Berkeley’s Living Wage Ordinance Is Upheld in Federal Appeals Court

A federal appeals court in San Francisco on Wednesday upheld Berkeley’s authority to require higher minimum wages for some workers, the first appellate ruling in the country on whether local governments have that power.

By a 2-1 ruling, the U.S. 9th Circuit Court of Appeals rejected a lawsuit against the city over its “living wage” ordinance.

Nationwide, 121 localities, including the country’s two largest cities, Los Angeles and New York, have passed laws setting minimum wages that exceed the norm.

The wage issue has been pushed by a national movement spearheaded by ACORN, a liberal advocacy group, and strongly backed by labor unions.

In addition to Los Angeles, more than half a dozen other California cities have adopted such laws, including Pasadena, Port Hueneme, Oxnard, Santa Cruz, San Jose, San Francisco and Sacramento.

Berkeley’s law, enacted in June 2000, is fairly typical of living wage ordinances adopted nationally. The law mandated minimum hourly wages and employee benefits for certain companies that received financial benefits from the city such as city contracts, leases on city property or certain tax exemptions.

The Berkeley law set a minimum wage of $9.75 plus health benefits for those companies. Firms covered by the law but that did not provide health benefits were required to pay $11.37 an hour. The figures have risen with inflation.

At the time the law was enacted, the federal minimum wage was $5.15 an hour and California’s minimum was $5.75. The state minimum wage has since been raised to $6.75.

When the law was passed, the Berkeley City Council issued findings saying “far too many people working in Berkeley ... live below or near the poverty line.... The privilege of using public property to operate a business enterprise should not be granted to parties that will exacerbate the problems associated with inadequate compensation of workers.”

The city also found that the absence of employer-sponsored health insurance ultimately led to higher healthcare costs for the city, state and federal governments.

In September 2000, Berkeley amended its law to cover companies in the Berkeley Marina that had six or more workers and annual gross receipts of $350,000 or more. That move represented a new twist on the living wage movement -- targeting businesses in certain parts of a city.

RUI One Corp., a Seattle-based chain that owns Skates, a restaurant in the marina, sued. The company argued that it was being treated differently from companies elsewhere in the city, violating its rights under the U.S. Constitution.

The company lost before a federal district judge and on Wednesday the 9th Circuit also rejected its arguments.

Government bodies have broad power to pass laws to regulate economic activity as long as their actions have a rational basis, Judge Kim M. Wardlaw wrote for the court majority.

In this case, “it is more than reasonable that the city should expect marina businesses, which receive so many benefits from the city in the form of improvements and lack of competition due to [a] development moratorium, and which operate on land held in the public trust, to contribute to the welfare of the surrounding community and not to exacerbate its problems,” Wardlaw wrote.

She also rejected the company’s argument that the wage law improperly changed the terms of its lease with the city, saying that the lease included a clause requiring the company to “comply with all applicable laws, ordinances and regulations” of the city, county, state and federal governments.

“California courts have consistently interpreted such provisions to mean that a party to a contract will comply with existing as well as future law,” Wardlaw wrote.

Judge Susan Graber joined Wardlaw’s opinion. Both were appointed to the bench by President Clinton.

Judge Jay Bybee, appointed by President George W. Bush, dissented. He argued that the Berkeley law improperly altered the company’s lease contract with the city and unfairly “shifts the burden of public assistance programs from the city to RUI and its customers.”

Attorney Paul Sonn of the Brennan Center for Justice at New York University Law School, which has advised groups around the country on minimum wage laws, praised the ruling, saying it would remove “any doubt that cities have broad powers to enact living wage laws to protect low-income working families.”

Berkeley City Atty. Manuela Albuquerque predicted that the ruling would be “helpful to other governments legislating in this area” because the decision held that “you can go after a problem in an incremental fashion.... You can target a particular industry, a business that operates in a particular way or in a certain zone of the city.”

Oakland attorney Zachary Wasserman, who represented RUI, said he was disappointed in the decision. The company may appeal the ruling further, he said.