STATE OF NEW YORK

INDUSTRIAL BOARD OF APPEALS

-------------------------------------------------------------------- x
In the Matter ofthe Petition of:
NATIONAL RESTAURANT ASSOCIATION,
Petitioner,
To review under Section 657 ofthe Labor Law:
Order on the Report and Recommendation ofthe 2015
Fast Food Wage Board, dated September 10, 2015,
- againstTHE COMMISSIONER OF LABOR,

--

--------------------------------------------------------------

Respondent.

NATIONAL RESTAURANT ASSOCIATION'S PETITION FOR REVIEW OF

THE COMMISSIONER OF LABOR'S SEPTEMBER 10,2015 ORDER ON THE
REPORT AND RECOMMENDATIONS OF THE 2015 FAST FOOD WAGE BOARD

National Restaurant Association

2055 L Street NW,Suite 700
Washington, DC 20036
(202)331-5900
Petitioner

Randy M. Mastro
Nancy E. Hart
Gabriel K. Gillett
GIBSON,DI.TNN & CRUTCHER LLP
200 Park Avenue
New York, NY 10166
(212)351-4000
Thomas H. Dupree, Jr.
(not admitted to practice in New York)
GIBSON,Di.JNN & CRUTCHER LLP
1050 Connecticut Avenue, N.W.
Washington, DC 20036
(202)955-8500
Attorneysfor Petitioner

New York, New York

October 23, 2015

TABLE OF CONTENTS
Pa e s
PRELIMINARYSTATEMENT .................................................................................................... 1
PARTIES........................................................................................................................................ 1
FACTUALBACKGROUND ......................................................................................................... 2
I.

The Legislature Raises the Minimum Wage in 2013, and Rejects Raising it
Againin 2016.................................................................................................................. 2

II.

The Labor Commissioner Empanels a Wage Board to Circumvent the

Legislature's Decision Not to Raise the Minimum Wage Again....................................4

III. At the Labor Commissioner's Direction, the Board Recommends Raising

Wages for Only a Subset of the Industry, Despite Relying on Industrywide
Evidence.......................................................................................................................... 5
IV. The Labor Commissioner Disregards Public Concerns and Adopts the Board's
Reportin Full.................................................................................................................. 7
ARGUMENT.................................................................................................................................. 7
I.

The Board was Improperly Constituted.......................................................................... 7

II.

The Labor Commissioner's Order Violates the Separation-of-Powers Doctrine......... 10

III. The Order Is Contrary to the New York Labor Law..................................................... 14

A. The Order improperly focuses on employers affiliated with chains with
more than thirty locations, not on an occupation or industry................................ 14
B. The Order does not adequately analyze the Labor Law's exclusive
employee-focused factors for when to raise wages............................................... 17
IV. The Order Is Arbitrary and Capricious and Not Supported by the Evidence............... 18
V. The Order Violates the U.S. Constitution..................................................................... 19
A. The Order runs afoul of the Dormant Commerce Clause, and the First and
FourteenthAmendments....................................................................................... 19
B. The failure to disclose the record underlying the Report and Order violates
proceduraldue process.......................................................................................... 21

CONCLUSION............................................................................................................................. 24

PRELIMINARY STATEMENT
The Industrial Board of Appeals should set aside the Labor Commissioner's
Order adopting the Report ofthe Fast Food Wage Board, which recommends raising the state
minimum wage by almost 70% as of December 31, 2015, to $15 per hour, solely for workers at
fast food chains with at least 301ocations nationally. The Wage Board's Report and the Labor
Commissioner's Order, which adopts the Report in full, are thinly veiled attempts by Governor
Cuomo and his appointees to maneuver around an unwilling Legislature and to enact their own
policy choices. New York's robust separation-of-powers doctrine, however, does not allow for
such blatant executive overreach.
2.

The Report and Order are also arbitrary, capricious, and contrary to law because

they do not comply with the Labor Law's directive to focus on the employee, or its mandate to
consider only three statutory criteria in setting a minimum wage for a particular occupation. The
Labor Law plainly does not grant the Labor Commissioner authority to focus on the employer, or
to target only a subset of a single industry.
3.

Additionally, the Labor Commissioner's Order will bring harsh, sweeping

consequences: the weight of authority shows that small businesses throughout this state including franchises owned by women and minorities -will hire fewer workers, be forced to
increase prices, rely on greater automation, or shut down entirely. In the end, it will be these
small business owners and their employees across the state who will suffer, along with the many
millions of consumers who will be forced to pay higher prices. Accordingly, the Labor
Commissioner's Order must be annulled.
PARTIES
4.

The National Restaurant Association("NRA")is the largest foodservice trade

association in the world by membership, supporting over 500,000 eating and drinking

establishments in the United States with thousands ofthose establishments located in New York.
The NRA advocates for foodservice industry interests on behalf of its members.
5.

The NRA's members include employers who are aggrieved by the Order of

Acting Commissioner of Labor Mario J. Musolino on the Report and Recommendations ofthe
2015 Fast Food Wage Board, dated September 10, 2015 (the "Order"), which adopted the Report
ofthe Fast Food Wage Board to the NYS Commissioner of Labor, dated July 31,2015 (the
"Report"). See Labor Law 657. The Order and Report are attached as Exhibits A and B,
respectively, to the accompanying Affidavit of Randy M. Mastro("Mastro Aff."). The NRA
therefore has standing to bring this petition because it is an employer association representing
employers aggrieved by this Order. See Labor Law 657.
6.

The New York State Department of Labor is the state agency that regulates labor

and employment in New York State, including state minimum wage laws.
7.

Mario J. Musolino is Acting Commissioner ofthe Department of Labor and

issued the Order adopting the Wage Board's recommendations.

FACTUAL BACKGROUND
I.

The Legislature Raises the Minimum Wage in 2013, and Rejects Raising it Again in
2016.
8.

On March 29, 2013, the State Legislature amended the Labor Law to gradually

raise the hourly minimum wage for all workers by $1.75 over three years. The minimum wage
was scheduled to increase by $0.85, to $8.00, as of December 31, 2013; by another $0.75, to
$8.75, as of December 31, 2014; and another $0.25, to $9.00, as of December 31, 2015. 2013
N.Y. Laws 290, Ch. 57, pt. P 1 (Mar. 29, 2013).
9.

The minimum wage increase, enacted as part ofthe 2013-2014 state budget, was

the subject of substantial public debate, vigorous lobbying from both sides, and the result of

political compromise between Republicans and Democrats in the Legislature, and Governor
Andrew Cuomo. See, e.g., Joseph Spector and Jessica Bakerman,Assembly To Finalize Budget
Amid Discord, Poughkeepsie Journal(Mar. 29, 2013); Erik Kriss, Min. Wage Sweetener Gov's
$45MTax `Quid Pro Quo'For GOP,New York Post(Mar. 29, 2013); Adam Sichko, Minimum
Wage Hike Propels NY To No. 2, Albany Business Review(Mar. 29, 2013).
10.

Pursuant to his authority under the State Constitution, N.Y. Const. art. VII 2-3,

Governor Cuomo's 2015-2016 budget legislation formally proposed raising the minimum wage
again, to $11.50 for New York City and to $10.50 for the rest ofthe state, as of December 31,
2016. See 2015-2016 New York State Executive Budget, Education, Labor, and Family
Assistance Article VII Legislation, Legislative Bill Drafting Comm'n No. 12572-01-5, pt. N,at
310(Jan. 20, 2015).
11.

As with the prior minimum wage increase, the proposal was the subject of

substantial public debate and vigorous lobbying from both sides. See, e.g., Matthew Danerman,
Cuomo Continues Pushing Minimum Wage Increase, Rochester Democrat &Chronicle(Mar. 14,
2015); Matthew Hamilton, Minimum Wage Impact Outlined, The Times-Union (Mar. 10, 2015);
Robert J. McCarthy, Cuomo Calls For Higher Minimum Wage, The Buffalo News(Mar. 4,
2015).
12.

The Legislature and the Governor could not reach agreement on a proposal to

increase the minimum wage again. As Governor Cuomo conceded,"the Legislature rejected that
proposal." Gov. Andrew M. Cuomo, Op-Ed, Fast Food Workers Deserve A Raise, The New
York Times(May 7, 2015).

II.

The Labor Commissioner Empanels a Wage Board to Circumvent the Legislature's

Decision Not to Raise the Minimum Wage Again.
13.

Governor Cuomo vowed to press on, despite the Legislature's rejection of his

proposal: "I am continuing the fight. While lawmakers delay, I am taking action." Id.
14.

On May 7, 2015, Governor Cuomo "instructed Acting State Labor Commissioner

Mario J. Musolino to empanel a Wage Board that will investigate and make recommendations on
an increase in the minimum wage in the fast food industry." Dept of Labor, Press Release,
Governor Cuomo Instructs State Labor Department to Convene Wage Board to Investigate and
Make Recommendations on Raising Minimum Wagefor Fast Food Workers(May 7, 2015). The
recommendations of a wage board, the Governor noted,"do not require legislative approval."
Cuomo, Op-Ed,supra.
15.

That same day, following the Governor's instruction, Labor Commissioner

Musolino appointed "a wage board to inquire into and report and recommend adequate minimum
wages and regulations for fast food workers." Mastro Aff. Ex. C, Commissioner Musolino,
Determination Regarding the Adequacy of Wages(May 7, 2015)("Determination")
Commissioner Musolino defined "fast food workers" as "those workers who prepare food and
serve customers in limited service restaurants, where customers order at the counter and pay in
advance." Id.
16.

Commissioner Musolino announced that "[t]he Wage Board members will be

Byron Brown, Mayor of Buffalo, representing the public; Kevin Ryan, Chairman and Founder of
Gilt, MongoDB, Business Insider and Zola and Vice Chairman ofthe Partnership for New York
City, representing businesses; and Mike Fishman, Secretary-Treasurer ofthe Service Employees
International Union, representing labor." Dept of Labor, Press Release,supra.

C~

17.

Commissioner Musolino did not state, in the Determination or otherwise, how he

had selected these persons to "appoint [as] the members of the board," including whether the
members were "selected so far as practicable from nominations submitted by employers and
employees in" the affected industry. Labor Law 655(1).
III.

At the Labor Commissioner's Direction, the Board Recommends Raising Wages for
Only a Subset of the Industry, Despite Relying on Industrywide Evidence.
18.

At the Wage Board's first meeting, Commissioner Musolino unilaterally

narrowed the scope ofthe Wage Board's review from the fast food industry generally to only
"that segment ofthe hospitality industry commonly referred to [as] fast food chains." Mastro
Aff. Ex. D,Commissioner of Labor, Opening Statement and Charge to the 2015 Fast Food Wage
Board at 1 (emphasis added)("Charge"). The Commissioner defined "fast food chains" as
"limited service restaurants, where customers order at the counter and pay in advance, which are
large chains with multiple locations nationally." Id. He also "charge[d]" the Board "to provide
us with an understanding of what minimum wage means in today's fast food industry." Id. at 3.
19.

Despite shifting the Wage Board's focus from all "fast food workers" to workers

at "fast food chains," the Commissioner's charge nonetheless relied on research that analyzed all
New York fast food workers, not only those working at chain restaurants. See id.
20.

The Commissioner directed the Board to make its recommendation by

considering the three factors enumerated in the Labor Law: "`the wage board and the
commissioner shall consider[1]the amount sufficient to provide adequate maintenance and to
protect health and, in addition, the wage board and the commissioner shall consider [2] the value
ofthe work or classification of work performed, and [3] the wages paid in the state for work of
like or comparable character."' Id. (quoting Labor Law 654). He also told the Board that the
"purpose of[the Labor Law's] statutory scheme is to eliminate, as rapidly as practicable, without

substantially curtailing opportunities for employment or earning power,the employment of

persons in occupations in the state of New York at wages insufficient to provide adequate
maintenance for themselves and their families." Id. (citing Labor Law 650).
21.

The Board met eight times, including at four hearings where members ofthe

public testified. Report at 3. The Board heard from 225 people, received over 2,000 written
comments and submissions, and reviewed a variety of studies. Id. at 4-7.
22.

At the hearings, small business owners testified that raising the minimum wage

would force them to cut employees' hours and reduce employment, dramatically raise their
prices, and jeopardize their businesses. Fast food industry experts reinforced that testimony,
explaining that raising the minimum wage causes employers to reduce employment, to raise
prices, and to earn lower margins that threaten the viability ofthe business.
23.

The Wage Board released its Report on July 31, 2015. The Board

"recommend[ed] that the minimum wage be raised to $15 for fast food employees in fast food
establishments." Id. at 20. To accomplish this, the Board recommended raising the minimum
wage in New York City by $1.50 per hour, on December 31 in 2015, 2016, 2017, and 2018. It
recommended raising the minimum wage more gradually outside New York City, to reach $15
on July 1, 2021. Id.
24.

The Board defined a "Fast Food Establishment" as "any establishment in the state

of New York:(a) which has as its primary purpose serving food or drink items:(b) where
patrons order or select items and pay before eating and such items may be consumed on the
premises, taken out, or delivered to the customer's location;(c) which offers limited service;(d)
which is part of a chain; and (e) which is one ofthirty (30) or more establishments nationally,
including:(i) an integrated enterprise which owns or operates thirty (30)or more such

establishments in the aggregate nationally; or (ii) an establishment operated pursuant to a

Franchise where the Franchisor and the Franchisees) of such Franchisor owns or operate thirty
(30)or more such establishments in the aggregate nationally." Id. at 21. The Board defined
"Fast Food Establishment" to "include such establishments located within non-Fast Food
Establishments." Id.
IV.

The Labor Commissioner Disregards Public Concerns and Adopts the Board's
Report in Full.
25.

Petitioner timely submitted to the Commissioner its objections to the Board's

recommendation. See Mastro Aff. Ex. E, Letter from Randy M. Mastro to Mario J. Musolino,
Commissioner of Labor(Aug. 14, 2015).
26.

On September 10, 2015, Commissioner Musolino "accept[ed] the Wage Board's

report and recommendations in all respects." Order at 1. In particular, the Commissioner

"accept[ed] the analysis and consideration of basic factors and other considerations articulated by
the Wage Board," and the Board's recommendation to raise minimum wages only at locations
that are "part of a chain" that has "thirty (30) or more establishments nationally." Id. at 2-3.
ARGUMENT
I.

The Board was Improperly Constituted.

27.

By all accounts, the Wage Board was not composed of"representatives of

employers ... and representatives of employees" selected "from nominations submitted by

employers and employees in" the affected industry. Labor Law 655(1). The statutory
representation requirement is critical - without proper representation and input from the affected

employee and employer from

any

consequences ofthe action it is considering. To select

any

industry, a wage board cannot fairly and adequately evaluate the costs, benefits, and

industry would plainly conflict with the statute's purpose and scheme designed to ensure that a

wage board acts in the interest ofthose affected. See id. 650; cf. id. 653(1)(requiring
Commissioner to investigate wages "on the petition offifty or more residents ofthe state
engaged in or affected by an occupation or occupations sought to be investigated"(emphasis
added)); see also id. 655(1)(permitting as many as nine members to be appointed to a wage
board to ensure adequate representation).
28.

There is no evidence suggesting that the Labor Commissioner satisfied the

Legislature's mandate here. The members of the Board were apparently not selected from
nominations from the affected industry, and they did not adequately "represent[]" the affected
employees and employers. See id. 655(1). Instead, the Board was cherry-picked to reach a
preordained conclusion and is composed entirely of members who have little to no experience in
the fast food industry.
29.

Kevin Ryan,the lone employer "representative" on the Board,founded Gilt, a

members-only online luxury fashion shopping website offering discounts on high-end fashion
and "top designer labels," http://www.gilt.com/company/main. He also founded MongoDB,an
advanced database company, https://www.mongodb.com/company; Zola, an online weddingregistry company, https://www.zola.com/about/index; and Kontor, a website for "visual search
and discovery for workplace design," https://www.kontor.com/. There is no evidence that Mr.
Ryan has any connection whatsoever to the fast food industry. And Mr. Ryan cannot purport to
relate to employers of minimum-wage workers in New York: in 2010, his company moved the
bulk of its warehouse operations from Brooklyn to Kentucky, where the minimum wage is $7.25.
30.

Mike Fishman,the purported employee "representative" on the Board, is secretary

treasurer of the Service Employees International Union("SEIU"), which represents "janitors,

nursing home workers, nurses, child care providers, security officers, county and city workers,

and other workers." SEIU website, http://www.seiu.org/blog/2015/7/a-union-of-janitors-is-born.

SEIU's representation of a variety of workers across multiple industries, and its more than
$42,000 in political contributions to Governor Cuomo,see http://data.newsday.com/longisland/data/campaign/contributionscuomo/, are insufficient grounds to make Mr. Fishman a
proper representative for fast food workers.
31.

Mayor Byron Brown,the putative independent representative ofthe "general

public" on the Board, is the Mayor of Buffalo.1 Mayor Brown was a vocal supporter of
Governor Cuomo's plan to raise the minimum wage before being appointed to the Board. Once
appointed, Brown did not even wait for the Board to complete its hearings before declaring that
"[c]learly, this board believes that there needs to be a substantial increase in the hourly wages of
fast food workers." Wage Board Hearing(June 29, 2015), available at
https://youtu.be/ni5jvwl d9Nw.
32.

The appointment ofthese three individuals -none of whom adequately represents

the affected employers and employees -for this extra-legislative body is without precedent in
New York State. Unlike this Board, past wage boards included representatives ofthe affected
industries and occupations - as the Labor Law requires -and ostensibly independent public
representatives. See, e.g., 2009 Wage Board (featuring several representatives from the hotel and
restaurant industry, the industry at issue in the proposed wage increase); 2014 Wage Board
(featuring several representatives from the hospitality industries, the industry at issue in the
proposed wage increase for food service workers and service employees). Thus,the

Governor Cuomo has close ties to Buffalo and has committed to investing "a historic $1
billion" for economic development there. See http://buffalobillion.ny.gov/about-buffalobillion.

recommendations of the Board, which was constituted in contravention ofthe Labor Law,
without a "representative" for fast food employers or employees, are null and void on their face.
II.

The Labor Commissioner's Order Violates the Separation-of-Powers Doctrine.

33.

The New York Constitution provides that "[t]he legislative power of this state

shall be vested in the senate and assembly." N.Y. Const., art. III, 1. Courts have repeatedly
"struck down administrative actions ... where the challenged action could not have been deemed
within [a statutorily authorized delegation] without giving rise to a constitutional separation of
powers problem." Boreali v. Axelrod, 71 N.Y.2d 1, 11 (1987); see also N.Y. Statewide Coal. of
Hispanic Chambers ofCommerce v. N.Y.C. Dept ofHealth &Mental Hygiene("Soda Ban"), 23
N.Y.3d 681,697(2014)(cap on portion size); Under 21, Catholic Home Bureaufor Dependent
Children v. New York,65 N.Y.2d 344(1985)(employment discrimination rule); Matter of
Ahmed v City ofN.Y., 129 A.D.3d 435, 440(1st Dept 2015)(taxi driver healthcare rule); Ellicott
Group, LLC v. State ofN.Y. Exec. Dept. Off. ofGen. Servs., 85 A.D.3d 48, 54(4th Dept 2011)
(prevailing wage regulation); cf. Jewish Home &Infirmary v. Comm 'r ofN.Y. State Dept of
Health, 84 N.Y.2d 252,263(1994)(retroactive application of Medicaid reimbursement rate).
34.

"Boreali sets out four `coalescing circumstances"'to determine whether "`the

difficult-to-define line between administrative rule-making and legislative policy-making ha[s]

been transgressed."' Soda Ban,23 N.Y.3d at 696 (quoting Boreali, 71 N.Y.2d at 11). "As the
term `coalescing circumstances' suggests," the Court does not "regard the four circumstances as
discrete, necessary conditions that define improper policy-making by an agency, nor as criteria
that should be rigidly applied in every case in which an agency is accused of crossing the line
into legislative territory. Rather [the Court] treats] the circumstances as overlapping, closely
related factors that, taken together, support the conclusion that an agency has crossed that line."
Id. (quoting Boreali, 71 N.Y.2d at 11).
10

35.

The Boreali factors are:(1) whether the administrative action is based on

weighing economic and social concerns, outside the realm of the agency's expertise, without
legislative instruction regarding whether or how to weigh those concerns;(2) whether the agency
regulates "on a clean slate," instead of merely filling in the details ofthe legislation;(3) whether
"the agency acted in an area in which the Legislature had repeatedly tried -- and failed -- to reach
agreement in the face of substantial public debate and vigorous lobbying by a variety of
interested factions;" and (4) whether any "special expertise or technical competence ... was
involved in the development" ofthe challenged regulations. Boreali, 71 N.Y.2d at 12-14.
36.

"Any Boreali analysis should center on the theme that `it is the province of the

people's elected representatives, rather than appointed administrators, to resolve difficult social
problems by making choices among competing ends."' Soda Ban,23 N.Y.3d at 697(quoting
Boreali, 71 N.Y.2d at 13). As the Soda Ban decision made clear, all four Boreali factors need

not be found for an action to violate separation of powers; these factors serve to guide the
separation-of-powers analysis. See id.
37.

The first Boreali factor shows the agency invaded the province ofthe Legislature,

and "operat[ed] outside of its proper sphere of authority," by acting "solely on [its] own ideas of
sound public policy." Boreali, 71 N.Y.2d at 12(quotation and citation omitted). The Labor Law
does not grant the Commissioner authority to discriminate - as he did here -among employers
based on whether the employer is part of a "chain," whether more than thirty establishments
feature that "chain's" branding nationwide, or whether the balance sheet ofthe "chain" is strong.
See Order at 2; see also Report at 1, 19.2 Thus, the Board and the Commissioner acted beyond

Because the Labor Commissioner adopted the Board's Report "in all respects," Order at 1,
the flaws in the Report necessarily taint the Order as well.

11

their delegated power when they "built a regulatory scheme on [their] own conclusions about the
appropriate balance oftrade-offs between health and cost." Boreali, 71 N.Y.2d at 11-12
(concluding that the agency had "stretched [the enabling] statute beyond its constitutionally valid
reach when it used the statute as a basis for drafting a code embodying its own assessment of
what public policy ought to be").
38.

The second Boreali factor shows that the agency encroached on the Legislature's

authority by "creating its own comprehensive set of rules without benefit of legislative
guidance." Id. at 13. Far from filling any gap in the Labor Law,the Order adopted the Board's
unprecedented rule that makes the application ofthe minimum wage turn on whether an
employer is part of a nationwide chain with thirty or more locations. See Order at 2-3; Report at
21. The Legislature has never approved a distinction that applies wage increases to a subset of
employers in a specific industry. And the Department of Labor has never issued a wage order on

that basis, through a wage board or otherwise. In adopting that distinction here, the agency
"wrote on a clean slate" without any semblance oflegislative direction. Id.
39.

The third Boreali factor strongly indicates that the agency violated separation of

powers by "act[ing] in an area in which the Legislature had repeatedly tried -and failed - to
reach agreement in the face of substantial public debate and vigorous lobbying by a variety of
interested factions." Id. at 12. In 2013, the Legislature and the Governor brokered a deal, after
significant public input, to gradually raise the minimum wage by $1.75 over three years. See
supra 8-9. In 2015, however,the Legislature "rejected" Governor Cuomo's proposal to raise

the minimum wage by another $1.50 per year for four more years, due to strident public
opposition, and did not reach agreement on an alternative proposal. See supra 11-12. The
Legislature's failure "to arrive at such an agreement [does] not automatically entitle an

12

administrative agency to take it upon itself to fill the vacuum and impose a solution of its own."
Boreali, 71 N.Y.2d at 13. Accordingly, the Commissioner arrogated to himself the power

"reserved to the legislative branch" by attempting "to resolve difficult social problems" by
"making choices among competing ends." Id.; see also Soda Ban,23 N.Y.3d at 697.
40.

The fourth Boreali factor shows the agency overstepped its bounds because the

Order and Report did not draw upon any "special expertise or technical competence." Boreali,
71 N.Y.2d at 14. The Board heard testimony and reviewed written comments and submissions just as any legislator would -and relied on each Board member's "independent knowledge ofthe
industry and the economy." Report at 2-6. But the Board lacked specialized knowledge ofthe
relevant industry. See infra 27-32. The general knowledge that the Board had about labor

and business was not specific to the fast food industry, the product of any particular expertise, or
based on any technical competence. It thus did not justify arbitrarily making wages within a
single industry diverge based solely on whether an employee works at a chain that has at least 30
locations nationally. Hearing the views of various individuals, reviewing publications submitted
by experts, and carving out "exemptions for various special interest groups" cannot be sufficient
to usurp the Legislature's rightful role as a co-equal branch of government. See Boreali, 71
N.Y.2d at 14.
41.

All four Boreali factors indicate that the agency crossed the "line between

administrative rule-making and legislative policy-making" when it spurned the Legislature's

rejection of another minimum wage increase, and instead used executive fiat to "resolve difficult
social problems by making choices among competing ends." See Boreali, 71 N.Y.2d at 11, 13.
That violation ofthe Legislature's authority cannot stand.

13

III.

The Order Is Contrary to the New York Labor Law.

A.

The Order improperly focuses on employers affiliated with chains with more
than thirty locations, not on an occupation or industry.

42.

The Labor Commissioner violated the Labor Law by impermissibly focusing on

the employer, which it defined as a subset of national "fast food chains." Compare Charge at 1,
with Determination at 1 (determining "fast food workers," regardless of the employer's

affiliations, were receiving inadequate wages). Under the governing statute, a properly
constituted board is permitted to "inquire into and report and recommend adequate minimum
wages and regulations for employees" in any "occupation or occupations." Labor Law 653(1)
(emphasis added). "Occupation," in turn, is defined as "an industry, trade, business or class of
work in which employees are gainfully employed." Id. 651. Nothing gives the Commissioner
or the Board the authority to arbitrarily focus on the employer instead of the "occupation" of an
employee, or to slice and dice a particular "industry, trade, business or class of work" beyond
recognition in order to regulate a subset of it, as was done here. Such action is without
precedent.
43.

Additionally, the Board's decision is in conflict with historical practice. For

example,the three most recent wage boards were directed to consider wages for particular
employee occupations in an entire industry, notably without distinguishing between workers
performing the same jobs or between employers in the particular industry. See Opening
Statement and Charge to the 2014 Wage Board at 1 (considering wages of"food service workers
and service employees in the hospitality industries"); Opening Statement and Charge to the 2009
Wage Board at 1 (considering wages for tipped employees of"different occupational groups" in
the hotel and restaurant industries); Opening Statement and Charge to the 1986 Wage Board
(empaneled to consider wages for all occupations within the state).

14

44.

In fact, prior wage boards sought to eliminate irrational distinctions between

employees in the same occupation and across industries, as had been "the practice over the past
30 years," to "afford employer and employees a clearer understanding of laws affecting their
industries." Report and Recommendation ofthe 2009 Wage Board at 7. Although the Labor
Commissioner recognized that employers and employees benefit from "common rules for all
businesses in the affected industries"(Charge at 2), his Order created different minimum wage
regimes based on whether an employee works at a chain with at least 301ocations nationally, see
Order at 2.
45.

The report prepared by Professor David H. Lewin, Neil H. Jacoby professor of

management, human resources, and organizational behavior at the UCLA Anderson School of
Management, confirms that this arbitrary isolation of workers based on national affiliation and
number of locations is in contravention ofthe Labor Law and all known precedent. See Mastro
Aff. Ex. F, Preliminary Report of Prof. David H. Lewin.
46.

Prof. Lewin has provided consulting advice and expert testimony in numerous

labor and employment matters, including wage issues, and has published over 20 books and
more than 150 scholarly and professional journal articles on numerous aspects of employment
relations.
47.

As Prof. Lewin explains: "[Based on] my review ofthe disclosed material and

the sources I was able to independently obtain, as well as through my significant and longstanding expertise in this area and deep familiarity with the relevant body of academic research,
... the recommendations made by the Board [and adopted by the Labor Commissioner] are not
well-founded because the Board (1)failed to rely on relevant empirical data;(2)inappropriately
relied instead on inapposite data regarding the entire fast food industry;(3) misunderstood the

15

business of and relationship between corporate franchisors and owner-operator franchisees; and,
therefore(4)reached an erroneous conclusion that the minimum wage should be raised, but only
at national chains with at least 301ocations." Id. at 5.
48.

The Board itself admits in its Report that the relevant "industry" is the entire fast

food industry -not merely national chains with multiple locations. The Board found that "all
fast food workers" should be included "since all such workers are currently being paid" similax
wages. Report at 16(emphases added); see also id. at 7-8 (defining the "Nature ofthe Industry"
and "Fast Food Workers" to include all workers).
49.

The Board does not even attempt to explain how it could justify impermissibly

altering the "industry" or "occupation" based on affiliation with a "national chain with multiple
locations." The Board defined the "fast food industry" using the North American Industry
Classification System, which the government uses for classifying business activity in the United
States. See id. at 7(citing 2012 NAICS 722513,"Limited-Service Eating Places" and 2007
NAICS 72221,"Limited-Service Restaurants"). But that classification system does not
distinguish between restaurants based on their affiliations or branding, and it therefore provides
no justification for the Board to do so. Likewise, the Board relies on data that treats all fast food
establishments as a single industry - it cites no authority supporting its novel approach to only
target a subset of a single industry.
50.

Accordingly, even if the Labor Law authorized the Board to focus on the

employer rather than an "occupation" and "industry"(which it does not), the Board exceeded the
scope of that authorization by defining "industry" so narrowly as to lack meaning, and by only
recommending wage increases for a subset of employees in the same occupation in that single,
improperly defined industry.

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51.

The Labor Commissioner's Order suffers from the same defects, because he

"accept[ed] the Wage Board's report and recommendations in all respects." Order at 1; see
supra 26. Both the Order and Report are therefore contrary to law.
B.

The Order does not adequately analyze the Labor Law's exclusive employeefocused factors for when to raise wages.

52.

The Board's Report failed to adequately analyze the three statutory criteria for

recommending a wage increase: (1)"the amount sufficient to provide adequate maintenance and
to protect health";(2)"the value ofthe work or classification of work performed"; and (3)"the
wages paid in the state for work of like or comparable character." Labor Law 654.
53.

For example, the Board failed to adequately consider "the wages paid in the state

for work of like or comparable character," id., when it recommended that fast food workers at
national chains with at least 301ocations should be treated differently than all other fast food
workers. The Board compared oranges to apples by looking not to other fast food workers, but
to "full-service workers" who are employed in a different "occupation" in a different segment of
the "industry" altogether. And the Board's unsourced citation to a purported 8%difference
between the wages of employees at what it broadly terms "chain restaurants"(not limited to
national chains with at least 30 locations) and "non-chain restaurants" cannotjustify an almost
70%raise for some ofthose "chain" employees. To do so, effectively creates a wage gap more
than eight times larger than the one it purports to remedy. See Report at 10; see also Lewin
Preliminary Report at 5-8.
54.

The Board also failed to adequately consider the "value ofthe work" performed

by the employees. See Labor Law 654. Instead, it simply inferred the "value ofthe work"
from testimony that the "fast food industry is highly profitable and growing." Report at 15.
Further, without explanation, the Board overlooked large differences in the cost of living

17

between New York City and the rest ofthe state. See Labor Law 654. The Board even failed
to do any rational analysis ofthe statutory criterion that the wage chosen be sufficient "to
provide adequate maintenance and to protect health." Id. It simply announced that $15 was the
necessary wage level without sufficient consideration ofthe variability in average work weeks,
among other factors. The Board's failure to match its factual assumptions with its
recommendation renders its analysis internally inconsistent and violative of the statutory
standard.
55.

And after inadequately analyzing the three statutory criteria, the Board rested its

recommendation in large part on statutorily impermissible factors, including the characteristics of

the employer (e.g., whether it is part of a national chain consisting of30 or more restaurants) and
overall industry profitability. See Report at 8, 18. These factors look beyond the employeefocused factors mandated by the statute and instead focus on the characteristics ofthe employer.
None ofthese factors is permissible under Section 654. By basing its decision on them,the
Board exceeded its statutory authority and acted contrary to law.
IV.

The Order Is Arbitrary and Capricious and Not Supported by the Evidence.
56.

The Board's Report is irrational because there is no data supporting its decision to

arbitrarily limit its recommendations to chains with at least 301ocations in the aggregate
nationally. The Board's Report and the underlying record (so far as it is available) are devoid of
any source that reflects a distinction between employees or employers affiliated with national
chains with at least 301ocations, and the rest of the fast food industry. See Lewin Preliminary
Report at 5-8. In fact, every statistic, study, and source cited by the Board relates to the fast food
industry as a whole -not to the subset of that industry that the Board has improperly targeted.
See, e.g., Report at 1, 8-9; see also Lewin Preliminary Report at 8-10.

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57.

The results ofthe Order show how it is arbitrary and capricious: fast food

workers who work fora 30-restaurant national chain will be treated differently than their
colleagues who work at(a)a fast food chain with fewer than 301ocations nationally,(b)a
national non-restaurant chain with more than 301ocations nationwide, such as a clothing retailer
or a drug store, and (c) anon-"Fast food establishment," even when a fast food chain is "located
within [the] non-Fast Food Establishment[]." Order at 2.
58.

Further, if the Wage Board were permitted to look beyond the employee-specific

criteria mandated by statute (see supra II), then it must also adequately consider the full impact
of its recommendations, including the impact on employers. But, by basing its rationalization for
the wage increase on national corporate franchisors' financials, the Board wholly failed to
consider the negative impact that its recommendations will have on small business franchisees.
59.

It defies logic to believe that a small business with small margins is "equipped to

absorb a wage increase" due to brand recognition (which a wage increase does not affect). See
Report at 19. To the contrary, those small businesses will be forced to reduce employment, raise
prices, and increase reliance on government involvement. See Lewin Preliminary Report. In
sum,the Board's recommendations hurt exactly the population they seek to support. The Order
adopting those recommendations is therefore arbitrary, capricious, and unsupported by the
evidence.
V.

The Order Violates the U.S. Constitution.

A.

The Order runs afoul of the Dormant Commerce Clause, and the First and
Fourteenth Amendments.

60.

The Order improperly discriminates against interstate commerce by burdening

only national chains whose franchisees share characteristics with others outside New York. See
U.S. Const. art. I, 8, c13; W. Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 201-02(1994). So

19

while New York City chains (with 30 or more restaurants within the state) will pay their
employees $9.00 per hour as of December 31, 2015, national chains with 30 or more locations
across the U.S. will pay their employees $10.50 per hour. Such a result violates the dormant
Commerce Clause.
61.

The Order also violates the First Amendment by abridging franchisees' freedom

to associate with national chains. In essence, the Order offers small business owners a Hobson's
choice, between remaining associated with a national chain and possibly going out of business
due to rising labor costs, and shedding that association. See Bates v. City ofLittle Rock, 361 U.S.
516, 522-23 (1960)(noting free association is "protected not only against heavy-handed frontal
attack, but also from being stifled by more subtle governmental interference").
62.

In addition, the Order violates the Equal Protection Clause because it targets small

business franchises, many of which are owned by women and minorities.

Cf. Washington v.

Davis, 426 U.S. 229, 241-42(1976). Such illegal and discriminatory treatment cannot be
allowed.
63.

The Order's definition ofthe "Fast Food Establishments" that are subject to the

Order is vague and ambiguous. See Order at 2-3 (adopting Board's definition); see also Report
at 21. It appears that the Board meant to apply its minimum wage recommendations only to fast
food chains with at least 301ocations nationally. See Report at 16; see also Appendix to the
Report (listing "fast food chains in New York State with 30 or more locations nationwide as of
2014"). It does not appear, therefore, that the Board intended to include within its
recommendations those fast food chains whose 301ocations are entirely within the State of New
York, or to ancillary foodservice companies that support businesses, hospitals, sports arenas, and
schools. But the Order is not clear; this ambiguity is creating confusion for businesses as they

20

try to determine whether they are affected by the Order. As such, if the IBA does not annul the
Order altogether(which it should), this body must clarify that the Order's definition of"Fast
Food Establishments" only applies to the limited band of restaurants the Board sought to
cover. If the IBA does not annul or clarify the definition of"Fast Food Establishments," the
Board's recommendations and the Commissioner's Order are void for vagueness. See, e.g., FCC
v. Fox TV Stations, Inc., 132 S. Ct. 2307,2317(2012)("A fundamental principle in our legal

system is that laws which regulate persons or entities must give fair notice of conduct that is
forbidden or required.... [That principle] requires the invalidation oflaws that are impermissibly
vague.")
B.

The failure to disclose the record underlying the Report and Order violates
procedural due process.

64.

The Board claims its Report is based on "over 2,000 written comments and

submissions" and that it "reviewed the testimony, comments, and submissions ... in formulating
its findings and recommendations." Report at 4,6. The Board also "refer[red] the
Commissioner to the video recordings and transcripts of the public hearings and copies of the
written comments as he considers [its] Report and Recommendation." Id. at 7. These materials,
however, were kept hidden from public view during the fifteen-day period for comments on the
Board's report. See Labor Law 656.
65.

The Department of Labor and the Governor's Office rejected any attempt to

obtain the complete record under the Freedom of Information Law in time to meaningfully
comment on the Board's recommendations. Indeed, they claimed, without any valid
justification, that the key documents needed to properly evaluate the Board's actions would not
be available until more than two weeks after the public's deadline to comment on those

21

documents has passed. See Mastro Aff. Ex. G,July 30, 2015 Dept of Labor FOIL response; id.
Ex. H, Aug. 5, 2015 Exec. Chamber FOIL response.
66.

In adopting the Board's Report, the Labor Commissioner stated that he "reviewed

and considered the Wage Board's report and recommendations,the record oftestimony,
documents, and deliberations before the Wage Board,the objections and comments to the report
and recommendations filed with [him], and the provisions of Article 19 of the Labor Law."
Order at 1. But the Labor Department has not disclosed the materials that the Commissioner
reviewed and relied on. And both the Labor Department and the Governor's Office say that they
will continue to withhold documents that the Freedom of Information Law requires them to
provide until after the time to challenge the Commissioner's Order expires on October 26, 2015.
See Mastro Aff. Ex. I, Aug. 21, 2015 Dept of Labor FOIL response (stating "a determination

concerning your request will be made prior to December 21, 2015); id. Ex. J, Oct. 1, 2015 Exec.
Chamber FOIL response (stating that the office will "update you with our progress on or before
October 30, 2015").
67.

To this day, the public has not seen the record underlying the Board's Report and

the Commissioner's Order adopting the Board's Report as his own. The Board's website still
does not contain a single "written comment," written "submission" by anyone outside the
Department of Labor, or a "transcript[] ofthe public hearings." Report at 4, 6, 7;see
http://labor.ny.gov/workerprotection/laborstandards/wageboard2015.shtm. And even individual
diligent efforts to obtain the record have been unavailing, as almost two-thirds ofthe sources
cited by the Board are not publicly accessible. See, e.g., Lewin Preliminary Report at 5.
68.

Because the record that the Board relied on has been and continues to be

impermissibly withheld, the public was and has been unable to fully evaluate the Board's data,

22

its recommendations, and the long-term implications ofthose recommendations. So, too, the
public has been unable to meaningfully assess the Commissioner's decision to adopt the Board's
Report as his own.
69.

Accordingly, the matter before the IBA is irreparably tainted. "It is well settled

that procedural due process in the context of an agency determination requires that the agency
provide an opportunity to be heard in a meaningful manner at a meaningful time." Matter of
Kaur v N.Y. State Urban Dev. Corp., 15 N.Y.3d 235, 260(2010)(citing Mathews v Eldridge,
424 U.S. 319, 333 (1976)). Here, the Commissioner's failure to give Petitioner notice and a full
and fair opportunity to be heard before adopting the Order violated Petitioner's "well settled"
right to due process. Id.; see also Mullane v. Cent. Hanover Bank &Trust Co., 339 U.S. 306
(1950).
70.

Moreover, basic principles of equity and fair play require that the IBA vacate both

the Order, as well as the Report, because Petitioner has not had a full and fair opportunity to
review the underlying basis for those actions. See Heaney v. McGoldrick, 286 N.Y. 38, 45
(1941); see also Collins v. Behan,285 N.Y. 187, 188(1941)(per curiam)("To review a
determination made by an administrative board there must be presented a record of all the
evidence upon which the determination is based. The record must indicate the factual basis of
the determination made.").
71.

At a minimum, once the record is disclosed, this matter must be remanded to

allow for the full fifteen-day statutory period to comment on the Board's Report, and an honest
opportunity to raise objections and present oral argument before the Labor Commissioner during
his statutory forty-five-day review period. See Labor Law 656.

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CONCLUSION
72.

For the foregoing reasons, Petitioner respectfully requests that the IBA enter an

order(1)declaring that the Labor Commissioner's September 10, 2015 Order, and the Wage
Board's July 31, 2015 Report, which the Order adopts in full, are contrary to law, null, and void
and (2) granting any other relief deemed just or proper.
Dated: New York, New York
October 23,2015
Respectfully submitted,
GIBSON,DUNN & CRUTCHER LLP

By:

Randy M. Mastro
Nancy E. Hart
Gabriel K. Gillett
200 Park Avenue
New York, New York 10166
(212)351-4000
Thomas H. Dupree, Jr.*
(not admitted to practice in New York)
1050 Connecticut Avenue, N.W.
Washington, DC 20036
(202)955-8500
Attorneysfor Petitioner

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