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A divided 9th U.S. Circuit Court of Appeals panel upheld Berkeley, Calif.’s living wage ordinance Wednesday, saying the city had not broken contract rules or unfairly discriminated against particular businesses. Judges Susan Graber and Kim McLane Wardlaw upheld the ruling of U.S. District Judge Susan Illston, who had denied a summary judgment motion by Skates on the Bay, a restaurant at the Berkeley Marina that is fighting the living wage ordinance passed in 2000. Judge Jay Bybee dissented. Skates’ parent company, RUI One Corp., had challenged the ordinance on constitutional grounds, alleging it violated contract, equal protection and due process clauses. The majority opinion in RUI One Corp. v. City of Berkeley, 04 C.D.O.S. 5229, denied all of RUI’s arguments while also addressing the social benefit of cities requiring businesses to pay a living wage. “As the cost of living skyrockets around the country, and in the San Francisco Bay Area in particular, the face of American poverty is changing dramatically,” Wardlaw wrote for the majority. “More and more frequently, full-time, minimum-wage workers are unable to support their families’ basic needs. These ordinances require certain employers to pay their employees wages approximating the real cost of living in the locality, which is often significantly higher than the applicable state or federal minimum wage.” But Bybee set the groundwork for further appeal with a dissent on the Contract Clause challenge. “Although the temptation to secure by legislation what a state has failed to achieve through negotiation is great, the Contract Clause commands that states resist this temptation,” Bybee wrote. Like many of the 110 cities nationwide that have living wage laws, Berkeley’s rules originally applied only to companies doing business with the city. The law was expanded at the request of a hotel employees union to apply to businesses on lands held in public trust — essentially, businesses in the Berkeley Marina, including the hotel and Skates. The Marina businesses generally hold long-term leases that would not be subject to renegotiation for 10 years or more. Bybee’s dissent made much of the fact that Berkeley and RUI already had a lease agreement. He said the majority was wrong to dismiss RUI’s claims that the wage law improperly affected terms of that lease. “I would find that Berkeley and RUI have a contract and that the [wage law] substantially impaired it. I would then require Berkeley to carry its ‘burden of establishing that [the law] is both reasonable and necessary to an important public purpose.’ In my view, Berkeley cannot satisfy this ‘heavy burden,’” Bybee wrote. RUI’s attorney, R. Zachary Wasserman of Oakland, Calif.’s Wendel, Rosen, Black & Dean, conceded that Berkeley has the authority to enact a citywide minimum wage. But the city’s piecemeal approach, which exempts companies that have agreements with unions, is unfair to businesses like Skates, he said. “I’m disappointed. [But] we know we had an uphill battle,” Wasserman said. RUI is reviewing the decision and has not yet decided whether it will file further appeals. The majority answered Bybee’s issue by pointing out that Skates’ lease has no specific provisions regarding wages. “Moreover, the lease contains a provision mandating that RUI ‘comply with all applicable laws, ordinance[s] and regulations of the city [of Berkeley], county, state and United States governments,’” Wardlaw wrote. “California courts have consistently interpreted such provisions to mean that a party to a contract will ‘comply with existing as well as future law.’” Later, Wardlaw criticized Bybee for his “hyperbolic argument” that RUI had no reason to negotiate exemptions from future minimum wage increases. The panel also held that the ordinance falls within Berkeley “police powers” as a “sovereign authority.” Berkeley City Attorney Manuela Albuquerque said the court not only upheld police power but also gave wide latitude as to how cities frame legislation, in particular which businesses are affected by wage laws — “as long as we have some rationale,” Albuquerque said. “We’re very happy about it because it affects any government that is trying to regulate in these areas,” she said. Paul Sonn, an attorney for the Brennan Center for Justice, filed an amicus curiae brief supporting the hotel employees union, which had intervened in the case. He agreed that the ruling “removes any doubt that cities have broad powers to enact living wage laws.” Besides the 110 cities that require living wages for companies that do business with cities, a handful of localities have passed minimum wages that affect everyone within city limits, Sonn said. San Francisco passed such a law last year. Because courts have already recognized that cities have the ability to regulate wages, Sonn said he did not believe the 9th Circuit’s opinion will cause an uptick in living wage laws. However, it could cut down on challenges to such ordinances.

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