August 10, 2016

New York City's New "Labor Peace" Executive Order: How Some Employers May be Required to Remain Neutral During Union Organization Campaigns

4 min

Employers have free speech rights during a union organization campaign. Just like a union, an employer may (and should) communicate with employees about whether joining a union is in the employees' best interests. Keeping employees accurately informed about the realities of union membership is often critical to opposing a union organization campaign. Otherwise, employees may join a union without considering the potential consequences of union membership, which include monthly membership dues, new grievance procedures, potential union fines, and mandatory member participation in strikes or other work stoppage activities.

Some New York City employers may now find themselves required to remain neutral during a union organization campaign. Effective July 14, 2016, New York City Mayor Bill de Blasio signed an Executive Order (the Order) that prohibits qualifying employers from opposing a union's organization effort. Below is a recap of what the Order requires, to whom it applies, and some potential considerations for the future.

What Does the Order Require?

The Order requires that certain developers agree to a "labor peace clause" with respect to qualifying building projects. Under a labor peace clause, a developer must ensure that any "Covered Employer" operating within the qualifying building project enter into a "Labor Peace Agreement" with a union seeking to represent the Covered Employer's workforce. A Labor Peace Agreement must include the Covered Employer's promise "to maintain a neutral posture" in connection with the union's efforts to organize the Covered Employer's employees working within the qualifying building project's premises. In exchange, the union must promise not to picket, boycott, or otherwise economically interfere with the Covered Employer.

To Whom Does the Order Apply?

The Order applies to building projects that receive at least $1,000,000 in financial assistance from New York City and are larger than 100,000 square feet or, for residential buildings, contain more than 100 dwelling units. Financial assistance for purposes of the Order's $1,000,000 threshold includes discretionary grants, subsidies, property tax and other tax exemptions and abatements, but omits as-of-right benefits such as property tax benefits under the J-51 and ICAP programs, as well as other as-of-right assistance.

The Order defines a "Covered Employer" as any establishment selling goods, food, or beverages to the public, provided that the establishment employs at least ten employees and occupies at least 15,000 gross square feet within the building project. The Order shall apply to a qualifying developer for as long as the developer receives financial assistance from New York City or for ten years from the commencement date of the building project, whichever is longer. The Order does not apply to building projects authorized or financial assistance awarded prior to July 14, 2016.

Legal Considerations

Time will tell what the Order has in store for New York City developers and Covered Employers. As a preliminary matter, the legal future of the Order is very much in doubt. For example, the California State Legislature attempted to pass a similar "union neutrality" law in 2000. The U.S. Supreme Court eventually struck down much of the California statute as preempted by federal labor law. See Chamber of Commerce v. Brown, 554 U.S. 60 (2008). A similar fate may await the Order, but first there must be a party willing to challenge the Order in court.

Developer Considerations

In the meantime, New York City developers should consider whether the Order may apply to their project and, if so, how a labor peace clause would impact the value and marketability of space which could be leased to Covered Employers. For affordable housing and mixed-income projects in particular, the revenue generated by retail space is often relied upon to help maintain the property and any increase in labor costs (through unionization) would translate into less revenue available from the retail space leased to a Covered Employer.

Employer Considerations

Retail and food service employers who meet the definition of Covered Employer should carefully weigh the risks of a successful union organization campaign against the benefits of operating within a qualifying building project. Losing a union organization campaign may have significant financial implications for an employer in the long run. The stakes are even higher for retail and food service establishments because their profit margins tend to be much lower than employers in other industries.

The Order also leaves plenty of room for uncertainty in the future. Among other things, the Order is silent as to the specific penalties for non-compliance. It further expressly states that the Deputy Mayor overseeing the City's housing policy may exempt specific employers from the union neutrality requirements. What may qualify an employer for such an exemption remains to be seen.