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Client Alert: City Expands Living Wage Requirements to Tenants of City Financial Aid Recipients

02.14.11

The Philadelphia Minimum Wage and Benefits Ordinance currently requires certain employers who are “City financial aid recipients” to pay at least 150% of the federal minimum wage and benefits for a five-year period. A “City financial aid recipient” includes persons or entities that receive a direct financial benefit in the form of City grants, loan guarantees, tax incentives, waivers of City fees, in kind services, or real property in excess of $100,000 within any 12-month period. “City financial aid” does not include funds originating from the Commonwealth and dispersed through quasi-city agencies, such as the Philadelphia Industrial Development Corporation. For example, a development receiving monies from the Commonwealth in the form of Redevelopment Capital Assistance Funds or a federally backed loan (i.e. HUD 108 loans) would not be covered because the monies are neither sponsored nor backed by the City. 

The Ordinance has been amended effective July 1, 2011, to expand the definition of “City financial aid recipient” to include employers who are not otherwise recipients, but lease property or equipment from a City financial aid recipient while (1) employing more than 25 employees, and (2) either as to not-for-profits paying rent of at least $100,000 per year, or as to for-profits having at least $1,000,000 in annual gross receipts. Thus, for example, if the City gives a developer property from the Redevelopment Authority worth more than $100,000, and if the developer’s for-profit tenant had more than 25 employees and annual gross receipts of $1,500,000, it would be required to comply with the living wage requirement for a five-year period.    

Although the original Ordinance has been in effect since 2005, the amended expansive definition of “City financial aid recipients” will have an impact on future development in the City.   The new amendment will result in added labor costs for covered commercial tenants including retail, office, industrial, health, and education tenants if they rent from a City financial aid recipient. This added cost will influence lease negotiations and the choices of tenants considering moving into the City.
 
Waivers are possible under the Ordinance. However, a commercial tenant can only receive a waiver for one year if either it can show that there is an economic hardship or the City determines a waiver is in the City’s best interest. After the one year waiver, the tenant would be required to reapply annually during the five year period to maintain the exemption.  

It is not yet clear what all of the types of financial assistance will be captured by the Ordinance. Tax abatements are debatably not included because all new construction is entitled to receive the abatement regardless of receiving any affirmative assistance from the City. We are monitoring this issue because we believe the debate has not been resolved.
 

The new law applies only to City financial aid awarded after the effective date of July 1, 2011.    Therefore, existing projects or transactions that were awarded City financial aid only in the past would not fall subject to the new amendment.   In light of this, new tenants would not be subject to the new law if the tenant took occupancy of an existing building which had previously received City financial aid.  

Violators will be subject both to private causes of action by employees and City action to deny future financial aid or applications for financial aid for 3 years. Consequently, we expect Philadelphia commercial lease negotiations will now include a provision relating to acknowledgement of whether the landlord or the tenant falls within the new definition of “City financial aid recipient”. From the tenant’s point of view, to identify if it has liability to its employees due to landlord’s actions. From the landlord’s point of view, to avoid being denied further City financial aid and being prohibited from seeking future City financial aid for a three year period, if tenant’s actions were deemed to implicate the landlord. 

If you have any questions, feel free to contact the Real Estate and Finance Group, either Carl S. Primavera at 215-569-1663, or Darwin R. Beauvais at (215) 569-4146.

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