New York and California restaurant operators are dealing with serious challenges posed by recent minimum wage hikes and further increases coming down the pike. Payroll as an operating expense is on a steep trajectory upward for at least the next several years. How operators manage the challenges – whether and how operators cut the number of employees on payroll or the number of hours worked each pay period – carries serious legal risks.
The New Wage Scale – Assault on Slim Profit Margins
No later than the end of this year, the minimum wage in New York City will increase from $9 to $11 per hour – a 22 percent jump. The law, signed by Governor Cuomo on April 4, mandates further increases that will lift the minimum wage throughout the State of New York in a few years to $15 per hour.
In California, the state minimum wage increased in January to $10 per hour. On January 1 next year, the minimum will increase again and annually thereafter until it reaches $15 per hour in 2022.
To put these figures in context, the federal minimum wage is $7.25 per hour, where it’s stood since July 2009.
Dozens of cities, as well, mostly on the West Coast, have enacted minimum wage ordinances within the last year or two. On July 1, the minimum wage in the City and County of San Francisco, for example, will surge to $13 per hour – nearly twice the federal minimum wage. Oakland, Palo Alto, Los Angeles, West Hollywood, Pasadena, Santa Monica, Long Beach, and San Diego are some of the other cities which have enacted local minimum wage laws.
Confronted with increased costs of this magnitude, the initial impulse on the part of many operators is to let employees go or reduce the number of hours worked each pay period to hold down payroll costs. However, where operators scramble too quickly for a solution, they risk legal exposure that may eclipse the money they’re trying to save.
Cutting Staff and Managing Legal Risk
New York and California employers know too well how freely the law allows former employees to allege some sort of wrongful termination or discrimination claim when they’re let go. However, federal and state law also provides grounds for employees who simply have had their hours or schedules cut, and who have not been let go, to claim discrimination or other unlawful motive.
Where the employer makes the decision to cut costs by laying off employees or cutting hours worked, the operator must make a strategic decision of whether to do so in piecemeal fashion, one or a few employees at a time, or in a larger, coordinated reduction in force or “RIF.” Laying off employees one or two at a time allows former employees to more credibly claim they were let go for discriminatory or other unlawful reasons, and not due to increased operating costs.
Where operators scramble too quickly for a solution, they risk legal exposure that may eclipse the money they’re trying to save.
If an restaurant operator chooses to move forward with piecemeal layoffs, however, the employer must pay attention to who it’s letting go – each employee slated for lay off first must be considered from the perspective of legal exposure: is the employee one who complained of not being paid overtime, recently filed a workers compensation claim, or recently requested pregnancy leave? Are the employees under consideration for lay off the older employees, that is, those 40 years of age or older? If these and many similar questions aren’t considered before employees are let go, the operator is signing onto legal exposure blindfolded.
In contrast to piecemeal firings, laying off a greater number of employees at one time in a coordinated RIF can be far less risky. Where six, 15 or more employees are let go or suffer a reduction in hours as a group at the same time, it is generally more difficult for one employee in the group to claim and prove discrimination or other unlawful termination. Further, oftentimes the operator can buttress the terminations or schedule cuts by telling the affected employees in writing at the time that the actions were necessary in order to manage increased payroll and other operating costs.
The fact that a significant number of employees are let go at the same time implicitly carries a degree of credence: if it looks like a duck and sounds like a duck, it must be a duck. That is, if the operator let go a significant number of employees together, it looks and sounds like financial distress, not selective, wrongful termination.
Where an operator chooses to implement a RIF, the employer and its counsel should create a written plan setting out objective criteria by which the operator will select the employees to be let go. The rub, of course, is that if management drafts a plan, it must strictly follow the plan. Management’s failure to follow its own plan can be used as evidence of the operator’s discriminatory treatment of one or more of the employees let go. Where management follows the plan, though, the fact that an operator wrote and followed objective, non-discriminatory criteria for choosing which employees to let go can be invaluable in disposing of claims by employees who were let go.
Where restaurant operators think through these issues in advance, they’ll go far in managing both increased payroll costs and legal exposure.
This is a monthly column by Jeffrey Horton on breaking employment law issues for restaurant operators.