Strict compliance with the law in this area is difficult given the myriad of laws that pertain to employee’s wages and tips in the restaurant industry. As such, some NY lawyers have taken aim at the industry and, as a result, eateries have paid out over $70 million in settlements over wage and tip complaints in the past few years alone.

The city’s biggest names, including Nobu, Jean Georges, Sparks, Mesa Grill, Pastis, Balthazar, BLT, and the 21 club have all faced similar lawsuits and have forked over millions of dollars as a result. Others have been forced to close as a result of such lawsuits, including Geoffrey Zakarian’s Country and Chris Cannon’s Alto and Convivio.

At least one of NYC’s top restaurateurs has had enough. Joe Bastianich, co-owner of Eataly, Del Posto and Babbo, who has been sued twice in NY with wage and tip complaints, vowed that he will no longer be opening any more restaurants in this state. . . and he hasn’t. Rather he has since opened three establishments in Chicago and California giving those states the substantial tax revenue and 1000+ jobs created by the establishments. This loss of revenue and job creation is not something that even our relatively wealthy city can afford.

So what’s the solution? Comply with the law and you won’t have anything to worry about. If you are not positive that you are presently in compliance, consult with an experienced attorney immediately and have them review your wage and tip policies and procedures. Sure they will charge you for you the service . . .but you’ll get it right going forward and avoid the extremely costly fate of getting sued for a wage and/or tip violation.

You are required to provide the local Community Board (CB) with notice at least 30 days prior to filing an on-premise liquor license application the New York State Liquor Authority (NYSLA). The CB may then put you on their hearing agenda to find out more about your project. At the CB hearing they may ask you about everything from the type of cuisine that you plan on selling to your affiliations with any other NYSLA licensed premises. Nothing is off limits.

I am always asked, Do I need to have a lawyer with me at this hearing?  My response, which is not going to please my fellow attorneys, is absolutely not. In fact, I typically recommend that you don’t bring an attorney there and that you should never have an attorney go in place of you. The reason is simple. If you were a CB member, would you want to hear the details about the restaurant / bar project from an attorney or directly from the owner/operator of the project? The CB does not want to hear an attorney describe the type of cuisine that you are offering, or what you will do to prevent people from lining up outside, or that you will not have dancing in your premises. They want to hear these assurances from you . . .the operator; the person responsible for ensuring that all of these assurances are going to be kept. I typically recommend that you retain an attorney to be present at the CB hearing only in the event that (i) you anticipate strong opposition to your project, or (ii) are uncomfortable with public speaking. Otherwise, save yourself money and have the person who is best able to present the details of your project present them. . .you.

In a related matter, Community Board 1 in Queens, NY, has just voted against the issuance of a liquor license for a bar where all the female staff would serve wearing only bikinis. The CB cited, amongst the reasons, that this type of establishment would not be appropriate surrounding family oriented community. The proposed name of the bar . . . “Racks.”

The Equal Employment Opportunity Commission (“EEOC”) has targeted the restaurant industry as the single largest source of sexual harassment claims. With all the media attention on the subject lately, the number of sexual harassment cases filed each year against restaurants and their owners are escalating at an all too rapid pace. Restaurant owners must now take a pro-active stance to keep such complaints from damaging their operation. All employees, male and female, need to be formally informed as to what types of conduct are unlawful. Assuming that your managers and employees know how to behave without explicit guidelines could be your ticket to the courthouse. A series of Supreme Court decisions have defined what “sexual harassment” means. Those cases, and the interpretive guidelines of the Equal Employment Opportunity (EEOC), define two distinct types of sexual harassment:

quid pro quo (a legal term meaning “this for that”), in which a supervisor demands sexual favors from an employee and threatens to fire the employee if the conditions are not met; and

hostile environment, in which a supervisor or employee creates a work environment through verbal or physical conduct that interferes with another co-worker’s job performance or creates an intimidating work environment. A hostile environment is created when unwelcome sexual behavior is repeated. For example, an employee keeps telling off-color jokes after another staff member says they are offensive, or one employee keeps asking another employee for dates after being refused.

GENERAL RULE: An employer’s obligation with regard to sexual harassment arises before any act of harassment even occurs. As such, most lawyers practicing in this field strongly urge their employer-clients to distribute a clear and explicit sexual harassment prohibition policy and reporting procedure. Additionally, Anti-harassment training should occur on a regular basis which should educate managers and other employees as to what conduct is specifically prohibited (including a presentation of hypothetical harassment scenarios) and what to do if the employee believes they have been/are being harassed.

This policy and training is critical because under federal case law, an employer can fulfill its obligation if it takes all reasonable steps to prevent harassment before it occurs and takes effective steps to promptly remedy the harassment after it takes place. If these general principles are consistently and carefully applied, the employer can go a long way towards limiting its exposure and liability for sexual harassment.

If you own a restaurant, bar, hotel or nightclub in NYC, you should have your commercial lease renegotiated now.

Why the urgency? NYC just passed a law which essentially invalidates personal guaranties on commercial leases for a limited period of time (Int. No. 1932-A). Specifically, if your commercial lease is accompanied by some form of personal guaranty (eg, limited, Good Guy Guaranty or any other form of personal guaranty), that guaranty would be void if you defaulted because of a government order to close indoor eating and drinking establishments during the COVID emergency, providing that the default occurs between March 7 and September 30, 2020. This is a complete game changer for commercial tenants such as restaurants because now you have some leverage to work with to renegotiate your current over-market lease. If you can’t work out amenable terms now, you would be able to terminate the tenancy and not risk any personal exposure. The Landlord would be be able to keep the security deposit but if your like most NYC restaurants and bars, that security deposit is already substantially if not completely depleted.

With the passing of this new law, Landlords are now facing a new reality with regards to the limited recourse in the event of a tenant breach. As a result, landlords should do everything they can to work with the tenant to keep them from vacating the premises. If a restaurant tenant vacates now, the premises will likely remain vacant for a year or more given the current environment, when and if a new tenant comes along they will insist on at least a few months of free rent and perhaps some landlord financial contribution towards their intended new new build-out, and finally the landlord will need the pay the broker fee on the transaction which will of course be substantial. Thus, now more than ever it makes financial sense for a landlord to negotiate to keep the current tenant in place and offer significant rent reductions (even if those reductions are short term) rather than risk having that tenant vacate the premises.

Another reason for the urgency is that this new law may not be around too long as it will certainly be challenged on constitutional grounds.

Needless to state, I recommend that you retain qualified legal counsel to engage in these lease negotiations. I have had great success in renegotiating commercial leases on behalf of my clients. Feel free to contact me to discuss. Mark B. Stumer, Esq. (212) 633-2225

A Summary from the NYSRA with Post Commentary

– The CARES Act is complicated legislation and its still unclear if receiving a certain loan or grant precludes you from receiving certain other loans or grants. While these details are being ironed out, below is a summary prepared by the NYSRA of the benefits offered by the federal CARES Act. We suggest that you consult with a professional (attorney or accountant) knowledgeable about the details of the various loans and grants being offered prior to applying.

How Does It Work?

The plan provides $349 billion in cash flow assistance through 100% federally guaranteed loans to small businesses and 501(c)(3) nonprofit organizations during this emergency. To help bring workers who may have already been laid off, the program can be retroactive to February 15, 2020, so employees can return onto payrolls. The loans covered period is February 15 to June 30, 2020. The expected forgiveness amount can be expended on payroll costs, payments of interest on a mortgage obligation, rent obligations, and utility payments.

The loan can pay for:

– The sum of payments of any compensation with respect to employees that is a salary or wage;

– Payment of cash tip or equivalent;

– Payment for vacation, parental, family, medical, or sick leave;

– Allowance for dismissal or separation;

– Payment required for the provisions of group health care benefits, including insurance premiums;

– Payment of any retirement benefit; or

– Payment of State or local tax assessed on the compensation of employees.

The maximum loan amount must be the lesser of:

1) Two and a half months payroll, as calculated by taking the average total monthly payments by the business for payroll costs incurred during the 1-year period before the date on which the loan is made.

For a seasonal employer, the business calculates the average total monthly payments for payroll during the 12-week period beginning February 15, 2019, or at the choice of the business, March 1, 2019, and ending June 30, 2019. Multiply this number by 2.5 for two and a half months payroll.

2) $10,000,000

Restricted from being included in the payroll calculation are: Any salaries above $100,000 per year and any qualified sick leave wages for which a tax credit is allowed under section 7001 or 7003 of the Families First Coronavirus Response Act.

What Businesses Are Eligible?

– Only small businesses that employ less than 500 employees are eligible for Paycheck Protection Program and SBA Loan Forgiveness. However, restaurant, foodservice, caterers, and hotels that employ not more than 500 employees per physical location of the business are also eligible to receive a single loan if they operate under the North American Industry Classification System code beginning with 72 (Accommodation and Food Services U.S. Census Bureau).

– The program enacted by this legislation would remove the Credit Elsewhere Test, which requires an extensive analysis to determine whether the borrower has the ability to obtain some, or all, of the requested loan funds from alternative sources, without causing undue hardship. That test could also have required them to utilize those alternative sources rather than obtain the Small Business Administration (SBA) loan if so.

– No collateral, or personal guarantee, shall be required for the covered loan.  Restaurant entities expressed concerns about the SBAs existing collateral requirements that could disqualify them from obtaining these loans. The Association successfully requested that the collateral requirements be eliminated.

– Waives affiliation rules for businesses in the hospitality and restaurant industries, franchises that are approved on the SBAs Franchise Directory, and small businesses that receive financing through the Small Business Investment Company (SBIC) program.

What Is Loan Forgiveness?

– The borrower is eligible for loan forgiveness equal to the amount spent by the borrower during an eight week period after the origination date of the loan on payroll costs, interest payment on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020.

– Amounts forgiven may not exceed the principal amount of the loan.

– Forgiveness on a covered loan is equal to the sum of the following payroll costs incurred during the covered eight-week period compared to the previous year or time period, proportionate to maintaining employees and wages:

– Payroll costs plus any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation) plus any payment on any covered rent obligation + any covered utility payment.

– The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by the reduction in pay of any employee beyond 25% of their prior year compensation.

– To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.

– The SBA Administrator and the Treasury Secretary may prescribe regulations granting de minimis exemptions from the requirements under this subsection.

– Borrowers will verify through documentation to lenders their payments during the period. Lenders that receive the required documentation will not be subject to an enforcement action or penalties by the Administrator relating to loan forgiveness for eligible uses.

– Any loan amounts not forgiven at the end of one year is carried forward as an ongoing loan with terms of a max of 10 years, at max 4% interest. The 100% loan guarantee remains intact.

– The calculation for an average monthly number of full-time equivalent employees is about 30 hours per week, under the Affordable Care Act. The forgiveness amount is reduced according to the amount of full-time employees on staff compared to the previous year, February 15, 2019 to June 30, 2019.

– Loan forgiveness may also cover any additional wages paid by businesses to tipped employees (as defined in the Fair Labor Standards Act).

Loan Mechanics

– The program is administered through the (SBA) 7(a) Loan Program, and the government guarantee increases to 100% through December 31, 2020, and then reduce to 75% for loans exceeding $150,000 and 85% for loans equal to or less than $150,000.

– Waives both borrower and lender fees for 7(a) loans.

– Increases the maximum loan for an SBA Express loan from $350,000 to $1 million through December 31, 2020.

– Exclusions: Provides a limitation on a borrower from receiving this assistance and an economic injury disaster loan through SBA for the same purpose. However, it allows a borrower who has an economic injury disaster loan (EIDL) unrelated to coronavirus to apply for a PPP loan, with an option to refinance that loan into the PPP loan. The emergency EIDL grant award of up to $10,000 would be subtracted from the amount forgiven under the Paycheck Protection Program.

Qualified Improvement Property

– Businesses will be able to immediately write off costs associated with improving facilities instead of having to depreciate those improvements over the 39-year life of the building.

– This corrects the error in the Tax Cuts and Jobs Act and increases a business access to cash flow by allowing them to amend a prior year return, while incentivizing investment.

Employee Retention Tax Credit

The employee retention tax credit (ERTC) for employers subject to closure due to coronavirus. The provision provides a refundable payroll tax credit for 50% of wages paid by employers to employees during the crisis. The credit is available to employers whose 1) operations were fully or partially suspended, due to a coronavirus related shut-down order, or 2) gross receipts declined by more than 50% when compared to the same quarter in the prior year. For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the coronavirus-related circumstances described above.  For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020.

Community Development Block Grants (CDBG)

$5 billion to enable nearly 1,240 states, counties, and cities to rapidly respond to coronavirus and the economic and housing impacts caused by it. Of the amounts provided, $2 billion will be allocated to states and local governments based on the prevalence and risk of COVID-19 and related economic and housing disruption.

Modifications for Net Operating Losses (NOLs)

– The provision relaxes limitations on a company’s use of losses from prior years. NOLs are currently subject to a taxable income limitation, and they cannot be carried back to reduce income in a prior tax year. This provision provides that a loss from 2018, 2019, or 2020 can be carried back five years.

– This also temporarily removes the taxable income limitation to allow an NOL to fully offset income.

Delay of Payment of Employer Payroll Taxes

– Employers can defer payment of the employer share of the Social Security tax.

– The deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022.

Temporary exception from excise tax for alcohol used to produce hand sanitizer

– The federal excise tax is waived on any distilled spirits used for or contained in hand sanitizer that is produced and distributed in a manner consistent with guidance issued by the Food and Drug Administration and is effective for calendar year 2020.

Additional Tax Relief

– The tax filing deadline will be extended from April 15 to July 15.   Businesses and individuals can postpone estimated tax payments due from the date of enactment until October 15, 2020 with no cap on the amount of payment postponed.

– Modification of limitation on losses for taxpayers other than corporations

– Modification of credit for prior year minimum tax liability of corporations

– Modification of limitation on business interest

Emergency Relief and Taxpayer Protections

– Provides $500 billion to Treasury’s Exchange Stabilization Fund to provide loans, loan guarantees, and other investments for direct lending, including:

– $25 billion for passenger air carriers, and businesses approved to perform inspection, repair, replace, or overhaul services, and ticket agents; $4 billion for cargo air carriers; and $17 billion for businesses important to maintaining national security.

– $454 billion for loans, loan guarantees, and investments in support of the Federal Reserve’s lending facilities to eligible businesses, states, and municipalities.

– All direct lending must meet the following criteria: 1) Alternative financing is not reasonably available to the business; 2) The loan is sufficiently secured or made at an interest rate that reflects the risk of the loan and, if possible, not less than an interest rate based on market conditions for comparable obligations before the coronavirus outbreak; 3) The duration of the loan shall be as short as possible and shall not exceed 5 years; 4) Borrowers and their affiliates cannot engage in stock buybacks, unless contractually obligated, or pay dividends until the loan is no longer outstanding or one year after the date of the loan; 5) Borrowers must, until September 30, 2020, maintain its employment levels as of March 24, 2020, to the extent practicable, and retain no less than 90 percent of its employees as of that date; 6) A borrower must certify that it is a U.S.-domiciled business and its employees are predominantly located in the U.S.; 7) The loan cannot be forgiven; and 8) In the case of borrowers critical to national security, their operations are jeopardized by losses related to the coronavirus pandemic.

The new coronavirus disease that was first identified in Wuhan has received an official name from the World Health Organization: “COVID-19.” “COVI” comes from coronavirus. The “D” stands for disease. The 19 represents 2019, the year the virus was first identified, in December.

COVID 19 has commenced its destruction on the NY restaurant, bar, and nightclub industry and hospitality and foodservice owners are now trying to figure out their next steps.

Restaurants and bars in New York are ordered to close to anything but take-out and delivery business (although grocery stores can stay open for now). This shut down will be the largest disruption hospitality industry far eclipsing the shut down resulting from the September 11 terrorist attacks, the 2008 financial crisis, and Hurricane Sandy.

The NYSLA is now permitting businesses with on-premises liquor licenses to sell alcohol to customers off-premises (must be accompanied by food). However, the revenue generated from off-premise liquor sales along with take-out and delivery will be a small fraction of the revenue typically generated. That revenue will most likely not even be enough to cover the necessary operational costs of the establishment.

The harsh reality is that a large number of NY restaurants will not be able to wait out this viral storm and will be forced to permanently shut their doors as a result. The restaurant industry is hoping for some type of government “bail-out” but any such financial help (other than low or no interest loans) seems unlikely in the immediate future. Additionally, while NY is suspending evictions indefinitely, all that unpaid rent will be accumulating and will need to paid at some point in the future.

As such, restaurants need to carefully evaluate their options and plan ahead accordingly. Just because you can legally stay open for delivery and take out purposes doesn’t mean that it makes financial sense for you to do so. At this time, restaurant and bar owners should have their leases carefully reviewed by qualified legal counsel. Your lease may have clauses in it – such as a force majeure clause – which may provide you with some options and negotiation leverage to get you through the tough times ahead. Additionally, now is also the time to pull out that insurance policy to have that reviewed to determine if you have coverage for this type of business interruption or ingress / egress disruption. Further, all restaurateurs should be actively monitoring the actions that government is taking to help our industry as you will want to take advantage of the programs they may have offer – such as interest free loans which are presently being offered. Some of my restaurant clients have (i) implemented a program of selling discounted gift cards for their establishments similar to a bond (eg, buy a $100 gift card for $75 now which may be redeemed no sooner than 3 months from date of purchase), (ii) offered various creative delivery specials (eg, a few appetizers offered for a $1 each with purchase of entree; free bottle of wine with order over $60.00, etc); and (iii) offered a daily delivery of a day’s worth of prepackaged meals.

In conclusion, we all know we are looking at uncertain and tough times ahead but taking the right actions now and in the immediate future may just make the difference between a restaurant that survives COVID 19 and one that permanently goes under as a result.

Most importantly, stay safe and healthy.

Effective March 18, 2019, New York City employers will have to ensure that the room provided for expressing milk is in reasonable proximity to the employee’s work area, has a refrigerator for storing break milk, an electrical outlet, a chair, and a surface on which to place a breast pump and other personal items. The lactation room must also have nearby access to running water. And if the lactation room is not solely used for expressing milk, then when the room is being used by an employee to express milk the employer must provide notice to other employees that the room is given preference for use as a lactation room.

New York City’s law provides an undue hardship exception for those employers who cannot provide a compliant lactation room but the law does require an employer to engage in a cooperative dialogue with an employee if providing a compliant lactation room is an undue hardship. What qualifies as a cooperative dialogue is specifically defined by New York City’s Cooperative Dialogue law that went into effect in October 2018. Under the law, the employer must engage in a good-faith dialogue with the employee, propose an alternative accommodation if the one requested is unreasonable, and provide a written final determination to the employee that identifies any accommodation granted or denied.

New York City’s new law also requires employers to adopt a written policy that (1) states that the employer will provide reasonable break time to express breast milk, (2) states that an employee has a right to request a lactation room, and (3) describes the process to request use of a lactation room, including how to submit a request, the employer’s obligation to respond within a reasonable amount of time not to exceed five business days, and the process to follow when two or more individuals need the room at the same time (including any contact information for any follow-up required). Finally, the policy must state that if a request for a room poses an undue hardship, the employee will engage in a cooperative dialogue with the employee. Employees must be provided a copy of the employee’s policy upon hire.

Employers with any employees in New York City should review their employee handbook to ensure that any existing lactation policy is compliant before the effective date of this new law.

The answer is very a simple and unequivocal, NO.  I decided to write this post because I get asked that question at least once a month and there is a lot of misinformation on the subject.

Despite the correct answer being NO, many lawyers and accountants still advise otherwise based on their lack of understanding about how the NY tax code and jurisdiction laws works. While it is true that Delaware taxes and laws are more beneficial to employers than New York taxes and laws, NY based businesses however don’t get any of that benefit.  In fact, if you form a Delaware LLC for your New York business, you will be required to file tax returns in both states and make additional filings in NY such as an application for authority for a foreign business. You will also be required to maintain a registered agent in DE which will come at an additional cost to you.

If your business is in NY, you will be required to pay NY taxes regardless of where you choose to form your LLC.  Further, if you do form your LLC in Delaware but operate in NY, you will subject to NY jurisdiction and law for any legal claim that arises in NY (absent a contract claim where the contract contains a DE jurisdiction and choice of law provision).

Thus, there is no tax benefit and (in almost every conceivable scenario) there is no legal benefit for forming your New York based business as a Delaware LLC.

On April 11, 2018, the New York City Council enacted a package of legislation referred to as the “Stop Sexual Harassment in NYC Act,” described by the City Council as critical to creating safe workplaces in New York City.

The Stop Sexual Harassment in NYC Act passed one day after New York Gov. Andrew Cuomo signed the Budget Bill, which contains a new state law requiring employers to conduct annual anti-sexual harassment training. New York City employers must comply with both state and city training requirements.

Whereas the NYCHRL generally covers employers with four (4) or more employees, all New York City employers, regardless of the number of individuals they employ, will be subject to the NYCHRL with respect to only sexual harassment. Thus, for sexual harassment claims only, the law expands the definition of employer to include all New York City businesses and entities that employ at least one individual within New York City.

The Stop Sexual Harassment in NYC Act also expands the statute of limitations period for sexual harassment claims. Under the NYCHRL, aggrieved individuals have one year from the alleged discriminatory practice to file a complaint with the New York City Commission on Human Rights and three (3) years from the alleged incident to file a claim in court. Effective immediately, the new law allows individuals up to three (3) years to file sexual harassment claims with either the City Commission or in court; the statute of limitations period for all other discrimination or harassment claims remains unchanged.

In addition, within 120-days after the Mayor signs the Stop Sexual Harassment in NYC Act into law, the City Commission must create anti-sexual harassment posters in both English and Spanish. New York City employers will be required to post both the English and Spanish versions of the posters with other workplace postings.

Finally, as of April 1, 2019, all private employers with fifteen (15) or more employees in New York City will be required to conduct annual anti-sexual harassment interactive training. The City Commission is charged with creating interactive training programs. Employers can use the model training programs created by the City Commission to satisfy the training requirements set forth in the Stop Sexual Harassment in NYC Act, or they can implement their own policies and training programs provided that such policies and programs equal or exceed the minimum standards set by City Commission.

The New York City Council overwhelmingly voted on October 31, 2017, to pass legislation (Int. 1652) that repeals the City’s longstanding Cabaret Law. At the same time, Int. 1652 retains certain security requirements of the old law for large establishments. The legislation has the support of Mayor Bill de Blasio, who is expected to sign Int. 1652 into law shortly.

The existing Cabaret Law, established nearly a century ago during Prohibition, requires any business venue where dancing occurs to obtain a Cabaret license from the New York City Department of Consumer Affairs before operating. The law also prohibits musical entertainment, singing, or other forms of amusement without a Cabaret license at establishments in New York City. Currently, premises required to hold a Cabaret license also must provide a copy of it to the New York State Liquor Authority in order to be licensed to sell or serve alcohol at the premises.

While active enforcement of the Cabaret Law has been on the decline in the past several years, this legislative effort marks the end of decades of strong opposition by venue operators and performers to the law as written.

The legislation will repeal the entire Cabaret Law while retaining certain requirements of the law relating to security measures at large entertainment establishments. Once this legislation becomes law, neither operators nor performers will need to apply for a Cabaret license for any reason. Operators of certain large entertainment establishments (as defined by the New York City zoning laws), however, will need to maintain existing requirements regarding the use of video surveillance cameras and security guards. The requirements will be codified under new section 10-177 in § 2, Title 10 of the Administrative Code of the City of New York.