City of Santa Monica
California

Staff Report
1530

Introduction for First Reading an Ordinance Setting a Minimum Wage to be Effective in the City of Santa Monica

Information

Department:Finance DepartmentSponsors:Director Andy Agle
Category:07. Ordinances

Recommended Action

Recommended Action

Staff recommends that the City Council introduce for first reading the attached ordinance setting a minimum wage to be effective in the City of Santa Monica with a phased approach to reach $15 per hour by 2020 for most businesses; and to reach $15.37 per hour by July 1, 2017 for hotel workers.

Staff Report Body

Executive Summary

On September 29, 2015 (Attachment A), staff presented Council with a draft minimum wage ordinance based on the City of Los Angeles’s ordinance, expert input, and community feedback.  At the meeting, Council directed staff to meet with additional stakeholder groups, and to return with a comprehensive ordinance reflecting input from these meetings and responding to Council direction regarding service charges, seasonal jobs, paid leave, and enforcement.  Council also directed staff to incorporate into the ordinance a minimum wage paid to hotel workers similar to the City of Los Angeles hotel wage, with appropriate tiers for Santa Monica hotels.  Staff submitted an Information Item to Council on December 16, 2015 describing stakeholder outreach and presenting recommendations and alternatives.  Staff recommends that Council introduce for first reading the Minimum Wage Ordinance (Attachment D) increasing the minimum wage in phases to reach $15 per hour by July 1, 2020 for most businesses, and setting the minimum wage for all hotel employees at $13.25 per hour starting July 1, 2016 and reaching $15.37 per hour on July 1, 2017.

 

Background

Santa Monica currently has one local wage law in effect.  This is the living wage ordinance for contractors providing services to the City of Santa Monica pursuant to a contract in the amount of $54,200 or greater.  This law has been in place since July 1, 2005, and the minimum wage for such contractors’ employees is currently $15.37 per hour.  Three development agreements for new hotels contain the same wage provision.  All other businesses in Santa Monica follow the State minimum wage, $10 per hour as of January 1, 2016. 

 

In October 2014, the Los Angeles City Council adopted a hotel worker minimum wage ordinance, setting a phased increase to reach $15.37 per hour for hotels of 300 rooms or greater starting July 1, 2015, and for hotels of 150 rooms or greater on July 1, 2016.  In June 2015, the Los Angeles City Council adopted a general minimum wage ordinance that progressively reaches $15.00 per year by 2020 and 2021 for smaller or non-profit organizations.  In September 2014 and again in June 2015, the Santa Monica City Council directed staff to review the Los Angeles proposed ordinance and its potential impact on Santa Monica, including the possibility of passing a similar ordinance.  At its June 9, 2015 meeting (Attachment A), Council directed staff to initiate community outreach and begin preparation of an ordinance setting a minimum wage and other terms for Santa Monica employers.  Council further directed staff to conduct outreach with the community and contract with researchers from the University of California at Berkeley’s Institute for Research on Labor and Employment (IRLE) to provide insight into the law’s likely impact in Santa Monica

 

In August 2015, Council unanimously approved the Priority Strategic Goal of preserving Santa Monica as an inclusive and diverse community, recognizing challenges from the rising cost of housing in Santa Monica, and workers’ ability to afford it.  According to the IRLE report on the proposed Los Angeles minimum wage, increasing the minimum wage is an effective method of increasing low wage worker income.  Increasing the minimum wage thereby is one policy tool that could help to increase the chances that local workers are able to live in Santa Monica.

 

On September 29, 2015 (Attachment B), staff presented Council with a report and draft ordinance reflecting community outreach and work with IRLE researchers.  The report projected that Santa Monica’s economy would not be significantly impacted by a minimum wage increase; slight price increases would likely be lower than those in neighboring Los Angeles as Santa Monica businesses already pay higher average wages than Los Angeles employers in most impacted industries, and Santa Monica’s distinct appeal as a beach destination makes visitors less price-sensitive than those in Los Angeles. Furthermore, the report noted that the increase would benefit Santa Monica’s low-wage workers; that a one-year implementation delay would help nonprofit organizations and businesses with 25 or fewer employees adjust to the wage increase; and that strong enforcement would be necessary to realize the benefits of increased wages.  The report also recommended matching Los Angeles as much as possible to promote fairness, support regional policy, and simplify compliance and enforcement.

 

Following testimony from workers, employers, advocacy groups, and community members, Council directed staff to conduct additional stakeholder outreach and return with amendments and clarifications to the draft ordinance that addressed the following topics: a hotel wage, service charges, seasonal workers, paid leave, and enforcement.  Staff submitted an information item on December 16, 2015 (Attachment C), describing the stakeholder outreach process, outlining staff’s recommendations for each area, and including formal position letters from the Santa Monica Neighborhood Restaurant Coalition (SMNRC), the Chamber of Commerce, Santa Monica Travel and Tourism (SMTT), Unite Here Local 11, the Restaurant Opportunities Center Los Angeles (ROC LA), the Housing Commission, and a group of Los Angeles hotel associations (American Hotel & Lodging Association, California Hotel & Lodging Association, Hotel Association of Los Angeles).

 

Discussion

This report presents an ordinance for first reading addressing each Council-directed topic (hotel wage, service charges, seasonal workers, paid leave, and enforcement) based on staff’s recommendations.  The report also includes alternatives for each topic, with associated alternative ordinance language, that would allow the Council to adopt alternatives for the first reading, if desired.  For extensive changes, staff would need to return at a future Council meeting with an updated ordinance for first reading.

 

The proposed ordinance, Attachment D, introduces a City minimum wage ordinance, including a hotel living wage, for Council consideration and approval.  A summary of recommendations and alternatives for each of the five key issues is included as Attachment F.  Ordinance language for each alternative is included as Attachment E.

 

The following is a summary of each topic identified by Council for further research and outreach

 

Hotel living wage

Council direction.  Council directed staff to recommend room thresholds appropriate to Santa Monica’s hotel industry, and to prepare an ordinance setting a hotel minimum wage in Santa Monica similar to that of Los Angeles. 

 

Background. At the September 29, 2015 meeting, Council members unanimously expressed support for matching the Los Angeles hotel wage.  The Los Angeles law currently applies to hotels of 300 rooms or greater (as of July 1, 2015), and will apply to hotels of 150 rooms or greater starting July of 2016.  The phase-in and application to larger hotels were mechanisms to avoid layoffs, and were recommended in prospective studies of the hotel law’s impact.  These studies estimated that larger hotels are likely better able to absorb a wage increase without laying off staff as a result of greater access to resources, broader marketing reach, and sources of income beyond room rental. They also suggested that providing hotels more time to adjust operations would decrease the possibility and impact of any layoffs.  It is too soon to assess the impact of the most recent wage increase in Los Angeles.  Early evidence from Los Angeles’ previous hotel wage increase - a 2008 law affecting 13 Airport Hospitality Enhancement Zone (AHEZ) hotels - suggests that it was not harmful to the affected hotels or workers in that there were no property closures or measurable decrease in employment or visitors, even during the Great Recession. 

 

The Los Angeles hotel sector is significantly larger than Santa Monica’s and has lower average occupancy rates and indicators of profit, including average daily room rate (ADR) and revenue per available room (RevPAR). There also more workers per room in the Santa Monica hospitality sector than there are in Los Angeles, due to the higher level of service provided in Santa Monica hotels.[1]

 

 

 

Los Angeles[2]

Santa Monica[3]

# Hotels

350

38

# Rooms

39,000

3,603

# Workers

17,000

3,000

Average workers per room

0.4

0.8

 

 

 

Occupancy

79%

86%

Average Daily Room Rate

$ 147

$ 336

Revenue Per Available Room

$ 116

$ 287

 

 

According to available data and information from stakeholder groups, many of the factors differentiating large and small hotels’ ability to absorb a labor cost increase in Los Angeles do not apply in Santa Monica, or are true to a much lesser extent.  Many of Santa Monica’s smaller hotels have similar ADR to large hotels, share owners with other large hotels in Santa Monica or elsewhere, have sources of income beyond room rental, and benefit equally from tourist travel.  And unlike Los Angeles, Santa Monica hotels share approximately the same benefits of location, transportation, and tourist attractions, where Los Angeles hotel ADR and occupancy varies more widely depending on location.

 

Stakeholder input.  The Chamber of Commerce, Santa Monica Travel & Tourism (SMTT), Unite Here Local 11, and the Los Angeles hotel association group addressed the Santa Monica hotel wage in formal communications to staff and Council, as shown in Attachment C.  Workers, labor advocacy groups, and many community members expressed support for the hotel minimum wage.  Hotel operators expressed support for minimum wage increases but voiced concern with the proposed hotel living wage increases as unfairly targeting the hospitality sector.  Hotel groups recommended a phased or slower implementation to assist with associated operational adjustments.  There was general agreement that any change in hotel wage should apply to all hotels regardless of number of rooms.  Many SMTT members, the Chamber of Commerce, and some community members did not agree with or had questions about exempting hotels with unionized workers.      

 

Recommendation.  Staff recommends a phased approach applying to all non-union hotels, matching the Los Angeles hotel wage by July 2017.  The wage would increase to $13.25 per hour on July 1, 2016 and $15.37 on July 1, 2017, followed by annual consumer price index (CPI) increases.  Like Los Angeles, the wage increase would take place over two years, and would reach the same rate.  Unlike Los Angeles, the wage increase applies to all hotels regardless of size.  Also like the Los Angeles ordinance, the recommendation includes a one-year waiver upon application for hotels that demonstrate that, to avoid bankruptcy, they would need to lay off an appreciable number of staff or significantly decrease hours to accommodate the increased wage cost.  Again like Los Angeles, the hotel wage would apply to leased spaces connected to hotels, and to employees of contractors working on site. 

 

Phasing in the increase provides additional adjustment time for hotels, and reduces the likelihood and extent of possible negative consequences like layoffs, cuts to hours or cuts to services provided.  It also reduces the disparity between minimum wage rates for workers at hotel restaurants and shops and non-hotel restaurants and shops. Applying the wage to all hotels makes sense in the Santa Monica context, where smaller hotels do not necessarily have lower room rates or profits, or less access to resources.  Applying the wage rate to all hotel sizes promotes fair competition, makes enforcement and compliance simpler, and would mean that hotel workers doing the same job receive the same pay.  The recommendation matches LA’s ordinance within one and half years.

 

Alternative.  Council could choose to match LA’s $15.37 wage starting July 1, 2016 for all hotels.  This would increase hotel wages faster, matching the Los Angeles wage level more quickly.  Santa Monica hotels’ high occupancy rates and ADR, including exceptionally strong performance over the past three years, indicate a strong and profitable industry that already typically pays above the State minimum wage and primarily competes with the Los Angeles hotels subject to their minimum wage rates.  However, while Los Angeles hotels had either eight or 20 months to adjust to a higher wage, Santa Monica hotels would have less than six months to make the change, and this could result in sudden changes to hotel employment or operations that could negatively affect hotel workers and reduce Santa Monica’s competitiveness as a destination.  Another variation on this alternative would be to push the hotel wage rate shift to January 1, 2017, which would entail a smaller initial rate increase matching the citywide minimum wage increase pegged for July 1, 2016.

 

Service charges 

Council direction.  In June, Council directed staff to draft an ordinance that goes beyond State law in directing how employers use service charge revenue.  Following the September 29 meeting, Council directed staff to address concerns related to the use of service charges that were raised at that meeting, including providing transparency to the customer, clarifying who can receive service charge revenue, and how to enforce any violations of service charge regulations. 

 

Background. Service charges are similar to tips, but are treated differently in State law.  Absent direction beyond State law, replacing tips with service charges can lead to lower income for regularly tipped workers, and can be opaque to consumers.  Specific direction in the proposed ordinance can mitigate against these potential problems.

 

Many service workers including restaurant workers earn a significant proportion or majority of their income from tips. According to Restaurant Opportunities Center (ROC) data, in Los Angeles 56% of tipped workers are outside of the restaurant industry in the hospitality, carwash, nail and beauty salon, and massage industries.  In Los Angeles, over 60% of all tipped workers make less than $25,000 per year.  The proposed ordinance language would also apply to these types of service-based businesses if the employers chose to introduce service charges.

 

According to State law, tips are the property of the employee.  This means that the employer must return all income received as a tip or gratuity to those employees providing the service.  Applying tips toward minimum wage calculation is called a tip credit, and is illegal in California and six other states.  State law also determines how tip income is distributed, and allows employees to share tip income through tip pools.  However, tips shared through pools must go to workers in the chain of service.  Many employers believe it is unclear in State law which staff is considered part of the chain of service and thus eligible to participate in tip pools.  Consequently, in practice in the restaurant industry, “front of house” (FOH) workers such as servers, bussers, hosts, bartenders, food runners, receive tip income, but “back of house” (BOH) workers such as cooks and dishwashers do not.  This contributes to an often significant income gap between the front and back of the house staff.  However, courts have ruled in favor of mandated tip sharing between front and back of house staff who participate in the chain of service. Accordingly, some restaurants, including some in Santa Monica, do share tips between front and back of the house staff.  Nevertheless, many employers continue to believe that they cannot have a mandatory tip pool that includes back of house workers.  

 

In addition to or in lieu of a tip, businesses may impose a service charge.  Using service charges is entirely voluntary.  It is very common for hotels to use service charges, and more restaurants are considering introducing this business practice.  The proposed ordinance provision would regulate how a business would describe service charges to customers and use service charge proceeds, if the business chooses to introduce a service charge. 

 

A service charge is defined as a charge added to a bill of sale that a consumer is required to pay; also known as a mandatory charge.  Service charges are particularly important because they appear where consumers normally pay a tip, and the word “service” indicates that the charge is for the service provided, the same as a tip. There are also other charges that establishments might include on a bill as a mandatory charge, including those for utilities or health care.  These surcharges are different than a service charge. To avoid confusion, the service charge definition in the ordinance addresses this aspect of service charges versus other surcharges.

 

Unlike tips, service charges (and other mandatory charges) are the property of the employer under state law, and the employer can allocate revenue received as a service charge at his or her discretion.  Introducing service charges in place of tips can provide the employer control over income previously received as tips and going directly to employees.  Hotels often use service charges as a means to offset some administrative or other operational or personnel costs.  Using service charges in restaurants is a relatively new practice, so there is little evidence of the impact on either restaurants or workers.  However, many states and cities do regulate service charges to some extent.  The regulatory language typically focuses on (a) consumer transparency, by ensuring that restaurants or other establishments that use service charges clearly define for customers and employees how charges are used and (b) ensuring that service charge proceeds, like tips, go to the employees providing the service.

 

Los Angeles’ City Council plans to vote on service charge direction for non-hotel businesses before the minimum wage law takes effect in June 2016.  The Los Angeles Hotel Service Charge Reform Ordinance regulates service charges in hotels, making their treatment similar to tips, so that they go to the employee providing the service.  Emeryville and Oakland regulate service charges in restaurants and the hospitality industry using the same language and definitions as those that apply to Los Angeles hotels. 

 

In recent years, several local restaurants have instituted a practice of designating and applying a 3% surcharge to their customers’ bills, with the bills often claiming that the surcharge is for employee “health care” or “benefits.”  There is a pending lawsuit against several of these restaurants in Santa Monica and Los Angeles challenging the use of a health care surcharge.  The complaint alleges that restaurants engaged in price fixing because a group of restaurants established the same surcharge for employee health care.  The outcome of this case is pending.  Meanwhile, the Consumer Protection Division of the City Attorney’s Office has concerns about whether customers have proper notice of the surcharge prior to ordering and paying and want to better ensure that funds from such surcharges will actually be used for the stated purpose. Staff’s recommendation includes language on surcharges to address these issues.

 

Stakeholder input.  The Chamber of Commerce (including the Santa Monica Neighborhood Restaurant Coalition (SMNRC)) and SMTT provided general recommendations for service charge language.  Both groups support businesses’ ability to use surcharges other than service charges, and to distribute service charge revenue to more employees and at employer discretion.  This means in particular to back of house staff, and to all non-salaried employees (rather than excluding all managers and supervisors, as currently written in the LA hotel ordinance).  Workers and employee advocacy groups support treating service charges like tips.  This means stricter regulation, broader definition of service charges to include other types of surcharges (i.e. delivery charge or health care charge), and excluding managers and supervisors from receiving service charge income.  Staff received proposed ordinance language reflecting these recommendations from the SMNRC (Attachment G) and worker advocacy groups (Unite Here, ROC LA, and CLEAN Car Wash) (Attachment H).        

 

Recommendation.  Staff recommends a balanced approach to regulating service charges.  Staff’s recommendation affirms businesses’ authority to institute surcharges apart from service charges, with a focus on ensuring that any additional charges are clearly described and used as stated, and provides a narrow definition of what constitutes a service charge. 

 

Following Council direction, the recommendation ensures that service charge proceeds go to workers who participate directly or indirectly in the chain of service; accordingly, in the restaurant industry for example, the distribution would include back of house workers.  It allows employees with some (but not majority) supervisory duties to receive service charge proceeds, in consideration of line staff who may have some supervisory responsibilities, but primarily act in a service capacity.  It maintains current distribution for certain types of existing surcharges (banquet, porterage, and room service).  The recommendation also ensures that funds received from any benefits surcharges (including health care surcharges) go entirely towards benefits coverage for employees. It also includes a provision ensuring that businesses cannot automatically include optional charges on a receipt and force the customer to remove them, and provides that customers must affirmatively opt in to such payments; a separate definition for surcharges; and a recordkeeping requirement.  In using a more specific service charge definition and affirming businesses’ ability to use other surcharges, the recommended ordinance language takes into consideration that a reasonable customer would understand certain types of charges, such as delivery or health surcharges, as distinct from a service charge that might replace the traditional tip.  Finally, the recommendation provides direction on noticing requirements to customers, and transparency to employees regarding how proceeds are allocated.  The recommendation follows Council direction for employee protections, and provides employers with flexibility in assessing surcharges and provides additional assurance that back-of-house staff can receive service charge proceeds.   While staff agrees that regulating service charges is an appropriate and arguably necessary part of addressing a key issue of minimum wage policies, it may be one of the most challenging areas for effective and consistent enforcement.

 

Alternative 1.  Council could approve the SMNRC recommended language (Attachment G).  Major provisions are that any charge described as a “service charge” goes to the general group of employees providing the service; managers will decide on service charge distribution; all non-salaried employees can receive service charge income; and other “surcharges” may be assessed on the bill provided that they are described clearly, in a way customers might easily and reasonably understand what the charge is for and to whom it will be given.  This option addresses some transparency concerns, directs income towards employees generally providing the service or to their benefits, and provides flexibility to employers.  However, it does not go far enough in addressing transparency to customers, does not provide transparency to employees in service charge distribution, and the salaried versus non-salaried distinction in who can receive service charge revenue is too broad and could lead to misclassification of employees as non-salaried, when their job duties are more consistent with a salaried worker, so that the employer could make the employee eligible to receive service charge income.   

 

Alternative 2.  Council could adopt the language proposed by the Unite Here, ROC, and CLEAN Car Wash group in its entirety (Attachment H).  This language, which is the basis for staff’s recommendation, includes most of those provisions.  This alternative provides strong worker protections, accounts for the way some businesses already treat service charges, and provides the ability to share service charge income with back of house staff.  But, it does not address employer concerns about ability to use other types of surcharges, lack of clarity regarding who can receive service charge income and what surcharges the language applies to, and does not fully address transparency to consumers.  It also contains a broad definition of service charges, including a health care surcharge.  The language is also overly restrictive in who can receive service charge income, potentially not allowing staff who may have some supervisory or managerial responsibilities, but who primarily provide customer service, to receive service charge proceeds. 

   

Seasonal Workers

Council direction.  Council directed staff to do additional research on seasonal provisions in other cities or states, and to reach out to seasonal employer and employee stakeholders.  Council asked staff to return with options for ordinance language that would address concerns regarding young workers’ and first-time workers’ employment opportunities, and with maintaining affordable pier activities once the minimum wage is increased. 

 

Background.  Many Santa Monica employers are affected by seasonal changes in business, including retailers who add part-time or temporary workers during the holiday season or employ students who work summer jobs.  This is particularly true on the Santa Monica pier and beach, where Pacific Park and Perry’s require a larger number of staff during the summer or other peak demand seasons like the holidays, and where a large percentage of employees work for less than a full year and may only work for one summer. According to Pacific Park and Perry’s estimates, these two businesses employ many first-time workers:  30-35% of Perry’s and 50% of Pacific Park employees.  Both business owners state that they would not be able to employ the same number of peak demand workers - approximately 420 employees for Pacific Park and approximately 100-125 for Perry’s - with the implementation of the proposed minimum wage increase.  An exemption for seasonal workers could help preserve these first-time jobs.  The community also values affordable activities at the beach and pier.  An exemption for a portion of workers could help mitigate the impact on pier and beach price increases. 

 

Currently, no California city has a wage exemption for seasonal employment.  Instead, California State law includes a provision for “learners”, defined as someone working for the first time in an activity in which they have no previous or similar experience.[4]  This provides for 85% of the minimum wage for the first 160 hours of work.  Emeryville includes this same provision applied to its local minimum wage, and Los Angeles includes this provision modified to apply only to workers between ages 14-17.  Short-term wage exemptions in other states are generally limited to specific kinds of programs with some community benefit (i.e., summer camps, internships, or government supported youth work programs).

 

Seasonal and first time employment often applies to young workers to a greater extent than to other workers.  Young and first-time workers are often discussed in minimum wage increases, since making labor more expensive may decrease the likelihood that an employer would hire someone without experience.  A November 2015 UCLA Labor Center study of Los Angeles youth workers (aged 18-29) concluded that young workers have a wide range of financial and other responsibilities, struggle with getting predictable work with the hours they want, and very often have little to no control over scheduling.  On average, young workers report wanting more hours, more full time and predictable work, higher wages, better treatment, benefits and worker protections.[5]  Report survey data shows that fewer than 1% of young workers use wages for discretionary spending (clothes, nights out, etc.) only; over one-third contribute financially to their households; 16.5% are parents; one-third are in school, and one-fourth have education debt.  Over 60% do not receive health benefits, paid vacation or sick days.  Approximately 72% report wanting to work more hours, and 19% work more than one job.  This information challenges the notion that young workers have less essential needs than other workers, and are seeking jobs with limited and frequently changing hours. 

 

Stakeholder input.  Pacific Park and Perry’s management strongly advocate for a seasonal exception, and the Chamber of Commerce endorses this provision.  Pacific Park provided recommended ordinance language that Perry’s also supports.  Conversely, Unite Here, ROC Los Angeles, and the UCLA Labor Center recommend either no seasonal exception, or one targeted to a very specific group of employees for a short period of time, and linked to the local minimum wage.  Community members expressed concern about decreasing opportunities for first-time workers. 

 

Recommendation.  Staff recommends including a learner exemption that would require employers to pay 85% of the minimum wage for 480 hours or six months, whichever is sooner, for employees in a job or activity in which they have no previous or similar related experience.  This is the same as the State provision for first time workers (learners), but with the time period extended to cover six months at half time (20 hours per week), or three months at full time (40 hours per week).  This provision would maintain an incentive to hire first time workers, would not create a significant wage gap in future years if the State wage does not increase, would apply to all businesses, and is a reasonable amount of time for a seasonal worker.

 

Alternative 1.  Council could approve the Pacific Park proposal, which creates a complete exemption from the minimum wage ordinance for employees working six months or less during a 12 month period, under a temporary services agreement, provided that the employer also employs 50 employees at an average 35 hours per week that are paid at least Santa Monica’s minimum wage.  This could assist Pacific Park and Perry’s in maintaining current staffing, including providing first time job experience and training to many workers.  To the extent that this exemption would help Pacific Park maintain prices at current levels, this addresses the City goal of keeping the pier affordable.  However, staff believes that the language as written is overly broad and vague, and it would include employers like large retailers, movie theaters, and others who do not have either the constraints of the pier amusement park, or the community benefit that more affordable pier and beach recreation provide; and that have not demonstrated benefits for first time workers to the same degree.  The language could also provide a loophole that allows other employers to create seasonal jobs in order to reduce wages.  And, while both businesses have expressed their aim of keeping prices low, there is nothing to prevent them from increasing prices either in response to wage or any other growing operational cost.  Finally, absent any State minimum wage increase, an exemption from the local minimum wage would lead to a 50% wage gap between seasonal and full-time employees in 2020.

 

Alternative 2.  Council could choose to offer no exemption to the minimum wage, or to simply adopt the State learner provision which requires employers to pay 85% of the minimum wage for the first 160 hours in a job in which the employee had no previous or similar related experience.

 

Paid time off 

Council direction.  Council directed staff to include a reasonable paid time off provision in the minimum wage ordinance. 

 

Background.  Many low-wage workers do not have paid time off to address health issues for themselves or family members.  This leads to decreased health outcomes for the workers and their families, and often loss of jobs if family or personal illness prevents them from attending work.  It can also be costly for the community as a whole, as it incentivizes putting off health care until conditions become serious. 

 

Beginning July 1, 2015, California state law requires employers to provide at least 24 hours or three days of sick leave per year.  Employees would begin accruing sick leave on the 90th day of employment, and could be limited to using 24 hours in a given year.  Emeryville, Oakland, and San Francisco are among other California cities that have included paid sick leave beyond the state requirement as part of their minimum wage ordinances.  Oakland and San Francisco provide 72 hours (9 days) for larger business, and 40 hours (5 days) for small businesses; Emeryville provides 72 hours (9 days) for larger business, and 48 hours (6 days) for small businesses.  The Los Angeles Hotel Worker Minimum Wage includes 12 days paid leave (sick, vacation, or personal), and 10 days unpaid sick leave per year for hotel workers. 

 

Los Angeles has not yet addressed paid leave in its minimum wage ordinance, although some reports suggest that the city is considering five days of sick leave.  The LA City Council will decide on a paid leave provision before the minimum wage law’s implementation in June 2016.  Santa Monica does not currently have any local requirements for paid leave.

 

Stakeholder input.  All stakeholder groups provided input into paid leave.  The Chamber of Commerce recommends five days leave; the Restaurant Opportunities Center recommended following the Oakland and San Francisco model of five days of sick leave and nine days of sick leave for larger businesses.  Unite Here members and workers recommended that the City be clear about how and when employees can use leave, and include retaliation protection for employees taking paid leave.  Hotels report already providing paid time off in most cases, so were less concerned about the number of days, and more about logistics, and having to change existing policies to accommodate new requirements, like different accrual rates, carryover or cash out provisions, or conditions for use.  Following the December 16, 2015 information item including staff’s preliminary recommendations, Chamber of Commerce members provided additional feedback that the leave requirement should apply specifically to sick leave.  This recommendation is also noted in a Santa Monica Neighborhood Restaurant (SMNRC) December 22, 2015 letter to Council and staff, included as Attachment I. 

 

Recommendation.  Staff recommends a paid sick leave provision similar to that of Oakland and San Francisco.  Employees would earn one hour of sick leave for every 30 hours worked (same accrual rate as the State law), and would be entitled to accrue at least 40 hours (five days) for businesses with 25 or fewer employees, and 72 hours (nine days) for businesses with 26 or more employees.  Employees could carry balances over from year to year up to a maximum of 40 hours for small businesses and 72 hours for large businesses, but would not have the option to cash out.  Employees could be limited to using the maximum accrual amount in a given calendar year.  Employee use of sick leave is consistent with State sick leave provisions.  This meets worker advocacy recommendations, and is existing policy in other cities.  The accrual rate aligns with the State, making implementation simpler for employers. 

 

This recommendation has changed from the December 16, 2015 Information Item in response to additional input from Chamber of Commerce members.  Staff had initially recommended that paid leave could be used for vacation, personal, or sick leave, with the intent of providing flexibility to employers and employees.  Employers already have policies in place to accommodate sick leave, so they are better able to plan for staff’s use of sick leave, and have established procedures with employees for taking sick leave.  Further, vacation and personal days function more as a benefit, or perk, that employers offer to retain employees, as compared to sick leave, which is for employee and consumer protection.  Staff consulted with employee advocacy groups a second time on this issue and received feedback that the sick leave provision meets employee needs.  This modified recommendation also aligns more closely with San Francisco, Oakland, and Emeryville, all of which provide paid sick leave.

 

Alternative 1.  Council could approve five days / nine days of sick leave for all non-hotel businesses; and adopt leave requirements for hotels consistent with the Los Angeles hotel minimum wage.  This would mean that hotel workers would be entitled to at least 96 hours (12 days) of compensated time off per year (includes vacation, personal, or sick leave), accrued at 96/52 for each week worked. In addition, employees would have access to at least 80 additional hours of unpaid sick leave, earned at 80/52 hours each week, to be used after compensated time is exhausted.  This would be consistent with the LA hotel wage and would provide generous time off for employees.  However, this would present a significant increase for hotels to absorb in addition to the hotel wage increase. It would also create inconsistency within Santa Monica for paid leave policies, which could be complicated and difficult to enforce.

 

Alternative 2. Council could reduce the number of sick leave days recommended by staff either for small businesses, larger businesses, or all businesses (for example, match the State’s three days for small businesses, and mandate five days for larger businesses). Another variable would be to delay the effective date for implementation of the provision to recognize the greater complexity of putting such a provision in place.

 

Education and enforcement

Council direction.  Council directed staff to develop a comprehensive enforcement policy, using all tools available, and to consult with experts, including the UCLA Labor Center. 

 

Background.  Wage theft is common, often difficult to prosecute, and wages often go unrecovered.[6]  Meaningful enforcement measures and strong retaliation protections make it more likely that employees feel comfortable bringing claims forward, and that employers comply with regulations.

 

Currently, employees with wage claims pursuant to state law can file their claims directly with the State Labor Commissioner’s Office, also known as the Division of Labor Standards Enforcement (DLSE).  In adopting a local minimum wage with different provisions than the State, Santa Monica would need to have the capacity to educate the community, businesses, and workers about the new requirements; respond to inquiries; and investigate and prosecute claims.   

 

Most cities adopting local ordinances have included a series of provisions to deter employers from committing wage violations and provide workers protection for reporting them, shown in the table below.

 

 

 

 

 

 

 

 

 

 

 

CITY

Enforcement Agency

Revoke Licenses Permits Contracts

Liens

Posting & Payroll Access

Fines & Penalties

Criminal Penalties

Private Right of Action

Retaliation Protection

Outreach & Education

Albuquerque NM

 

 

 

Y

 

 

Y

Y

 

Berkeley

Y

Y

 

Y

Y

 

Y

Y

Y

Bernalillo

 

 

 

Y

 

 

Y

 

 

Chicago

Y

Y

 

Y

Y

 

Y

Y

 

Houston*

Y

Y

 

 

Y

 

 

Y

 

Oakland

Y

Y

 

Y

Y

 

Y

Y

 

Las Cruces NM

 

 

 

Y

 

 

Y

 

 

Los Angeles

Y

Y

Y

Y

Y

 

Y

Y

Y

Louisville

 

 

 

 

Y

 

Y

 

 

Miami*

Y

 

 

 

Y

 

 

 

 

Montgomery County, MD

Y

 

 

 

 

 

Y

Y

 

Mountain View

Y

Y

 

Y

Y

 

Y

Y

 

Richmond

Y

Y

 

Y

Y

 

Y

Y

 

San Diego

Y

 

 

 

Y

 

Y

Y

Y

San Francisco

Y

Y

Y

Y

Y

 

Y

Y

Y

San Jose

Y

Y

 

Y

Y

 

Y

Y

 

Santa Clara County*

Y

Y

 

 

Y

 

Y

Y

 

Santa Fe

Y

Y

 

Y

 

Y

 

 

 

Seattle

Y

 

 

Y

Y

Y

Y

Y

Y

Sunnyvale

Y

Y

 

Y

Y

 

Y

Y

 

Washington DC

Y

Y

Y

Y

Y

Y

Y

Y

 

* No higher minimum wage, but implemented wage theft ordinances

SOURCE:  UCLA Labor Center / Economic Roundtable “LA Rising:  A City that Works for Everyone”, modified to include Los Angeles

 

 

 

 

 

 

 

 

One important tool that is used by other municipalities that has garnered significant success is outreach and education.  This includes work with community-based organizations, and a strong education campaign, to prioritize education and informal complaint resolution, and incentivize voluntary compliance.  San Francisco provides the best model for this aspect of wage enforcement.  It has been significantly more successful in wage violation investigation and recovery than the State average:  its Office of Labor Standards Enforcement (OLSE) has collected full back wages plus interest on final judgments in 90.5% of cases, compared to 17% statewide.[7]  The OLSE, created in 2006, has been in place the longest of any local wage enforcement office in California, and it is the model for the Los Angeles and other Bay Area city local wage ordinances.  Community-based organizations build on connections with the community to identify problem areas, and to put together strong cases for workers that may not be comfortable approaching the city.  Community organizations are well placed to communicate wage law provisions effectively and where most appropriate. 

 

Most cities with dedicated wage enforcement offices are much larger than Santa Monica.  Of the cities with local minimum wage ordinances or wage theft ordinances, Santa Monica is most similar in size to Sunnyvale and Mountain View.  These cities do not have dedicated wage enforcement offices but have contracted with the City of San Jose for enforcement of their local ordinances, and the partnership has worked successfully since implementation in 2014.  Each city pays San Jose’s office based on services provided, and San Jose reports to the client cities on wage related activity.  San Jose itself has had few wage claims.  In approximately one year, in a city with approximately 70,000 businesses, San Jose city staff has received approximately 50-60 emails or phone calls, of which only 25 were complaints, and many of these were not enforceable.[8]  Sunnyvale and Mountain View, through San Jose, have also experienced a fairly low number of claims. Contracting with another city means that the city has access to staff if more claims arise, but does not have excess staff capacity if there is little activity.    

 

The City and County of Los Angeles are establishing wage enforcement divisions.  The City of Los Angeles has requested 39 positions phased in over three years, a $1 million annual community outreach budget, and an annual $200,000 budget for advertisement, public relations, and technology.  The division will be called the Office of Wage Standards, and will be housed within the Bureau of Contract Administration, which currently enforces living and prevailing wage requirements.  The City of Los Angeles staffing level and outreach budget is based on the San Francisco and Seattle models, but is proportionally slightly larger, taking into account that Los Angeles has a higher percentage of low-wage workers than do Seattle or San Francisco, and that it has one of the highest rates of wage theft in the country, estimated at 30% of low wage employees receiving less than the minimum wage in any given week.[9]  The Office of Wage Standards will serve the city’s approximately 5.5 million workers.  At least initially, wage enforcement will likely present a significant challenge for the City of Los Angeles because of its very large workforce, high concentration of low wage workers, and the fact that it has not previously been required to enforce wage laws.

 

Los Angeles County (County), which adopted a minimum wage that will reach $15 per hour by 2020, will also establish an enforcement system. The County’s Wage Enforcement Program (WEP) will be located in the Department of Consumer and Business Affairs (DCBA).  The enforcement program consists of 5 positions in the first year, with an opportunity, upon approval by the Board of Supervisors the following year, for additional positions to accommodate emerging workloads.   The County will initially have authority over an estimated 15,000 businesses in unincorporated areas.   Approximately 67% of these businesses are in the services (39%), retail (21%), and food service (7%) categories.  The DCBA’s WEP unit will focus on education, prevention, complaint investigation, and wage recovery.  Its primary goal will be to educate and inform employees and employers of their rights and responsibilities in order to achieve voluntary compliance with minimum intervention.  The DCBA has 40 years of experience with local, state, and Federal consumer protection laws, which it can apply to enforcing local minimum wage ordinances.  The initial work plan includes comprehensive publicity and education programs, including establishing an information center, providing online resources, creating promotional materials, conducting educational trainings and workshops, and identifying and partnering with community based organizations.  Like San Francisco and the City of Los Angeles, and consistent with wage enforcement expert recommendations, the County will implement proactive enforcement strategies, as well as complaint-driven and targeted enforcement of particularly vulnerable industries.  The County has included in its work plan the capacity to provide contract service to incorporated cities.

 

Stakeholder input.  Staff discussed education and enforcement with the UCLA Labor Center, ROC LA, Unite Here, and Chamber of Commerce and SMTT groups.  The worker advocacy groups recommended that Santa Monica adopt the provisions included in the San Francisco and Los Angeles ordinances, with some additions to strengthen these provisions.  They strongly recommended the City partner with community based organizations for outreach and education, and work with the Los Angeles City or County enforcement agencies.  Business groups supported strong enforcement of noncompliant businesses, and recommended that the City have a strong enforcement plan in place before adopting an ordinance.  They supported the City conducting an extensive education campaign to make new requirements clear, and inform the community of the new requirements.  Staff reached out to Los Angeles City and County enforcement divisions to discuss partnering in enforcement.  The Los Angeles County group was very receptive, and staff has established that there are no legal or other barriers to pursuing a contract with them.

 

Recommendation.  Staff recommends a very rigorous enforcement program, including provisions building from the San Francisco and Los Angeles ordinances, to ensure compliance with the minimum wage regulatory scheme.   The proposed ordinance authorizes criminal penalties for violations of the ordinance. Consistent with well-established legal precedent in the area of criminal penalties relating to a regulatory program, many of the violations will be subject to a strict liability standard.  Furthermore, consistent with Penal Code sections 800 et seq. and case law interpreting those statutory provisions, the statute of limitations to bring a prosecution under this ordinance will be tolled until three years following discovery of the offense. The proposed ordinance also authorizes civil remedies, including a private right of action, fee-shifting provisions, and treble damages for willful violations.

 

Staff recommends continuing discussions and negotiations with Los Angeles County for enforcement, as well as initiating an education and outreach campaign through local community organizations and marketing specialists.  The City currently works with Los Angeles County on some areas of enforcement currently.  The County has considerable experience investigating a diverse array of constituent complaints, and staff believes that, compared to the City of Los Angeles, the County has better capacity to oversee both workers its own workforce (the unincorporated areas of the County) and workers within the City of Santa Monica.  While contracting with the City of Los Angeles provides a more seamless geographical match with the jurisdiction that surrounds Santa Monica on three sides, Santa Monica would represent a tiny fraction of LA’s scope.  Contracting with the County would be more likely to result in a collaborative partnership.  The County plans to do complaint-based and targeted investigation, which is consistent with ROC LA and UCLA Labor Center recommendations for effective outreach.  Upon Council approval, staff would propose a budget for the 2016-17 fiscal year and return with a request for authorization of a contract with Los Angeles County for enforcement.  As part of any agreement, staff anticipates that the City would handle any complaints that are particularly complex or that require prosecution.  This could mean additional work for the City’s attorneys, hearing officers, and support staff.

 

Staff recommends working with community organizations, and is requesting $80,000 initially for education and outreach, based on the amount that San Francisco allocates annually.  With Council approval, staff would issue a request for proposals for outreach, education, and marketing services, with the goal of beginning the outreach and education campaign in early spring 2016.  Staff envisions contributing to LA County outreach and education contracts, which would expand these efforts to cover Santa Monica in a regional approach.  The City and County could also collaborate in supporting community-based organization’s work to identify incidents of wage theft and other violations.

 

Staff would monitor the outreach and enforcement approach for effectiveness, and could adjust the contract or change the plan if necessary.  Partnering with LA County would satisfy the need for dedicated staff to focus on wage enforcement, and would provide flexibility to adjust funding and resources based on activity. 

 

With community partners, staff also recommends researching incentive programs and other ways to reward businesses that provide strong employee wages and benefits, similar to the City’s Healthy Nail Salons program and the Office of Sustainability energy efficiency awards. 

 

Alternative.  The City could establish an internal wage enforcement function.  This would require additional code enforcement, public information, attorney, staff support, and hearing officer time.  This approach could potentially provide more focused time on Santa Monica businesses, and the City would have more direct control over any investigations.  Also, Code Enforcement staff already has an established system in place for tracking of enforcement actions and integration with the City Attorney’s Office for both administrative and criminal proceedings.  However, there is little data to understand the potential workload and cost associated with this task, the approach would not take advantage of existing capacity at the County level, and it could be challenging to establish in the short time span. 

 

Comparison to LA ordinance

Since the initial report to Council on September 29, 2015, staff has noted the importance of adopting an ordinance similar to that of Los Angeles to avoid regional market distortion and facilitate compliance and enforcement.   From conversations with LA County and based on careful consideration, staff believes that the differences between the proposed ordinance and those adopted by the City of Los Angeles and Los Angeles County will not be detrimental to regional coordination.  In some cases, the ways in which Santa Monica’s proposed ordinance differs from these laws will make enforcement and compliance simpler.  For example, in adopting a hotel wage with no tiers, and in strengthening noticing requirements.  In the case of seasonal exemption, the Santa Monica proposed ordinance provides a learner exemption that is similar to existing State. Moreover, the accrual rate proposed for paid time off matches the accrual rate under State law.  In areas where the City of Los Angeles has yet to make a determination, it is possible that Santa Monica’s ordinance can serve as a model. 

 

Wage Laws in Santa Monica

If Council adopts the proposed minimum wage and hotel wage, Santa Monica will have three wage levels in effect:  (1) the living wage, applying to city contracts of $54,200 or greater ($15.37 per hour); (2) the minimum wage, applying to most business and reaching $15 per hour for all non-hotel businesses by 2021; and (3) a hotel wage, reaching $15.37 per hour in 2017 for all hotel workers.  Each of these wages includes an annual inflation increase, such that without a change to any law, the City will maintain three different wage levels indefinitely.  Staff recommends reviewing wage laws periodically to assess opportunities for synchronizing them, potentially following 2021 when all will approach a similar level. 

 

The proposed ordinance includes data reporting requirements related to the ordinance.  If the ordinance is adopted, staff would report to Council within the first 12 months of implementation of the local minimum wage law.  Given this is a relatively new and untested realm of public policy and that there will also be greater national experience and research by the fall of 2017, a data-driven approach to effectively and equitably meet the law’s objectives may suggest future modifications.

 

Financial Impacts & Budget Actions

Increasing the City’s minimum wage could impact the City’s expenditures and revenue in a variety of areas.  In the near term, staff anticipates incurring expenses related to outreach and enforcement. 

 

Approving the recommendation to move forward with marketing and outreach requires a one-time appropriation in the amount of $80,000.  The appropriation will be included in the FY 2015-16 Midyear Budget for Council approval. Staff expects to award grants in spring 2016, and will request additional funding if necessary.

 

Approving the recommendation to contract with Los Angeles County will require an additional appropriation.  The amount is not available at this time, and will depend on the Los Angeles County proposal and types of services requested.  Staff will pursue marketing and outreach contracts, and will request additional funding if necessary.

 

Implementing the recommendation could also affect sales, transient occupancy, and other tax revenue related to the economic activity of the City.  Staff will monitor these areas, and report to Council on any revenue changes along with its biannual financial status updates.  Staff will also generally monitor implementation of the ordinance and return to Council if there is evidence of significant economic impacts.  

 

In addition to the recommended report on the first year of implementation, staff is committed to ongoing review of this policy and its impact on employment, businesses, and general welfare.  Where appropriate, and particularly where it can be combined with other data collection (like the annual resident survey), staff will assess impact of the minimum wage and report to Council on these impacts, including recommendations for changes if required. 

 


[1] Economic Roundtable, “Impacts of Living Wages in the Airport Hospitality Enhancement Zone,” Dec. 2010.

[2] PKF Consulting, September 2014.

[3] PKF Consulting, August 2015; Transportation Marking District information December 2015.

[4] As provided under Section 1197 of the California Labor Code and wage order published by the California Industrial Welfare Commission.

[5] “I am a #YoungWorker,” UCLA Labor Center.

[6] “Los Angeles Rising: A City that Works for Everyone,” Economic Roundtable, UCLA Labor Center, UCLA Institute for Research on Labor and Employment.

[7] “Los Angeles Rising, A City that Works for Everyone,” Economic Roundtable et al.

[8] “Increase to the Minimum Wage in Berkeley” (ref. City of San Jose data).

[9] “Los Angeles Rising, A City that Works for Everyone,” Economic Roundtable et al.

Meeting History

Jan 12, 2016 5:30 PM  City Council Regular and Special Joint Meeting
draft Draft