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City’s Displaced Service Workers Protection Ordinance Impacts Commercial Real Estate Acquisitions

When a purchaser of commercial property contemplates an acquisition, it customarily envisions that, as the new owner, it will terminate existing maintenance and service contracts procured by the seller. The new owner generally intends to bring in new management, service, and maintenance companies to operate the building or facility, or to furnish such services itself.  But this has changed since July 12, 2017 for properties in Baltimore City as a result of the City’s “Displaced Service Workers Protection Ordinance” (the “Ordinance”). The Ordinance is City Council Bill 17-0048, codified at Baltimore City Code, Article 11, Section 18-1 et seq.

The Ordinance provides that if a new company is awarded a “service contract” to perform security, janitorial, building maintenance, or food preparation, the new company must make offers of employment to any predecessor contractor’s service employees employed at the facility, for a 90-day transition period, or until the successor no longer provides services at that site, whichever is earlier. The Ordinance specifically applies to building purchasers, which are included within the meaning of a “successor entity.” This term includes not only a new contractor, but also an “entity that…has purchased or acquired control of a property located in the City where service employees were employed at any time during the previous 90 days….”

Scope of the Ordinance

The Ordinance applies to “service contracts” for certain enumerated “facilities” in Baltimore City. A “service contract” is a contract for a contractor to provide “security, janitorial, building maintenance, or food preparation in a facility located in the City.” A “facility” covered under the Ordinance includes:

  • a multi-family residential building or complex with more than 30 units;
  • a commercial building or office building occupying more than 50,000 square feet;
  • an industrial facility, such as a pharmaceutical laboratory, research and development facility, or product fabrication facility; or
  • a distribution center.

Thus, it is clear that many moderate to large scale commercial real estate acquisitions in the City are subject to the Ordinance.

Notice/Posting Obligations 

The Ordinance requires that, at least 15 days prior to the date a service contract is terminated, the person awarding a new service contract (i.e., the new owner) must:

  • request that the terminated contractor provide the “awarding authority” (one who awards or enters into a service contract) a complete list of the name, date of hire, and job classification of each affected employee;
  • give the “successor entity” (the new owner and new contractor) a complete list of the name, date of hire, and job classification of each affected employee; and
  • ensure that a written notice to all affected employees describing the pending termination of the service contract and the employee rights provided by this subtitle is conspicuously posted at any affected work site.

“Affected employees” are defined as the “service employees” of the contractor whose services are being terminated and replaced, and include (i) building service employees, including janitors, security officers, groundskeepers, concierges, door staffers, maintenance technicians, handymen, superintendents, elevator operators, window cleaners, and building engineers; and (ii) food service workers, including cafeteria attendants, line attendants, cooks, butchers, bakers, servers, cashiers, catering workers, dining attendants, dishwashers, and merchandise vendors. Managerial, executive, administrative and professional employees are not service employees covered by the Ordinance.

Employment Retention Obligations

The Ordinance imposes retention obligations upon the successor contractor and the successor owner. The successor contractor must, at least 10 days before commencing work on the new contract, make written offers of employment to the terminated contractor’s employees and send copies of the offers to any labor union that represents the employees. The offer must be for employment for a period of 90 days or until the successor no longer provides services at the facility, whichever is earlier. The offer must state the date by which the service employee must accept the offer, and it must allow each affected service employee at least 10 days after receiving the notice to accept the offer.

A successor contractor need not make offers to all employees at the site if it determines that fewer employees are needed to perform the work than were employed by the predecessor. In that case, seniority and other considerations come into play. At the end of the 90 day employment period, the successor contractor must perform a written employment evaluation.

Enforcement/Penalties

Enforcement of the Ordinance primarily falls to the Baltimore City Wage Commission (the “Commission”). Employees who are not offered employment or who are discharged during the transition period may file complaints with the Commission. The Commission has the power to institute proceedings and has the ability to require payment of back wages and to impose penalties. Penalties that may be imposed for violations (with each day that a violation continues constituting a separate offense) are: $250 per violation for a 1st offense; $500 per violation for a 2nd offense; and $1,000 per violation thereafter.

Practice Pointers

Entities considering contracts for the acquisition/sale of commercial properties in Baltimore City should consider the impact of the Ordinance. We recommend the following:

  • Evaluate the impact of the Ordinance upon representations/warranties in an acquisition contract, particularly those that state that all contracts are terminable or will be terminated prior to closing.
  • Require the seller to provide a schedule of employees subject to all service contracts;
  • Require the seller to obtain certification from existing contractors that they have complied with the notification and posting provisions of the Ordinance;
  • Consider indemnification provisions between the parties to address claims that might arise from failure to comply with the Ordinance.

Comments 

The Ordinance was hastily passed on June 12, 2017, with one public hearing, sparse public input, and little fanfare or publicity. The Ordinance is primarily a labor/employment law and it is not commonly known or considered by transactional real estate professionals. The Ordinance provides the Commission with authority to issue regulations, but no regulations have been issued as of the date of this article, so little guidance is available beyond the text of the Ordinance. The Ordinance is similar to, and possibly modeled upon, similar ordinances in New York City and Montgomery County, Maryland; perhaps some guidance may be obtained from disputes arising under those local ordinances. In summary, prospective purchasers of commercial real estate that may fall within coverage of the Ordinance should consult a Gordon Feinblatt lawyer for guidance on the Ordinance’s impact upon their transaction.

For questions concerning the Ordinance, please contact Bill Shaughnessy (410) 576-4092.