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Reimagining a Rebuilding NYC Hospitality

By NYC Hospitality Alliance

In response to COVID-19, New York State mandated that effective Monday, March 16th at 8:00PM restaurants and bars must close.

As a result, thousands of businesses have shuttered and laid off hundereds of thousands of workers. Restaurants and bars are permitted to operate for delivery and take-out food only, but most cannot sustain their operations for an extended period of time under these conditions.


In response, the NYC Hospitality Alliance, a not-for-profit organization representing thousands of restaurants and nightlife establishments in the five boroughs, presents a Policy Blueprint for Reimagining and Rebuilding the NYC Restaurant and Nightlife Industry After Covid-19. The plan continues to be updated as we achieve our goals and address the fluid and ever-changing nature of this pandemic. We are committed to supporting our industry during the immediate crisis and throughout the complex and long-term recovery plan that will be required. 

DIRECT COVID-19 RESPONSE POLICIES 

Delivery and Food Supply: Under the emergency powers of the Governor and the Mayor, they must mandate that fees charged by third-party delivery platforms to our local restaurants be capped at a maximum 10% per order. Currently, third-party delivery fees usually range from 15% - 30%+ of a total order and would therefore amount to a windfall during this emergency when restaurants can only offer takeout and delivery. Many restaurants lose money on their deliveries during normal market conditions. We must preserve some profit for restaurants so they can serve New Yorkers who need food during this crisis and allow some employees to earn a paycheck. Restaurant takeout and delivery are a vital part of the city’s food supply chain. 

Fine, Tax, Penalty, Utility and Insurance Premium Forgiveness: Suspend the payment of all insurance premiums (and protect against a spike in premium related to COVID-19), utility payments, fines and provide cure periods to businesses for violations that do not pose an immediate hazard to the public and workers. All taxes, fees, premiums and fines must be suspended indefinitely until a thorough and thoughtful strategy can be implemented to address these payments. This includes, but is not limited to, Sidewalk Café consent and Liquor License renewal fees. Suspend also the Commercial Rent Tax and property tax pass-throughs on ground floor tenants like eating and drinking establishments.

Insurance Coverage: Government should compel insurers to pay business interruption insurance claims related to COVID-19, or a specialized business recovery fund should be established to promptly pay claims to businesses required to close (or limit their operations) by government order. When necessary, the federal government must provide the insurance companies appropriate assistance. 

Lawsuits: Regardless of any precautions businesses take when they are permitted to reopen, public health officials believe there will still be unavoidable risks to the public and workers related to COVID-19. Therefore, liability protections should be enacted for restaurants and nightlife establishments operating in good faith that are operating in accordance with applicable statutes, rules, executive orders and approved sector-specific restart plans, they must be protected to ensure our economy is not further devastated by COVID-related lawsuits during the recovery

Liquor License Applications: Under the State of Emergency declared by the Governor, the State Liquor Authority (SLA) should allow businesses to operate with a temporary license in New York City while its application is going through the lengthy backlog at the SLA, like they do for applicants elsewhere in the state. This issue is acute now that state employees are being sent home. Once this crisis is over, we need new businesses to open fast. They cannot be then waiting for a license to be issued.  

License Renewals: All licenses and permits such as liquor licenses, sidewalk café licenses, Health Department permits, etc., must renew automatically without the payment of licensing fees until a strategy can be implemented to responsibly reopen such operations. Specifically, extend all expiring liquor licenses renewal for 120 days automatically. They cannot afford thousands of dollars in licensing fees if they are closed.

New Restaurants, Bars and Clubs: One group of businesses that has been left out of all the conversations thus far is small businesses that were in the process of opening a bar, restaurant or small hotel when the COVID-19 crisis changed everything. These businesses represent thousands of potential new jobs for the industry just when we will need them most. But, funding has dried up for these businesses from private investors. They need grants or low-interest loans over a reasonable payback term (5+ years) from the SBA or similar government program that can be used to complete construction and finish opening costs. This would in effect be a new job loan/grant program. 

Outdoor Dining: Reimagine public space such as sidewalks, streets, pedestrian plazas, etc, and permit restaurants to set up tables and chairs in these areas to serve guests and generate revenue. These additional sales will be critically important as restaurants reopen under reduced occupancy requirements and customers feel more comfortable in outdoor spaces.

Paid Safe and Sick Leave: Two revisions to Paid Sick Leave would be helpful for employers: First is the ability of employers to ask for a doctor’s note if the employee has been out for less than 3 consecutive workdays, especially if the employee has been absent with symptoms related to COVID-19, such as a cough, fever, and shortness of breath.  Second, it would be helpful if employers could automatically pay an employee who is absent from work from the employee’s sick bank rather than have the employee specifically request the right to use sick leave, as many employees are simply not responding to employers and/or not showing up to work for those businesses that are open. 

Paycheck Protection Program (PPP): Amend the Paycheck Protection Program (PPP) of the CARES Act to allow the loan to be forgivable if businesses hire back needed staff at a minimum of six months after they fully reopen; allow a larger allocation of the money to be used for rent or other expenses; and, expand the stimulus funding so it is available over a longer period of time, so businesses who do not immediately apply can still obtain funding. Also, require all participating banks to accept, review and qualify applications from any small business without requiring them to have existing accounts or loans. If these amendments are not made, the PPP will not help countless businesses that need stimulus funding. 

Personal Liability  in Leases: Most small business owners have personal guarantees on their leases as long as they are in possession of the premises. These clauses were designed to protect landlords from tenants being open and operating but not paying rent. They were never contemplated for this situation where the tenant is technically in possession but cannot operate by government order. It is detrimental enough that many small business owners fear losing their business, but now they are in fear of losing their personal home or savings. As the government ordered them closed, the government needs to override these personal guarantees for businesses that it shut down for public safety reasons. 

Promotion: When safe and appropriate, invest in restoring New York City’s 70 million annual tourists, and launch a restart restaurant and nightlife promotional campaign to get New Yorkers and visitors to eat and drink out.

Rent and Mortgages: Due to the ongoing COVID-19 emergency, businesses and property owners face significant challenges. The majority of businesses in New York City have been mandated by the government to close (or limit their operations) and many therefore cannot pay their rent. Property owners have financial obligations including property taxes, mortgages, maintenance, and capital improvements – much of which is paid for by the rent from businesses. While we recommend that commercial tenants and property owners make arrangements per their circumstances to help both parties weather this crisis, we recognize that realistic terms may not always be available. Therefore, we recommend a government backstop be provided during this emergency. These government programs could include direct federal financial assistance, rent and mortgage forbearance, and/or a property tax deduction for landlords who provide rent concessions to their tenants. 

Reopening Grants and Loans: Reopening restaurants and nightlife establishments will take capital to rehire employees, restock, etc, which is money most small businesses do not have. So, we recommend providing grants and low interest, long term reopening loans.

Sales Tax: We recognize the State and City of New York face significant budgetary constraints, nonetheless, we recommend investigating the fiscal implications of converting restaurants, nightlife establishments and retail stores’ sales tax collection into grants. These small businesses need an injection of cash to help them survive during the COVID-19 emergency. Since these monies are on hand, converting (and/or reverting) the sales tax collection into a grant will help small businesses immediately with needed cash flow, and will stimulate economic activity. 

Scheduling Law: It would be helpful for business if the predictability pays penalties and the requirements to obtain written approval from the employee for any schedule changes were suspended.  Businesses are having a hard time keeping and maintaining a workforce to the extent they can. For fast food establishments, this is made even more difficult because they experience numerous call outs on a daily basis, requiring them to cover shifts with other employees. These call outs are out of proportion to typical operations and occur because of numerous reasons. Therefore, it would be helpful if employers could have employees cover the shifts of co-workers without having to go through the time intensive process of having employees sign written approvals for the shift change and face significant financial burdens as a result thereof.  Several other cities such as Seattle and Philadelphia have suspended similar predictability pay regimes because of COVID-19.

Taxes: Provide companies a 100% food, beverage and entertainment tax deduction and allow individuals to deduct up to $5,000 per year of restaurant and bar expenses, both of which will encourage spending businesses and stimulate needed economic activity.  

Unemployment Insurance: A concern under NY’s rigid unemployment insurance concerns trying to give employees some work hours.  For example, a restaurant has closed operations per government order. However, there is some occasional work for porters (e.g. make sure premises are safe); event sales employees (e.g. taking occasional calls to book events further out).  NY’s unemployment benefit permits an employee to collect partial benefits and still work part-time IF the employee works less than four days in a week and earns $504 or less. Each day or part of a day that the employee works will cause their benefit rate to drop by one-quarter.  For example, if an employee’s weekly benefit rate is $200 and the employee works three days and earns less than $504, he/she may receive $50 in benefits. If the employee only works two days, they may receive $100 in benefits. If he/she only works one day, they receive $150 in benefits.  Note, that the examples DO NOT discuss how many hours the employee worked—just whole units in days. The statutes and rules were written when there was little to no likelihood that a laid off employee would have some work at “home”. This “flaw” is creating havoc for employees and employers.  We don’t want employees turning down work and risking termination, but 2, 3, or 10 hours of work at $15 an hour will drop their unemployment entitlement disproportionately. Employers are trying very hard to keep some services open (e.g. trying to book future events) but this is hurting. Amend the law so that reductions to benefits are based on hours and rate of pay – not days worked.

Worker Adjustment and Retraining Act (NYS WARN): This provision requires employers to provide specific written notice at least 90 days in advance to employees because of temporary or permanent closures, mass layoffs, and significant reduction in work hours.  There has been a lot of confusion over whether employers had to provide notice to employees when their businesses were closed due to the shelter-in-place orders. This confusion only intensified because of the uncertainty of when the shelter-in-place orders would end and the reluctance of employers to inform individuals they were losing their jobs (as opposed to being temporarily out of work and they would return to the job once the business was allowed to reopen). It would be helpful for business if the State suspended WARN for the period of when state and local orders initially required businesses to shut or significantly curtail their activities.

 

NEW YORK CITY & NEW YORK STATE

Cut the Red Tape & Reduce Fines: Review all laws and regulations governing restaurants and nightlife establishments to determine which are antiquated, duplicative or inappropriate. We should then amend or repeal the identified mandates to streamline the permit and licensing process and enhance the experience businesses have when interacting with the government. This should require that inspectors educate businesses first, by explaining why a violation exists and how to correct and prevent it. The goal should be to reduce fines, increase education and compliance, and provide a warning or cure period before a fine is levied for any violations that do not pose an imminent hazard to the public.  

Data Ownership: In today’s digital world, data is a valuable asset for businesses. Unfortunately, some third-party companies, such as certain delivery and reservation platforms used by restaurants and nightlife establishments do not provide these establishments with their own customer data and/or they restrict how it is used. Pass a law providing businesses ownership of their customer data (and related analytics) that is collected by third-party companies. 

Worker Benefit Programs: Pass a law requiring that before any employer-funded and administrative mandates are introduced, such as healthcare, paid vacation, etc., a diverse stakeholder committee be convened to analyze the feasibility of providing such benefits via an insurance fund and/or government administered and funded mechanism. This approach is similar to how social security, paid family leave and other benefit programs are administered. In today’s changing marketplace, small employers in particular, should not fully shoulder the burden of these social benefit programs. There are also many advantages to workers when their benefits are portable and not tied to a specific employer, which was made clear by the COVID-19 crisis – when businesses laid off their employees, those people lost their benefits in a time of need.

Taxes (miscellaneous): The tax code is used to support and incentivize economic and pro-growth activity. Benefits such as the Excelsior Jobs Tax Credit should be extended to employers in the hospitality industry and payroll taxes should be reduced. Restaurants that purchase certain amounts of product from New York farmers and/or food & beverage manufacturers should be offered incentives to encourage NYS commerce and jobs. The City and State Finance Departments should permit the FICA Tip Tax Credit to be an allowable subtraction from that business’ taxable income. Eliminate the unfair liquor excise tax imposed by the City on all local liquor license holders. 

Third-Party Fees & Consumer Disclosure: In today’s marketplace, hospitality businesses rely on third-party companies to transact all kinds of business, from delivering food to booking reservations. These third-party companies often charge hefty fees to such businesses, which are debited from customers’ orders, something customers never see. Enact a law providing businesses the option of disclosing the third-party fee and passing it on to customers. 

 

NEW YORK CITY 

Agent of Change: This proposal places the responsibility on the party entering the community to mitigate /eliminate potential conflicts that may arise between businesses and residents, such as requiring a new residential developer to pay for the soundproofing of an existing nightclub next door. 

Commercial Rent Tax & Property Tax: NYC should begin eliminating the unjust Commercial Rent Tax (CRT), which is effectively a 3.9% surcharge that only businesses located south of 96th Street in Manhattan pay on their annual rent when it exceeds a threshold. This tax is discriminatory as it only applies to businesses in a certain area of Manhattan with the highest rents, and is calculated on the rent, not income. CRT has been repealed citywide, except in this one geographic area. Most commercial tenants pay a portion of their landlord’s property taxes, in addition to their rent. These taxes pose a significant financial burden on small businesses. Provide small businesses with a tax credit against a portion of the property taxes they pay. 

Community Boards: Standardize the process to apply for and renew liquor licenses and sidewalk cafe permits across community boards. The expectations of applicants should be clearly defined, and community board specific policies should be provided. Community boards should also identify locations where late-night hours for nightlife establishments are appropriate in their respective districts and provide applicants with constructive guidance, so stakeholders’ time is not wasted. 

Dancing: Now that NYC repealed the Cabaret Law, the City must create a panel of expert stakeholders to conduct a citywide review of the Zoning Resolution, and submit recommendations to the Mayor and City Council, for additional areas where dancing should be permitted. 

DEP Water Shutdowns: The NYC Department of Environmental Protection (DEP) must provide businesses with sufficient time, such as 30-day notice (or the longest notice period possible), before scheduled water shutdowns. Restaurants sometimes receive less than 24-hours’ notice, and sometimes only a few hours’ notice before a prescheduled, non-emergency water shutdown. Without working water, restaurants and nightlife establishments and workers suffer significant loss of income and their customers suffer when their reservations and events are cancelled last minute. 

Health Department Letter Grades: Amend the NYC Department of Health’s Letter Grade inspection system by allowing cure periods for minor violations and eliminating points for non-food safety related violations that calculate a letter grade. Also, introduce “due process” into the inspection system so a judge’s ruling determines the frequency of inspection, instead of an inspector’s accusations, which is how the unfair system currently works. 

New York City Human Rights Law – Public Accommodations: Over the last several years there has been an explosion of lawsuits filed against retail and hospitality establishments under the New York State Human Rights Law alleging that such establishments are inaccessible to individuals with disabilities. These lawsuits fall into two main categories: (i) lawsuits claiming there are physical barriers at the establishment, so called brick and mortar lawsuits; and (ii) lawsuits claiming that the establishment’s website is not accessible to the blind. These lawsuits are driven by plaintiff’s lawyers as is evident by the number of cookie cutter lawsuits filed and the serial nature of many “plaintiffs” who file such suits. At this time, business should be focused on ensuring that individuals get back to work and not on lawsuits filed to gin up attorneys’ fees.  It therefore would be helpful that the right of individuals to file such lawsuits be temporarily suspended (they could still go to the State Division of Human Rights) or at the very least there be a notice and cure provision added so that before a lawsuit could be filed the plaintiff would have to give the business notice of the alleged defect and six months to cure such alleged defect.

Office of Nightlife: Increase the budget and staffing of the Office of Nightlife so it can effectively fulfill its mandate, which will allow it to provide greater support to nightlife businesses, residents and other stake- holders. Direct persistent nightlife establishment conflicts to the Office of Nightlife so they can mediate situations, instead of immediately involving the NYPD (or other agencies) for enforcement purposes where non-imminent safety matters occur. 

Scaffolding: Scaffolding (sidewalk sheds) are essential in protecting people from building construction, etc. However, scaffolding left up for an extended period has a devastating impact on restaurants and bars. The effects range from a significant loss of business, to the reduction of employee hours and layoffs, to a major factor in some businesses closing. Some small business owners even suspect that unscrupulous landlords have kept up scaffolding to drive them out of business to get a higher rent-paying tenant or for them to sell or demolish the building. A law must be passed to require more aesthetically pleasing scaffolding and forbid it from staying up for unnecessarily long periods of time, without significant penalties. Tenants must also have a private right of action to recoup money in circumstances. 

Sidewalk Cafes: When a person purchases a business with an existing unenclosed sidewalk cafe, they should be permitted to operate that cafe under the prior owner’s conditions until they can apply for and receive their own cafe license. This will decrease the business’ startup costs and provide much needed revenue to a new business because they would operate the sidewalk cafe immediately (and not lose a season’s worth of business). A temporary license to operate should also be available to restaurants looking to open in a vacant space that had an approved sidewalk cafe license if the same cafe license is being requested. Other cafe reforms should also be adopted to make the process faster and less expensive. For example, all government agency reviews should take place at the same time, not one after the other, and policies should be adopted to make the process faster and less expensive. Lastly, businesses should not have to hire an architect just to submit a simple cafe plan. Any accurate plan should suffice as they do with other commercial uses of the public sidewalk. 

Surcharges: Allow hospitality business in NYC the option of adding a clearly disclosed surcharge to restaurant menus. A disclosed surcharge is allowed everywhere in the country, even elsewhere in New York State. This antiquated rule, implemented for an unrelated reason over 40 years ago by the NYC Department of Consumer Affairs, can be interpreted to prohibit this practice. The surcharge works successfully in other progressive cities like San Francisco as a way for local businesses to generate revenue to cover skyrocketing operating costs. It is also a way to reduce wage disparity between the front of house workers who earn big money in tips, and kitchen workers who cannot legally participate in a tip pool. 

Rent: Similar to the way cities negotiate deals with real estate developers to provide affordable housing in new developments, deals must also include affordable commercial space for small businesses. Existing developments that seek taxpayer subsidies could also have such requirements as a condition of the benefit. 

 

NEW YORK STATE

80/20 Rule: Reform the NYS Department of Labor’s so-called 80/20 Rule that creates significant legal and financial liability for restaurants and hurts workers who want to work more hours and gain more skills. The law prohibits an employer from taking the tip credit for an employee if they work over 20% or two hours of their shift in a non-tipped job capacity. Effectively this means employees are prohibited from working five hours of a shift as a bartender earning tips and then three hours doing inventory, tastings and purchasing, which is non-tipped work. If they do, they violate the 80/20 Rule and enormous financial liability results for the employer, including loss of the tip credit, double damages and attorney fees. The 80/20 Rule also prevents the employee from earning more money and gaining additional skill sets, thus limiting their income and opportunity for professional growth. The 80/20 Rule must be amended to provide employees more flexibility to work in a tipped and non-tipped capacity during the same shift. 

200 Foot Law: Amend the State Liquor Authority’s post-prohibition law preventing a full-service restaurant from obtaining a liquor license if they are located within 200 feet from a school or place of worship. This would allow for economic development, increased jobs and additional local restaurants to open where they’re now unable. 

Enhanced Security Guard Training: Under NYS law, security guards are required to take the same training whether they are guarding a nightlife establishment or a pharmacy. Require security guards working in nightlife to receive enhanced training tailored for their work environment including de-escalation techniques related to intoxicated individuals, addressing sexual violence, harm reduction, active shooter, gender identity, etc. 

New York State Human Rights Law – Public Accommodations: Over the last several years there has been an explosion of lawsuits filed against retail and hospitality establishments under the New York State Human Rights Law alleging that such establishments are inaccessible to individuals with disabilities.  These lawsuits fall into two main categories: (i) lawsuits claiming there are physical barriers at the establishment, so called brick and mortar lawsuits; and (ii) lawsuits claiming that the establishment’s website is not accessible to the blind.  These lawsuits are driven by plaintiff’s lawyers as is evident by the number of cookie cutter lawsuits filed and the serial nature of the “plaintiffs” who file such suits. At this time, business should be focused on ensuring that individuals get back to work and not on lawsuits filed to gin up attorneys’ fees.  It therefore would be helpful that the right of individuals to file such lawsuits be temporarily suspended (they could still go to the State Division of Human Rights) or at the very least there be a notice and cure provision added so that before a lawsuit could be filed the plaintiff would have to give the business notice of the alleged defect and six months to cure such alleged defect.

Notice of Pay Rate Form Penalties: If an employer fails to provide a rate of pay form at the time of hiring or whenever there is a change in the employee’s rate of pay, the employer can be subject to a penalty of up to $5,000 per employee.  These penalties apply when the employer fails to properly complete a rate of pay form, even if the employer completed the form (albeit incorrectly) in good faith. New York needs to get individuals back on employer payrolls and employers should be focusing on hiring employees and not be worried about whether they will be subject to a significant fine because of paperwork issues, especially when the employer tries to complete the paperwork in good faith.

Penalties for Failing to Issue “Accurate” Wage Statements: Most employers rely on third party providers to issue wage statements (also called “paystubs”), yet if the paystubs are incorrect (such as omitting reference to a tip credit, a common problem), the employer is liable and the third party provider is shielded from liability due to the take-it-or-leave-it contractual terms they dictate and which are ubiquitous in the industry.  This problem could be alleviated if there was a defense for an employer who relied on a third-party payroll provider to issue paystubs. Short of a defense, if the penalties are suspended it would be helpful for employers so they can focus on getting employees back to work rather than on technical paperwork issues that, mostly, are outside of their control. 

Tip Sharing: NYS law prohibits kitchen workers from participating in a restaurant’s tip pool. This results in a growing disparity of income and can breed animosity between kitchen workers and servers (bartenders, bussers, runners) who often earn significantly more money than their colleagues in the kitchen because they earn tips. Amend the law to allow non-managerial kitchen workers (if the employer chooses to) to participate in a restaurant’s tip pool, which is allowed in other states around the country. 

 

FEDERAL 

Americans with Disability Act (“ADA”): Many NYC retail and hospitality companies have been hit with ADA Title III, public accommodation cases. These cases are often filed by serial litigants who make cookie-cutter claims about the interior of an establishment or its website.  Under the ADA, the plaintiff cannot receive significant damages and can only get significant injunctive relief (e.g., fixing the allegedly ADA non-compliant practices) and thus these lawsuits are driven by plaintiff’s attorneys’ fees. One way to assist business would be to require a notice and cure provision in which before filing suit a plaintiff must give notice to the establishment about the allegedly improper practice at issue and give the establishment time to cure the alleged defect (e.g., 6 months) before the plaintiff can file suit. 


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