At-Will Employment Challenged by New NYC Ordinance

​At-will employment in New York City's fast-food industry is slated to come to an end this summer.  An ordinance signed into law Jan. 5 requires that an employer seeking to fire a worker must do so for "just cause" following progressive discipline, and it prohibits significantly cutting employees' hours.

The law, effective July 4, is expected to strain the fast-food sector with lawsuits and more-demanding standards. The law also will likely lead to greater scrutiny of probationary employees, who aren't covered by the new ordinance, because fast-food employers will want to spot and possibly terminate poor performers before the just-cause standard applies.

At-will employment means an employer can fire a worker for any reason, with a few exceptions, such as unlawful discrimination. When just-cause dismissal is required, the termination must be for a reason as defined by a statute or collective bargaining agreement.

"The new law is, to our knowledge, the country's first that fundamentally alters the employer-employee relationship for a particular industry, and it reflects New York City's keen focus on regulating the fast-food industry," said Aaron Warshaw, an attorney with Ogletree Deakins in New York. He noted that New York City fast-food employees were among the state's first to receive a $15-an-hour minimum wage.

"Although legislators frame these laws as strengthening protections for fast-food workers who are perceived as more vulnerable to exploitation, they have had harmful consequences to the New York City fast-food industry," he said, noting that many fast-food establishments are owned by small franchisers whose businesses have been harmed by the COVID-19 pandemic.

Just-Cause Dismissal

Eli Freedberg, an attorney with Littler in New York City, said the law defines "just-cause dismissal" as a dismissal due to the fast-food employee's failure to satisfactorily perform job duties or engaging in misconduct that is demonstrably and materially harmful to the fast-food employer's legitimate business interests.

The employer must prove that there is just cause for the discharge by demonstrating that either the employee engaged in egregious misconduct or the following occurred:

• The employee knew or should have known of the employer's policy, rule or practice that is the basis for progressive discipline or discharge.
• The employer provided relevant and adequate training to the employee.
  
• The employer's policy, rule or practice, including the use of progressive discipline, was reasonable and applied consistently.
• The employer undertook a fair and objective investigation into the job performance or misconduct.
• The employee violated the policy, rule or practice or committed the misconduct that is the basis for progressive discipline or discharge.

Probationary Employees

The just-cause dismissal requirement does not apply to fast-food employees who are in a probationary period, which ends 30 days after the start of their employment.

"Employers will need to keep a close eye on new hires and for any performance issues with an employee that manifest themselves within that time frame," said Robert Nobile and Daniel Small, attorneys with Seyfarth in New York City, in a joint e-mail. "If so, employers will have no recourse but to terminate the worker's employment before the just-cause protection comes into play."

Progressive Discipline

Before a permitted just-cause discharge, the law mandates that New York City fast-food employers must use a progressive discipline that is in writing and provided to employees, Warshaw said. This requirement does not apply to "egregious misconduct," which the law does not define. In addition, fast-food employers may not rely on discipline issued more than one year before separation, which effectively means discipline is expunged after one year, he added.

Nobile and Small recommended that the progressive discipline system include a process to evaluate the performance of newly hired fast-food employees. For example, fast-food employers could hold a review of new workers' performance after two weeks on the job and perhaps 10 days thereafter.

Reduction in Hours Restricted

The law defines the term "discharge" to mean not just termination, but also "a reduction in a fast-food employee's hours of work totaling at least 15 percent of the employee's regular schedule or 15 percent of any weekly work schedule." 

"In essence," Freedberg said, "this means if you hire a new employee during peak season to work 30 hours, you cannot, under this law, reduce that employee's schedule to below 25.5 hours after the peak season ends and your demand has drastically reduced.

"Defending these claims is tremendously expensive, especially for employers who operate under slim profit margins, so maintaining strategic litigation reserves is going to be a priority for these employers," Freedberg explained. Each dollar saved for a litigation reserve is one less dollar the employer can invest in his or her business, he added.

Also, employers traditionally have incentivized highly successful employees by giving them additional hours or shifts to work, often at the expense of poorer-performing employees, who would see their shifts reduced or eliminated. "Employers will not be able to reward their superstars in this method anymore because they can't create additional shifts or more hours, because cutting poorer-performing employees' hours will lead to a discharge lawsuit," Freedberg said.  

Economic Reasons for Discharge

The law permits discharge of New York City fast-food employees for a "bona fide economic reason," which is defined as "the full or partial closing of operations or technological or organizational changes to the business in response to the reduction in volume of production, sales or profit."

Employee discharges based on a bona fide economic reason must be done in reverse order of seniority so that employees with the greatest seniority are retained the longest and reinstated or restored hours first. Fast-food employers are also required to make reasonable efforts to offer reinstatement before hiring new fast-food employees, Warshaw said.

Law May Be Challenged

The ordinance may face legal challenges since it targets a specific industry, noted Rick Jacobs, Ph.D., senior vice president/senior scientist with PSI Services in State College, Pa. It might also violate the National Labor Relations Act, which may result in hearings and possible delays in the effective date, he added.

Nonetheless, "New York City fast-food employers may wish to review their current policies and practices to determine any necessary changes should the law go into full effect," Warshaw said.