After a nearly two year legal battle, on Oct. 20, 2016, Brent R. Baughman and his team from the firm’s Labor and Employment practice group obtained a 6-1 ruling from the Kentucky Supreme Court, holding Louisville Metro’s minimum wage ordinance “invalid and unenforceable.” The Court determined that despite Louisville Metro’s claim to expansive “Home Rule” powers, it did not have the authority to adopt an ordinance which conflicted with the state’s comprehensive wage and hour legislation.
The Court explained that the case involved the “historic clash between the competing authority” of the state legislature and local governments attempting to exercise “Home Rule” power. The Court clearly delineated these boundaries, finding that where the state has adopted a comprehensive regulatory scheme, local authority must yield. Because the ruling sharply limits local governments’ power to regulate in those areas, employers are now much less likely to face piecemeal local mandates.
The ruling bucks the apparent nationwide trend toward greater local regulation of minimum wages and other matters (including sick leave, employee work scheduling, and even the at-will employment relationship). It also sets the stage for additional decisions – including a St. Louis challenge currently pending before the Missouri Supreme Court – confronting the balance of power between state and local governments.
Kentucky’s wage and hour law sets the statewide minimum wage at $7.25/hour, the same as the current federal minimum wage. Although states are free to enact laws requiring a higher minimum wage, Kentucky has been among the states electing not to do so. In late 2014, citing the absence of legislative action from Congress and the General Assembly to raise the minimum wage, the Louisville Metro Council adopted an ordinance increasing the minimum wage Louisville Metro employers were required to pay to $7.75/hour, effective July 1, 2015, which increased to $8.25/hour on July 1, 2016. The Ordinance would have further increased the local minimum wage to $9.00/hour on July 1, 2017, with automatic future increases tied to the consumer price index.
Concerned about this attempt to expand local power, and its ramifications for future piecemeal local workplace regulation, two statewide business groups and a small local employer challenged the ordinance in February 2015. Their argument was simple: Louisville Metro exceeded its legal authority by enacting a minimum wage higher than that set by the state, effectively making it unlawful to pay a wage in Jefferson County that was lawful throughout the state’s other counties. Plaintiffs also sought an injunction, to prevent the ordinance from going into effect.
After the local trial court ruled for the city, and a last minute challenge at the Court of Appeals was unsuccessful, the ordinance went into effect. The challenge then proceeded directly to the Kentucky Supreme Court. In September 2015, recognizing the importance of this case to Kentucky’s largest city, the Court granted transfer.
In its ruling, the Supreme Court agreed with the businesses that Louisville Metro did not have the authority to raise the minimum wage beyond the state’s $7.25/hour rate. While cities and local governments may adopt ordinances which further the public purpose, those ordinances cannot conflict with a state constitutional provision or statute. The Court reasoned that by requiring businesses to pay workers a higher wage than the state minimum wage, the city impermissibly made it unlawful to pay the state minimum wage. Moreover, the Court held that the state’s comprehensive scheme of wage and hour legislation left no room for local governments to adopt conflicting local measures.
The city has elected not to further contest this ruling, which is now in effect. Louisville Metro businesses wishing to pay the state/federal minimum wage of $7.25/hour may now do so. The ruling also has state-wide impact, which Lexington recently recognized in voluntarily setting aside the minimum wage ordinance it had adopted earlier this year (which would have raised the local minimum wage to $10.10/hour by 2018).
The Supreme Court’s definitive ruling concerning local Home Rule powers now shifts the debate to the General Assembly or to Congress. Absent state or federal action raising the minimum wage, Kentucky local governments cannot act independently without explicit legislative authorization.