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Catharine Daniels, Attorney, OSUE Agricultural & Resource Law Program
If you already produce and sell home-based food products, or are considering starting, it is very important to label your products correctly. All home-based food products, whether sold as a cottage food or sold under a home bakery license, must be properly labeled to sell legally. If you are not familiar with the difference between cottage foods and foods produced under a home bakery license, check out our recent post on the requirements for selling your home-based food products at farmer’s markets here. The food labeling and packaging requirements for both cottage foods and foods produced under a home bakery license are very similar with a few differences that will be highlighted below.
All cottage food products must contain a label that includes the following information:
- The name and address of the cottage food production operation.
- The name of the food product – Ex: “Chocolate Chip Cookies”
- The ingredients of the food product, in descending order of predominance by weight. This means your heaviest ingredient will be listed first and the least heavy ingredient listed last. Also, ingredients must be broken down completely if the ingredient itself contains two or more ingredients. For example, if unsalted butter is one of your ingredients, then you would list it as follows: Butter (Sweet Cream, Natural Flavor).
- The net quantity of contents in both the U.S. Customary System (inch/pound) and International System of Units (metric system). This must be placed within the bottom 30% of the label in a line parallel to the bottom of the package. An example of what this would look like in both the U.S. Customary System and International System is: Net Wt 8 oz (227 g)
- The following statement in ten-point type: “This product is home produced.” This statement is required because it gives notice to the purchaser of the food product that the product was produced in a private home that is not required to be inspected by a food regulatory authority.
Allergen Statement. There are 8 foods considered a major food allergen under the Food Allergen Labeling and Consumer Protection Act that must be declared on your label if they are contained in your food product. They include:
- Fish – For fish, the specific species must be declared – Ex: Bass
- Crustacean Shellfish – For shellfish, the specific species must be declared – Ex: crab
- Tree Nuts - For tree nuts, the specific type of nut must be declared – Ex: Almond
If any of these major allergens are contained in your food product, then you may declare them in either of two different ways.
First, you can list the allergens in a “Contains” statement. The “Contains” statement would follow the ingredients list and look like this: “Contains: Wheat, Egg.”
The second way to declare an allergen is in your ingredients list. An example would be: “Enriched flour (wheat flour, malted barley, niacin, reduced iron, thiamin monotrate, riboflavin, folic acid), Egg.” In this example, wheat and egg are specifically stated within the ingredients so you would not need to put an additional “Contains” statement.
Nutritional information is not required for cottage foods unless a nutrient content claim or health claim is made. An example of a nutrient content claim would be “low fat.” An example of a health claim would be “may reduce heart disease.” If either or both of these claims are made, then you are required to include a Nutrition Facts panel on your cottage food product. More information on the Nutrition Facts Panel can be found on the U.S. Food and Drug Administration’s website.
Cottage foods may be sold in any packaging that is appropriate for the food product with one exception. Cottage foods may not be packaged using reduced oxygen packaging methods. Reduced oxygen packaging is defined as removing oxygen from a package, displacing and replacing oxygen with another gas or combination of gases, or controlling the oxygen content to a level that is below what is normally found in the surrounding atmosphere. Reduced oxygen packaging includes vacuum packaging and modified atmosphere packaging:
- Vacuum Packaging
When air is removed from a package of food and the package is hermetically sealed so that a vacuum remains inside the package.
- Modified Atmosphere Packaging
When the proportion of air in a package is reduced, the oxygen is totally replaced, or when the proportion of other gases such as carbon dioxide or nitrogen are increased.
Foods Produced Under a Home Bakery License
For foods produced under a home bakery license, you will follow the same guidelines for labeling as explained above with a few exceptions.
- The statement, “this product is home produced” is not required to be on your label. The statement is not required because your home kitchen must be inspected by the Ohio Department of Agriculture to obtain a home bakery license.
- If your home bakery product requires refrigeration, then you must include the language “Keep Refrigerated,” or a similar statement, on your label.
The same guidelines also apply here.
There is no restriction against using reduced oxygen packing methods if you have a home bakery license. You may sell your baked goods in any package that is appropriate for the food product.
Why is labeling so important?
Properly labeling your food products will allow you to legally sell them. It is essential to make sure your labels are accurate or else you could be found guilty of a fourth degree misdemeanor for selling a misbranded food product. For additional resources, see the following:
An example label can be found on the Ohio Department of Agriculture’s website under the Food Safety Division at: http://www.agri.ohio.gov/divs/FoodSafety/docs/CottageFoodLabelExample.pdf
Also, the U.S. Food and Drug Administration website provides great resources for guidance on food labeling: http://www.fda.gov/Food/GuidanceRegulation/GuidanceDocumentsRegulatoryInformation/LabelingNutrition/ucm064880.htm
Erin Porta, OSUE Agricultural and Resource Law Extern and Peggy Hall, Asst. Professor, OSUE Agricultural and Resource Law Program
Like much of the business world, many Ohio farmers are choosing to operate as Limited Liability Companies (LLCs) to gain personal liability protection for LLC members and ample estate, tax, management and business succession advantages.
Under Ohio’s LLC statute (ORC § 1705), an LLC is treated as a separate legal entity apart from its owners. Thus, the general rule places the debts, obligations, and liabilities of an LLC, whether arising in contract, tort, or otherwise, solely on the shoulders of the LLC—not its members or managers. LLC members and managers stand to lose only the money they've invested in the LLC, not their own house, car or other personal possessions.
Increasingly, those who deal with LLCs are finding ways around this personal liability “shield.” One strategy that is becoming more frequent among lenders, landlords and other businesses doing business with LLCs is to require a personal guaranty from individual LLC members or managers. The personal guaranty binds the LLC members or managers to a promise to be personally liable for the debts and liabilities of the LLC.
While personal guaranties are becoming a ubiquitous part of doing business, their legal implications are far from routine. When faced with a demand for a personal guaranty, here are several important points LLC members or managers should keep in mind:
- A valid personal guaranty will negate the personal liability protection provided by the LLC. By signing a personal guaranty you are essentially waiving your LLC personal limited liability shield. For example, if the LLC cannot repay the loan you guaranteed, the creditor may come after your personal assets. However, the personal guaranty will not negate other LLC liability protections, such as liability for torts committed by the business.
- The word “guaranty” is not necessary to create a personal guaranty. There are no formal magic words required for the formation of a personal guaranty; it is sufficient if the document contains words that unequivocally create a promise to answer for the debt of another.[i] Examples of language that create a personal guaranty include: a party "guarantees" an obligation of another; a party agrees to immediately undertake the obligations of borrowers upon written notice of default from the creditor; a creditor has the right to "call" upon the LLC manager to make payments due from the LLC; or the LLC manager agrees to be "responsible for" an obligation when due.[ii]
- How you sign may matter. Ohio cases indicate that signing your name followed by your business title (“John Doe, President”) on an agreement that contains personal guaranty language does not negate personal liability or shift liability to the LLC. [iii] However, disclosing that you are representing the LLC by using “by,” “per,” “on behalf of” and indicating the name of the business may deem the agreement ambiguous and prevent personal liability. [iv] There is a major hurdle to this strategy, however: the other party must accept this form of signature—a tall order considering it would essentially render the personal guaranty agreement meaningless.
- You will almost always be responsible for the entire debt. The personal guaranty agreement will specify your obligations; however, most create unconditional joint and several liability for all who sign the agreement. In other words, each LLC member or manager who signs is responsible for the full amount of the debt and the bank may pursue any and all LLC members or managers who signed the guaranty.
- Some personal guaranties live beyond the original transaction. A guaranty may be restricted to a single transaction or may continue to apply to some or all future transactions. Phrases such as "now or at any time hereafter," "all obligations however and whenever incurred," and "now existing or hereafter contracted" are examples of language that may create a personal guaranty for future transactions of the LLC. Under Ohio law, a guaranty will likely not be interpreted as one that continues into the future absent this type of language, which displays a clear intent to be bound in the future.[v] Where the guaranty is a continuing guaranty, it remains effective until the LLC manager or member clearly communicates an intent to revoke and no longer be bound by the guaranty.[vi]
- Some lenders or property owners are willing to negotiate. While personal guaranties are becoming very common, they can be negotiable and tailored to your company's situation. Some businesses automatically include personal guaranty agreements or language in their standard business transactions and it's possible that a deal could go through without the guaranty .[vii] For example, an LLC that can show adequate capital in its reserves may be able to negotiate a loan without a personal guaranty. Alternatives to a personal guaranty, such as larger security deposits or letters of credit, may also be negotiated. If the person or business insists on having a personal guaranty, there are still ways to limit personal risk such as proposing an endpoint to the guaranty when certain conditions are met (dollar amount caps, no default for a set period of time); subjecting only certain personal assets to the guaranty; ensuring the guaranty is limited to the particular transaction at hand and not future transactions and exempting a spouse of an LLC manager or member from the guaranty.
- Ignorance is not bliss. Claims that a party thought he or she was signing something other than a personal guaranty, did not read the entire document, or was not made aware of the personal guaranty have generally not been well received by Ohio’s courts as reasons to negate a personal guaranty.[viii] To void a personal guaranty on the basis of "ignorance," there must be evidence demonstrating that a party committed fraud in securing a personal guaranty from another party—a hard standard to meet.
- Personal guaranties are not the only way to waive LLC personal liability protection. Be aware that co-signing a loan, signing a contract in your own name, pledging personal property as collateral, acting without authority, or making fraudulent representations or omissions when applying for the loan may also place your personal assets at risk.
Nearly any sort of business deal can involve a personal guaranty. The following recent Ohio court case [ix] demonstrates how a simple personal guaranty can have lasting consequences:
- The owner of an Ohio building company submitted a credit application to a supplier in order to purchase materials on credit. As part of the credit application, the owner signed a personal guaranty for the company's transactions. The guaranty included language stating that it was “a continuing guaranty for all sales heretofore and hereafter made” between the two companies until “the time that notice of the termination of this guaranty shall be received, in writing, by personal mail at the principal office of (the supplier).”
- Upon approval of the credit application, the owner of the building company purchased materials on credit and promptly paid the supplier in full. The owner of the building company then continued to purchase materials from the supplier on credit for over a decade and the building company paid the amounts due. However, thirteen years after the personal guaranty and original purchase was made, the building company was unable to pay for its purchases.
- The supplier alleged that the owner of the building company was personally liable by way of the thirteen year old personal guaranty, which the building company owner had failed to terminate or revoke in writing.
- The court enforced the personal guaranty, despite the building company owner’s belief that he guaranteed payment only for the original purchase of materials. In holding the building company owner personally liable for the company's debt, he court pointed to the language in the original guaranty which used the word “continuing,” and noted that the guaranty did not have language limiting its duration or application to any specific purchase.
This case is a good reminder that failing to understand or negotiate personal guaranty language can lead to serious and unintended results for the managers or members of LLCs. * * * For information on organizing an LLC, see Robert Moore & Barry Ward, OSU Extension, Fact Sheet: Starting, Organizing, and Managing an LLC for a Farm Business, available at http://ohioline.osu.edu/bst-fact/pdf/LLC_Farm_Business.pdf.
Catharine Daniels, Attorney, OSUE Agricultural & Resource Law Program.
Back in April, we alerted readers to Congress delaying the requirement for farm oil spill prevention plans (find post here). The US EPA had set a deadline of May 10, 2013 for all farms to have their Oil Spill Prevention, Control, and Countermeasure (SPCC) Plans in place. However, Congress delayed EPA’s ability to enforce the regulation until September 26, 2013, under an amendment to H.R. 933. While this delay in enforcement may cause some farmers to think twice about preparing or amending an SPCC plan, a recent Ohio Court of Appeals decision shows how costly fuel spills can be and highlights the importance of good fuel management practices on the farm.
In Ohio Environmental Protection Agency v. Lowry, a 250-gallon fuel tank in Jefferson Township had rusted through and completely drained 250 gallons of fuel oil that had been filled just a few days before. The Jefferson Township Fire Department received a call about a fuel odor coming from the property where the fuel tank was located and a “visible sheen” was evident on a local waterway. The fire department contacted the Ohio Environmental Protection Agency (OEPA) because the spill was over 50 gallons. OEPA sent a response team to assess the damage and work with the property owner to remedy the situation. OEPA informed the property owner that he should obtain a contractor to clean up the fuel and that if he failed to do so, OEPA would secure a contractor and bill the property owner for the costs as authorized by Ohio law in Ohio Revised Code Section 3745.12.
The property owner failed to obtain a contractor for the clean up. OEPA hired Environmental Enterprises, Inc. to perform the work and presented the property owner with the bill for $15, 855.92. The matter proceeded to court, where the property owner argued that because petroleum spills are exempt from chargeable cleanup costs under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), the court should interpret Ohio's law similarly and exempt him from cleanup liability. The trial court did not agree.
The Court of Appeals also disagreed with the property owner, stating that even if fuel oil is considered a hazardous substance for purposes of the federal CERCLA, the federal law “does not control the determination" of whether a spill posed a risk to the environment requiring emergency action under Ohio law. According to Ohio Revised Code Section 3745.12, any person responsible for the unauthorized spill, release, or discharge of material into or upon the environment “that requires emergency action to protect the public health or safety or the environment,” is liable to OEPA for costs incurred in the cleanup. Ohio law focuses on when emergency action is required as opposed to CERCLA's approach of defining types of hazardous waste cleanups allowed as chargeable cleanup costs.
The lesson from the Lowry case is that even though the US EPA cannot currently enforce the requirement for SPCC plans, farmers should take fuel management seriously. OEPA has the authority to respond to a fuel spill and require a property owner to pay for the cleanup, which can be costly. Though not now required by federal law, farmers should take all precautions when managing fuel and minimize the risks of a fuel spill.
Read full case here.
Peggy Hall, Asst. Professor, Agricultural & Resource Law Program
Bakers who want to produce and sell baked goods such as cheesecakes, cream pies, custard pies or pumpkin pies in Ohio must first obtain a “home bakery” license. These types of baked goods are considered “potentially hazardous” because they create food safety risks if not prepared and stored properly. To safeguard against a food safety incident, the State of Ohio requires the home bakery to be inspected and licensed by the Ohio Department of Agriculture’s Food Safety Division.
What is a “home bakery”? The home bakery license is only available for those who produce potentially hazardous baked goods in kitchens that are in homes ordinarily used by the owner as a primary residence. A home bakery kitchen may contain only one single or double oven, which cannot be a commercial oven. The following situations are not home bakeries, and likely require a “bakery” license rather than a home bakery license: the kitchen is not in a home, the home is not used as a residence, the home is not occupied by its owner, the kitchen is a second kitchen, the kitchen has multiple separate stoves or ovens, or the kitchen has a commercial stove or oven.
What’s required for a home bakery license? The home bakery operator must apply for a license and pay a $10 license fee. The process begins by contacting the Food Safety Division at the Ohio Department of Agriculture at (614) 728-6250. The Division will supply an application and arrange for an inspection. Once licensed, the operator must pay a $10 annual renewal fee.
What happens in a home bakery inspection? An inspector from ODA will visit the home, meet with the applicant and inspect the home kitchen for the following:
- Walls, ceilings and floors are clean, easily cleanable and in good repair;
- Kitchen does not have carpeted floors;
- There are no pets or pests in the home;
- Kitchen, equipment and utensils are maintained in a sanitary condition;
- Kitchen has a mechanical refrigerator capable of maintaining 45 degrees and equipped with a thermometer;
- If the home has a private well, proof of a well test completed within the past year and showing a negative test result for coliform bacteria;
- Food product labels that meet labeling requirements.
What if the baker also produces foods that are not “potentially hazardous”? An operator with a home bakery license may also produce and sell any food defined by Ohio law as a “cottage food.” Cottage foods include non-hazardous baked goods such as cookies, cakes, fruit pies, brownies, breads, candies, jams, jellies, fruit butters, granola, popcorns, unfilled baked donuts, waffle cones, pizzelles, dry cereal, nut snack mixes with seasonings, roasted coffee, dry baking mixes, dry seasoning blends and dry tea blends. Those who produce only cottage foods do not need any type of license from ODA.
What if someone operates without a home bakery license? Failing to obtain the home bakery license can result in prosecution; the operator is subject to criminal misdemeanor charges. Additionally, those without a license may not be able to sell their baked goods in many situations, as it is common for farmer’s markets and others to require that a vendor have the proper license.
A license is one form of food safety insurance. Passing an ODA inspection for a home bakery license is one layer of insurance against the possibility of a food safety incident—those who satisfy ODA’s requirements have assurance that they’re using good practices. But home bakers shouldn’t use the license as the only form of insurance. Careful control of the home kitchen environment, continuous education on food safety practices, food product liability insurance coverage and formation of a business entity such as a Limited Liability Company are additional layers of liability protection. Because selling food products poses a high risk of legal liability, home bakers should consider the license as just one of several requirements for operating a home bakery business.
Catharine Daniels, Attorney, OSU Extension Agricultural and Resource Law Program
Attorneys across Ohio recently came together for the 2013 Ohio Agricultural Law Symposium to learn about current legal issues for Ohio farmers and agribusinesses. In a session about protecting the farm and agribusiness, Cari Rincker, a food and agricultural law attorney in New York City, discussed why farm and agribusinesses might consider using a Non-Disclosure Agreement (NDA) to safeguard confidential business information.
An NDA is not typically a tool that a farm or agribusiness would think of using in a business transaction. According to Rincker, however, NDAs are underutilized in the food and agriculture industry. Many farms and agribusinesses develop their own ideas, concepts, know-how, trade secrets, intellectual property, business plans or financial information. Preventing other parties from disclosing these types of information can be important to the long-term health and viability of the farm or agribusiness.
Rincker highlighted two common situations for using an NDA. One is when a farm or agribusiness is entering into business discussions with another party; confidential information could be disclosed during the course of these discussions. For example, if a farmer approached a website developer about his or her proposed online agribusiness, that farmer may wish to have an NDA with the website developer to keep the business plan confidential. The second situation concerns employees or independent contractors. An NDA binds employees and contractors to confidentiality about private information they acquire from working for the business. An agribusiness may want a bookkeeper to maintain confidentiality about business finances, for example.
What's in a Non-Disclosure Agreement? According to Rincker, an NDA should address at least these questions:
- Who will be exchanging confidential information?
- What is the purpose of the exchange of confidential information?
- What type of information will be considered “confidential” for purposes of protection under the NDA?
- How can the confidential information be used and who can use it?
- How will the secrecy of the confidential information be maintained?
- How long will the confidentiality of the information be maintained?
- What are the consequences of a breach or misuse of the confidential information?
Maintenance of confidential information should not be taken lightly, states Rincker. If your farm or agribusiness could be harmed by the disclosure of private information, talk with your attorney about an NDA. For more information on NDAs, visit the Rincker Law website and blog at http://rinckerlaw.com/blog/.