In a 6-1 decision, the Kentucky Supreme Court ruled last week that the minimum wage ordinances recently enacted in Louisville and Lexington, raising the minimum wage above the state- and federally-mandated rate of $7.25 an hour, are invalid and unenforceable.

In Kentucky Restaurant Association, et al. v. Louisville-Jefferson County Metro Government, a host of Kentucky business groups challenged a Louisville Metro ordinance requiring all employers within Jefferson County to pay a minimum wage of $8.25 an hour (effective July 1, 2015) with scheduled incremental increases in subsequent years. The challengers argued, and the Kentucky Supreme Court agreed, that the enactment of the ordinance exceeded the Louisville Metro Government’s authority.

Local governments in Kentucky are vested with broad local powers (known as “Home Rule”), the Court explained; however, under the Kentucky Constitution, a local government’s ordinance cannot forbid what a state statute expressly permits. In this case, a Kentucky statute set the minimum wage at $7.25 an hour, while the Louisville Metro ordinance required that employers pay a minimum of $8.25 an hour. Accordingly, because the Louisville Metro ordinance made illegal what the Kentucky statute expressly permitted, the Court concluded that the Louisville Metro Ordinance was unconstitutional, invalid and unenforceable.

While the Court’s ruling was specific to the Louisville Metro ordinance, its impact extends throughout the Commonwealth. For example, in 2015, the Lexington-Fayette Urban County Council voted to increase the minimum wage to $8.20 an hour (effective July 1, 2016) with subsequent incremental increases over the next several years. Based on the Court’s ruling, Lexington’s ordinance also is effectively invalid and unenforceable.

What This Means for Employers

Moving forward, the mandatory minimum wage rate in Lexington and Louisville will drop back to $7.25 an hour. However, it will be left up to each individual employer whether to reduce their existing employees’ wages in response to this decision.

While reducing wages may help an employer’s bottom line, a reduction would likely have a significant negative impact on employee morale, as well as the ability to attract and retain new employees.

Additionally, the Court’s decision confirms that municipalities are prohibited from unilaterally passing ordinances that effectively alter uniform, statewide Kentucky employment laws. Local employment legislation on a topic will now require advance permission from Congress or the Kentucky General Assembly to be valid. This should give comfort to employers conducting business (or planning to conduct business) in different areas of Kentucky.