A company must keep three factors in mind when trying to decide where to open its doors, “location, location, [and] location.” [1]. Closely related to location, a company might consider traffic flow, highway access, and the presence of other businesses in the area. [2]. The applicable minimum wage is an unlikely consideration for a company that is in the process of selecting a location, but that may soon change. Federal law sets a minimum wage floor, but States can pass their own statutes raising the federal minimum wage. [3]. On the rise, however, is the presence of local ordinances that index minimum wage levels to cost of living increases or that target specific companies. [4]. This article will first briefly examine two such ordinances, one from Santa Fe and one from Chicago, and it will then set out options for companies wishing to do business in cities that have some form of a living wage ordinance.
Santa Fe passed a living wage ordinance on February 27, 2003. [5]. The ordinance requires businesses that contract with the city and that have 25 workers or more to pay a minimum wage as set forth by the ordinance. [6]. The ordinance also targets businesses that register with the city and that have 25 workers or more. [7]. The ordinance required targeted contractors and businesses to pay a minimum wage of $8.50 from January 1, 2004 to January 1, 2006. [8]. This amount increased to $9.50 on January 1, 2006. [9]. The ordinance requires a further minimum wage increase on January 1, 2008 to $10.50. [10]. On January 1, 2009, “and each year thereafter, the minimum wage shall be adjusted upward by an amount corresponding to the previous year’s increase, if any, in the consumer price index for the western region for urban wage earners and clerical workers.” [11].
The ordinance did not receive a warm welcome by all and the New Mexicans for Free Enterprise challenged the ordinance in court. [12]. At the trial level, the trial court upheld the ordinance. [13]. On appeal, the New Mexicans for Free Enterprise challenged the creation of ordinance as a violation of municipal powers. [14]. They also challenged the ordinance as a violation of equal protection, a violation of eminent domain principles, and as illegal ratemaking. [15]. Lastly, the New Mexicans for Free Enterprise alleged that the city of Santa Fe and the district court made procedural errors at the trial level. [16]. Ultimately, the Court of Appeals for New Mexico affirmed the judgment of the district court and upheld the Santa Fe ordinance. [17].
The court held, inter alia, held that the Santa Fe ordinance did not violate equal protection guaranteed by the New Mexico constitution. [18]. The court reasoned that although the ordinance created a class, employers of 25 workers or more, there existed uniformity within the class. [19]. Not only did uniformity exist within the class, but the court also explained that the size-based classification was rationally related to a legitimate government purpose in that “‘[s]maller businesses simply have a limited capacity to leverage large expense increases.’” [20]. Furthermore, the court stated that the New Mexicans for Free Enterprise failed to demonstrate how the ordinance “[was] invidious, arbitrary, or irrational.” [21].
Recently, the Chicago city council proposed an ordinance that would make it mandatory for certain employers to pay a minimum wage higher than that required by federal statute. [22]. The ordinance “would have required a higher minimum wage for employees of stores with 90,000 square feet or more operated by companies with at least $1 billion a year in sales.” [23]. The ordinance also would have required that affected businesses pay employees “$13 an hour in wages and benefits by [the year] 2010.” [24]. Businesses that the ordinance would affect held off on plans to acquire real estate and open new businesses in Chicago. [25]. According to Alderman Danny Solis, “Wal-Mart officials assured him they would build at least five new Chicago stores if the ordnance were repealed.” [26]. Ultimately, Mayor Daley vetoed the ordinance and the Chicago city counsel did not have the requsite number of votes to override the veto. [27].
Businesses in search of the perfect real estate for their operations must now consider the applicable state and local minimum wage laws, but such businesses are not without options to help stomach higher wages. One option is to pursue legal action on the grounds that an ordinance violates the equal protection guarantees of the Fourteenth Amendment of the United States Constitution. The Fourteenth Amendment states that “[n]o State shall . . . deny to any person within its jurisdiction the equal protection of the laws.” [28]. The protections of the Fourteenth Amendment also extend to corporations. [29]. Yet, such an approach may not be successful as proved to be true with respect to the Santa Fe ordinance. [30].
In terms of a more narrow reaching statute, views on the constitutionality of such ordinances are mixed. One commentator has suggested that an ordinance that would only require grocery workers to receive a higher wage would not violate equal protection. [31]. The commentator explained that if a “classification has some ‘reasonable basis,’ it does not offend the Constitution simply because the classification ‘is not made with mathematical nicety or because in practice it results in some inequality.’” [32]. With respect to the Chicago ordinance, one large Chicago law firm contends that the ordinance likely violates the equal protection guarantees of the United States and Illinois constitutions. [33]. Ultimately, there are no clear-cut answers and courts will have to analyze the individual ordinances, but with local ordinances starting with a presumption of constitutionality, businesses that chose to take legal action will have an uphill battle.
Businesses might also try to avoid paying higher wages through circumvention of the factors that make the ordinance effective. For example, in Santa Fe, many small businesses maintain a staff of 24 in order to avoid paying the higher wages that the Santa Fe ordinance mandates for businesses of 25 employees or more. [34]. With respect to the proposed and now vetoed Chicago ordinance, businesses might have been inclined to reduce the square footage of their businesses to avoid paying the higher minimum wage. As for the asset requirements of the proposed Chicago ordinance, perhaps the creation of subsidiaries would have allowed businesses to avoid the higher wages. Businesses could also chose a location near but outside the boundaries and reach of the city with the living wage ordinance.
Businesses also have the option to simply pay the higher wages. A community might scorn a business that attacks local ordinances aimed at making the lives of local citizens better and sales and profits might suffer. [35]. It is possible that a business’s decision to accept a living wage ordinance might lead to higher sales in the community, but such empirical results are yet to be determined.
Location has always been an important factor for companies wishing to do business, and now location has become even more important, especially since it may dictate higher employee wages by law.
[1] Stewart L. Cohen, Location, Location, Location, 21-6 Am. Bankr. Inst. J. 30, 31 (2002).
[2] Brook Stockberger, Where should you put your store?, Las Cruces Sun-News, Mar. 12, 2006.
[3] See Michael Higgins and Gary Washburn, ‘Big-box’ law faces test; City layers advised before vote that measure legally suspect, Chi. Trib., July 28, 2006, at 1.
[4] See id. (noting that the following cities have living wage ordinances: Santa Fe, Madison, San Francisco, Albuquerque, and Washington, D.C).
[5] See http://www.santafelivingwage.org/finalordinance.html accessed 9/25/06 at 11:43am.
[6] See http://santafenm.gov/cityclerks/livingwageeng-span.pdf accessed 9/25/06 at 11:45am.
[7] See id.
[8] See id.
[9] See id.
[10] See id.
[11] See id.
[12] See New Mexicans for Free Enter. v. City of Santa Fe, 126 P.3d 1149 (N.M. Ct. App. 2005).
[13] New Mexicans for Free Enter., 126 P.3d at 1156-57.
[14] Id. at 1157.
[15] Id.
[16] Id.
[17] Id. at 1173.
[18] Id. at 1168.
[19] Id. at 1168.
[20] Id. (alteration in original).
[21] Id.
[22] Gary Washburn & Dan Mihalopoulos, Daley vetoes ‘big box’ law, Chi. Trib., Sept. 12, 2006, zone C, at 1.
[23] Gary Washburn & Mickey Ciokajlo, ‘Big-box’ veto sticks; Defiant backers vow to offer even tougher wage measure, Chi. Trib., Sept. 14, 2006, news zone C, at 1.
[24] Id.
[25] Washburn, supra note 22.
[26] Id.
[27] Washburn, supra note 23.
[28] U.S. Const. amend. XIV, § 1.
[29] Bell v. Maryland, 378 U.S. 226, 262 (1964).
[30] See New Mexicans for Free Enter., 126 P.3d at 1168.
[31] George Lefcoe, The Regulation of Superstores: The Legality of Zoning Ordinances Emerging from the skirmishes Between Wal-Mart and the United Food and Commercial Workers Union, 58 Ark. L. Rev. 833, 850 (2006).
[32] Id. at 851.
[33] Chicago Becomes First U.S. City to Establish Minimum Wage Rules For “Big Box” Retailers, Aug. 3, 2006 available at http://www.ufcw.org/issues/minimum_wage/minimum_wage_big_box.cfm.
[34] Daniel Duggan, Empty Threats or Empty Store Fronts?, Illinois Real Estate J., Sept. 6, 2006.
[35] See Stephen Franklin, Big-box battle not over yet; Union leaders say they will bring wage proposal back in February, Chi. Trib., Sept. 14, 2006, business zone C, at 1 (“Wal-Mart has chosen to fight these living wage ordinances, so they have chosen to make themselves a target.”); Washburn, supra note 22 (“Wal-Mart, Lowe’s and Target Corp. said they were putting plans for future stores on hold pending the fate of the big-box ordinance, news that drew scorn from ordinance supporters who contended the Chicago market is too attractive for big retailers to bypass.”).