Earlier this week, a Washington federal judge rejected the argument of the International Franchise Association that Seattle’s new minimum wage law unfairly targets franchise owners in Seattle. The new law will raise the minimum wage in Seattle to $15 per hour over the next several years. The focus of the IFA’s court action was not whether the city had the power to raise the minimum wage, but the way the increase is to be implemented. Small businesses will be allowed to implement the increase over a seven year period while large businesses (500 employees or more) must implement the increase in only three years. However, the law places franchise owners in the large business category regardless of the number of employees the franchisee actually employs. On its face, the law seems to unfairly burden franchise owners simply because they operate using the business format and trademarks of the franchisor. As franchisees know, ownership of an independently owned franchised business does not equate to being a “large business” employing 500 people. In fact, most franchised businesses are small, locally owned and lack the resources of companies who employ 500 or more people. The IFA stated that it will continue its’ fight against a law that it perceives to unfairly discriminate against franchise owners.
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Since San Francisco enacted mandatory sick leave legislation in 2006, efforts to pass similar laws have gained momentum in municipalities and states across the nation. Recently the New Jersey assembly became the latest state legislature to advance a bill, A2354, which would require most employers to provide their employees with annual paid sick leave. If it becomes law, and odds are strong that it will, it would make New Jersey the fourth state – after California, Connecticut, and Massachusetts – mandating paid sick time for all workers, and it would raise a number of challenging legal and compliance issues for both small and large franchised businesses.
At the core of the bill is the imposition of a legal obligation on employers to provide one hour of earned sick leave for every 30 hours an employee works. Employers with an average of fewer than 10 employees (which includes part-time and temporary workers) must allow each employee to accrue and use up to 40 hours per calendar year; employers with an average of more than 10 employees would have to allow up to 72 hours per calendar year.
As with any statute, however, the devil is in the details. The following is a brief summary of the bill’s provisions that pose the greatest risk to employers’ bottom lines:
Broad Application. Permissible use of earned sick leave is fairly broad under the bill. It permits an employee to use sick leave for themselves or a family member for: preventive medical care; the diagnoses, care, treatment or recovery from mental or physical illness; physical injury; and any adverse health condition. It also provides paid leave to employees who miss work due to closure of the workplace or a child’s school due to a public health crisis.
No Preemption Means Conflicting Employer Obligations. Many communities in New Jersey have already passed mandatory sick leave laws in the past year, including Newark, Jersey City, and Trenton, although the maximum leave provided is generally 40 hours. The state bill, however, does not include a provision which preempts those municipal laws, which would quickly lead to compliance conflicts for employers who have workers covered under different (or multiple) sick leave laws. This will quickly lead to confusion.
Disproportionate Impact on Small Businesses. While proponents argue the state bill is a pro-business and pro-public health policy that will ultimately reduce worker absenteeism and lower health costs for employers, businesses which heavily rely upon part-time workers, such as small local business, restaurants and seasonal businesses on the New Jersey coast, stand to disproportionately suffer adverse financial impact as a result of the legislation’s presumption that a large employer is one with 10 or more total employees. It’s common for these businesses to be staffed with part-time workers consisting of students and people with other full- or part-time jobs, and a small business can easily reach the 10-employee threshold simply because their workers have limited availability.
Practical Legal Ramifications. The bill would also impose certain record-keeping requirements and specifies when an employer may require documentation from an employee requesting or taking sick leave. In addition, the bill expands the legal rights of employees in two ways that raise fairly significant ramifications for even the most well-intentioned employer. First, if an employee makes any statement involving paid sick leave or invokes any right under the law, the employee receives a 90-day window in which any “adverse action” they suffer related to their job is presumed to be retaliatory. “Adverse action” is a broad term which, depending on the circumstances, could include merely changing the employee’s shift schedule. Second, unlike other states in which enforcement is entrusted to a state agency, the New Jersey bill permits an employee to sue the employer to enforce the law’s requirements. So instead of deferring resolution of disputed sick leave matters to a state regulator, aggressive plaintiffs’ lawyers will enjoy a wind fall.
It will be at least several months until the bill comes before the full New Jersey legislature for vote, and even if passed will require an openly reluctant Governor Chris Christie to sign it into law before it can take effect. However, the recent passage of similar leave laws in New Jersey’s three largest cities has led many observers to conclude it’s only a matter of time before New Jersey enacts state-wide legislation. Employers would therefore benefit from monitoring the bill and reviewing their existing sick leave policies to determine whether and to what extent its likely passage in New Jersey will affect workplace coverage and operating costs.
Sarah Ivy, Chair of G&K’s Executive Compensation and Employee Benefit practice, provided the following update. Large franchisors and multi-unit franchise owners should take note.
We are watching the progress of H.R. 2575 very closely. Any upwards modification of the 30 hour per week standard in defining a full-time employee under PPACA would be a relief to those large employers subject to the pay-or-play penalties. We will keep you updated on the status of the Save American Workers Act bill. http://www.benefitspro.com/2014/02/04/committee-approves-full-time-worker-bill
Pennsylvania House Bill 1807 was voted out of the House Labor Committee last week. This legislation would prohibit Pennsylvania municipalities from enacting any laws that require employers to provide any type of leave, paid or unpaid, from employment that is not required by state or federal law. HB 1807 was introduced in response to a growing national trend of local governments that have been imposing their own employer-provided leave mandates on businesses. A recent example was in the city of Philadelphia, when elected officials attempted to pass legislation that would require businesses with more than five employees to provide up to 56 hours of paid time off a year, regardless of the type of business, financial stability and any existing policies that addressed employee leave. The Philadelphia legislation would have severely impacted franchised businesses within the city. While Philadelphia City Council passed the measure, it was vetoed by Mayor Michael Nutter. Twelve states have already passed preemption bills, including Florida, which implemented the legislation earlier this year. While the future of paid sick leave in Pennsylvania is unlikely, it looks more promising in neighboring New Jersey, where the Democrats who control the state Legislature seek to install laws requiring paid sick leave for employers of all sizes. A full vote on HB 1807 in the Pennsylvania House is expected in the next few weeks.
Earlier this week, I attended the Pennsylvania Restaurant and Lodging Association (PRLA) Annual Membership Meeting in Hershey, PA. During the conference, a PRLA government affairs representative indicated that passing legislation to preempt mandatory paid leave efforts in Pennsylvania was a top priority for the PRLA. Earlier this year, Philadelphia Mayor Michael Nutter vetoed legislation that would require Philadelphia employers to provide paid sick leave to their employees. In recent years, legislation requiring employers to provide paid sick leave has been adopted by the cities of Seattle and Portland. Portland’s law goes into effect Jan. 1, 2014. The PRLA expects the issue to arise again this year in Philadelphia and Pittsburgh. PRLA believes that private sector employee benefit decisions should not be determined by local governments as these policies deter job creation and place businesses at a competitive disadvantage. The preemption would also establish a level playing field for businesses located in the Commonwealth.