Legal Analysis of Chicago Retail Living Wage Ordinance - Executive Summary
Analysis
UNIVERSITY OF ILLINOIS COLLEGE OF LAW
EXECUTIVE SUMMARY OF LEGAL ANALYSES
OF CHICAGO RETAIL LIVING WAGE ORDINANCE
This document summarizes two new analyses of the legality of the proposed Chicago
retail living wage ordinance. The first analysis, by Professor Laurie Reynolds of the
University of Illinois College of Law, a leading academic expert on local government law
in Illinois and around the country, evaluates the legal arguments set forth by opponents of
the proposed ordinance. The second, by the Brennan Center for Justice at New York
University School of Law, explains the implications for the proposed ordinance of the
recent ruling striking down Marylands health law.
Both analyses conclude that the proposed ordinance is legal and likely to be upheld by
the Illinois and federal courts. Specifically, the analyses find that:
There is a long history of federal, state and local laws that regulate based on
industry and business size, and courts have consistently upheld such measures
against legal challenge.
Under the home rule provision of the Illinois constitution, unless the legislature
explicitly bans cities from enacting wage laws which it has not Chicago is free
to adopt a living wage ordinance to meet the needs of its low-income residents.
Contrary to the Chicago Tribunes claim in its July 22 editorial, the recent ruling
striking down a Maryland health benefits law as violating ERISA (the federal
Employee Retirement Income Security Act) has no bearing on the proposed
ordinance. Every federal court of appeals that has reviewed a combined wage and
benefits law like the Chicago ordinance has upheld the law under ERISA. As the
courts have explained, [A state or local government] can set a minimum cash
wage, and allow an employer the option of paying part of that in benefits,
without triggering ERISA preemption.
Background on the Authors. Professor Reynolds is a leading academic expert on local
government law in Illinois and nationally. She has written, taught and lectured on the
subject for more than 20 years. She is the co-author of a leading law school text book on
the topic, State and Local Government Law (West 2004), and of a leading reference
work, Local Government Law in a Nutshell (West 2003). She received her J.D. degree
summa cum laude from the University of Illinois where she was Editor-in-Chief of the
Illinois Law Forum. Before joining the faculty in 1982, she practiced with Jenner &
Block in Chicago.
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The Brennan Center for Justice at New York University School of Law is a legal research
center that works with state and local lawmakers on policy reform in a range of issue
areas. The Brennan Center has advised communities across the United States on living
wage and minimum wage legislation and has helped numerous cities and states
successfully defend against legal challenge measures to provide family-sustaining wages
for low-income residents.
SUMMARY OF CONCLUSIONS
I. EQUAL PROTECTION
It Is Permissible to Regulate by Industry and Business Size. There is a long history of
federal, state and local laws that regulate businesses based on both industry and size
and the courts have always upheld them. Examples include:
The federal Fair Labor Standards Act, which establishes the federal minimum
wage. During the 1960s, the federal minimum wage applied in the retail industry
only to enterprises with sales exceeding $1 million annually a coverage rule
quite similar to the proposed Chicago ordinance.
Illinois for many years had laws that set special industry minimum wage rates for
fire fighters and has varied the rates based on the size of the city that employing
such workers. The Illinois courts have rejected charges that they violate equal
protection.
Cook County recently enacted an ordinance regulating large employers in a single
industry: the Cook County Displaced Building Service Workers Protection
Ordinance, Cook County Ordinance 06-O-14 (Mar. 15, 2006). It provides
employment security to employees in the janitor and security guard industry.
Like the Chicago living wage proposal, the law focuses on large employers in a
single industry: it applies to building services employees in commercial, retail or
institutional buildings of 75,000 square feet or more, or residential buildings of 50
units or more.
Cities May Regulate One Step at a Time. The Illinois Supreme Court has decisively
rejected the argument that if Chicago desires to raise the minimum wage, it must do so
for all employers in all industries. The court has stressed that lawmakers are not bound .
. . to make the unrealistic choice of establishing total and exhaustive regulation or none at
all. Chicago Allis Manufacturing v. Metropolitan Sanitary District of Greater Chicago,
288 N.E.2d 436, 443, 52 Ill. 2d 320 (1972). In that illustrative case, the Illinois Supreme
Court upheld a local environmental ordinance that banned discharge of waste by large
industrial plants, but allowed discharge by businesses in other industries and by smaller
industrial plants. The court explained that local governments may permissibly regulate
by business category or size, beginning where the need is deemed to be the clearest to
lawmakers. 288 N.E.2d at 443. This one step at a time doctrine wisely preserves the
citys discretion and protects its ability to move deliberately and cautiously in this
important area of the law.
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The Recent Maryland Case Rejected an Equal Protection Challenge to an Even
Narrower Law. The recently decided case involving a health benefits mandate law in
Maryland confirmed that narrowly framed regulatory measures do not violate equal
protection:
The Maryland court said, the fact that [Wal-Mart] is the only entity subject to the
[health] spending requirement of the [Maryland law] is not itself sufficient to
make out a viable equal protection claim. Retail Industry Leaders Assn v.
Fielder, Civ. No. JFM-06-316, 2006 WL 2007654, at *15 (D. Md. July 19, 2006).
The court stressed that legislatures are permitted the leeway to approach a
perceived problem incrementally. Id. at *14.
This ruling is notable because the Maryland law was even more narrowly focused
than the Chicago proposal. It affected only Wal-Mart, while Chicagos proposed
living wage ordinance would apply to the whole large retail industry in the city,
covering many major employers.
II. HOME RULE POWER
Illinois Cities Are Authorizes to Enact Laws to Meet Local Needs Except Where
Prohibited by the Legislature. The purpose of the Illinois constitutions system of home
rule is to allow different communities to tailor laws to meet their particular needs, and
those laws need not be consistent with general state laws.
Unless the legislature explicitly bans cities from enacting higher minimum wages
for their communities which it has not Chicago is free to adopt wage laws to
meet the needs of its low-income residents.
The Proposed Ordinance Addresses Important Local Interests. Chicago has identified a
number of important local interests promoted by the proposed ordinance:
Chicago has the highest number and highest percentage of low income residents
in the region, and people with low incomes are more likely than wealthier citizens
to rely on low paying retail jobs as their primary employment. In many parts of
the state, a larger percentage of big retailers employees are typically individuals
seeking to supplement their familys pension or income, or young adults earning
their own spending money. Chicagos concern for its many citizens who are
likely to find their primary income at big retail operations is a local concern
justifying a local response.
In addition, the cost of living in Chicago is substantially higher than in many
other parts of the state; the same wage goes a lot farther in rural Illinois than in its
urbanized core. Again, this factual difference makes Chicagos ordinance
responsive to a local problem, and thus well within the limits of home rule.
The Courts Routinely Uphold Local Laws That Provide Greater Protection Than State
Laws. The Illinois courts have repeatedly upheld laws that address local needs by
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supplementing the protections found under state laws, even where the state has enacted
extensive regulatory systems in the field:
Examples range from environmental ordinances that regulate sewage discharge
more restrictively than state law, see Village of Bolingbrook v. Citizens Utility Co.
of Illinois, 632 N.E.2d 1000 (Ill. 1994), to gun safety ordinances that regulate
hand guns more restrictively than state law, see Kalodimos v. Morton Grove, 470
N.E.2d 266 (Ill. 1984).
Only where local ordinances have attempted to undercut state wage laws, or to regulate
activity beyond the borders of the city, have they been invalidated:
When Highland Park attempted to allow businesses to pay less than the state
prevailing wage law, denying employees the protections of the state law, that
action was invalidated in Bernardi v. City of Highland Park, 121 Ill. 2d 1 (1988).
But local ordinances that do not undercut state protections but rather go beyond them,
like Chicagos policy of extending benefits to same sex domestic partners, was upheld in
Crawford v. City of Chicago, 304 Ill.App.3d 818, 828 (Ill.App. 1 Dist.,1999).
Because the proposed ordinance would apply only to retail employment within the City
of Chicago, and does not attempt to undercut the state minimum wage, it would not
violate these limitations.
III. ERISA
In the recent ruling involving a Maryland health benefits mandate law, Retail Industry
Leaders Assn v. Fielder, a federal court struck down the law on the grounds that it was
preempted by ERISA (the federal Employee Retirement Income Security Act). However,
contrary to the Chicago Tribunes claim in its editorial today, that ruling has no bearing
on the proposed Chicago ordinance because the ordinance follows an approach the
federal courts have approved as complying with ERISA.
The Federal Courts Have Repeatedly Held That Combined Wage and Benefits Laws
Are Not Preempted by ERISA. It is well-established that combined wage and benefits
laws that require employers to provide a minimum level of compensation, and give them
the option of providing some of that compensation in the form of health, vacation,
disability or other benefits, are not preempted by ERISA.
To date, four federal appeals courts have ruled on whether ERISA preempts
combined wage and benefits laws. All four have ruled that they are not
preempted by ERISA. See Burgio v. NYS Dept of Labor, 107 F.3d 1000 (2d Cir.
1997); WSB Electric v. Curry, 88 F.3d 788 (9th Cir. 1996); Minnesota Chapter of
Associated Builders and Contractors, Inc. v. Minnesota Department of Labor and
Industry, 47 F.3d 975 (8th Cir. 1995); Keystone Chapter, Assd Builders &
Contractors Inc. v. Foley, 37 F.3d 945 (3rd Cir. 1994).
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As the courts have explained, [A state or local government] can set a minimum
cash wage, and allow an employer the option of paying part of that in benefits,
without triggering ERISA preemption. Minnesota Chapter, 47 F.3d at 980
(quoting Keystone, 37 F.3d at 961).
The Chicago Retail Living Wage Ordinance Follows Exactly the Structure of the Wage
Laws That Have Been Upheld by the Courts.
The Chicago ordinance establishes a base minimum wage for large retailers set
at $9.25 per hour in the first year and then asks employers to provide an
additional $1.50 per hour, which can be provided in the form of supplemental
wages, benefits, or any combination thereof. Employers are allowed to mix and
match wages and benefits. Whether to provide any benefits at all, and what kind
of benefits to provide paid vacation days, health or other benefits, or just
supplemental wages is left to the employers discretion.
The federal courts of appeals have all held that where, under a combined wage
and benefits law, benefits and wages can be used interchangeably, Minnesota
Chapter, 47 F.3d at 980, and an employer may provide supplemental benefits in
any form or combination so long as the sum total is not less than locally
prevailing benefits, Burgio, 107 F.3d at 1009, the law is not preempted by
ERISA.
Unlike the Combined Wage and Benefits Laws That Have Been Approved Under
ERISA, the Maryland Law Was a Straight Health Benefits Mandate. The Maryland
law did not allow employers the option of providing any combination of wages or
benefits including non-health benefits or supplemental wages as is required by
ERISA. As the four courts of appeals have explained, this difference is crucial for
ERISA purposes and explains why combined wage and benefits laws have been upheld,
but the Maryland law was not.