A growing number of cities in California, including Oakland, Long Beach, Montebello, West Hollywood and San Leandro, have recently enacted ordinances requiring large grocery and/or drug stores to pay specified workers premium pay for the heightened risk of exposure to and infection by the novel coronavirus.¹  Generally, the ordinances claim that premium pay is necessary to protect public health, preserve the peace, support stable incomes and retain jobs. 

The California Grocers Association recently filed lawsuits in the Northern District and Central District of California seeking to enjoin these ordinances in these cities on the grounds that they are preempted by the National Labor Relations Act (NLRA) and violate the equal protection and contract clauses of the U.S. and California constitutions. The court in one of these lawsuits recently declined to so issue the requested injunction. This Insight will discuss the ordinances at issue, the lawsuits that followed, and what it means for employers in these industries.

Businesses Required to Pay Hazard Pay

The ordinances generally apply to large grocery and/or drug stores.  Oakland’s ordinance applies to grocery stores over 15,000 square feet in size operated by companies that employ 500 or more employees nationwide.  The Long Beach and West Hollywood ordinances apply to grocery chains that employ over 300 workers nationwide and more than 15 employees per grocery store in their respective cities. The Montebello ordinance applies to grocery and drug stores operated by companies that employ over 300 workers nationally and more than 15 per store in the City of Montebello.  The San Leandro ordinance applies to the following three types of retail establishments if they employ 300 or more employees nationwide (1) stores over 15,000 square feet that sell “primarily household foodstuffs for offsite consumption”; (2) stores over 85,000 square feet with 10% of their sales floor dedicated to the sale of non-taxable merchandise; and (3) drug stores.  

Employees Entitled to Hazard Pay

The ordinances exclude managers, supervisors and confidential employees from the entitlement to premium pay. The San Leandro ordinance requires that an employee perform at least two hours of work in the city in a calendar week before they are entitled to hazard pay.

Premium Pay Requirements

The Oakland ordinance mandates that large grocery stores pay covered employees an hourly premium of no less than $5.00 per hour for all hours worked over the employee’s standard rate, in addition to any other premium such as holiday premium or bonuses.  The Oakland ordinance allows for a credit against the premium for employer-initiated hazard pay. The Oakland ordinance requires that the premium pay continue until the Risk Level in the City of Oakland returns to Minimal (yellow) under State of California Health Orders.  The Long Beach ordinance requires large grocery stores to pay covered employees an additional $4.00 per hour for each hour worked.  The Long Beach ordinance requires that such pay continue for a minimum of 120 days from the effective date of the ordinance, unless extended by the city council.  The Montebello ordinance requires that large drug and grocery stores pay covered employees premium pay consisting of an additional $4.00 per hour for each hour worked.  The hazard pay premium in Montebello must be made for a minimum of 180 days from the effective date of the ordinance, unless extended by the city council.  The West Hollywood ordinance requires that covered grocery stores pay covered employees an additional $5.00 per hour for each hour worked and that such pay continue for a minimum of 120 days from the effective date of the ordinance. The San Leandro ordinance requires that covered employers pay covered employees an additional $5 per hour for each hour work and that such pay continue for 120 days or until the risk level returns to Minimal (yellow) under State Health Orders or until all covered employees are vaccinated.  As with the Oakland ordinance, the San Leandro ordinance allows for a credit against the premium for employer-initiated hazard pay.  Neither the Montebello, Long Beach, nor West Hollywood ordinance allows a credit for employer-initiated hazard pay. 

Prohibitions on Limiting a Worker’s “Earning Capacity”

In addition to prohibiting employers from taking adverse action against employees for exercising their rights under the ordinances, some of the ordinances make it unlawful for an employer to “limit a worker’s earning capacity.”  The Long Beach and West Hollywood ordinances, for example, state that a covered grocery store shall not, as a result of the ordinance, reduce a grocery worker’s compensation or “limit a grocery worker’s earning capacity” unless the covered employer can prove that its decision to take such action would have happened in the absence of the ordinance.  The Montebello ordinance contains an identical provision, except that the Montebello ordinance also applies to drug stores.

Lawsuit Challenging Hazard Pay Ordinances

The California Grocers Association (CGA) sought to enjoin the Oakland, Long Beach, Montebello, West Hollywood and San Leandro hazard pay ordinances. Each of the lawsuits raised preemption arguments under the NLRA and violations of the state and federal constitutions.  

With regard to NLRA preemption, the CGA asserts that the ordinances are contrary to the U.S. Supreme Court’s decision in Machinists v. Wisconsin Employment Relations Commission, 427 U.S. 132 (1976) because they interfere with the balance of economic power between labor and management with respect to zones of activity that Congress intended be left to the free play of economic forces.

In Machinists, the Supreme Court found that the NLRA preempted the Wisconsin Employment Relations Commission’s decision enjoining a union and its members from refusing to work overtime during negotiations over the renewal of an expired collective bargaining agreement.  The Supreme Court held that NLRA preempts a state action where Congress intended that the conduct involved be unregulated and left to the “free play of economic forces.”  The Court noted that the critical inquiry regarding preemption is whether the exercise of the state’s police power to curtail or prohibit the use of self-help would frustrate effective implementation of the NLRA’s processes.  The Court stated that the use of economic pressure, such as refusing to work overtime, was part and parcel of the process of collective bargaining and, as such, the state’s ruling frustrated the NLRA’s processes.   

On February 25, 2021, the district court in California Grocers Association v. City of Long Beach acknowledged that Machinists preemption prohibits states from restricting a weapon of self-help such as a strike or lock-out and that the policy behind Machinists preemption is that Congress left such self-help tools unregulated to allow for collective bargaining to be controlled by the “free play of economic forces.”  The district court, however, denied the CGA’s application for a preliminary injunction to enjoin the Long Beach ordinance.  The district court held that CGA failed to establish a likelihood of success on the merits that the NLRA preempts the Long Beach ordinance because it does not interfere with the process of collective bargaining.   

The district court noted, however, that the language in the Long Beach ordinance prohibiting a grocery store from “reduc[ing] a grocery worker’s compensation” or “limit[ing] a grocery worker’s earning capacity” could be problematic.  In particular, the district court noted that if the ordinance “really does prohibit any collective bargaining by grocers to mitigate increased labor costs that result from the Ordinance, then CGA’s position is fairly compelling.”  The district court found, however, that CGA failed to establish a likelihood that such a restrictive interpretation of the ordinance would be adopted.  

Implications for Employers

Thus far, the ordinances are temporary in nature and contain sunset provisions, but they may be here longer than expected.  A recent Wall Street Journal article, for example, suggested that the COVID-19 pandemic may continue to circulate for years, or even decades.  Cities and states may also seek to expand hazard pay for other “essential workers.” While such laws are in effect, employers should include such premium pay in employees’ regular rates of pay for overtime calculations and report that pay on employees’ wage statements.