Chicago’s Living Wage Ordinance

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                                                       a Littler Mendelson Time Sensitive Newsletter

  in this issue:                         Chicago’s Living Wage Ordinance: A Sign of What is
  augusT 2006                            to Come?
                                         By D. Chad Anderton and Stephanie Seay Kelly
  Chicago has passed a unique
  living wage ordinance targeted
  at “Big Box” retailers that            Overview                                            Living Wage v. Minimum
  could change the landscape of                                                              Wage
  wage law across the united             After weeks of harried lobbying,
  states, city by city.                  grassroots protests and dueling full-               Living wage ordinances have been
                                         page newspaper ads, the Chicago City                enacted in more than 70 localities (both
                                         Council, by a vote of 35 to 14, passed              state and municipalities) across the
                                         a controversial ordinance requiring                 nation. A “living wage” is defined by
                                         “Big Box” retailers (defined as stores              its proponents as the wage a full-time
                                         that occupy more than 90,000 square                 worker would need to earn to support a
                                         feet, whose parent companies gross                  family of three to four people above the
                                         over $1 billion dollars annually) to pay            federal poverty line. In most instances, a
                                         employees a minimum or “living” wage                living wage ordinance requires employers
                                         of $10 per hour by the year 2010. The               to pay wages that substantially exceed
                                         Big Box ordinance, the first such law               federal or state minimum wage levels.
                                         in the United States to set apart large             Typically, a limited set of workers are
                                                                                             covered by living wage ordinances,
                                         retailers for wage rules, also requires
                                                                                             such as those employed by businesses
                                         large retailers in the City of Chicago to
                                                                                             that contract with a city or county
                                         pay an additional $3 an hour worth of
                                                                                             government, or those who receive
                                                                                             economic development subsidies from
                                                                                             the subject local governmental body.
                                         Under the ordinance, minimum wages                  Anti-poverty organizations such as the
                                         at Chicago Big Box retailers will rise              Association of Community Organization
                                         to $9.25 an hour in 2007, $10 in                    for Reform Now (ACORN), the catalyst
                                         2010, and will be indexed for inflation             of Chicago’s living wage movement,
                                         thereafter, representing a significant              maintain that city and county
                                         increase in hourly pay from Illinois’               governments should not contract with
                                         current minimum wage of $6.50 an                    or subsidize employers who pay at or
                                         hour. Smaller retailers will remain                 below the federally-defined poverty level.
                                         subject to the state minimum wage of                While there is currently no campaign for
                                         $6.50 an hour.                                      a national living wage, local efforts are
                                                                                             popping up across the country and are
                                         The ordinance, which was ardently                   supported by national organizations like
                                         opposed by Chicago’s Mayor Richard                  ACORN and Jobs with Justice. Living
                                         Daley, has served as a lightning rod for            wage ordinances account for wage rates
                                         both passionate protests and political              ranging from a low of $6.25 per hour in
                                         gamesmanship. Indeed, Chicago’s recent              Milwaukee, Wisconsin to a high of $12
                                         saga with its living wage ordinance is              per hour in Santa Cruz, California. Many
                                         the most recent example of what is                  such ordinances also have provisions
                                         becoming a nationwide phenomenon.                   regarding health benefits, labor relations
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     and hiring practices.                                               the minimum wage over the last decade.                               Conversely, such efforts will not go
                                                                         Indeed, this represents the longest period                           unopposed. Prior to its passage, Mayor
     Federal law requires that all workers                               without an increase since the federal                                Daley threatened to veto Chicago’s Big
     covered under the Fair Labor Standards                              minimum wage was introduced in 1938.                                 Box ordinance, yet in order for such a
     Act (FLSA) be paid at least $5.15 an                                It is predicted that as many as 19 states                            veto to be effective, he will be forced to
     hour. In the event that an employee                                 could consider legislative proposals to                              use his political heft to change the votes
     is subject to both the state and federal                            increase the minimum wage this year, and                             of two council members. The Illinois
     minimum wage laws, the employee is                                  another 11 states have similar proposals                             Retail Merchants Association has already
     entitled to the higher of the two minimum                           that carried over from 2005.                                         threatened to mount a constitutional
     wages. Two states, Kansas and Ohio,                                                                                                      challenge to the Chicago ordinance
     have a minimum wage rate below the                                  Given Congress’s recent failure to pass a                            suggesting that the ordinance, by targeting
     federal rate for some workers who are not                           minimum wage increase, we can expect                                 large retailers, violates constitutional
     covered under the federal law, such as                              increased lobbying and legislative efforts                           equal protection guarantees. Similarly,
     waitresses. Six states (Alabama, Arizona,                           at the local level. The U.S. House of                                other business groups are lobbying and
     Louisiana, Mississippi, South Carolina and                          Representatives recently agreed to a                                 organizing to enact state-level legislation
     Tennessee) have no minimum wage law                                 change in the federal wage law in hopes                              prohibiting local wage laws. Such
     at all, while 22 states (Alaska, Arkansas,                          of increasing the minimum wage for                                   preemption laws have already passed
     California, Connecticut, Delaware,                                  the first time since 1997. The bill called                           in Arizona, Colorado, South Carolina,
     Florida, Hawaii, Illinois, Maine, Maryland,                         for an increase in the federal minimum                               Louisiana, Missouri, Utah, Oregon and
     Massachusetts, Michigan, Minnesota,                                 wage rate from $5.15 per hour to $7.25                               Texas. Other preemption campaigns are
     New Jersey, New York, North Carolina,                               per hour over 3 years, in the following                              being mounted in Michigan, Kansas,
     Oregon, Pennsylvania, Rhode Island,                                 increments: $5.85 per hour effective on                              Tennessee and New Mexico.
     Vermont, Washington, and Wisconsin)                                 January 1, 2007, $6.55 per hour effective
     have approved a higher minimum wage                                 on June 1, 2008 and $7.25 per hour                                   Recommendations                                        for
     than the federal law.1 Most of these states’                        effective on June 1, 2009. The provision,                            Employers
     wage rates fall somewhere between $6 to                             attached to the Estate Tax and Extension
     $7 per hour, with the highest being $7.63                           of Tax Relief Act of 2006, also provides                             As indicated by the significant recent
     per hour in Washington. In contrast,                                that tips may be counted toward meeting                              activity in this area, minimum and living
     living wage rates typically range between                           any future minimum wage increases by                                 wage laws are on the rise. As a result,
     $9 and $10 an hour.                                                 employers in those states where state law                            employers must become familiar with
                                                                         prohibits tips from being calculated as                              local and state wage laws and proposed
     States are not the only governments raising                         part of the minimum wage. (The states                                legislation before entering new markets.
     wage rates. Chicago’s Big Box ordinance is                          currently prohibiting this practice are                              Those employers already established in
     just the latest example of an increasing                            Alaska, California, Minnesota, Montana,                              existing markets should keep abreast of
     trend in local municipalities’ efforts to                           Nevada, Oregon and Washington). On                                   any newly effective legislation, as well
     require employers to raise wages. Cities                            August 3, the Senate voted to halt debate                            as any proposed legislation that could
     like Washington D.C., New Orleans, Santa                            on the bill thereby ending the hopes of a                            aversely impact its business.
     Fe, San Francisco and Albuquerque have                              federal minimum wage hike in the near
     recently seen virtually across the board                            term. The estate tax provision and the
     increases of the local minimum wage via                             effects on tipped employees led many                                 D. Chad Anderton is a Shareholder and Stephanie
     living wage ordinances. Chicago’s new                               Senate Democrats to vote against the bill,                           Seay Kelly is an Associate in Littler Mendelson’s
     Big Box ordinance is distinct from typical                          thereby resulting in the bill’s demise.                              Chicago office. If you would like further
     living wage ordinances, however, because                                                                                                 information, please contact your Littler attorney
     it specifically singles out large retailers.                        To be certain, due to the successful passage                         at 1.888.Littler,, Mr. Anderton
                                                                         of Chicago’s Big Box ordinance, similar                              at, or Ms. Kelly at skelly@
     Future of the Minimum and                                           efforts to raise the “living wage” in other                
     Living Wage                                                         localities, especially in relation to “Big
                                                                         Box” retailers should be expected. Anti-
     Experts suggest that the increasing                                 poverty organizations like ACORN will
     number of minimum and living wage                                   continue to rally and organize workers in
     laws across the nation is largely due to                            efforts to raise the living wage in localities
     the federal government’s failure to raise                           around the country.

     1 The remaining twenty states have adopted the federal minimum wage rate.


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