Should States Preempt Local Governments from Passing Higher Minimum Wage Ordinances?

Author: Stephanie Scott, Associate Member, University of Cincinnati Law Review

 While the federal government sets a minimum wage that is the nationwide “floor,” many state legislatures have passed their own laws requiring a minimum wage above the federal minimum. Recently, individual cities and localities have further tried to account for inflation and higher-cost living expenses by passing local minimum wages above the state and federal minimums. Despite the arguments in favor of local minimum wage ordinances, many states view these local actions as an abuse of authority and burdensome to businesses. To prevent these local wage laws, a number of states passed preemption laws forbidding cities from mandating a minimum wage higher than that required by state law.

While states should have the authority to pass a state-wide minimum wage, cities should not. By creating variations throughout federal, state, and city minimum wage requirements, nationwide companies face an unwieldy amount of regulation with which they must comply. Federal law establishes the minimum wage floor, and state law should act as ceiling that bars cities from raising the minimum wage any higher. Accordingly, cities should be preempted from raising the minimum wage above state law or federal law in the absence of a state minimum wage law.

FLSA Background, State Minimum Wages, and Municipal Ordinances

Congress passed the Fair Labors Standards Act (FLSA) upon finding that labor conditions detrimental to the “maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers” would harm commerce.[1]  Passed in 1938, the FLSA establishes, among other things, a federal minimum wage requirement to help alleviate detrimental labor conditions.[2] The original minimum wage in 1938 was $0.25 an hour, but has been amended numerous times since.[3] Covered nonexempt workers are currently entitled to a minimum wage of at least $7.25 per hour (effective July 24, 2009).[4] Many states, however, also set their own minimum wages.[5]

In situations where an employee is subject to both state and federal minimum wage laws the employee is entitled to the state’s higher minimum wage.[6] Currently, twenty-nine states,[7] plus the District of Columbia, have state minimum wages higher than the federal minimum wage.[8] Five states have no minimum wage requirement; two states have a minimum wage “less” than federal minimum wage[9]; fourteen states have a minimum wage equal to the federal minimum wage.[10]

The federal minimum wage has remained at $7.25 per hour since 2009, and many workers have viewed their wages as flat or falling since that time.[11] Many municipal leaders have recently begun attempting to combat this problem locally with city minimum wage ordinances.[12] These local ordinances raise the minimum wage for workers above the federal and state minimum wage.[13] In the last three years, the number of cities passing their own minimum wage laws has increased dramatically. In 2012, only two cities (Albuquerque, NM and San Jose, CA) passed minimum wage requirements.[14] This number increased to five cities passing minimum wages in 2013, twelve cities in 2014, and fourteen cities in 2015.[15] Some cities have passed a minimum wage requirement as high as $15.24 an hour[16] almost twice the rate of the federal minimum wage.[17]

Advantages and Disadvantages of Local Minimum Wages

Local minimum wages offer a number of advantages, primarily allowing higher-cost cities to set minimum wages that better cover their high living expenses.[18] They also provide smaller venues to test the benefits and detriments of substantially higher minimum wages.[19]  In August 2014 the U.S. Conference of Mayors’ “Cities of Opportunity Task Force,” endorsed higher city minimum wages as key tools for fighting income inequality at the local level.[20] Critics argue that state preemption laws are bad news for cities and demonstrate the distrust between state and local governments.[21]

Many states have taken steps to prevent this issue from becoming a problem in the first place.[22] Fifteen states[23] have enacted laws that bar local governments from adopting their own minimum wage laws.[24] States that have passed these preemption laws often argue the need for uniformity across the state.[25]

Oklahoma passed a preemption law last year prohibiting local governments from increasing the minimum wage above the state and federal level of $7.25 an hour.[26] Oklahoma politicians supporting the bill reasoned it was bad policy to have cities creating their own minimum wage laws and that fractured standards across the state was not a strong economic model.[27] Mandating minimum wage increases at local levels would “drive businesses to other communities and states, and would raise prices for consumers.”[28] Preemption supporters further argue that having a patchwork of regulations throughout a state make it onerous for businesses.[29] “There are literally dozens of cities inside Oklahoma City, or immediately adjacent to it,” said Roy Williams, president and CEO of the Greater Oklahoma City Chamber. “If each one had a different minimum wage it would create a nightmare for businesses, especially ones with multiple businesses in different locations.”[30]

The American Legislative Exchange Council (ALEC) has been promoting the “Living Wage Mandate Preemption Act” which aims to repeal any “living wage” mandates, ordinances, or laws enacted by subdivisions of the states.[31] In the model policy, the ALEC reasons that mandated wage rates comprise a major cost component for private enterprises and are imperative factors to the economic stability and growth of a state.[32] In order for businesses to remain competitive and attract desirable employees, “they must be allowed to function in a uniform environment with respect to mandated wage rates.”[33] Legislated wage disparities between cities within a state create “anticompetitive marketplaces that foster job and business relocation.”[34]

States Should Preempt Local Minimum Wage Laws

Congress determines the federal minimum wage by amending the FLSA, which establishes the minimum wage floor but not the ceiling.[35] One of the overarching purposes of the FLSA was to prevent labor conditions so detrimental that it hurt commerce.[36] By eliminating the competitive edge a company may get by paying their workers below this wage, Congress strives to ensure that no worker is paid minimally to the point that they cannot sustain tolerable living conditions.

In situations where an employee is subject to both state and federal minimum wage laws, the employee is entitled to the higher minimum wage.[37] This furthers the purpose of the FLSA by giving employees more tolerable labor conditions, which leads to better commerce. On an individualized basis, it may appear logical for cities to pass their own minimum wage requirement.[38] Indeed, with the recent nationwide push to raise the federal minimum wage to $15 an hour,[39] more than double the current federal minimum wage, cities may be the best venues for testing out the effects of a higher minimum wage.

When looking at the effect of city-based minimum wage requirements on the entire country, however, the outcome looks less desirable. State governments are familiar with their citizens, local businesses, and tax revenue on a state-wide basis, and are therefore the best situated to balance the pros and cons of passing higher wage laws. Further, while having a higher minimum wage may cause businesses to relocate, the state legislature can address this concern across the state and compare neighboring state labor laws in making the determination. Because of this, even states that do not have their own state minimum wage laws should forbid cities from passing their own minimum wage laws. Minimum wage laws should still be uniform throughout the state; even if the state legislature decided to not pass a higher minimum wage than federal law.

Currently, thirty-one states have minimum wage requirements different than federal minimum wage.[40] While this may lead to relocation of businesses and jobs on a state-to-state basis, a state legislature has many additional competing interests it needs to weigh. Among other things, an extraordinary cost of living in a state or a need for higher tax revenue may motivate a state to pass a law requiring a higher minimum wage. The state is the best legislature to address this concern. The ability of state legislatures to weigh the pros and cons of increasing the minimum wage is frustrated when cities within a state begin passing their own minimum wage laws. There are roughly 90,000 local governments in the United States.[41] If all, or even a majority, of cities began passing their own labor laws it would create an unworkable piece-meal system. States would no longer be able to assess the state-wide issues in determining minimum wage requirements because each city would already be determining its own wages. For example, while the state may have accounted for 10% of businesses leaving the state if minimum wage was increased by a dollar, these numbers would be skewed if cities further increased the minimum wage.

While different state-wide minimum wage laws may create a disconnect nationwide in minimum wage requirements, knowing both federal and state minimum wage laws does not impose an unwieldy burden on businesses. It is much more practical for a business to consider the state and federal labor laws only when determining where to start a business or how to compensate their employees. Having hundreds of minimum wage requirements across the country would unduly burden businesses in choosing not only the state, but also the city in which they wish to operate. The additional resources needed to research municipal rates would only add to the cost of opening new locations or businesses. This burden on businesses could hurt interstate commerce, thereby frustrating the purpose of the FLSA.

Conclusion

Cities passing their own minimum wage ordinances frustrate the purpose of both the federal and state minimum wage laws.  Further, it creates an unwieldy amount of labor laws for nationwide businesses to navigate.  It also unduly burdens the decision making of businesses when deciding where to locate. Therefore, only states, not cities, should be responsible for determining the appropriate local minimum wage.

[1] 29 USCS § 202 (Lexis Nexis current through PL 114-114, with gaps of PL’s 114-94, 114-95, and 114-113, approved December 28, 2015).

[2] United States Department of Labor, Wage and Hour Division, http://www.dol.gov/whd/flsa/ (last visited Feb. 11, 2015).

[3] United States Department of Labor, Wage and Hour Division, http://www.dol.gov/whd/minwage/chart.htm, (last visited Feb. 11, 2015).

[4] Id.

[5] Id.

[6] Id.

[7] Alaska, Arkansas, Arizona, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Massachusetts, Maryland, Maine, Michigan, Minnesota, Missouri, Montana, Nebraska, New Jersey, New Mexico, New York, Nevada, Ohio, Oregon, Rhode Island, South Dakota, Vermont, Washington, and West Virginia all have minimum wages above the federal minimum wage.

[8] United States Department of Labor, Consolidated State Minimum Wage, http://www.dol.gov/whd/minwage/america.htm#Consolidated, (last visited Feb. 11, 2015).

[9] Where an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher minimum wage rate. Id.

[10] Id.

[11] National Employment Law Project, City Minimum Wage Laws: Recent Trends and Economic Evidence, December 2015, http://www.nelp.org/content/uploads/City-Minimum-Wage-Laws-Recent-Trends-Economic-Evidence.pdf (last visited Feb. 11, 2015).

[12] Id.

[13] Id.

[14] Id.

[15] Id.

[16] SeaTac, Washington

[17] National Employment Law Project, City Minimum Wage Laws: Recent Trends and Economic Evidence, December 2015, http://www.nelp.org/content/uploads/City-Minimum-Wage-Laws-Recent-Trends-Economic-Evidence.pdf (last visited Feb. 11, 2015).

[18] Id.

[19] Id.

[20] National Employment Law Project, City Minimum Wage Laws: Recent Trends and Economic Evidence, December 2015, http://www.nelp.org/content/uploads/City-Minimum-Wage-Laws-Recent-Trends-Economic-Evidence.pdf (last visited Feb. 11, 2015).

[21] Id.

[22] The PEW Charitable Trusts, Cities Forge Policy Apart from States, January 15, 2015 http://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2015/1/15/cities-forge-policy-apart-from-states (last visited Feb. 11, 2015).

[23] Colorado, Florida, Georgia, Indiana, Louisiana, Mississippi, Missouri, New Mexico, Oklahoma, Oregon, Pennsylvania, Rhode Island, Tennessee, Utah, and Wisconsin

[24] The PEW Charitable Trusts, Cities Forge Policy Apart from States, January 15, 2015 http://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2015/1/15/cities-forge-policy-apart-from-states (last visited Feb. 11, 2015).

[25] Id.

[26] Id.

[27] Id.

[28] Id.

[29] The PEW Charitable Trusts, Cities Forge Policy Apart from States, January 15, 2015 http://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2015/1/15/cities-forge-policy-apart-from-states (last visited Feb. 11, 2015).

[30] International Business Times, As Cities Push to Raise Minimum Wages, Business Interests Push Back With Preemptive Legislation, April 30, 2014, http://www.ibtimes.com/cities-push-raise-minimum-wages-business-interests-push-back-preemptive-legislation-1578735 (last visited Feb. 11, 2015).

[31] American Legislative Exchange Council, Living Wage Mandate Preemption Act, https://www.alec.org/model-policy/living-wage-mandate-preemption-act/, (last visited Feb. 15, 2015).

[32] Id.

[33] Id.

[34] Id.

[35] 29 USCS § 202 (Lexis Nexis current through PL 114-114, with gaps of PL’s 114-94, 114-95, and 114-113, approved December 28, 2015).

[36] Id.

[37] Id.

[38] For example if the cost of living is significantly higher in a city, in the eye’s of an individual worker in that city, the pay requirement should reasonably mirror that.

[39] CBS News, Will the U.S. raise the minimum wage to $15, November 10, 2015, http://www.cbsnews.com/news/will-the-u-s-raise-the-minimum-wage-to-15/ (last visited Feb. 16, 2016).

[40] National Employment Law Project, City Minimum Wage Laws: Recent Trends and Economic Evidence, December 2015, http://www.nelp.org/content/uploads/City-Minimum-Wage-Laws-Recent-Trends-Economic-Evidence.pdf (last visited Feb. 11, 2015).

[41] United States Census Bureau, Census Bureau Reports There Are 89,004 Local Governments in the United States, August 30, 2012, https://www.census.gov/newsroom/releases/archives/governments/cb12-161.html (last visited Feb. 15, 2016).

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