Expansion of Philadelphia Minimum Wage and Benefit Standards Could Impact Retail and Restaurant Tenants

Under a newly enacted City of Philadelphia Ordinance, some tenants in properties developed with financial assistance by the City of Philadelphia may now be required to comply with a minimum wage requirement that is 150% of the federal minimum wage. Benefits provided to full-time employees of tenants may also be impacted.

City Ordinance (Bill No. 100756) was signed into law on January 5th by Mayor Michael Nutter, and will become effective on July 1, 2011.

Pursuant to Title 17-1300 of the City Code, certain employers are required to pay employees (as they are defined in Title 17) an hourly wage, excluding benefits, of at least 150% of the federal minimum wage, as well as provide certain minimum health care benefits for full-time employees. One category of employers that must provide the higher minimum wage and the health care benefits are “City financial aid recipients.”

Prior to the newly enacted Ordinance, “City financial aid recipients” were defined as “All persons or entities that receive from the City direct assistance in the form of grants, loans, or loan guarantees, tax incentives, in-kind services, waivers of City fees, or real property in the amount of more than $100,000 in any twelve (12)-month period. This term shall not include those who enjoy an economic benefit as an incidental effect of City policies, regulations, ordinances, or charter provisions.”

So, captured under that definition were people or entities, including landlords, that purchased and/or developed properties with financial assistance from the City.

Ordinance No. 100756 has expanded the definition of “City financial aid recipients” to include certain tenants of City financial aid recipients.

The definition of “City financial aid recipients” now includes “a person or entity who (a) leases property or equipment from a City financial aid recipient; (b) employs more than twenty-five” employees; (c) in the case of a not-for profit entity, leases property or equipment for consideration in excess of $100,000 a year; and (d) in the case of a for-profit entity, has annual gross receipts in excess of $1,000,000 a year” so long as “such property or equipment was acquired (in whole or in part) with the City’s assistance or was otherwise the subject of the City’s assistance and the person or entity receives an intended material benefit from the financial assistance, and such person or entity shall be subject to the provisions of the Chapter for the same compliance period as the City financial aid recipient from which they are leasing the property or equipment.”

The impact of this new legislation will likely be most felt by larger retailers and restaurants which lease space from landlords who qualify as “City financial aid recipients”. The tenant’s obligation to comply with these standards is concurrent with the time the landlord is subject to them. Compliance by “City financial aid recipients” is required for 5 years following the receipt of the aid.

A prudent tenant should consider inquiring whether its landlord is a “City financial aid recipient” under the Code.