suffer. You can transfer some of that risk by buying insurance. At the end of the day, you are trying to protect the financial interest of your company.
Lawsuits over this type of issue can be extremely costly. In April, La Carreta Mexican Restaurant in Summerville, South Carolina agreed to pay up to $1 million in damages to those who contracted norovirus after eating at the establishment between November and December of 2018.7 In the settlement, the nearly 300 customers affected would each receive the greater of either $5,000 or three times their medical bills.
In the event a restaurant is sued over food poisoning allegations, CGL Insurance can help with expenses such as legal defense, medical bills and settlement costs. Other important insurance policies for restaurants may include Liquor Liability Insurance, assault and battery coverage, Pollution Liability Insurance, and Cyber and Privacy Liability Insurance. With the prevalence of cyberattacks in the U.S. and Canada, this type of policy can help restaurants strengthen their cybersecurity through proactive steps and also help with data recovery, notification and other expenses in the event of a breach.
“A restaurant may have credit card information that belongs to customers, and they do not want to have their customers’ identity stolen,” Steen said, noting the high costs associated with recovering from a data breach.8
Restaurants must consider worker injuries, risk management training
In 2019, private industry workers in full-service restaurants in the U.S. suffered 93,800 nonfatal injuries and illnesses.9 The most common injuries included heat burns, soreness, pain, sprains and strains, and cuts or lacerations. Though Workers’ Compensation Insurance is regulated by individual states, covered expenses can include medical treatment, partial salary reimbursement, rehabilitation, and vocational training. It can also provide survivor benefits when an employee is fatally injured.
“Hiring a new employee always involves some risk, especially when they have not had any formal training in the field they have taken on,” Steen said. “You could have someone who worked in lawn care or retail before, and now they are cooking. They may not know about the precautions that need to be taken in the kitchen, and there is the potential to have claims from workers not being introduced to any loss control measures or safety protocols.”
Loss control is so important. The goal is to eliminate or lessen any potential claims related to inexperienced new employees.
Restaurants rushing to fill vacancies should ensure they set aside enough time for individual training. Additionally, they should stay in touch with their Workers’ Compensation Insurance carrier about possible site visits and any industry-specific training that may be available. Oftentimes, the insurance carrier can meet with the staff and advise on risk management, Steen noted.
“It could be showing them a way to lift so that they do not hurt their back, or safety protocols in the kitchen and preventing grease fires,” she said. “Loss control is so important. The goal is to eliminate or lessen any potential claims related to inexperienced new employees.”
Even small catering businesses, delivery services need insurance
From opening food trucks to launching new takeout and delivery services, business owners in the restaurant industry have tried to adapt in order to stay open during the pandemic.10,11 According to Steen, some owners have even launched “pop-up” businesses that offer on-location catering for small events and parties. However, any shift in business operations could change a restaurant’s potential liability exposures, she said.
Takeout services must keep the risk of food spoilage in mind, for example, while new delivery services should ask their insurance broker about Hired and Non-Owned Auto Insurance. Even if full delivery services are not offered, a restaurant still needs this coverage if staff are required to drive for occasional errands or other tasks. “If that employee does not have Auto Insurance or has very low limits and they get in an accident while working, the liability can come back to you as the employer,” Steen said.
One of the greatest risks with a new food service business, such as a catering company, is that owners of smaller operations may not even believe they need insurance, Steen said. However, “They need to make sure they have proper insurance,” she said, adding that In addition to protecting the business against unexpected losses, those who have someone coming into their home to cook will likely want to see a certificate of insurance.
Beyond the significant financial risk of an uninsured loss, forgoing insurance may not be an option based on a restaurant’s property lease agreement or other contracts. “You need to look at your legal obligations,” Steen added. “You may have signed something agreeing to carry insurance and name and waive others on this policy.”
Restaurant owners should also know that there are options for those struggling to afford their insurance. This may include carrying lower limits, choosing a higher deductible, or opting for a finance plan and paying a smaller amount per month. “There are ways to reduce what you have to pay, but you do not want to be without the insurance,” she said. “Defense costs alone could put you out of business without insurance.”
Another important consideration for restaurants is coverage for loss of business income, which can be added to Commercial Property Insurance policies. Although most of the COVID-related business income losses in the restaurant industry were not covered by insurance due to communicable disease exclusions, this type of coverage is essential for when a business suffers damage from a fire, severe weather or another direct loss and is forced to shut down operations. This coverage is “not automatic,” Steen said, and usually must be specifically added for a premium charge.
Despite challenging conditions now, Steen expects to see restaurants and the hospitality industry overall get back to pre-pandemic levels eventually. “I do not think we are out of it yet,” she said. “It is going to come back, but it is just going to take more time.”
1Chen, Te-Ping; Haddon, Heather; and Weber, Lauren. “Hotels’ and Restaurants’ Rebound Summer Held Back by Shortages of Everything.” The Wall Street Journal, June 25, 2021. 2Centers for Disease Control and Prevention. “Estimates of Foodborne Illness in the United States.” CDC, 2018. 3Government of Canada. “Infographic: Food-related illnesses, hospitalizations and deaths in Canada.” Government of Canada, 2016. 4Centers for Disease Control and Prevention. “How to Prevent Food Poisoning.” CDC, 2020. 5Centers for Disease Control and Prevention. “New Report on Foodborne Disease Outbreaks.” CDC, 2019. 6Weisenthal, Joe. “Workers Are Quitting Hotel and Restaurant Jobs at the Highest Rate on Record.” Bloomberg, June 8, 2021. 7Laudenslager, Chase. “Deadline nearing for hundreds sickened at Summerville restaurant ‘La Carreta’ to join class action lawsuit.” WCBD, April 8, 2021. 8Ikeda, Scott. “What Is the Real Cost of a Data Breach? New Report Indicates It’s About $4 Million to $9 Million for SMEs.” CPO Magazine, August 14, 2020. 9U.S. Bureau of Labor Statistics. “TED: The Economics Daily.” United States government, December 4, 2020. 10Resnick, Ross. “Food trucks may be the perfect solution to feed customers' nostalgia for dining out as the future of the restaurant industry remains uncertain.” Business Insider, May 27, 2020. 11Klein, Danny. “Restaurants in 2021: Takeout and Delivery is Now Essential to Customers.” QSR Magazine, February 1, 2021.