By: Dan W. Sweeney
Shortly after New York City (“NYC”) enacted the Wrongful Discharge Law—which eliminated at-will employment in NYC fast food restaurants—two restaurant trade groups sued NYC, challenging the validity of the law in Rest. Law Ctr. v City of New York.[1] The plaintiffs brought suit under §1983 of the Civil Rights Act of 1866 and asserted that “the Wrongful Discharge Law violates the dormant Commerce Clause and Supremacy Clause of the U.S. Constitution” because the law is purportedly preempted by the National Labor Relations Act (“NLRA”) and the Federal Arbitration Act (“FAA”).[2] On February 10, 2022, District Judge Cote of the Southern District of New York granted the City’s motion for summary judgment.[3]
The Wrongful Discharge Law, effective as of July 2021, was enacted to better protect non-unionized fast food workers.[4] It amended the Fair Workweek Law by adding, among other things, two key provisions: the “just cause” provision and the arbitration provision. The Restaurant Law Center (“RLC”) and the New York State Restaurant Association (“NYSRA”) sought an injunction blocking the enforcement of these provisions.[5]
The “just cause” provision states that a fast food employer cannot “discharge” an employee “except for just cause or for a bona fide economic reason.”[6] The law defines just cause as “the fast food employee’s failure to satisfactorily perform job duties or misconduct that is demonstrably and materially harmful to the fast food employer’s legitimate business interests.”[7] Discharge includes termination of employment, indefinite suspension, and reduction in hours.[8] RLC and NYSRA alleged the “just cause” provision was preempted by the NLRA insofar as it invades the collective bargaining process. Specifically, it addresses a topic typically reserved for the collective bargaining table–just cause discharge.[9] The court rejected this argument on the grounds that the Wrongful Discharge Law is a “minimum labor standard . . . of general applicability aimed at promoting job stability for hourly employees in a particular sector — the fast food restaurant industry.”[10] Recognizing that states may not regulate the collective bargaining process itself, the court distinguished regulations of the bargaining process from regulations of the “process for termination of employment” as two separate areas. Because “just cause” is a regulation of the process for termination of employment, the provision was not preempted by the NLRA.[11]
The arbitration provision allows any person alleging a violation of the law by a fast food employer to bring an arbitration proceeding.[12] The RLC and the NYSRA argued that this provision was preempted by the FAA because enforceability of arbitration agreements in general stems from their consensual nature as part of an arm’s length negotiation process. Therefore, compelling the employer to submit to an arbitration process outside of such a negotiation process, restricts or interferes with the enforceability of such a theoretically negotiated for arbitration agreement.[13] The court flatly rejected this argument with little discussion on the matter because the Wrongful Discharge Law, in the court’s view, does nothing to limit the ability of parties to agree to submit disputes to arbitration, nor does the law interfere with the enforcement of such agreements as the FAA “is silent on the subject of compelled arbitration.”[14]
In addition to federal claims, RLC and NYRSA brought four state law claims. As to the “just cause” provision, plaintiffs alleged that this is preempted by New York’s at-will common law employment doctrine and that it violates the State Constitution’s home rule clause. The latter covers New York State’s affirmative grant of power to local governments to pass laws “not inconsistent with the provisions of [New York’s] constitution or any general law.”[15] The theory being that the “just cause” provision is inconsistent with New York’s general law of at-will employment and thus exceeds the legislative authority granted to New York City. Regarding the arbitration provision, plaintiffs alleged the provision violates an employer’s right to a jury trial and invades the jurisdiction of the New York Supreme Court. The challenges were ultimately not addressed substantively because the court declined to exercise its supplemental jurisdiction. It remains to be seen what will come of these challenges if the RLC and NYSRA decide to pursue these claims in state court.
SDNY took a broader view of minimum labor standards and a more narrow interpretation of the FAA’s applicability to compelled arbitration agreements compared to the plaintiffs’ view. Assuming plaintiffs do not appeal, the “just cause” and arbitration provisions will continue to bolster the rights of fast-food workers in New York City. Encouraged by the court’s recent conclusion, other municipalities may decide to enact similar provisions.
[1] Rest. Law Ctr. v. City of New York, 21CV4801 (DLC), 2022 WL 409190 (SDNY Feb. 10, 2022).
[2] Id. at *8–9.
[3] Id.
[4] Allen Smith, Law Prohibiting At-Will Employment at NYC Fast-Food Restaurants Challenged, SHRM, https://www.shrm.org/resourcesandtools/legal-and-compliance/state-and-local-updates/pages/nyc-just-cause-law-challenged.aspx.
[5] Daniel Weissner, Trade groups challenge NYC ‘just cause’ law for fast-food staff, Reuters, https://www.reuters.com/legal/litigation/trade-groups-challenge-nyc-just-cause-law-fast-food-staff-2021-06-02/.
[6] N.Y.C. Admin. Code § 20-1272(a).
[7] Id. § 20-1271.
[8] Id.
[9] Rest. Law Ctr. v. City of New York, 21CV4801 (DLC), 2022 WL 409190, at *17 (SDNY Feb. 10, 2022).
[10] Id. at *16.
[11] Id. at *17.
[12] N.Y.C. Admin. Code § 20-1273(a).
[13] Rest. Law Ctr., 2022 WL 409190, at *28.
[14] Id. at *29.
[15] N.Y. CONST., art. IX §2(c)
