ALBANY, N.Y. (CN) - Legislation rushed into law in response to a newspaper expose on New York's nail-salon industry will put many immigrant-owners out of business, a lawsuit filed by two trade groups claims.
The plaintiffs are the Korean American Nail Salon Association of New York and the Chinese Nail Salon Association of East America. In a complaint filed in Albany County Supreme Court on Sept. 17, they call the new law a "politically motivated assault against predominantly Asian-American-owned small businesses," and ask that its enforcement be blocked.
They say the law's requirement that salon owners secure surety bonds by Oct. 6, to guarantee that workers will be paid, cannot be met because the new product is not readily available at a reasonable price.
"What started as an irresponsible piece of reporting by The New York Times has led to a discriminatory abuse of executive authority against Asian Americans, small-business owners, nail-salon customers and even the workers respondents claim to be 'protecting,'" the groups contend.
The Times published a two-part series in May that painted the industry as rife with worker abuse through low wages and poor working conditions. The series culminated a year-long investigation into the industry, according to the newspaper.
In addition to generating much discussion, the stories also spurred the state government to action, with Gov. Andrew Cuomo announcing days later he would put together a multi-agency task force to investigate all salons for abuse of workers.
More immediately, the Department of State put in place emergency regulations that required nail salons to secure so-called wage payment surety bonds - insurance to cover claims for unpaid wages - in denominations based on the number of workers employed.
A salon with two to five full-time employees needed a bond of at least $25,000; one with 26 or more full-time workers needed a bond of at least $125,000, according to the department's website.
The emergency rules later formed the basis of legislation that the governor signed into law in July.
The new law authorizes "enormous punishments on nail-salon owners who are unable to obtain a bond," including fines and closure, the associations contend.
The groups, both based in Queens and representing thousands of Korean- and Chinese-owned nail salons in the state, say lawmakers knew that surety bond companies needed more time to develop "this newly invented product."
That's because the legislation mandated that enforcement of the wage bond provisions could not take place until the state Department of Financial Services, which oversees insurers, certified that such bonds or similar liability insurance was "readily available" to nail-salon owners, according to the complaint.
To be readily available, "it is not sufficient that the product merely exist in theory; instead, it must be affordable, available in a fair and non-discriminatory manner, and priced comparably to other types of business liability insurances," the groups claimed. (Italics in original.)
But they said the department's acting superintendent, Anthony Albanese, "aggressively pushed forward the wage bond requirements," and in August certified the bonds' availability - even though the Korean American association had informed the agency of confusion by nail-salon owners and few Korean-speaking insurance agencies offering wage bonds.
The groups contend that thousands of owners have tried to purchase the wage bonds "but have been unable to do so - either because the owners were quoted extremely high rates due to their lack of credit history or low credit score, or because the wage bonds were simply unavailable."
According to the associations, the nail-salon industry, with more than 3,700 shops in the state and 40,000 jobs, is dominated by mom-and-pop operators who employ recent immigrants who then go on to found their own salons. The cost of entry is low: classes to qualify for a license cost about $1,000 and take about three months of instruction at an accredited school. Students then must pass written and practical exams.
The shops are popular with consumers because they put affordable manicures, pedicures and acrylics at malls and neighborhood storefronts that used to be available only at high-end spas.
The associations say that as of Sept. 1, only 110 nail salons, or about 1 percent of the industry, had been issued bonds.
The Department of Financial Services "has set up thousands of good operators for failure," the groups contend. "More time is needed for a market to develop and for small-business owners - who are mostly first-generation immigrants - to comply with the wage-bond requirement."
The associations want the court to invalidate the Albanese certification of bond availability and to permanently bar the state from implementing the wage bond requirements. They also seek injunctive relief during pendency of the complaint so that license applications are not denied on owners' inability to obtain bonds.
Named as defendants in the complaint are the governor; Albanese and the Department of Financial Services; and Secretary of State Cesar Perales and the Department of State.
A spokesman for the Department of Financial Services did not immediately respond to a request for comment.
Michael Park of Consovoy McCarthy Park in Manhattan represents the associations.
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