New York Court Dismisses Nail Salons’ Challenge to State Wage Bond Requirement

Quinn Dombrowski [CC BY-SA 2.0 (https://creativecommons.org/licenses/by-sa/2.0/)], via FlickrAn organization of New York nail salons filed a lawsuit in September 2015 to challenge a state regulation requiring nail salons to obtain wage bonds. Korean Am. Nail Salon Assn. of N.Y. Inc. v. Cuomo, et al., No. 15-4582, verif. petition (N.Y. Sup. Ct., Albany Co., Sep. 16, 2015) (the “Lawsuit”). The New York Department of State (DOS) adopted a rule on an emergency basis in May 2015 in response to a series of New York Times reports about alleged mistreatment of nail salon workers. The lawsuit claimed that the rule was “arbitrary and capricious,” Lawsuit at 19; that it lacked statutory authority; and that it violated the plaintiff’s rights under the Due Process and Equal Protection Clauses of the U.S. and New York Constitutions. A judge in Albany dismissed the lawsuit in early December. 2015 N.Y. Slip Op. 25412 (the “Order”).

The New York Times published a series of articles in May 2015, alleging that nail salon employees “are routinely underpaid and exploited, and endure ethnic bias and other abuse.” Shortly afterwards, New York Governor Andrew Cuomo ordered an investigation of the state’s approximately 5,000 nail salons, about 40 percent of which are located in New York City. The investigation reportedly found 116 violations of state wage law at 29 salons.

The DOS enacted a new rule “relating to insurance and bond requirements” on May 18, 2015. 6/3/15 N.Y. St. Reg. DOS-22-15-00010-E. It cited its authority to make rules affecting nail salons “in order to ensure the health, safety and welfare of the public.” N.Y. Exec. L. § 91; N.Y. Gen. Bus. L. §§ 402(5), 404. Under the new rule, nail salons must maintain liability coverage for wages owed to employees of at least $25,000 for salons with four or fewer employees, and up to a minimum of $125,000 for salons with 26 or more employees. 19 NYCRR § 160.9. Nail salons may obtain this coverage through a corporate surety bond, various forms of liability insurance, or combinations thereof.

The regulatory impact statement accompanying the rule, 6/17/15 N.Y. St. Reg. DOS-22-15-00010-E, states that the rule is necessary because of possible “exploitive practices to deprive practitioners and workers of wages due.” It further states that the cost to individual salons to comply with the rule should be between two and four percent of the bond amount, meaning a $25,000 bond should cost between $500 and $1,000.

The lawsuit challenges the accuracy of the New York Times’ reporting, calling its reports “biased and inaccurate.” Lawsuit at 5. It also alleges that the DOS imposed the rule without conducting an investigation or “receiving any public comments.” Id. at 9. The assessment of nail salons’ ability to affordably obtain wage bonds, the lawsuit claims, does not reflect the realities of the market. Id. at 12-14.

The state filed a motion for summary judgment, and the court ruled on that and other motions in early December. It dismissed the lawsuit, finding that state law authorized the enactment of the rule. It rejected the plaintiff’s “arbitrary and capricious” argument on the grounds that the state had provided evidence to support its contention that wage bonds were reasonably available. Finally, the court found that the constitutional claims were based on the state’s alleged lack of “rational basis” for its claims, rather than “an alleged lack of notice and opportunity to be heard.” Order at 4-5.

The wage violations attorneys at Phillips & Associates represent employees and job seekers in New York City. Contact us online or at (212) 248-7431 today to schedule a free and confidential consultation with a knowledgeable and skilled advocate for employee rights.

More Blog Posts:

Hair, Nail Salons Agree to Pay Workers to Settle Accusations of Minimum Wage, Labor Law Violations, New York Employment Attorney Blog, August 26, 2015

NYC Council Passes Licensing Bill For Car Washes, New York Employment Attorney Blog, August 24, 2015

Nail Salon Workers File Federal Class Action Against Manhattan Employers, New York Employment Attorney Blog, August 21, 2015

Photo credit: Quinn Dombrowski [CC BY-SA 2.0], via Flickr.

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