Stepping In Where Unions Have Failed, NYC Council Imposes Just Cause Standard On Non-Union Employers

As our readers may be aware, in March 2021, New York City passed an ordinance requiring fast food employers to have just cause to discharge their employees, where discharge includes termination, constructive discharge, indefinite suspension, and reduction in hours by more than 15%. The ordinance has been effective as of July 5, 2021, and enforcement of these mandates began September 3, 2021.

While the default labor standard for non-unionized workers is at-will employment, allowing employers to dismiss an employee for any legal reason and without notice, fast-food workers in New York City have been pushing towards unionization with little success in recent years. The Service Employees International Union (SEIU) took up the fight and has been lobbying for reforms in the service and fast-food industries. Although the City has recently increased minimum wage and labor protections, the SEIU sought further reforms, aimed at providing fast-food employees with union-like benefits, giving them greater protections, and reducing turnover rates.

Applicability

The law applies to employees in customer service, cooking, food or drink preparation, delivery, security, stocking supplies or equipment, and cleaning or routine maintenance at fast-food establishments in exchange for hourly pay. To qualify as a fast-food employer, the establishment must:

1. Primarily serve food or drink items;
2. Utilize a model where patrons order or select items and pay before eating, and the items may be consumed on premises, taken out, or delivered;
3. Offer limited service;
4. Part of a chain, requiring the establishment to be a member of a set of establishments sharing a common brand or characterized by standardized options for décor, marketing, packaging, products and service; and
5. Qualify as either an integrated enterprise that owns or operates 30 or more establishments nationally, or operates pursuant to a franchise where the franchisor and franchisees combined own or operate 30 or more nationally.

Requirement for “Just Cause” Discharge

According to the new law, an employer may only discharge an employee at-will for any reason, for up to the first 30 days after the employee is hired (similar to the common “probationary employee” concept). After this time, the employers must have “just cause.” Just cause means the fast-food employee’s failure to satisfactorily perform job duties or misconduct that is demonstrably and materially harmful to the employer’s legitimate business interests. Only when one of these conditions are met, and progressive discipline is utilized, may an employer discharge an employee. The employer must then supply the employee with written notice, explaining the precise reasons for their termination.

Lay-Offs

An employer may lay off or discharge workers for a “bona fide economic reason,” only if the decision is supported by business records demonstrating the existence of partial closing of operations, technological or organizational changes in response to reduction in production, sales or profit. When an employer claims a bona fide economic reason for termination, the discharge or reduction in hours must be carried out in a reverse seniority order, ranking employees based on length of service.

Rights & Remedies

Employees must initiate claims under the new law within a two-year statute of limitations period. Violating the just cause ordinance can result in relief required to make an injured employee whole, including payment of compensatory damages and mandatory reinstatement. Potential damages also include an award of $500 for each violation and an award of punitive damages.

When defending an employee termination, the employer bears the burden of proving just cause by a preponderance of the evidence.

Employees must initiate such claims within a two-year statute of limitations period, and employees can begin to file arbitration demands starting January 1, 2022. Importantly, if an employee demands arbitration, they will be deemed to have waived their right to bring a private cause of action. An employer may also bear the costs for the arbitration proceeding,

Pending Legal Challenge

The Restaurant Law Center and New York State Restaurant Association filed suit against the City of New York on May 28, 2021, complaining that the new mandates are preempted by federal and state law and seek to evade the National Labor Relations Act (NLRA) by providing union-style protections to workers who are not in unions. The complaint alleges that the SEIU seeks to impose burdensome procedural rules that go to the heart of collective bargaining agreements in unionized workforces, by imposing terms on businesses without requiring any concessions from workers. The complaint similarly alleges the ordinance violates the Federal Arbitration Act by forcing employers to submit to arbitration without agreeing to do so.

These restaurant groups claim that the SEIU played a key role in drafting the laws, as a way to push their causes legislatively instead of following the organizing and voting guidelines set in federal labor law. The restaurant groups seek an injunction blocking enforcement of the mandates and a declaration that they violate the previously noted acts.

On July 20, 2021, the restaurant groups filed a motion for summary judgment, for the reasons stated above, claiming there are no issues of fact regarding the legality of the laws. As of today, the case is still pending. In this writer’s humble opinion, the NYC ordinance is clearly illegal under the NLRA and is an effort to legislate forced unionization without going through the necessary procedures set forth in the NLRA.

Bottom Line

Until or unless the Southern District of New York rules on the merits of the current litigation, this ordinance will have a significant impact on the fast-food employment market. Employers should filter candidates more strictly out of their hiring pools. Although prospective employees may have more difficulty obtaining a job due to increased hiring standards, those who are hired will have increased worker security and bargaining power for better pay and working conditions. Employers will also face higher scrutiny in relation to workplace discrimination and retaliation and may be forced into arbitration.

Fast-food employers subject to the new Ordinance in New York City should adopt written progressive discipline policies, maintain detailed records of employee discipline and discharge, train employees on these policies, update scheduling practices, and prepare for potential arbitration.

For more information regarding this decision and best practices, please contact Harris S. Freier, Esq., Partner in the firm’s Employment Law & Litigation Practice Group via email here or Dina M. Mastellone, Esq., Chair of the Human Resources, Counseling & Compliance Practice Group via email here or call 973-533-0777.