Amaral v. Cintas Corporation: The Wide World of Local Wage Laws

The recent decision in Amaral v. Cintas contains a full plate of legal issues involving a city’s authority to regulate conduct outside its borders, employer’s duties to keep records, and a court’s discretion to reduce an employer’s potential penalties under the Labor Code Private Attorney General Act of 2004 (“PAGA”).     Perhaps the main message lesson for employers, however, is that the effect of local “living wage” ordinances can spread far beyond the jurisdiction of the actual city itself. 

In this case, Cintas signed a seemingly straightforward contract to provide laundry services to the City of Hayward, a city of approximately 147,000 residents in the San Francisco Bay Area.  Hayward, however, had passed a local wage ordinance (LWO) that required city contractors to pay at least $9.25 to “any individual employed by a service contractor on or under the authority of any contract for services with the City.” Cintas apparently paid the specified rates to its employees who worked within the City of Hayward. But Cintas also took laundry from inside the city to a centralized plant in another city, where laundry from various clients was comingled for processing. 

A class action lawsuit was filed on behalf of all employees at the plant who claimed that they, too, were entitled to earn the higher wage rate. Cintas argued that the local Hayward ordinance only required higher wage rates for hours worked on the city contract itself. The Court, however, gave the ordinance an extremely broad reading – finding, in effect, that every employee who ever touched the city of Hayward’s laundry was entitled to be paid $9.25 an hour on every other project that he or she worked on. As the Court explained:

A contractor with many employees might choose to limit its obligations by segregating City contract work and assigning this work to a smaller subset of employees. That it did not occur to Cintas to do so does not require us to reach a different interpretation of the ordinance.

As a result of this simple failure to segregate the city contract work, Cintas received an adverse judgment for restitution, penalties, attorney fees, and interest that was probably greater than the entire gross receipts of its contract with the city. This should serve as a cautionary tale for any employer doing business with a governmental entity that has a so-called “living wage” or “prevailing wage” requirement.