ALBANY, N.Y.—On July 22, 2015 a three-member wage board, empaneled by the New York State Department of Labor at the request of the governor, recommended a minimum wage of $15 an hour for all fast food workers in New York State.
The board recommended the wage be phased in at a different schedule in different parts of the state, reaching $15 an hour by December of 2018 in New York City, and by July of 2021 for the rest of the state.
The Business Council of New York State, Inc. has objected to this process from the beginning and last week submitted the below comments to the NYS Department of Labor.
Highlights include:
RE: The improper impaneling of the wage board.
“We do not believe any of the three wage board members was drawn from a pool of fast food industry nominations. In addition to meeting the specific requirement of the Labor Law, having a board member with actual experience operating in this business sector would have brought valuable knowledge and an important perspective to the board’s investigation and deliberations. Without such an appointment, it seems that this wage board was improperly impaneled.”
RE: The impact on employers and jobs.
“Without a more thorough consideration of the operating costs and profits of the vast majority of fast food establishments that are franchisee owned, it is not possible for the board to reach a meaningful conclusion on the impact of its proposal on fast food establishments and job opportunities within such businesses.”
RE: The scope of employment covered.
“We have several concerns regarding this proposal: first, this recommendation goes well beyond the wage board’s assigned purpose. Second, it belies the wage board’s assertions that their wage proposal will not have a significant impact on jobs, hours or wages available to current employees. Third, it would apply even in instances where such functions are already performed by third parties. In such cases, where cleaning and “routine maintenance” are performed under contract by a third party, it is unclear what the fast food business would be required to do under this wage proposal.”
RE: Establishments covered.
“It is unclear how this wage recommendation applies where an establishment’s business includes some fast-food type activities, but where such activities are not the predominant purpose of that establishment. We strongly recommend that any final wage order make clear that such circumstances are not subject to this wage order.”
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Full submission
These objections and recommendations related to the fast food wage board’s final report are submitted on behalf of The Business Council of New York State, Inc.
- Labor Law § 655 requires that, when the commissioner is appointing a wage board to address wages in a specific occupation, “the representatives of the employers and employees [are] to be selected so far as practicable from nominations submitted by employers and employees in such occupation or occupations.” “Practicable” is commonly defined as “capable of being put into practice,” “doable,” and “feasible.” Since the timing of this wage board was wholly discretionary on the part of the labor commissioner, seeking such nominees from the fast food industry seems fully “practicable.” However, we do not believe any of the three wage board members was drawn from a pool of fast food industry nominations. In addition to meeting the specific requirement of the Labor Law, having a board member with actual experience operating in this business sector would have brought valuable knowledge and an important perspective to the board’s investigation and deliberations. Without such an appointment, it seems that this wage board was improperly impaneled.
- Impact on Employers and Jobs: Labor Law Section § 650, Article 19’s “Statement of public policy,” states that in addressing the adequacy of wages, the state must consider a number of factors, including whether wage mandates have the effective of “substantially curtailing opportunities for employment or earning power.” To do this, the board would have had to consider the finances of the actual establishments to be directly affected by its proposed wage mandate. The final report shows little evidence that this was done. The report concedes that the vast majority of fast food outlets are franchisee owned, but the report mostly refers to the profitability and CEO pay of the franchisors in justifying the affordability of their wage recommendations. For example, the report references the aggregate profits of the top fourteen publicly traded fast food firms, but not their profit margins. The report fails to show any evidence that the wage board evaluated the profits or profit margins of the franchisees that operate the majority of establishments and which would be most directly impacted by the board’s wage proposal. The report did note that “some store owners” cited low profit margins, but dismissed the need for further evaluation of those concerns by saying that they may be offset by the benefits of partnering with a national brand. Without a more thorough consideration of the operating costs and profits of the vast majority of fast food establishments that are franchisee owned, it is not possible for the board to reach a meaningful conclusion on the impact of its proposal on fast food establishments and job opportunities within such businesses.
- Scope of Employment Covered: Contrary to the wage board’s “charge” to address fast food workers that “prepare food and serve customers,” the board includes these and other occupations employed at fast food establishments, including cleaning, routine maintenance, “delivery” and security positions, in their wage recommendation. The report says that the wage board broadened the scope of its recommendation to “prevent employers . . . [from] subcontracting fast food work . . .”. We have several concerns regarding this proposal: first, this recommendation goes well beyond the wage board’s assigned purpose. Second, it belies the wage board’s assertions that their wage proposal will not have a significant impact on jobs, hours or wages available to current employees. Third, it would apply even in instances where such functions are already performed by third parties. In such cases, where cleaning and “routine maintenance” are performed under contract by a third party, it is unclear what the fast food business would be required to do under this wage proposal. Would they be precluded from using such contracts? Would they be required to assure that the third party is complying with this wage mandate? Finally, the report leaves significant ambiguity as to the activities to which this recommendation would apply. What constitutes “routine” maintenance? What “delivery” activities are covered? Is the board referring to the delivery of food from the restaurant, or the delivery of materials and supplies to the restaurant? All of these additional concerns would be addressed by limiting the scope of the final wage order to the food preparation and service workers that were the intended focus of this wage board.
- In an apparent effort to address the statutory requirement in Labor Law § 654 to consider “. . .the wages paid in the state for work of like or comparable character,” and to justify its proposed wage increase, the report cited one witness, Professor Van Tram of Columbia University, who testified that fast food work “requires a tremendous amount of cognitive coordination and balancing of simultaneous demands,” from which the board concluded “the value of the work performed by fast food workers, as reflected in the difficulty of the work and the skill required for the jobs, …warrants a substantial increase in the minimum wage.” This testimony does not appear to be available to the public, and a web search for the testimony and/or underlying research was fruitless. Even if Professor Tram’s assessment was correct, this argument smacks of a “comparative worth” methodology, where third-party considerations of the inherent value of a specific occupation is used to assign a wage that is otherwise unsupported by actual labor market conditions. The Business Council has been a longstanding opponent of such comparative worth methodologies, and has opposed numerous statutory proposals to apply such approaches to private sector employment in New York State. The report also repeats the specious argument that the average compensation of fast food company CEOs should be a basis for setting food service wages. The report cites “ExecuComp” data showing the annual CEO compensation in 2013 of the largest publicly traded fast food companies was $23.8 million. The analysis yielding this $23.8 million figure was published in a report from Demos, which shows that 1. It was based on total earnings (wages, stock and stock options) of nine company CEOs, and 2. That analysis included Starbucks, whose CEO earned a whopping $137 million in the study year (a figure almost seven times the next highest CEO compensation, and an amount 97 percent of which was from exercising stock options). Take this significant outlier out of the calculation and the average falls to $8.8 million – a compensation figure that is significantly less than the average CEO pay of all Fortune 500 companies (which was $10.5 million in 2012, according to Forbes magazine.) And, most important, for the vast majority of fast food restaurants owned by franchisees, these CEO earnings have little to no bearing on their ability to afford higher government-mandated labor costs.
- Applicability Threshold: The report contains one brief mention of having “…given careful consideration to how smaller chains might be affected by our recommendations,” but contains no further discussion about what those concerns were. Furthermore, the reporter never states whether – and if so, how - potential adverse economic impacts on small business franchisees were evaluated, or how the wage board’s applicability threshold of thirty establishments was set. As discussed above, we believe the wage board did not adequately address the potentially adverse impact on employers and employment opportunities at the vast majority of establishments that would be impacted by this proposal.
- Establishments Covered: The report includes a non-“depositive” list of firms that may (or may not) be subject to a wage order. While this list provides some illustration as to possible scope of a final order, the report still leaves some significant ambiguities. For example, the report says that the term “fast food establishment” includes such establishments located within non-fast food establishments. It is unclear how this wage recommendation applies where an establishment’s business includes some fast-food type activities, but where such activities are not the predominant purpose of that establishment. We strongly recommend that any final wage order make clear that such circumstances are not subject to this wage order.
Respectfully submitted by:
Ken Pokalsky
Vice President
The Business Council of New York State, Inc.
111 Washington Avenue, Suite 400
Albany, New York 12210
O: 518.465.7511 x 205
C: 518.339.5894
[email protected]