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Hotels Sue L.A. Over Minimum-Wage Law
From the Wall Street Journal of Tue, 16 Dec 2014 15:02:50 EST
Katherine Lugar, president of the American Hotel & Lodging Association, said the law calling for the hotel industry to raise minimum wage is discriminatory.
Katherine Lugar, president of the American Hotel & Lodging Association, said the law calling for the hotel industry to raise minimum wage is discriminatory. Emily Berl for The Wall Street Journal

LOS ANGELES—Two national hotel-industry groups are suing the city of Los Angeles over a recent minimum-wage increase, arguing the law unfairly targets the hospitality business and that certain provisions interfere with federal labor law.

The lawsuit, filed in federal court here Tuesday by the American Hotel & Lodging Association and the Asian American Hotel Owners Association, alleges that the newly codified Hotel Workers Act, which raises the hourly minimum wage for large-hotel workers in Los Angeles to $15.37, is unconstitutional and violates the National Labor Relations Act.

At a news conference Tuesday morning in downtown Los Angeles, Katherine Lugar, chief executive of AH&LA, said the association didn’t take lightly its decision to sue the city. “This lawsuit is about the fact that the city of Los Angeles took an action that disrupts established labor law,” Ms. Lugar said, adding: “Changing the fundamental ground rules in any one city will have real national implications.”

Representatives from the mayor’s office and the office of the city attorney in Los Angeles didn’t respond to requests for comment Tuesday morning.

When the wage ordinance passed the city council in a preliminary vote in late September, Mike Bonin—one of three council members who proposed the ordinance—said it would help thousands of Angelenos support their families. “Workers in the largest low-wage industry in the city are going to get a needed and deserved raise, and that is a great thing for all of Los Angeles,” he said.

But the industry groups said their lawsuit wasn’t about the wage increase. A particularly contentious provision of the act allows unions to waive any part of the ordinance for hotels they cover in a collective bargaining agreement, the lawsuit states. The industry associations believe that unfairly gives the unions leverage in negotiations and potentially pressures nonunionized hotels to accept unionization. The lawsuit also argues that the act violates state and federal equal-protection clauses by unfairly targeting a single industry.

The two industry associations are asking the court to declare the law in violation of state and federal laws and to enjoin its enforcement. The act is slated to go into effect in July for hotels with more than 300 rooms. Those with at least 125 but fewer than 300 would have to comply by July 2016.

Hotel workers are confident that the courts will uphold the latest statute, just as they did a similar law that pertained to hotel employees in the business district around Los Angeles International Airport, said James Elmendorf, a leader in the hotel workers’ campaign to raise wages in Los Angeles.

“Courts have consistently said cities and states have the right to establish minimum labor standards for wages,” he said. “Instead of wasting money on a suit, hotels should be spending money on paying their workers.” Ten years ago, L.A. hotels were paying 37% of their room revenue in wages and compensation, he said, but by 2013 they were paying 31%.

Hotel workers cheer after a city council vote to increase minimum wage in Los Angeles in September.
Hotel workers cheer after a city council vote to increase minimum wage in Los Angeles in September. Reuters

Sandra Diaz, 30 years old, works 25 to 30 hours a week as a busser at the Daily Grill, a nonunionized restaurant inside the Westin LAX, where she isn’t subject to the airport district minimum-wage requirement. As a result of the new law, she will make an additional $3 an hour on top of the $12.28 she now earns.

Ms. Diaz said that because of the wage requirement, she will have “fewer worries” such as housing expenses and other costs to support her family.

Raymond Martz, chief financial officer of hotel owner Pebblebrook Hotel Trust, said that while his hotels wouldn’t be directly affected by the new law, he thinks the legislation would have a broadly detrimental effect on the Los Angeles hotel industry. Making hotels in the city less competitive with neighboring markets could, in turn, hurt employment and “reduce the value of existing hotels.”

The lawsuit represents the hotel industry’s most forceful attempt to slow a series of minimum-wage increases passed by cities throughout the U.S., including in San Francisco, Seattle and Chicago. The Los Angeles ordinance—which moved quickly through the city council, passing by an 11-2 vote—was the only one to apply specifically to hotel workers.

Other city-specific minimum-wage laws have been challenged in court. For example, the International Franchise Association filed suit against the city of Seattle in June after the city council approved the gradual increase to a $15-an-hour pay floor. “L.A.’s law is an offspring of the Seattle law,” said IFA Chief Executive Steve Caldeira. “If these ordinances are upheld by the courts, the only winners will be increased union membership at the expense of small business owners and their employees.”

Seattle’s law allows small businesses with fewer than 500 employees to phase in the mandate more slowly than larger companies. But the provision counts a franchise operation, such as a fast-food restaurant, as a large employer if the brand employs more than 500 workers anywhere in the country. The suit is pending in U.S. District Court in Seattle.

Write to Erica E. Phillips at erica.phillips@wsj.com and Craig Karmin at craig.karmin@wsj.com



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