Ohio minimum wage

Abby Levine gets it. In response to the Ohio Senate's passage of HB 690, which basically guts Ohio's new Fair Minimum Wage, Abby says:

my anger over this is not simply that millions of hardworking Ohioans are losing a significant, and long overdue raise. It’s really that the legislators are ignoring their constituents. When people vote on something - people who you represent - you have to respect it, no matter how much you disagree.

"jam," a reader who commented on Abby's blog, argues that the legislature is free to undo a popular referendum if the legislature finds the referendum unwise:

When a referendum achieves something that a majority in the legislature thinks is wrong, they have every right — and perhaps even an obligation — to work (within legal channels, of course) to undo the referendum.

The missing assumption in jam's defense of the legislature is that they have the power to undo the referendum. That assumption is not correct.

Ohio's new Fair Minimum Wage is in the constitution. The constitution says that the legislature cannot pass laws that restrict the new Fair Minimum Wage. Exempting groups of employees from the wage restricts their rights. Therefore, the minimum wage legislation (HB 690) is not constitutional. In the conflict between the legislation and the constitution, the constitution will win.

jam correctly notes that the supporters of Issue 2 can mount a court challenge to the new legislation. True. However, litigation is expensive. Most likely employers will pay the tab, since they have to pay their employee's legal fees in minimum wage litigation. In addition, no one will really know if the exemptions are valid or invalid until the litigation is over.

So, Ohio's lame duck legislature not only thumbed its Republican nose at Ohio's voters and the people they voted to benefit. They have hobbled Ohio's employers with uncertain exemptions and certain litigation costs. That is poor policy and legislation.

Summary:

You are covered by the new minimum wage law but you can pay the federal minimum wage instead of the Ohio minimum wage. You should be very careful before you rely on an exemption from the minimum wage that is contained in a state law, because the new minimum wage is required by Ohio's Constitution and a state law cannot override the Constitution.

Long answer:

The new minimum wage law, which is in Article II, Section 34a of Ohio's constitution, covers you. I dissected Section 34a's coverage issues in a prior post. So long as you are an "employer" and you are paying "employees", as those terms are defined in 29 USC section 206, Section 34a covers you, with some exceptions. If you look at those terms and exceptions, you will see that you are covered and not exempted.

Section 34a does, however, allow an employer with less than $250,000 in gross revenue to pay the federal minimum wage, if it is lower than Ohio's minimum wage. Therefore, as of January 1, 2007, you can pay your employees $5.15 per hour and comply with Ohio's minimum wage law. If the federal minimum wage increases, however, you must pay the increase.

You may see something from your chamber of commerce or trade association telling you that the Ohio passed a law that adds the federal minimum wage exemptions to Section 34a. A current house bill (HB 690) has been approved by the House and will receive a vote soon from the Senate. HB 690 is a law that defines "employee" for purposes of Section 34a to include the federal minimum wage law exemptions. Those exemptions include businesses grossing less than $250,000. Thus, if HB 690 passes, there will be a law that says small businesses like yours are exempt from the new minimum wage law.

That law, however, is probably a nullity. You need to be very careful with this exemption. Section 34a says that implementing legislation cannot restrict rights under Section 34a. Thus, an exemption under HB 690 that is not contained in Section 34a itself is almost certainly unconstitutional. I discussed this issue at length here.

This means that, if you fail to pay the minimum wage in reliance on an exemption that is unconstitutional and a nullity, you will have violated Section 34a's minimum wage requirement. Therefore, in addition to the minimum wage, you will also owe penalties equal to two times the unpaid minimum wage, plus your employee's attorney's fees. Consequently, I highly recommend that you obtain written advise of an employment law specialist that says you can rely on that exemption before you do so. For my part, I am not prepared to provide that opinion.

Regards,

Neil Klingshirn

HB 690 puts Ohio employers at serious risk. It leads Ohio employers to believe that they are exempt from Section 34a when they in fact are not. This can lead to a tripling of minimum wage costs and worse.

To understand how HB 690's sponsor can convince lawmakers to vote for an unconstitutional law, consider the problem that Issue 2 created for summer camps, which have become a bit of a poster child for "minimum wage relief." Before Issue 2, camp counselors were exempt from Ohio and federal minimum wage laws. Ohio summer camps did not have to pay the minimum wage, which allowed the camps to craft creative compensation arrangements for their counselors, such as the payment of a flat stipend at the end of the summer plus, of course, free room and board.

With the passage of Issue 2, however, the camps must now pay $6.85 an hour for every hour worked, which amounts to a huge increase in counselor costs. Worse yet, no one knows how many hours the counselors are considered to have "worked," since they stay at camp most of the summer. So, Issue 2 hit summer camp owners particularly hard.

HB 690's supporters are telling the summer camps that it will exempt them from the minimum wage. HB 690 does not, however, protect the summer camps. The minimum wage requirement is in the constitution. A lower level law, even a state law, has no more effect on the minimum wage requirement than a city ordinance or my proclamations in this blog. Also, an Issue 2 violation does not require intent. A violation occurs and the liability attaches (3x penalties and attorneys' fees) even with complete good faith by the employer that it is in compliance.

So, if HB 690 passes, this is what the summer camps will get:

• a class action law suit covering camp counselors and all "similarly situated" camp counselors in Ohio.
• the employee's legal bill for the class action. A constitutional challenge to a state law will likely go to Ohio's Supreme Court, which will be very expensive. Issue 2 requires the employer to pay the employee's legal fees upon proof of a violation.
• unpaid minimum wages, times three, since employee's are entitled to the unpaid minimum wage, plus an amount equal to twice that.

The real dilemma for the camps will arise on pay day for the counselors. At that point the camps must decide whether to pay the wage or risk the liability. If I was running a summer camp, I would get a written opinion from an employment law specialist with a paid up malpractice policy that HB 690 will me before I risked the liability.

As for the HB 690's sponsors, he should guarantee Ohio employers that HB 690 will protect them. If he cannot give that guarantee, he should withdraw the bill.

Ohio lawmakers are ramming Issue 2 implementing legislation through the lame duck session. This highly partisan legislation is unconstitutional. It should not become law.

Issue 2 added Section 34a of Article II to Ohio's Constitution. Section 34a allows Ohio lawmakers to pass laws that implement Section 34a, but not restrict it.

On November 28, 2006 Rep. Seitz introduced House Bill 690 for this purpose. It quickly went to the State Government Committee, which held a couple of hearings and then voted today along party lines to approve it as introduced. A vote by the full House is expected next week. You can follow its status here.

I compared Section 34a to HB 690 to see if HB 690 faithfully implemented Section 34a. It does not. The three biggest problems are that HB 690:

1. Takes the Section 34a minimum wage away from Ohio employees if they are exempted from the federal minimum wage law.
2. Takes away the record keeping requirements for employees who are exempt from federal overtime law; and
3. Gives immunity from suit to employers that provide information requested by an employee under Section 34a.

These restrictions are each unconstitutional because Ohio's constitution does not permit restrictions on Section 34a's rights. In fact, Section 34a states:

This section shall be liberally construed in favor of its purposes. Laws may be passed to implement its provisions and create additional remedies, increase the minimum wage rate and extend the coverage of the section, but in no manner restricting any provision of the section.

Section 34a Covers Ohio Employees Exempted from Federal Minimum Wage Law

Section 34a was enacted by a vote at a general election. It says that:

• "every employer shall pay their employees" the new minimum wage.
• "employer" and "employee" shall have "the same meanings as under the Fair Labor Standards Act," (FLSA) and
• "only the exemptions set forth in Section 34a apply to Section 34a."

The term "employee" under the FLSA is very broad. It basically means any person who is paid as an employee, with a few exceptions contained in the definition itself. The FLSA applies the minimum wage to some of these employees but exempts others. The FLSA's exemptions from the federal minimum wage are in 29 USC 213(a).

Section 34a adopted the FLSA's definition of "employee", but not all of the FLSA's exemptions. Rather, Section 34a exempts three, but only three, groups of employees from its minimum wage rights. The are:

1. “Tipped” employees (i.e., employees who receive tips as part of their pay) but only so long as tips make enough to pay the minimu wage.
   
   
2. Family members of family owned businesses. and
   
   
3. Employees who work “in or about the property of the employer or an individual’s residence on a casual basis” are not covered by the new minimum wage law.

HB 690 Exempts Many More Employees

Even though "only the exemptions set forth in Section 34a apply to Section 34a," HB 690 says:

The term "employee" incorporates any applicable exemptions from the minimum wage requirements in the Fair Labor Standards Act and from the definition of "employee" in this chapter.

Section 213(a) of the FLSA exempts entire groups of employees from the federal minimum wage. Employees exempted from the FLSA include white collar workers, outside sales people, switchboard operators, employees of small newspapers and others. Since none of these employees are exempted by Section 34a, HB 690 restricts the provisions of Section 34a and is therefore unconstitutional.

Section 34a requires Records for All Employees, Including Exempt Employees

Section 34a also requires:

An employer (to) maintain a record of the name, address, occupation, pay rate, hours worked for each day worked and each amount paid an employee for a period of not less than three years following the last date the employee was employed.

(emphasis mine). That information must be provided to the employee upon request. As noted above, Section 34a defines "employee" broadly to basically mean every employee, with only the limited exceptions noted above.

Although Section 34a's record keeping requirements cover almost every employee, HB 690 pulls the following from the air:

An employer is not required to keep records of "hours worked for each day worked" for employees who are exempt from the overtime pay requirements of the Fair Labor Standards Act or this chapter.

HB 690 thus restricts the rights of a huge class of employees (i.e., those exempt from federal overtime) from Section 34a's record keeping and reporting requirements. It is unconstitutional again for this reason.

HB 690 Creates Employer Immunity From Section 34a.

Section 34a does not grant any employer immunity from minimum wage payment liability, but HB 690 does. Also pulled from the air is the following:

An employer who provides such information specified in Section 34a of Article II, Ohio Constitution, shall be immune from any civil liability for injury, death, or loss to person or property that otherwise might be incurred or imposed as a result of providing that information to an employee or person acting on behalf of an employee in response to a request by the employee or person.

It is difficult to discern why this immunity is in this bill. If it is meant to protect an employer from suit by an employee for releasing the employee's records to an unauthorized person, it does not do that. Instead, read literally, it provides immunity from suit for "loss . . . incurred or imposed as a result of providing that information to an employee." The only loss that can be incurred as a result of providing information showing a minimum wage violation is the lost wages that the employee can then prove she is owed.

HB 690 has other problems and restrictions, but these are the most obvious.

Conclusion

These restrictions are significant and unconstitutional. Enactment of HB 690 fails to faithfully implement the voters law, deprives thousands of Ohio's workers of the rights created by Issue 2 and will result in expensive litigation to remove the unconstitutional restrictions.

To make matters worse, Ohio employers will pay these litigation costs, since Issue 2 requires employers to pay their employees' legal expenses. None of this is good policy or law. Please urge your senator and representative to oppose HB 690 and SB 401.

Rep. Bill Seitz (R) Cincinnati introduced House Bill 690 on November 29 to implement Ohio's new minimum wage law. The bill could be passed by the outgoing General Assembly and signed by ougoing Governor Taft before he leaves office. You should be able to track the progress of HB 690 here.

A quick glance indicates that HB 690 may restrict rights available to employees under Issue 2. For example, Issue 2 requires "employers" to pay "employees" the minimum wage, with only the exceptions contained in Issue 2. HB 690 would make exemptions from the minimum wage under federal law apply to the minimum wage payment under Issue 2. See proposed new ORC section 4111.14(B)(1) ("The term "employee (under Issue 2) incorporates any applicable exemptions from the inimum wage requirements in the Fair Labor Standards Act. . . .") The federal exemptions are found in 29 USC 213(a)(1) through (17). The federal exemptions that HB would incorporate into Issue 2 cover employees in a wide number of different industries, plus white collar workers and outside salesmen.

One of the exemptions made by HB 690 applies to small summer camp operations. This could help the hypothetical summer camp in my previous post. However, since Issue 2 allows only the exceptions to payment of the minimum wage contained in Issue 2 itself, the General Assembly probably does not have the authority to enact additional exemptions for, among others, summer camps.

Non-profits have been asking the most questions about Issue 2 this week. A question from a non-profit summer camp is a good example, being whether camp counselors are covered. The short answer, it appears, is "yes." The following explains why I reach this result. I have no pride in authorship so, if you spot a flaw in the argument, please let me know in a comment or an email.

First, is there a general exclusion for non-profits? No, with the possible exception of an employee engaged as a minister for a religous entity. Even the religious exception is not at all clear under Issue 2, so do not rely on it without an opinion from employment counsel.

Second, must a summer camp pay its counselors the minimum wage? This is important because, right now, most summer camps do not have to pay the minimum wage to their counselors. Issue 2 may change that.

To reach this result we look at two main issues, being:

1. whether the camp is an "employer" covered by a minium wage law and if so,
2. whether its any of its employees in general, or camp counselors specifically, are excluded from coverage.

To answer these two questions, we must look at 3 different minimum wage laws, being:

1. Ohio's current law, which still exists;
2. Ohio's new minimum wage law (Issue 2) and
3. existing federal minimum wage law.

These three laws will exist going forward and will interact with each other. Further, if any one of them applies to the camp without an exclusion of the counselor from coverage, the camp will have to pay the minimum wage. (If any two of them require payment of different minimum wages, the employer must pay the higher wage in some, but not all, cases; more on that later).

Is the summer camp an "employer" covered by the federal minimum wage law?

The camp is an "employer" under federal minimum wage law but, because the Fair Labor Standards Act (the FLSA) does not cover all employers, most camps are not covered by the FLSA.

The FLSA defines "employer" basically to mean any person (including a non-profit company) that pays an employee. The FLSA does not, however, cover all employers. The FLSA only covers employers who are engaged in commerce or the production of goods for commerce. Therefore, if the summer camp is not engaged in commerce or the production of goods for commerce, which is usually the case, then it is not covered by the federal minimum wage law, even though it meets the definition of an "employer." Again, that is because the federal law does not cover all employers, just those engaged in commerce.

Is the summer camp an employer under Ohio law?

Assuming that the camp is not covered by federal law, Ohio minimum wage law might still apply to it. Ohio has a definition of "employer" similar to the FLSA's but Ohio law excludes an employer whose gross volume of sales is less than $150,000. Therefore, the camp could be excluded from Ohio minimum wage coverage as a small employer.

Even if the camp is not excluded as a small Ohio employer, Ohio law specifically excludes camp counselors. Thus, if the camp has revenues over $150,000, it need not pay the minimum wage to the camp counselors. This means that the camp could be covered by existing Ohio minimum wage law but, since counselors are excluded, the camp would not have to pay the minimum wage to the counselor.

Will Issue 2 cover this summer camp and counselor?

I think so.

Issue 2 will take effect on January 1, 2007. It states that

• "every employer shall pay their employees" the new minimum wage.
• "employer" and "employee" shall have "the same meanings as under the Fair Labor Standards Act," with certain exceptions and
• "only the exemptions set forth in (Issue 2) apply to (Issue 2)."

As noted above, the term "employer" under the FLSA is very broad. It basically means any person who pays an employee. The term "employee" under the FLSA does not exempt a camp counselor. Therefore, it looks like the camp is an "employer" and the counselor is an "employee" entitled to the minimum wage.

What about Issue 2's own exemptions? They do not appear to exempt the camp or its counselors. Issue 2 does not have a small employer exemption, the way current Ohio law does. Issue 2 will allow businesses with less than $250,000 in gross revenues to pay the federal minimum wage, if lower, but it does not exempt them altogether. Therefore, it appears that camp counselors will be covered by Issue 2 and entitled to at least the federal minimum wage.

This might come as a difficult surprise for previously exempted employers. If my reasoning is correct, then it could also apply to these other previously exempted Ohio employees:

• individuals engaged in the delivery of newspapers to the
  consumer;
• non-family members working on small farms;
• a member of a police or fire protection agency;
• a student employed on a part-time or seasonal basis by a political subdivision of the state; and, ironically,
• a person employed directly by the house of
  representatives or directly by the senate.

See Ohio Revised Code 4111.01(D).

Again, if I am off the mark here, please let me know. My email is Neil@fklaborlaw.com. I look forward to hearing from you.