Fast Food & You: Taking the Temperature of the New Minimum Wage

“‘A merry Christmas, Bob,’ said Scrooge, with an earnestness that could not be mistaken, as he clapped him on the back. ‘A merrier Christmas, Bob, my good fellow, than I have given you for many a year. I’ll raise your salary, and endeavor to assist your struggling family, and we will discuss your affairs this very afternoon, over a Christmas bowl of smoking bishop, Bob. Make up the fires, and buy another coal-scuttle before you dot another ‘i,’ Bob Cratchit!’”[1]

The holiday season has traditionally been a time when struggling finances are even more pronounced, and stressed households need all the help they can get to make ends meet. This year, the families of fast food workers in New York State will see a new “holiday bonus” to add to their coffers, though not quite on the Dickensian scale. The end of 2015 will mark the beginning of gradual minimum wage increases that are staggered over a several year period.

  I.    Regulatory Changes

Employers in New York State should be aware of the regulatory changes effective at the beginning of 2016 regarding the minimum wage. On September 10, 2015, the Commissioner of Labor for New York State Mario Musolino issued an Order that instituted the July 31, 2015 recommendations of the Fast Food Wage Board. These recommendations set forth a plan to gradually increase the minimum wage for only fast food workers[2] to $15.00 per hour by December 31, 2018 for New York City, and by July 1, 2021 for the rest of New York State.

The Wage Board’s Resolution from July gives the following timeline for all of New York State except New York City:

1. 12/31/15: $9.75 (up from $8.75)
2. 12/31/16: $10.75
3. 12/31/17: $11.75
4. 12/31/18: $12.75
5. 12/31/19: $13.75
6. 12/31/20: $14.50
7. 7/01/21: $15.00

For New York City, the timeline is as follows:

1. 12/31/15: $9.75 (up from $8.75)
2. 12/31/16: $12.00
3. 12/31/17: $13.50
4. 12/31/18: $15.00

Two conclusions may be drawn from the timelines set forth by the board: first, the $15 wage was not proposed to be an immediate upgrade. Second, the proposal recognizes the higher cost of living in New York City by accelerating the timeline to $15.00 by two and a half years, without providing any increases in the City after 2018.

The Fast Food Wage Board, appointed by the Commissioner of Labor, found that “fast food workers are twice as likely to be members of families with earnings below or near poverty than the workforce as a whole.” [3] The Board further found that the nature of the work “requires a tremendous amount of cognitive coordination and balancing of simultaneous demands, and that workers routinely perform a variety of complex tasks often under extreme time pressure and poor working conditions.”[4] Also considered was the psychological effect of the comparatively low wages on the workers. The Board further found compelling the assertion that multinational corporations that owned fast food chains (constituting 62% of all fast food worker employers) benefitted from underpaying employees, requiring extensive public subsidy.[5] The Board’s report estimated that 60% of fast food workers receive such public assistance.[6]

The Fast Food Wage Board consisted of the representative of “the public,” Mayor of Buffalo Byron Brown (first assumed office December 31, 2005 for the culturally-rich city that shoulders the mantle of the country’s third-poorest city with a poverty rate over thirty percent, based on recent US Census Bureau data[7]); representative of “businesses” Kevin Ryan (“internet entrepreneur,” Yale undergraduate and INSEAD M.B.A.; Ernst & Young’s 2009 Entrepreneur of the Year); representative of “labor” Michael Fishman (Secretary-Treasurer of the Service Employees International Union); as well as each respective board member’s inevitable host of assistants and interns.[8] This symbolic selection of individuals was by no means perfect, but the appointment of whom was completely within the purview of the Commissioner of Labor.

Unlike former minimum wage increases implemented by the Legislature, the Commissioner of Labor is empowered by Article 19 of the Labor Law, the Minimum Wage Act, to institute this Order instead of the Legislature, dramatically accelerating the process. Article 19 § 654 empowers such a wage board to determine sufficiency of the amount of minimum wage, considering “the value of the work or classification of work performed, and the wages paid in the state for work of like or comparable character.” According to § 655, a maximum of three representatives may be appointed by the Commissioner of Labor, and make wage recommendations that “shall not be in excess of an amount sufficient to provide adequate maintenance and to protect the health of the employees.”[9]

      II.    Covered Entities

The Commissioner of Labor issued an Order on September 10, 2015 that exactly incorporated the bifurcated timelines recommended by the Wage Board for New York City and the rest of the state.[10] The Commissioner’s Order very nearly copied the definitional language of the Wage Board resolutions, with two exceptions: first, a “Fast Food Establishment” will be one “which has as its primary purpose serving food or drink items” (emphasis added). Second, the Order added the sentence “‘Fast Food Establishment’ shall include such establishments located within non-Fast Food Establishments.” Further, the affected establishments are only those with thirty or more locations in the United States, owned either directly by the larger enterprise or franchises of those enterprises. Therefore, even small franchisors of chain restaurants will be affected, even if they own less than thirty locations. “The little guy,” the mom-and-pop establishment performing the same fast food function in the marketplace will not be forced to pay this wage increase (however – Governor Cuomo announced on November 10, 2015 his intentions to raise the state minimum wages across all sectors[11]).

      III.    Employer Compliance

Compliance with the new regulations will simply mean the timely payment of correct wage rates. However, those businesses not affected by the fast food September 2015 Order still must observe a minimum wage increase that was mandated by the 2013-14 Budget. In the aftermath of the Occupy Wall Street and Living Wage movements, the New York State legislature acted by providing in the 2013-14 Budget for an increase from $7.25 per hour to $9.00 per hour over a three year period.[12] The timeline was as follows:

1. 12/31/13: $8.00
2. 12/31/14: $8.75
3. 12/31/15: $9.00

This change applied to all sectors of employment as a minimum wage increase. Notwithstanding the Fast Food wage increase, all sectors of employment are subject to the minimum wage of $9.00 on December 31, 2015. Concerning the first mandatory fast food wage increase, it is 75 cents more per hour than what would have been mandated without the Wage Board’s recommendation: the 2013 – 2014 NYS Budget had already provided for a $9.00 per hour minimum wage by December 31, 2015.

Specifically in the context of delivery services, such as pizza delivery, the minimum wage increase applies to all non-tipped workers. Regarding tipped workers that actually carry out the delivery, this has historically functioned as a separate group of employees: earlier in 2015, the Commissioner took the recommendation of another wage board. This group of three different individuals issued a report on February 2, 2015 to consolidate a haphazard mess of tipped worker classes, and to afford the single new tipped worker class one rate of hourly pay.[13] Again exercising his § 655 powers, Commissioner Musolino instituted his Board’s recommendation and issued the order of February 24, 2015.[14] This order created a $7.50 hourly wage for any tipped worker in the state, effective December 31, 2015.

Importantly, the combined hourly tipped minimum wage plus tips must amount to the non-tipped minimum wage (12 N.Y.C.R.R. § 146-1.3(a)). This is not a new change to the legal landscape. Let’s use an example to illustrate: Wanda Worker does pizza delivery and will be paid $7.50 per hour after December 31, 2015. On January 1, Wanda must indefatigably work on New Year’s Day, delivering pizzas to the tired, hung over masses. However, the bleary-eyed masses are cheap: after working for 6 hours, she only earns $2 in tips! Wanda’s boss, Supervisor Scrooge, is unaware of the tipped hour requirement and gives Wanda $45. Wanda is due at least $54 for the day: 6 hours at $9.00 per hour (the new minimum wage). Instead, Wanda walked away with $47. Though this seems like much ado about a mere $7, this daily shortfall may quickly add up for Wanda, who may subsequently read this very article and seek back pay. If Wanda shares this tidbit with her similarly shortchanged coworkers (which, depending on the circumstances, may be her right under the National Labor Relations Act), the matter may balloon to an unpleasant critical mass. The requirement underscores the importance of complete and accurate tip recording from tipped workers.

      IV.    Predicted Effects

An economist would be better-suited than I to make predictions as to the effect these mandatory wage increases will have over time on the state economy and labor force. For the fast food sector, it is perfectly reasonable to speculate that franchisors for larger chains that are subject to the greater wage may go out of business for lack of a sustainable profit margin. It is also reasonable to speculate that the better-equipped franchisors will further automate their restaurants, putting laborers out of a job. Those unable to automate may be left behind, forced to sell their restaurants.

Importantly, it is too early to tell whether the good intentions of the Fast Food Wage Board and the Commissioner of Labor will be realized, either regarding the mitigation of public subsidy or the social benefit to the individual worker. The corporations affected by the fast food wage changes may also be poised to initiate future lawsuits contesting the legality of the single-sector wage hike.

Regardless of the cross-sector impact of the already-approved schedule of wage increases for New York State, employers must be aware of their new obligations to their employees as of the end of December, 2015. For the fast food restaurant employer in the category of over 30 locations nationally, the worker must be paid $9.75, and all others must be paid $9.00. Tipped workers will earn $7.50 per hour. Otherwise, the Scrooges among us should expect a festive holiday haunting by the Department of Labor.

Submitted by:    Jonathan D. Falk, Associate Attorney, Osborn Reed & Burke, LLP

This article is a publication of Osborn, Reed & Burke, LLP: Rochester, New York. Our purpose in publishing this article is to inform clients and colleagues of recent legal developments. It is not intended, nor should it be used, as a substitute for specific legal advice in an employment or any context, as legal counsel may only be given in response to inquiries regarding particular situations.

[1] Charles Dickens, A Christmas Carol, Stave 5 [1843].

[2] This will be the first sector-specific minimum wage increase in the state’s history, and notably, the change does not involve an entire Principal Business Activity NAICS sector (http://www.tax.ny.gov/pdf/publications/general/pub910.pdf).

[3] http://www.labor.ny.gov/workerprotection/laborstandards/pdfs/Fast-Food-Wage-Board-Report.pdf Pages 8, 14.

[4] Id.

[5] Id. at 10.

[6] Id. at 9.

[7] http://www.bizjournals.com/buffalo/news/2014/01/02/buffalos-poverty-rate-tops-30.html

[8] https://www.governor.ny.gov/news/governor-cuomo-instructs-state-labor-department-convene-wage-board-investigate-and-make

[9] Notably, the arguments generated by adversaries to the “Fight for $15” appear not to claim that the wage increases are in such an excess.

[10] https://labor.ny.gov/workerprotection/laborstandards/pdfs/FastFood-Wage-Order.pdf

[11] http://www.nytimes.com/2015/11/11/nyregion/andrew-cuomo-and-15-minimum-wage-new-york-state-workers.html

[12] http://www.labor.ny.gov/pressreleases/2015/february-04-2015-labor-budget-testimony.shtm

[13] http://www.labor.ny.gov/workerprotection/laborstandards/pdfs/wage_board_report.pdf

[14] http://www.labor.ny.gov/workerprotection/laborstandards/pdfs/wage_board_order.pdf