Law Prohibiting At-Will Employment at NYC Fast-Food Restaurants Challenged

​New York City's law requiring fast-food employers to have just cause to fire workers will take effect soon, but it should be blocked, according to a lawsuit brought by the Restaurant Law Center and New York State Restaurant Association.

The Fair Workweek Law, as amended in January, prohibits fast-food restaurants from firing workers or removing shifts without first going through progressive discipline or coaching employees to perform better, except in cases of egregious misconduct.

Many of the key terms of the amended law, such as egregious misconduct, are thus far undefined, and the industry groups contend that even if guidance defines the terms, the law is pre-empted by federal and state law.

"It is possible that the groups may file for [temporary or preliminary] injunctive relief before the law becomes effective on July 5—since July 4 is a holiday," said Aaron Warshaw, an attorney with Ogletree Deakins in New York City.

Peter Stergios, an attorney with McCarter & English in New York City, said the law is "doomed to be nullified." He agreed with the plaintiffs that it is pre-empted by the National Labor Relations Act, breaches the Federal Arbitration Act and violates the Commerce Clause of the U.S. Constitution. The plaintiffs also argued that New York's common-law at-will rule pre-empts the law.

Compliance Efforts in Progress

But even the plaintiffs noted in their complaint that fast-food employers in the city already are working to comply with the law in case the law isn't blocked. These employers have, according to the plaintiffs:

• Started creating progressive discipline policies they think will comply with the law, though they can't be certain because there is no guidance to follow.
• Created extensive new policies and procedures for training, investigation and disciplinary issues.
• Hired new employees to ensure compliance.
• Created new records and forms.
• Established new record-keeping procedures.
• Started training their managers and employees on their obligations and rights.
• Begun preparing to defend against litigation and arbitration arising under the new law.

"The law represents a complete paradigm shift and eliminates some of the authority employers have had in managing employees," said Eli Freedberg, an attorney with Littler in New York City. "Furthermore, the law itself is complex, and it is unclear how many provisions will be enforced."

Law's Requirements

The new law eliminates at-will employment for fast-food employers with at least one location in the city that is part of a chain of at least 30 locations nationwide.

"Thus, for only a small subset of a single industry, covered employers will be prohibited from discharging [an employee] or reducing at least 15 percent of an employee's hours except for just cause or a bona fide economic reason," the plaintiffs said.

The goal of the law is to extend to some nonunionized fast-food workers some of the protections a union provides, according to its main sponsor, New York City Council Member Brad Lander. Too many workers have been scared to speak up because of America's tradition of at-will employment, he told The American Prospect. He said this fear of speaking up has been especially problematic during the pandemic.

Except in cases of the most egregious conduct, before firing or reducing an employee's hours by at least 15 percent, fast-food employers must provide progressive discipline, imposed only after an investigation process. This process can be second-guessed in court, at an administrative proceeding or by an arbitrator, the plaintiffs said. If challenged in any of those forums, the law presumes that an employer's action was unlawful and places the burden on the employer to prove that there was just cause to support the discharge or hours reduction.

An aggrieved employee also may compel arbitration, including on a class basis, without consent from the employer, according to the plaintiffs' complaint.

The law also prohibits fast-food employers from laying off workers unless they can prove bona fide economic reasons, which are limited to a reduction in volume of production, sales or profit. "In other words, layoffs are barred until the employer suffers actual economic harm and may not be used to avoid that harm or to increase volume production, sales or profit," the plaintiffs said.

Layoffs also must be done in reverse order of seniority. Fast-food restaurants may not consider other factors normally considered when conducting layoffs, such as business need or employees' ability and skill, the plaintiffs said in the complaint.

'Egregious Misconduct'

Although the law doesn't define egregious misconduct, Stergios said it's likely to include theft and violence in the workplace but unlikely to include insubordination.

Unlawful harassment is egregious misconduct, said Domenique Camacho Moran, an attorney with Farrell Fritz in Uniondale, N.Y.

The law does not apply to employees who are in a probationary period, which ends 30 days after the start of their employment.

"New York City fast-food employers will want to modify their employee handbooks to include a probationary period of employment, not to exceed 30 days, progressive discipline and a list of unacceptable workplace behavior," Moran said.

Drinking on the job or engaging in criminal behavior while at work also might constitute egregious misconduct, said Howard Wexler, an attorney with Seyfarth in New York City.

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Progressive Discipline

"While many employers regularly warn employees when performance fails to meet expectations, an explicit policy that sets forth the disciplinary steps that will be taken prior to termination should performance not improve or change should be adopted," Moran said. "Progressive discipline policies may include a verbal warning, which should be documented, a written warning, a final warning and suspension before termination."

Employers should develop disciplinary documentation, as employers must provide a written explanation of the precise reasons for termination or hours reduction within five days of the adverse action, Wexler said. If a termination or reduction in hours is challenged by an employee, the law prohibits a fact-finder from considering any reasons offered by the employer that were not included in the written explanation.

In addition, termination decisions must be limited to disciplinary action in the year prior to discharge, Moran said.

Strategic Choice

Salaried workers who are exempt from overtime requirements under New York state law are not covered by the city's law, Wexler noted.

"As such, when revising their policies, fast-food employers should decide whether they want to have two sets of disciplinary systems in place—one that applies to employees covered by the Fair Workweek Law and another system that applies to everyone else," he said. "While this might make sense from a legal perspective, it could have a detrimental effect on the morale" of salaried workers.