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Living Wage Ordinances

Kourtney Burdick is the League’s deputy general counsel. She can be reached at kburdick@cacities.org.

About Legal Notes

This column is provided as general information and not as legal advice. The law is constantly evolving, and attorneys can and do disagree about what the law requires. Local agencies interested in determining how the law applies in a particular situation should consult their local agency attorneys.


In response to the rising cost of living in California, 21 cities have enacted living wage ordinances (LWOs). Included in this group are large cities such as Los Angeles, San Francisco, Sacramento and Oakland; small cities such as Sonoma and Fair-fax; and medium-sized cities like Berkeley.1 These ordinances vary in some respects, but in general, their purpose is the same: They set a wage requirement that is higher -- often much higher -- than federal and state minimum wages.2

The popularity of these ordinances is on the rise, and many local governments throughout the nation are currently considering whether to adopt one.3 This article provides some background information on LWOs to assist cities that may be considering them.

How Do LWOs Work?

Living wage ordinances require specified employers to pay their employees the locally designated living wage. The living wage rate is intended to allow a covered full-time wage earner to support a family at a subsistence level. Federal and state minimum wages, according to living wage advocates, do not provide a sufficient income to meet this standard, particularly in a high-cost state like California.

Whether the employer is covered by an LWO depends on how broadly the city wants the ordinance to apply. Some existing ordinances apply only to businesses that contract with the city. Some also apply to companies that receive financial assistance from the city including subsidies, grants or tax abatements. Others go further. The City of Berkeley, for example, applies its LWO to businesses that lease city-owned property, a requirement that has been upheld by the Ninth Circuit Court of Appeals.4

As for those cities that limit their LWOs to municipal contractors, the employees who are covered vary by city. Some ordinances mandate living wages only for those employees who actually work on a municipal contract. Others, however, mandate living wages for all of the municipal contractor’s employees, regardless of whether they actually work on a municipal contract.

Why Do Cities Enact LWOs?

When enacting LWOs, city councils often cite two policies that the ordinances advance. First, living wages are thought to improve the quality of services rendered to the municipality. The concern is that underpaying workers fosters higher turnover, absenteeism, risk of strikes and lackluster performance. All of these factors are seen as contributing to an unstable workplace, which in turn affects the quality and timeliness of rendered services. LWOs, the argument goes, ameliorate these negative effects.

Second, LWOs are thought to promote an economic environment that protects scarce public resources. Proponents of this rationale contend that the creation of living wage jobs increases consumer income, decreases poverty and reduces the need for taxpayer-funded social programs.

Not everyone agrees about the effectiveness of LWOs in achieving the goals of these two policies. Opponents of living wage laws argue they have negative consequences; for ex-ample, causing increases in city contract costs. Opponents also assert that the higher wages may encourage employers to reduce their workforces.

What Authority Do Cities Have to Enact LWOs?

Cities can draw on two sources of power when enacting an LWO: the police power and the contract power.

First, the police power. Under the California Constitution, a city "may make and enforce within its limits all local, police, sanitary and other ordinances and regulations not in conflict with general laws."5 The constitutional provision authorizes a city to promote, among other things, the economic welfare, public convenience and general prosperity of the community.6 The courts have held this power allows municipalities and states to regulate wages and employment conditions.7 This is the exact function of an LWO.

Second, the contract power. This power allows cities to enter into contracts that enable them to carry out their necessary functions. So long as a contract falls within these limits, a court will not second-guess its wisdom or efficacy.8 When a city conditions a contractual relationship on the other party agreeing to abide by an LWO, the city is simply exercising its contractual right to "specify the type of employer with which it wishes to do business," a concept that has been upheld by several courts.9

Is There Any Statutory or Case Law on LWOs?

As for statutory law, in 2002, the Legislature enacted Government Code section 1205, which provides, "When a local jurisdiction expends funds that have been provided to it by a state agency ... local standards established by the local jurisdiction through the exercise of local police powers or spending powers shall take effect with regard to that expenditure, program, or activity, so long as those labor standards are not in explicit conflict with, or explicitly pre-empted by, state law." As stated in the legislative history, this statute allows local governments to impose LWOs with terms that are more stringent than state laws, even where a particular program is funded in part with state funds.10

Despite the number and wide variety of living wage ordinances, there has been little case law published by our state courts on this topic. There are, however, several cases that generally support cities’ right to enact these ordinances.11 And one federal case, mentioned here, upholds a city’s right to impose LWOs on lessees of city property.12

Amaral v. Cintas Corporation No. 2 (Amaral), a case currently before the Court of Appeal, First District, raises the question of whether a city violates the state’s constitutional territorial limitation on the exercise of the police power -- that is to say, the requirement that a city regulate "within its limits" -- when the city requires its nonresident contractors to comply with the city’s LWO.13 In light of this pending litigation, it is important to consult with your city attorney if your city is considering adopting an LWO.

Last But Not Least

In considering an LWO, there are a number of questions that must be answered. First and foremost, what is the scope of the proposed ordinance? Which employers are covered? Those who receive city contracts? Those who receive financial assistance from the city? In this same vein, which employees are covered? Only those who work on city contracts or all company employees?

Second, does the ordinance contain findings and declarations? Any proposed ordinance should include findings and declarations that support the city’s exercise of both its police and contract powers. The City of Los Angeles’ ordinance, for example, states, "Such minimal compensation [that which is required by federal and state minimum wage laws] tends to inhibit the quantity and quality of services rendered by such employees to the city and to the public. Underpaying employees in this way fosters high turnover, absenteeism and lackluster performance. Conversely, adequate compensation promotes amelioration of these undesirable conditions."14

This statement supports Los Angeles’ exercise of its contract power in enacting its LWO. Although such statements are not legally required, they may help to prevent future arguments (such as the one in Amaral) that a city is improperly exerting its police powers beyond its borders when it requires a nonresident contractor to comply with its LWO.

These are a few points to consider when drafting an LWO. For more information and useful practice pointers, visit the Association of Community Organizations for Reform Now (ACORN) website at www.livingwagecampaign.org.

Footnotes:

1) Association of Community Organizations for Reform Now (ACORN), Living Wage Successes, http://www.livingwagecampaign.org/index.php?id=1958 (as of Aug. 10, 2007).

2) For a few sample ordinances, please see Los Angeles Admin. Code, Art. 11, § 10.37 et seq.; San Jose Resolution No. 68900; San Francisco Mun. Code, ch. 12P; Sacramento Mun. Code, ch. 3.58; and Oakland Mun. Code, ch. 2.28.

3) ACORN, Living Wage Campaigns Underway, http://www.livingwagecampaign.org/index.php?id=1960 (as of Aug. 10, 2007).

4) RUI One Corp. v. City of Berkeley (2004) 371 F.3d 1137.

5) Cal. Const., art. XI, § 7.

6) Chow v. Santa Barbara (1993) 217 Cal. 673, 702.

7) See, e.g., RUI One Corp. v. City of Berkeley (2004) 371 F.3d 1137, 1150, Metro. Life Ins. Co. v. Massachusetts (1985) 471 U.S. 724, 756; see also 73 Ops. Cal. Atty. Gen 28 (1990).

8) City and County of San Francisco v. Boyd (1941) 191 Cal. 172, 184.

9) Burns Internat. Sec. Serv. Corp. v. County of Los Angeles (2004) 123 Cal. App. 4th 162, 172 (Burns). See also Alioto’s Fish Co., Ltd. v. Human Rights Com. of San Francisco (1981) 120 Cal. App. 3d 594, 605 (holding the city, in exercise of its contract power, could require lessees of city property to agree to refrain from discriminating against their employees); and S.D. Myers, Inc. v. City and County of San Francisco (9th Cir. 2001) 253 F. 3d 461, 474 (concluding a San Francisco ordinance that required city contractors to refrain from discriminating against their employees was a proper exercise of the city’s contract power).

10) Assem. Floor, Analysis of Assem. Bill No. 2509 (2001-2002 Reg. Sess.) as amended June 19, 2002.

11) Ibid.

12) RUI One Corp., supra, 371 F.3d 1137.

13) Amaral et al. v. Cintas Corp. No. 2 et al., pending Ct. of App. 1st Dist. (filed July 18, 2006) (A114510).

14) Los Angeles Admin. Code, art. 11, § 10.37.