From city to county to state, in the past three years, Californians have witnessed extensive propagation of minimum wage legislation at the local level. After staying silent for several years, the upper echelons of California’s state government eventually responded. For those who were paying attention to their legislative surroundings, the state’s reaction to the growth of local ordinances was likely unsurprising. However, to those unfamiliar with the growing trend, California’s idiosyncratic imposition of a statewide minimum wage was likely unexpected. Especially given that the increase was not won by popular demand on a ballot. Instead, the new bill was signed into law only months before an impending vote to raise the minimum wage, which the Service Employees International Union expended great money and effort lobbying to secure.
California is unquestionably more employee friendly than most states, which often means it is on the forefront with respect to its comparatively “progressive” legislation. However, if you live in a less employee-friendly state or even a state that has never addressed its minimum wage, that time may be coming.
During his 2013 State of the Union address, President Obama made a nationwide call to action touting the need for an increase in the minimum wage at the federal, state, and local levels. Since that mobilization, 18 states and Washington, D.C. have passed laws to raise their minimum wage. While state legislation often garners more attention than a city ordinance, in fact many local governments had already initiated steps to address the minimum wage at the local level. Since being armored with the Commander in Chief’s stamp of approval, almost 40 cities and localities have enacted legislation to increase the minimum wage; still more localities are considering pending initiatives. No matter how immediate or distant future legislative action might be, it is always important to stay informed about the legal landscape, especially in your geographic region, and to communicate regularly with your attorney to ensure your legal compliance as that landscape continues to evolve.
The idea of a “minimum wage” might sound simple on its face; however, increases in the minimum wage don’t just affect a company’s bottom line. Pay practices themselves are directly affected. Examples of pay practices impacted by increases to the minimum wage rate include: the lowest permissible average hourly rate, the applicable overtime rate, exempt vs. non-exempt status, notice requirements to employees who receive a pay rate change; and compensation calculations for piece-rate, salaried, and commission-based employees.
Because employers must comply with federal, state, and local minimum wage laws, potential conflict between thrice-layered legal requirements can create compliance issues for large employers – especially those who operate in multiple cities. Further, where there is a conflict between layers, employers must follow the law that is most beneficial to the employee.
While legislation is often synonymous with onerous obligations, taking the time to understand legislation can actually serve to relieve some of the potential burden. As is exemplified by Santa Monica’s recent wage ordinance, the rules governing that ever-important number can also contain beneficial exceptions, additional requirements, and useful guidance. Examining this recent Santa Monica ordinance in the context of the state’s minimum wage legislation offers a real world of example of the type of intricacies that can be embedded within.
The California Drift
California’s stark increase in minimum wage legislation appears to foreshadow a national trend (see New York’s analogous minimum wage increase shortly following California’s). Because other states are primed to enact in the current (and uncertain)political climate, looking at how minimum wage legislation unfolded in California, and the import of that legislation on employers, can help others to prepare for eventual increases in their states and localities.
Of the 30 local minimum wage ordinances, 18 are in California. Of the six currently pending, four are in California. The growth pattern in California’s minimum wage legislation suggests an organic progression born of local motivation. It was not until three years after the proliferation of local ordinances throughout the state that California affirmed the increases through state action phasing in the nation’s highest state mandated minimum to date.
On March 31, 2016, the California Legislature passed Senate Bill 3 (or SB 3), which was signed into law by Governor Jerry Brown on April 4, 2016. Effective January 1, 2017, SB 3 will gradually increase California’s minimum wage rate to $15.00 per hour by the year 2022. California as the first state in the nation to commit to raising the minimum wage statewide.
The takeaway? If a large number of local ordinances are passed, the state may take that as a signal of a statewide desire. Request that your attorney monitor the pattern of local ordinances in your state so that they can provide you with a helpful heads up.
Los Angeles and Santa Monica – Are You Ready For July 1st?
Los Angeles County Parrots its City
Los Angeles City and County minimum wage increases go into effect in two weeks – July 1, 2016. On July 21, 2015, the Los Angeles County Board of Supervisors voted to increase the minimum wage in the unincorporated portions of LA County. The County measure approved a gradual increase in the minimum wage effective in July of each year until it reaches $15.00 in 2020. Following 2020, the minimum wage will adjust according to the cost of living. The enactment followed very soon as a complementary move to the City of Los Angeles’ recently passed ordinance.
The county ordinance is identical to the city’s ordinance in wage amount, and it is also symbiotic with respect to its oversight. The County ordinance applies only to businesses outside the boundaries of the City of Los Angeles or any other incorporated city. For a directory of incorporated cities, visit the Los Angeles County website.
The takeaway? County and city legislation may be drafted in concert; one ordinance may be specifically designed to capture you when the other does not.
Santa Monica Complicates Matters
For California employers with locations in both Los Angeles and Santa Monica, do not assume that, because the minimum wage amounts for the two cities are the same, so too are the compliance requirements. Santa Monica’s minimum wage legislation is an excellent example of how substantively unique local legislation can be. On January 12, 2016, Santa Monica passed a comparatively complicated piece wage ordinance containing a burdensome number of requirements and exceptions, as well as nuanced variances by industry and employee. The ordinance will begin raising the minimum wage for local employers effective July 1, 2016, though small employers, qualifying non-profit organizations, and those able to demonstrate a requisite level of financial hardship are given an additional year to comply.
In addition to the large employer/small employer designation that appears frequently in employment legislation, Santa Monica introduced another wrinkle by imposing a higher minimum wage rate for hotel employees. Ultimately, this phased increase will result in a $15.00 minimum wage by 2021 for large and small employers, and a higher, never-ending increase for hotel industry employers, with annual increases based on the Consumer Price Index (CPI). This increased hotel wage rate also applies to businesses that contract, lease, or sublet on hotel property or provide services on hotel property.
The takeaway? Minimum wage increases based on industry are something else to watch for. If cities with profitable tourist economies want to attract the best hotel employees, they will have to pay competitive wages. Santa Monica’s increased rates for the hospitality industry are mirrored off of Los Angeles’ prior existing mandate.
In addition to this differentiation by industry, Santa Monica’s ordinance contains three other notable provisions:
- “Learner” Provision for New Employees, which provides that employees working for the first time in an activity in which they have no previous similar or related experience can earn 85% of the minimum wage for the first 160 hours of employment.
- Anti-Retaliation Provision, which prohibits retaliation against an employee for rights protected under the minimum wage law. This provision further prohibits a reduction in hours or benefits to directly fund the wage increase. Employees have the right to file civil claims and employers violating the law can be subject to administrative or criminal penalties.
- Paid Sick Leave, enacting a higher paid sick leave requirement for employees than the California statute, which will increase again in 2017, inclusion of this requirement in a minimum wage ordinance is novel.
The takeaway? Minimum wage ordinances must be read completely and carefully – they may contain important information in addition to that important number.
If you foresee a minimum wage increase in the near future, here are a few things to consider:
- Monitor local legislation, which is likely a strong predictor of impending state action.
- Classify employees properly; simply noting that someone is an independent contractor does not make it so. Don’t misclassify employees as exempt to avoid overtime obligations; class action lawsuits are very expensive.
- Comply with the most restrictive applicable law. Employers must comply with the law that gives the most benefit to employees.
- Pay attention to the effective dates of state and local ordinances. While state and federal ordinances typically go into effect on January 1st of each year, local ordinances often follow their own schedule, with many of the California ordinances going into effect in July of each year.
- Communicate with employees whose wage rate will change. Employers must post a current official Minimum Wage Order in a conspicuous location frequented by employees. A new notice required for 2017 when the state increase becomes effective. If an employee’s rate of pay, including the overtime rate, will increase due to the minimum wage increase, the employee must receive notice from their employer by January 7, 2017.
- Coordinate operations to compliance if you operate in multiple cities with overlapping legislation. Each location must comply with its own local rules. Taking the time to ensure that each location is in compliance is important. For some employers, this will mean divvying responsibilities; for others, it means ensuring those responsible for compliance work with your attorneys to stay informed about each applicable locale.
Seek guidance from your Labor and Employment counsel to ensure up to date compliance across jurisdictions.