Workin’ for a Livin’: The Rise of State and Local Legislation Affecting Employee Compensation

By LaToi D. Mayo and Sarah Laren

In recent years, states and cities have taken an increasingly active role in regulating issues that directly affect employee compensation. While initiatives increasing the minimum wage continue to be the most popular area of legislation, measures prohibiting employers from asking prospective employees about their salary history are gaining traction across the country. Although such efforts have yielded mixed results, particularly when initiated by local governments, these efforts have not seemed to diminish both state and local activism in the arena of employee compensation. This article will summarize the most recent developments in federal, state and local legislation impacting employee compensation, and also provide tips for employers navigating this shifting landscape.

Federal Minimum Wage Initiatives:

In 2014, President Obama issued Executive Order 13658, which established a minimum wage of $10.10 per hour for some categories of non-tipped federal contractors. This Order also provided the means and methodology for the Secretary of Labor to annually review and adjust the minimum wage for covered federal contractors. Consistent with the terms of that Order, current Secretary R. Alexander Acosta issued a Notice of Rate Change on September 15, 2017, raising the minimum wage for these covered contractors to $10.35 per hour in 2018.

Discussions about increasing the federal minimum wage for the private sector continue to take place on Capitol Hill. Senator Lindsey Graham recently indicated that he would support an increase to the federal minimum wage in an effort to garner Democratic support for tax reform. However, the federal minimum wage remains set at $7.25 per hour, as it has been since 2007. Perhaps it is this inertia within the federal government that has prompted states and localities to take advantage of the Fair Labor Standards Act provision enabling them to enact more stringent minimum wage provisions.

State and Local Minimum Wage Action:

While the fate of the federal minimum wage in the private sector remains uncertain, 17 states, as well as the District of Columbia, will implement minimum wage increases in 2018. Existing minimum wage rates in Albuquerque and Bernalillo County, New Mexico, and Seattle and SeaTac, Washington are also scheduled to increase in 2018.

Some southeastern states, including Mississippi and Tennessee, have not implemented their own minimum wage rates, while others, such as Kentucky, mandate that the state minimum wage be equivalent to the federal minimum wage. Only Arkansas and Florida have set minimum wages that exceed the federal rate ($8.50 per hour and $8.10 per hour, respectively).

Beyond state action, municipalities in the southeastern region have also attempted to increase the minimum wage at the local level, but implementation has been difficult. In 2015, the Louisville/Jefferson County Metro Government enacted an ordinance raising the minimum wage for all employees in the area above the state and federal minimum wage and provided for incremental adjustments in subsequent years. Employers filed suit challenging the constitutionality of the ordinance, arguing that it exceeded the authority of Louisville Metro. The Kentucky Supreme Court ultimately agreed. The Court observed that the Kentucky Constitution permits cities to pass laws that are “in furtherance of a public purpose,” so long as they do not conflict with a constitutional provision or statute. Because the ordinance imposed a higher minimum wage than the state statutory minimum, the Court concluded that the two were in conflict and, thus, the ordinance was invalid under the Kentucky Constitution. In light of this opinion, Kentucky employers can reasonably assume that similar ordinances from any municipality in the state will reach the same fate and any increase in the minimum wage to be paid to employees will have to be set at the state or federal level.

Similar battles have been waged in Saint Louis, Missouri and Birmingham, Alabama. In 2015, Saint Louis enacted a minimum wage ordinance, which employers promptly challenged in court, arguing that it conflicted with the state minimum wage statute. The Missouri Supreme Court rejected this argument and upheld the ordinance, which took effect in May 2017. The Missouri General Assembly responded by passing a law that prohibited cities from enacting their own minimum wage provisions, thereby invalidating the local ordinance. The new state law took effect in August 2017.

In Alabama, the Legislature responded to the passage of the Birmingham ordinance in a similar fashion and enacted a law that mandated statewide adherence to the federal minimum wage just before the ordinance was scheduled to take effect. A group of employees filed suit in federal court to challenge the constitutionality of the new state law, arguing that it effectively discriminated against Birmingham residents on the basis of race, but the court dismissed the case. This decision is currently on appeal to the United States Court of Appeals for the Eleventh Circuit.

While these cases indicate that local minimum wage ordinances have yet to be embraced in the southeastern states, efforts to implement such provisions in this region are ongoing. In addition to the Eleventh Circuit appeal regarding the Birmingham ordinance, litigation has arisen in Florida as a result of Miami Beach’s attempts to implement a minimum wage ordinance.

Because states and cities are becoming more active in the minimum wage discussion, to the point of opposing each other’s efforts, it is important for employers to stay abreast of changes in the minimum wage at all levels of government and apply the wage rate that is most beneficial to the employee. When employers have employees working in multiple jurisdictions, they must be aware of the applicable minimum wage rate for each location, so that they can properly compensate employees working in jurisdictions with higher minimum wage rates. However, a rudimentary understanding of the applicable rates is not enough. Employers must know when changes in the minimum wage will take effect so they do not inadvertently find themselves in violation of the law. Legal challenges to state or local laws do not excuse non-compliance in the interim, as both the Louisville and Saint Louis cases illustrate. Employers in both cities were expected to compensate their employees at the increased minimum wage rate after it took effect. In Saint Louis, when it became clear that the ordinance would not survive due to state legislative intervention, Mayor Lyda Krewson publicly instructed employers to pay the higher rate until the state law took effect.

Equal Pay-Federal, State and Local Action:

In the midst of these minimum wage battles, another compensation issue has been emerging for employers. While the Equal Pay Act and corresponding state statutes have long prohibited employers from compensating female employees at a lower rate than their male counterparts, recent studies and court cases indicate that these laws have failed to fully achieve wage equality. This realization has prompted some states and cities to attack the gender-based wage gap from a different angle, enacting laws that prohibit employers from asking prospective employees about their salary history or obtaining such information from their previous employers. Proponents argue that these laws will prevent low compensation rates from following women from one job to the next, thereby narrowing the gender-based wage gap. Oregon and Puerto Rico have already implemented such legislation, and similar laws are scheduled to soon take effect in California, Delaware, and Massachusetts. On the local level, San Francisco, Pittsburgh, and New York City have ordinances in place, while Albany, New York just passed a similar measure. Philadelphia, the first city to ban history inquiries, has a provision that may take effect depending on the outcome of federal litigation. Chicago’s second attempt at passing a salary history ban recently failed. Governor Bruce Rauner vetoed in the bill in August and proponents were unsuccessful in garnering enough votes override the veto.

Between the nationwide publicity that this issue has garnered and the recent spate of activity that has occurred on the minimum wage front, it seems likely that the southeast region will eventually see efforts to implement salary history prohibitions, likely originating at the local level. If these states react to salary history bans in the same manner that they have responded to local minimum wage ordinances, then enactment would be a long shot. Nevertheless, employers must remain vigilant and monitor potential developments in this area of the law. Again, taking a proactive approach that goes beyond base compliance with pay equality measures may prove useful in the future. Conduct a routine self-audit of existing compensation policies, paying close attention to compensation rates for men and women who occupy the same positions and boast similar accomplishments. Employers should also review their hiring practices, omit questions regarding past compensation from applications and interviews, and train hiring managers to identify and address potential pay issues. These efforts, combined with increased wage transparency, may be the most effective means of ensuring that employees are compensated appropriately and that the organization is in compliance with all applicable laws. Time will tell whether the recent spate of salary history prohibitions will attain the same level of nationwide popularity as state and local minimum wage laws.

LaToi D. Mayo, Shareholder

Sarah T. Laren, Associate