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NLRA does not preempt LA’s $15.37 wage for workers at large hotels

By Joy P. Waltemath, J.D.

Hotel associations challenging a Los Angeles ordinance establishing a $15.37 minimum wage for hotels with more than 150 rooms in the city were unable to convince a federal district court in California that enforcement of the ordinance should be enjoined, finding it not preempted by the National Labor Relations Act as regulating conduct that Congress intended to be “controlled by the free play of economic forces.” The wage ordinance is a minimum labor standard that neither encourages nor discourages collective bargaining, operating as a part of “minimum labor standard landscape,” said the court. Nor did the ordinance’s waiver provision (including the ban on unilateral implementation) warrant preemption where it simply stated that union employees are entitled to the full protections of minimum standards absent a valid collective bargaining agreement for something different, including during any gap periods between such agreements. Finding the associations had not shown any likelihood of success on the merits, the court would not order a preliminary injunction (American Hotel & Lodging Assn. v. City of Los Angeles, May 13, 2015, Birotte, A., Jr.).

Ordinance’s implementation. Two hotel associations sought to stay the effective date and enjoin enforcement of the Los Angeles minimum wage ordinance, passed in October 2014, that provides minimum wage and compensated time-off protections for workers at city hotels with more than 150 rooms. Of note to the court was the fact that this ordinance was not the first of its kind; it cited the city’s living wage, airport living wage, airport hotel service charge, and airport hospitality zone enhancement/living wage ordinances that previously had been implemented.

While the city was considering the ordinance, it also considered four studies to address the ordinance’s likely economic impacts. Only one of those studies found it a prudent economic approach, but the city implemented it anyway. Also relevant was the status of UNITE-HERE Local 11, the only union representative for hotel workers in LA, which organizes hotel workers only when the employer consents to card-check recognition and “neutrality” agreements and which lobbied for the wage ordinance.

Preemption argument. The hotel associations asserted that the ordinance was preempted by the NLRA, specifically because it interferes with collective bargaining, union organizing, and labor relations at all Los Angeles hotels subject to the ordinance by giving the union an economic weapon for which it would otherwise have to bargain. Machinists preemption applied, said the associations, because the ordinance improperly regulates a zone of activity that Congress intended to leave unregulated and subject to the free play of economic forces. Although the associations wanted the court to consider only the aggregate effect of the ordinance’s components, which together impacted the “free play of economic forces,” the court instead addressed them separately.

Is $15.37 minimum “onerous?” When does a substantive minimum labor standard (the $15.37 minimum wage here) “become so onerous and restrictive that it dictates what otherwise would be the result of the free-play of economic forces?” asked the court. In a nutshell, it answered that a minimum wage standard is not preempted so long as (1) paying the minimum wage and (2) entering into a collective bargaining agreement are both economically feasible, such that the parties have a meaningful choice as between the two alternatives. Here, the associations failed to meet their burden that the $15.37 per hour minimum wage was economically unfeasible to the extent it deprived hotel employers from having a meaningful choice between paying the minimum wage and entering into a collective bargaining agreement, which would force the hand of non-union hotels to unionize.

In its opinion, the court engaged in a fact-intensive discussion several U.S. Supreme Court decisions, including Metropolitan Life Ins. Co. v. Massachusetts, which challenged Massachusetts law that required specific minimum mental-health care benefits to be provided under general insurance policies and employee healthcare plans, and Fort Halifax Packing Co. v. Coyne, which involved a Maine statute that required employers to provide a one-time severance payment to processing plant employees when a subject plant closed in the state. Neither were preempted under Machinists. If a statute that permits no collective bargaining on a subject escapes NLRA preemption, surely one that permits such bargaining cannot be preempted, reiterated the court here.

A minimum labor standard. The associations also contended that the Ninth Circuit’s opinion in Chamber of Commerce of U.S. v. Bragdon should apply, suggesting that the wage ordinance here was not merely a minimum labor standard. Bragdon involved a prevailing wage standard that was neither a fixed statutory or regulatory minimum nor “the result of the bargaining of those employers and employees actually involved.” Bragdon said this left employers with a false choice: In either scenario, employers could only ever pay a union bargained-for wage, and they were deprived of the freedom to choose something different. But in the court’s view, the ordinance here differed because it set a fixed wage not tied in any way to collective bargaining agreements between third parties, and employers could “choose either to pay the minimum wage or enter into a collective bargaining agreement.”

Extreme? Moreover, the court found “wholly insufficient” the answer the associations gave to its question: “What about the $15.37 per hour dollar amount makes the minimum wage provision an extreme case that compels Machinists preemption?” They could not draw a line to identify what made it extreme nor identify a single case where any court held that a minimum labor standard was so onerous that it rendered the statute preempted. Hotel employers here can choose to pay the minimum wage enter into a collective bargaining agreement but either way, the parties can “negotiate freely.”

Yes, the ordinance changed the backdrop for the negotiations, but that is the case with any minimum wage increase, and the ordinance provided an the economic hardship exemption if implementation of its terms would result in a 20% reduction of workforce or a 30% curtail in workers’ hours, bankruptcy, or shut down. “The hardship exemption, in essence, “operates to give non-union Hotel Employers the necessary “out” before their compliance with $15.37 per hour minimum wage becomes so economically unfeasible as to compel preemption.”

Economically feasible. Testimony from hotel owners themselves established that nonunion hotels would likely “opt to absorb the economic cost of compliance rather than yield to Local 11 demands for card-check recognition and neutrality agreements,” continued the court, thus in effect conceding that “compliance with the Wage Ordinance’s $15.37 per hour minimum wage, though undesirable, is economically feasible.”

Bad economic policy. The associations argued strenuously that the minimum wage ordinance was bad economic policy, and the court agreed there were grounds for its concern. But these concerns are not unique to hotels, said the court, citing to recent marches and protests by fast food workers, home health care workers, other retail workers seeking a $15 minimum wage and stressing that it is not the role of the courts to interject into matters of legislative economic policy under the guise of NLRA preemption.

Tipped vs. non-tipped. After finding the substantive dollar amount of the minimum wage provision, on its face, did not support a finding of Machinists preemption, the court dismissed the association’s arguments that the ordinance fails to distinguish between tipped and non-tipped employees and does not permit employers to include gratuities or service charges in the minimum wage calculation. Instead, the court said that the California Labor Code prohibits the state and municipalities from establishing minimum wages that distinguish between tipped and non-tipped workers, and according, the association’s argument was really “a nuanced version” of the same argument that the $15.37 minimum wage was too onerous.

Waiver. The ordinance includes an exemption for workers covered by a collective bargaining agreement, so long as it is explicitly set forth in that agreement in clear and unambiguous terms. It says that unilateral implementation of terms and conditions of employment by either party to a collective bargaining relationship is not “permitted as a waiver.” This, said the associations, gives unions the “exclusive” power to grant waivers and disrupts the balance of power between labor and management because it gives unions an “economic weapon” that the union would not otherwise have.

But exemptions for collective bargaining agreements with respect to any minimum labor standard are “par for the course, as they are nearly guaranteed to be present in any labor-related statute,” noted the court, and are no reason for preemption. The Supreme Court has already held that collective bargaining agreement waivers need to be “clear and unmistakable,” so of course the wage ordinance would do so too. That nonunion hotel workers cannot waive the provisions of the ordinance makes sense: Both California statute and case law recognize that the rights to minimum wage and overtime payments are not waivable. The court also shut down the associations’ arguments regarding the ban on unilateral implementation as essentially part of the waiver argument.

Economic weapon. Similarly, the court was unpersuaded by arguments that the waiver provision gives unions an “economic weapon” that they would not otherwise have. California has enacted a vast array of regulations governing labor standards, said the court, some of which ostensibly favor employers, such as employment at-will. The argument as to the waiver provision was like a union arguing that the state at-will employment policy is subject to Machinists preemption because it provides employers with an economic weapon for which it might otherwise have to bargain. “No party to this litigation would suggest that to be the case,” remarked the court.

Neutrality agreements not required. Finally, the associations claimed that because non-union hotels must enter into CBAs to receive a waiver, and Local 11 is the only union for LA hotel workers and organizes exclusively through card-check/neutrality agreements, that meant employers were required to acquiesce to Local 11’s neutrality demand to be eligible for a waiver. But, said the court, nothing in the ordinance actually requires any hotel employer to unionize, enter into a cardcheck/ neutrality agreement, or forego any rights to which it is otherwise entitled under federal labor law simply because it may have “rejiggered” the economic calculus.