New York hotels still subject to severance pay law

As previously reported here, the New York City Council passed a law late last year requiring certain city hotels to pay eligible employees weekly severance pay for up to 30 weeks.

There were swift legal challenges to the law, saying it was preempted by the NLRA and ERISA and unconstitutional. Late last week, in the first opinion on the legal merits of these claims, the U.S. District Court for the Southern District of New York denied a motion for a preliminary injunction filed by one of New York’s many hotels. York rocked by COVID-19. pandemic in order to delay the application of this new “dismissal law”. Despite the existence of a collective bargaining agreement that provides for negotiated severance packages, the court determined that the plaintiff hotel failed to demonstrate a likelihood of success on the merits of its allegation that the layoff law was pre-emptive and unconstitutional.

Summary of New York Severance Pay Law

The main provisions of the law are as follows:

  • Enacted in October 2021, the Redundancy Act (2397-2021) requires operators of hotels that had at least 100 rooms as of March 1, 2020 to pay their employees severance pay if: (1) the hotel has closed to the public and has not recalled at least 25% of the employees it employed on March 1, 2020; or (2) the hotel suffered a mass layoff after March 1, 2020 that resulted in the loss of work for at least 75% of employees within a 30-day period.

  • Employer hotels must provide severance benefits to employees for up to 30 weeks in the amount of $500 per week, or up to a total of $15,000.

  • Any severance pay paid to an employee covered under the law will be Besides any severance or other compensation already paid or due to the employee.

  • When an employee is recalled or when a hotel that was once closed reopens and recalls at least 25% of its employees, the employer’s obligation to provide severance pay ends.

  • Finally, the law provides a private right of action for employees to enforce their right to severance pay under the law, allowing employees to seek double damages as well as costs and attorneys’ fees.

Court denies hotel’s request for preliminary injunction

In November 2021, the plaintiff hotel owner filed suit in the United States District Court for the Southern District of New York against the City of New York, Mayor Bill De Blasio and members of the New York City Council who allegedly voted in favor of the severance pay law. The complaint alleges that the law is preempted by ERISA, the NLRA and New York State labor law. The complaint also alleges that the law is unconstitutional in violation of the Contracts Clause, the Due Process Clause, and the Equal Protection Clause of the United States Constitution. The plaintiff filed a preliminary injunction to restrain the City and other parties from applying the law and imposing the onerous separation obligations.

In denying the motion for preliminary measures, the court held that the plaintiff had failed to demonstrate a likelihood of success on the merits of any of his federal claims:

  • NLRA pre-emption: The court rejected the plaintiff’s argument that the law would require an employer to modify the existing collective agreement with the unionized employees of the hotel, explaining that the legal obligations regarding dismissal under the law only supplement the contractual obligations with regard to dismissal. In rejecting the dismissal argument, the court noted that “pre-emption is not a license for courts to close political avenues to workplace protections simply because those protections may also be subject to collective bargaining”.

  • ERISA preemption: The court also ruled that the law was not preempted under ERISA because the law does not require hotel employers to establish an employee benefit. plan through the creation of an ongoing administrative program to provide prescribed severance benefits.

  • Contractual clause : The court held that the plaintiff had failed to establish that the law resulted in a substantial interference with any contractual relationship, finding that the expectation of the plaintiff employer that he would not have to pay more severance pay than what may be required under the collective agreement was not a reasonable expectation given that the hospitality industry is highly regulated.

  • Due Process Clause: According to the court, the plaintiff is unlikely to succeed in its claim for a due process clause if it has not been shown that the law is too vague or that the city council acted in an arbitrary or capricious manner by passing the law.

  • Equal protection clause: Similarly, the court found that the plaintiff had failed to demonstrate a likelihood of success in its application for an equal protection clause, which was based on a “class of one” theory, because the plaintiff had no established that it was treated differently from companies in the same situation in New York. York City which suffered similar financial losses and continues to see comparable unemployment rates.

Take away food

With this denial of the motion for a preliminary injunction, New York City hotels remain subject to the statutory termination obligations imposed by the city’s layoff law. The case remains pending before the SDNY, and while the preliminary ruling demonstrates the court’s doubt as to whether plaintiff will ultimately succeed on the merits, we will continue to keep you posted on updates. For now, employers should review their policies and practices to ensure they comply with legal obligations around dismissal.

© 2022 Proskauer Rose LLP. National Law Review, Volume XII, Number 96

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