Pay day

Starting Monday, grocery stores, drug stores and big box retailers in the City of Los Angeles will be required to pay “Premium Hazard Pay” – an additional $5.00 per hour — to non-exempt employees. The ordinance mandating the pay hike is the latest in a wave of local measures adopted throughout California meant to acknowledge customer-facing employees during the COVID-19 pandemic. The Los Angeles ordinance brings legal risks and unanswered questions for covered employers.

This post is a quick read on what matters most about the ordinance:

The Covered Employers

Grocery and drug retailers with more than 300 employees nationwide are subject to the ordinance at each store located in the City of Los Angeles having 10 or more employees. In determining whether a store satisfies the 10-employee threshold, all employees who work two or more hours in a particular week are counted. Clearly, small stores with workforces of fewer than a dozen full and part-time employees are impacted by the ordinance.

Other large retailers also must comply. Retailers of any kind with more than 300 employees nationwide are subject to the new requirements at each outlet in the city that employs 10 or more people, is 85,000 square feet or larger and that dedicates 10 percent or more of the store’s sales floor to groceries or retail drug sales.

The Employees Entitled to the Pay Hike

All non-exempt employees who work at least two hours in a particular week for a covered employer will be entitled to the pay increase. The increase must be paid for hours worked “on-site” (apparently meaning in the store), not for time worked remotely from home, for example.

The ordinance makes unlawful any purported waiver of the pay increase, providing that any waivers will be “deemed contrary to public policy and . . . void and unenforceable.”

Important New Risks for Employers

The ordinance raises ramifications and risk for employers aside from more costly regular hourly rates of pay:

  1. Covered employers must ratchet up overtime rates of pay, as well.

In order to pay overtime rates correctly, whether at a time-and-one-half or double-time rate, an employer must first correctly calculate the employee’s “regular rate” of pay per hour. Depending on the circumstances, state or federal law require that, in addition to the employee’s base hourly rate of pay, other compensation, such as certain non-discretionary bonuses, commission and noncash wages, is included in calculating the employee’s regular rate of pay.

Employers covered by the Los Angeles ordinance should certainly expect that the $5.00 per hour margin of Premium Hazard Pay, also known as “Hero Pay,” must be included for purposes of calculating employees’ regular rates of pay and, therefore, employees’ applicable overtime rates of pay. The City of Los Angeles ordinance, thus, imposes greater overtime expense on covered employers and poses the risk to unwary employers of liability for failing to pay overtime rates in compliance with state law.

  1. Covered employers should increase the premium wage paid to employees for missed or non-compliant meal or rest breaks accordingly, as well.

Employers must pay employees “one additional hour of pay at the employee’s regular rate of compensation” for each workday an employee is not provided a compliant meal or rest period, under the California Labor Code. Similar to the overtime issue above, the City of Los Angeles ordinance raises the question of whether the $5.00 per hour in Premium Hazard Pay must be included in determining the dollar sum in premium wage that must be paid to employees for missed or non-compliant meal and rest breaks.

As with the overtime situation above, employers should include employees’ $5.00 per hour margin of Hero Pay in the employee’s “regular rate of compensation” when paying an employee one hour of premium wage for a missed or non-compliant meal or rest period.

Open Question: Are Grocery, Drug and Retail Delivery Employees Entitled to Premium Hazard Pay?

The Los Angeles ordinance arises out of concern for grocery and drug store employees who have worked in risky circumstances throughout the pandemic. “While many employees can choose to work from home, essential grocery and drug retail workers . . . must report to work to perform their jobs, which includes substantial interaction with the public” and potential exposure to Coronavirus, in the words of the ordinance.

One open question under the ordinance is whether employees of covered employers who deliver goods to customers’ homes – work that is performed, in part, outside of the stores but involves customer contact – are entitled to Premium Hazard Pay. The ordinance itself does not answer the question. The city is to develop and release regulations clarifying and implementing the ordinance, which may help resolve this question.

Employees may Sue for Violations of the Ordinance

The ordinance authorizes employees to bring civil lawsuits against their employer or former employer for violations of the new law. Employees who prevail may be awarded money damages, injunctive relief and their attorney’s fees and costs.

Current Expiration Date of the Ordinance

The ordinance will remain in effect for 120 days, that is, through July 6, 2021, unless that date is changed by the City Council and Mayor.

Other Jurisdictions

To date, other jurisdictions in California that have adopted similar ordinances include the Cities of Oakland, Pomona, Montebello, Irvine, Long Beach and West Hollywood and the County of Los Angeles. Similar measures are pending before other localities.

The California Grocers Association has filed suit against the Cities of Oakland, Long Beach, Montebello and West Hollywood challenging the ordinances. The Association has not yet succeeded in efforts to enjoin any of the ordinances. The lawsuits are pending.

The City of Los Angeles Premium Hazard Pay ordinance and similar measures elsewhere raise new questions for covered employers. Please contact your Fox Rothschild LLP counsel or the author for help in meeting these challenges.

This post provides general information and does not constitute legal advice to any person with respect to any circumstance. This post does not create an attorney-client relationship with any person.