Minimum Wage Laws

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The minimum hourly rate of compensation for labor, as established by federal statute and required of employers engaged in businesses that affect interstate commerce. Most states also have similar statutes governing minimum wages.

RUI One Corporation v. Berkeley

In January 2005, the U.S. Supreme Court denied certiorari in a case upholding a California city's "living wage" ordinance . In RUI One Corporation v. City of Berkeley, 371 F.3d 1137 (9th Cir, 2004), the U.S. Court of Appeals for the Ninth Circuit found no constitutional violations in Berkeley's ordinance under equal protection , due process, or contract clause challenges.

In June 2000, Berkeley (following a recent trend in local governments) passed its own version of a living wage ordinance ("LWO"), intended to combat poverty by mandating local employers to pay more than the federal minimum wage to their employees. By requiring a higher minimum wage that approximates the real cost of living, such ordinances ostensibly allow full-time minimum-wage workers in a high-cost area to survive with basic living needs satisfied, although labor costs are increased for the employer.

Berkeley's version applied only to employers that received financial benefits from the city (e.g., city contract awardees, lessees of city property, recipients of city financial aid or incentives). Among other things, it required a minimum wage of $9.75 per hour (or $11.37 per hour if the employer did not provide health benefits) and 22 days off per year, of which 12 must be paid. Employers with five or fewer employees or with gross annual revenues of less than $350,000 were exempted.

RUI One, which was the assignee of a long-term lease (expiring in 2017) at Berkeley's popular public marina, challenged the ordinance. It operated the Skates on the Bay restaurant, which, as is typical in the hospitality industry, employed many minimum-wage workers who enhanced their earnings with tips. RUI One was not originally affected by the new LWO, and the ordinance was applied prospectively only. However, several groups representing restaurant workers immediately complained to city council about the long-term lease and the fact that many workers would disparately receive several dollars less per hour. Three months after passage of the original ordinance, the city amended it to apply to Berkeley Marina employees (the marina being public trust land), including (and retroactively) to RUI One. RUI One now found itself incurring an additional $126,000 annually in new wage and benefit costs because of the LWO.

RUI One filed suit in the U.S. District Court for the Northern District of California. The suit challenged the LWO on three main prongs, under the federal and California constitutions. More than one year after the filing, the district court permitted the Hotel Employees & Restaurant Employees Union to intervene on behalf of the city. After the district court granted summary judgment to the city, the parties stipulated to judgment, and the appeal followed.

In its arguments relating to the Equal Protection Clause of the 14th Amendment (paralleled by California's constitution), RUI One claimed that it was unfairly targeted when the city amended and expanded application of the LWO to include RUI One in a handful of employers to be affected by the ordinance. The company further claimed that it was a due process violation to allow collective bargaining agreements (e.g., intervening parties) out from under the purview of the LWO. Finally, RUI One charged that the LWO violated the "Contract Clause," Article I, Section 10 of the U.S. Constitution, which provides that "No State shall…pass any…Law impairing the Obligation of Contracts." The argument here was that, prior to imposing these liabilities on the restaurant, Berkeley had signed a binding contract in which it had agreed not to adopt any laws that imposed additional costs on the restaurant beyond those specified in the lease.

The Ninth Circuit ultimately affirmed the ruling of the district court. Not without careful and dissected analysis, it noted that the first step of the applicable three-step threshold inquiry had, in itself, three components: "whether there is a contractual relationship, whether a change in law impairs that contractual relationship, and whether the impairment is substantial." In that regard, noted the appellate court , "The first sub-inquiry is not whether any contractual relationship whatsoever exists between the parties, but whether there was a 'contractual agreement regarding the specific…terms allegedly at issue…' (quoting from General Motors Corp. v. Romein, 503 U.S. 181, 112 S.Ct. 1105, 117 L.Ed.2d 328 (1992). It is at this initial phase of the analysis that RUI's claim…fails."

The court explained that RUI One had contracted with the City of Berkeley to lease land and to operate a restaurant on it. As in the contract at issue in the Romein case, no specific provision within the lease agreement addressed wages, employment benefits, or payment to RUI One's workers. Therefore, (as the Court had found in Romein,) there was no need to address whether there was substantial impairment, because there was no impairment of any express contractual term.

As for the equal protection challenge, first the court noted that analysis under California's constitution was substantially similar to that under the federal Equal Protection Clause. As such, the relevant inquiry involved the "rational basis" test. Noting that under United States R.R. Ret. Bd. v. Fritz, 449 U.S. 166, 101 S.Ct. 453, 66 L.Ed.2d 368 (1980), "Where there are 'plausible reasons' for [legislative] action, 'our inquiry is at end,"' likewise, the Ninth Circuit found "plausible" reasons for Berkeley's inclusion of the marina employers.

Said the appellate court, "It is more than reasonable that the City should expect Marina businesses, which receive so many benefits from the City in the form of improvements and lack of competition due to the development moratorium, and which operate on land held in public trust, to contribute to the welfare of the surrounding community and not to exacerbate its problems."

The court found no merit to the due process claim, which alleged that permitting the collective bargaining agreements to opt out was an impermissible delegation of legislative power. Instead, it characterized that option as simply a condition of the ordinance's application.

The appellate court further noted that, at the time of its decision, 11 states had enacted minimum-wage laws that set statewide wages above the federal minimum. These included (within the Ninth Circuit) Alaska, California, Hawaii, Oregon, and Washington.