California Court Interprets Scope of Living Wage Ordinance
By David Greco
On June 11, 2008, California’s First Appellate District issued its decision in Amaral v. Cintas Corp. No. 2 addressing the effect of a Living Wage Ordinance on a California employer who entered into a service contract with the City of Hayward.
In Amaral, Cintas employees filed a class action seeking to recover unpaid wages on a theory that Cintas violated the City of Hayward's Living Wage Ordinance when it paid its employees, who performed laundry services for the City of Hayward, less than required by the Living Wage Ordinance. Hayward's Living Wage Ordinance required that any company who entered into service contracts with the City pay its employees at a higher rate than the standard minimum wage. Cintas argued that it was not required to comply with the City of Hayward's Living Wage Ordinance because the putative class member employees worked outside of the City of Hayward. The Court rejected Cintas' argument, finding that the City of Hayward's Living Wage Ordinance applied to all work governed by the service contract, regardless of where that work was performed.
As a result of the Amaral decision, it is important that California employers who contract with cities and/or municipalities comply with any applicable Living Wage Ordinances. Under the Amaral decision, however, California employers who contract with a city or municipality that has adopted a Living Wage Ordinance are not necessarily required to compensate all of their employees in accordance with the Living Wage Ordinance but instead only those employees who actually perform work under the city or municipality contract. Thus, covered employers should ensure that the affected work is segregated from non-affected work, and assign the affected work to a subset of employees to avoid having to compensate all employees at the higher wage specified by the Living Wage Ordinance.
Significantly, the Amaral Court also addressed what constitutes an "initial" violation as opposed to a "subsequent" violation for purposes of assessing penalties under California Labor Code sections 210 and 225.5. Both sections 210 and 225.5 provide that every person who fails to pay the wages of an employee or withholds wages due to an employee "shall be subject to a civil penalty as follows: (a) For any initial violation, one hundred dollars ($100 for each failure to pay each employee ... (b) For each subsequent violation, or any willful or intentional violation, two hundred dollars ($200) for each failure to pay each employee, plus 25 percent of the amount unlawfully withheld.” In agreement with the California Division of Labor Standards and Enforcement ("DLSE"), the Court found that "[u]ntil an employer has been notified that it is violating a Labor Code provision (whether or not the Commissioner or court chooses to impose penalties), the employer cannot be presumed to be aware that its continuing underpayment of employees is a 'violation' subject to penalties. However, after the employer has learned its conduct violates the Labor Code, the employer is on notice that any future violations will be punished just the same as violations that are willful or intentional -- i.e., they will be punished at twice the rate of penalties that could have been imposed or that were imposed for the initial violation." The Court's finding that an employer must be notified of a violation before a continuing violation will be deemed a subsequent violation theoretically reduces California employers’ potential liability for Labor Code penalties by 50%.