Members of the Metropolitan Airports Commission. Background Information on Living Wage

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1 Page 1 of 10 MEMORANDUM TO: Members of the Metropolitan Airports Commission FROM: Greg Failor, Labor Relations Manager ( ) SUBJECT: Background Information on Living Wage DATE: April 13, 2015 In February 2014, staff identified six areas in which the commission could take action to address labor concerns. These areas were: 1. Labor Peace 2. Worker Retention 3. Minimum Wage and/or Living Wage 4. Benefit/PTO Requirements 5. Employee Quality Standards (SFO worker qualification and training requirements coupled minimum wage and benefits levels) 6. Transfer of passenger cart and wheel chair services from airline-provided to MAC-provided. After considerable deliberation, the Commission voted to have further discussions with respect to three of those areas worker retention; minimum and/or living wage; and paid time off. In December 2014, after receiving public input, the Commission gave final approval to two labor policies worker retention and paid leave. These two policies are applicable to limited airside service and limited commercial service providers at MSP International Airport with more than 21 employees. The worker retention policy was designed to protect workers jobs when the company they work for changes ownership or is replaced by another company and the successor company performs substantially the same services as its predecessor. The paid leave policy provides that workers will accrue a minimum of one hour of sick leave for every thirty hours of work up to a maximum sick leave accrual of 72 hours. Sick leave may be carried over from year to year. The MAC was among a very small number of large hub airports nationwide that took action on these issues last year. Discussion on the minimum/living wage issue was deferred to await the actions of the Minnesota Legislature and potentially the cities of Minneapolis and St. Paul on adopting a minimum wage that is higher than the federal standard of $7.25 per hour. As discussed below, the statewide minimum wage was increased on August 1, 2014 to $8.00 per hour and will

2 Page 2 of 10 increase again this August to $9.00 per hour. Minneapolis and St. Paul have yet to take action on adopting a higher minimum for employers in their respective jurisdictions and it appears unlikely that the two cities will do so. There has been substantial interest both nationally and locally of having local jurisdictions adopt minimum wage or living wage standards that are higher than the federal minimum wage. This memorandum provides further background information on the final issue the commission desired to discuss the concept of a living wage. I. Overview of the Twin Cities Labor Market The following table provides information on the wage distribution of the Twin Cities workforce and the median wage rate of certain occupational groups. Total Employment Twin Cities Metropolitan Area 1,791,390 10% of Twin Cities workforce (179,130 workers) earn less than $9.16 per hour. 25% of Twin Cities workforce (447,848 workers) earn less than $12.51 per hour. Median wage rate for the Twin Cities is $19.59 per hour. Average wage rate for the Twin Cities is $24.79 per hour. Occupation Number of Employees Median Hourly Rate Janitor/Cleaner 26,900 $11.42 Waiter/Waitress 31,540 $ 8.72 Bartender 8,860 $ 8.89 Personal Care Aide 36,480 $11.04 Baggage Porter/Bellhop 250 $ 8.70 Cashier 32,600 $ 9.31 Retail Sales Person 58,120 $ 9.81 Taxi Driver 1,860 $12.27 Parking Lot Attendant 1,450 $10.20 TSA Screener 680 $18.17 Source: Minnesota Department of Employment and Economic Development Occupation Employment Statistics Data, First Quarter Note: According to the March 2013 MSP International Airport Economic Impact Study, 19,800 direct jobs in the region are related to MSP airport operations both on and off airport property---17,200 of which are located at the airport. 89% of these jobs are full time. The average annual salary for jobs connected to the airport is $66,270 or $31.86 per hour.

3 Page 3 of 10 II. Definitions Minimum Wage The minimum wage is set by the federal government, the various states and some cities and counties as an absolute wage floor that no employer that is subject to the law is allowed to pay below. Federal Minimum Wage The current federal minimum wage is set at $7.25 per hour. The federal minimum wage was last increased in July It is not indexed to inflation. Federal law also authorizes the payment of subminimum wages to certain types of employees such as tipped employees. President Obama has proposed increasing the federal minimum wage to $10.10 per hour and has signed an executive order increasing the minimum wage on new federal service contracts to $10.10 per hour. Twenty-nine (29) states and the District of Columbia now have a minimum wage higher than the wage level set by the federal government. The state of Washington currently has the highest state minimum wage at $9.47 per hour. Minnesota Minimum Wage The State of Minnesota s current minimum wage is $8.00 per hour. Under current law, Minnesota s minimum wage is set to increase to $9.00 per hour on August 1, 2015 and to $9.50 per hour on August 1, Starting on January 1, 2018, the state s minimum wage will be indexed for inflation. Local Minimum Wage Laws Nationally, according to a recent survey by the National Employment Law Project (NELP), twenty (20) cities or counties have adopted higher minimum wage standards than the state in which the city or county is located. None have done so in Minnesota. These city/county minimum wages range from $8.50 per hour (Bernalillo County, NM) to $15.00 per hour in Seattle by 2017 for large businesses and 2021 for small businesses and $15.00 per hour in San Francisco by Prevailing Wage In 1931, the federal government enacted the Davis-Bacon Act to prevent local wage rates and local labor standards from being undercut by low bidders that imported cheap labor on federally funded construction projects. The State of Minnesota enacted the little Davis-Bacon Act in 1973 for state funded construction projects. The MAC has a long standing practice of requiring prevailing wages on MAC construction projects. The prevailing wage rate includes the hourly wage rate, usual benefits and overtime for the majority of workers by job class in a particular geographic area. The prevailing wage rate in Minnesota is set by the state Department of Labor and Industry for each job classification in the construction industry. The department s prevailing wage division surveys employers throughout the state and determines the prevailing wage for each trade or occupation in a geographical area and publishes this information in the State Register. The department survey covers 290 jobs in the construction industry. Minnesota law requires each wage rate be based on the actual wage rates paid to the largest number of workers within each labor classification reported in the statewide survey. An administrative law judge has determined that the calculation to be used to determine the prevailing wage for any given job is the mode or most frequently occurring wage rate for that job.

4 Page 4 of 10 Hennepin County and Ramsey County have extended their prevailing wage mandate to include certain service contracts in addition to construction contracts. Both Ramsey and Hennepin Counties requires the payment of prevailing wages on janitorial and security officer service contracts. Ramsey County also requires that the prevailing wage be paid on towing services contracts. The current prevailing wage under the Hennepin County policy for full-time janitor is $17.69 per hour ($14.27 wage rate plus $3.42 fringe rate). For a part-time janitor working less than 30 hours per week the current prevailing wage under the Hennepin County policy is $12.35 per hour ($11.80 wage rate plus $0.55 fringe rate). The prevailing wage rate for security officers under the Hennepin County prevailing wage policy is $18.57 per hour ($15.13 wage rate and $3.44 fringe rate). Living Wage A living wage is generally defined as the minimum wage rate necessary for a worker who works forty (40) hours per week to meet basic needs such as food, housing, utilities, health care, transport, day care, etc. Living wage laws adopted by elected officials in the United States often set the living wage rate on an ad hoc basis at a politically acceptable level that may or may not be adjusted annually for inflation. Some cities peg the living wage rate to the federal definition of poverty which is adjusted annually. For example, the Minneapolis and St. Paul Living Wage Ordinances both define the living wage rate to be 130% of the federal poverty level for a family of four if no health insurance benefits are offered by the employer. If health insurance benefits are offered, the living wage rate is defined as 110% of the federal poverty level for a family of four. In 2015, the living wage rates under the Minneapolis and St. Paul ordinances are: 130% of Federal Poverty Guideline (No Health Insurance) $15.16 per hour 110% of Federal Poverty Guideline (Health Insurance Provided) $12.82 per hour For 2015, the federal poverty guideline for the 48 Contiguous States is: Family Size Poverty Guideline 1 $11,770 2 $15,930 3 $20,090 4 $24,250 5 $28,410 6 $32,570

5 Page 5 of 10 III. Living Wage Laws or Ordinances in the United States The National Employment Law Project (NELP) estimates that since the early 1990 s approximately 125 governmental jurisdictions in the United States have adopted some form of a living wage requirement. The coverage under these laws generally falls into the following four categories: 1. The jurisdiction s own employees. Note: the lowest paid full-time employees at the MAC are Facilities Assistants (union Teamsters) at $17.21 per hour and Passenger Service Assistants (non-union) at $17.47 per hour. Seasonal snow shovelers make $15.25 per hour. 2. Employees of direct contractors or subcontractors of direct contractors that provide services to the jurisdiction under a contractual arrangement. Note: In this category of direct service contracts the MAC consistently has established wage and fringe expectations in bid documents based on the market for wages and benefits for each job class expected to perform the work under the contract. Types of services the MAC directly contracts for include: cleaning and janitorial services, porter services, loading dock services, parking management, security services, etc. A good example is MAC s 2013 Porter Service RFP which contained the following language: A competitive market driven wage/benefit package which is adequate to attract and retain qualified staff should be provided. MAC s analysis of current market wages indicates that, at a minimum, the successful proposer should be paying the MSP Porter Service Attendant position between $10.50 and $17.00 per hour plus a competitive benefits package. Other fairly recent examples of similar language added to other RFPs include MAC s Janitorial/Cleaning RFP with wages at $11.50/hour to $15.10/hour plus benefits, the Loading Dock RFP at $11.50/hour to $17.00/hour plus benefits, and General Maintenance of the FAA building between $13.00/hour and $20.00/hour plus benefits. 3. Employees of organizations that have received some form of financial assistance or economic subsidies from the jurisdiction. 4. The law/ordinance acts as a local minimum wage covering all employees that work in the jurisdiction. According to the National Employment Law Project December 2014 report, twenty (20) cities have adopted a higher minimum wage than set by either its state or federal law. Note: According to the NELP survey the only jurisdictions in Minnesota that have adopted a living wage ordinance are the cities of Duluth, Minneapolis and St. Paul. The Metropolitan Council does not have a living wage ordinance or requirement.

6 Page 6 of 10 IV. The Minneapolis and St. Paul Living Wage Ordinances As noted above, both the Minneapolis and St. Paul living wage ordinances set the living wage at an hourly rate sufficient to allow a full-time worker to earn an income equal to 130% of the federal poverty level for a family of four. In 2015, this wage rate is $15.16 per hour. Employers can pay a lower wage rate if they provide basic health insurance coverage. An insurance plan qualifies under both ordinances if it pays 75% (St. Paul) or 80% (Minneapolis) of the premium for basic individual coverage plus 50 percent of the premium for basic family coverage. The plan must also not have in-network deductibles that exceed 25% for office visits, urgent care, and inpatient and out-patient treatment. Out of pocket maximums cannot exceed $1,500 per year for an individual and $3,000 for family in-network care and $2,000/$4,000 for out-of-network care. If insurance coverage is provided that meets this minimum standard, the employer may pay a living wage of 110 percent of the federal poverty level for a family of four. In 2015 this wage rate is $12.82 per hour. The living wage requirement generally applies to city contracts or city subcontracts that exceed $100,000 or to a recipient of a city business subsidy such as a direct grant; contribution of real or personal property; or a reduction/deferral of a tax or fee in excess of $100,000. The major exclusions under the ordinances include: For-profit entity that qualifies as a small business under Minn. Stat A small business under Minnesota law is defined as a business with less than 20 employees; or less than $1,000,000 in annual gross revenues ($2.5 million if a technical or professional services firm) and is not a business affiliated with or a subsidiary of a business dominant in its field of operation. 501(c) non-profit entity that qualifies under the small business definition noted above. A recipient of a job readiness and training services contract. A recipient bound by a collective bargaining agreement. An intermediary such as a community development corporation, community investment group or community bank who serves as a pass through agency for assistance. 501(c) entities that are a sole source provider of a product or service. An entity may also seek an exemption for the following classifications of employees: Temporary internships (less than 12 months) intending to provide career exposure for new entrants to the workplace. Individuals placed as a result of a job training or job readiness program. Seasonal, part-time or temporary employees provided that no more than 10% of such employees may be exempted and use of such employees is not intended to circumvent the requirements of the ordinance. Employers are required to provide employees written notice to employees of the living wage requirements of the ordinance. The ordinance prohibits employers from taking actions against employees who seek to enforce the living wage requirement. The ordinances are enforced by city staff who can request wage records to verify compliance with the ordinance. In the event of non-compliance with the ordinance, employers may face various penalties including ineligibility for future contracts with the city, withholding contract/subsidy payments to the extent of the

7 Page 7 of 10 underpayment of wages and costs related to investigating or enforcing the requirements of the ordinance including attorney s fees and the cost of conducting the investigation. V. Living Wage Requirements at Select United States Airports Chicago Mayor Rahm Emanuel signed an executive order in September 2014 increasing the city s living wage requirement from $11.93 to $13.00 per hour. Beginning on July 1, 2015 the hourly living wage will be increased annually each July by the increase in inflation. The executive order, for the first time, extended the city s living wage requirement to concessionaires at Midway and O Hare airports that are under the jurisdiction of the city of Chicago. Chicago also adopted a city-wide minimum wage of $10.00 per hour effective July 1, The city s minimum wage will increase in several steps until it reaches $13.00 per hour in July Starting in July 2020 the city-wide minimum wage will be indexed to inflation. Boston The Massachusetts Port Authority acted in October 2014 to accelerate, by one year, the increase in the state s minimum wage for nearly 1,500 workers at Logan International Airport that are not covered by a collective bargaining agreement. Among the employees covered are non-union wheelchair assistance workers, cart drivers, skycaps, ticket agents, baggage handlers, aircraft cleaning personnel, ramp agents, janitorial staff and warehouse agents. The state s minimum wage will rise to $10.00 per hour in 2016 and $11.00 hour in The port authority board adopted a resolution requiring airport contractors to implement the increase in the state s minimum wage one year earlier than required by the state. Under Massport s policy, tipped employees would receive a $3.35 per hour minimum wage. Port Authority of New York and New Jersey Last year the port authority took action to establish a living wage of $10.10 per hour for workers at JFK, LaGuardia and Newark Liberty International airports, including security, passenger service, cleaning, restaurant, food service and concession employees. Starting on February 1, 2016, the $10.10 per hour living wage will be indexed to inflation. Metropolitan Washington Airports Authority Covering Dulles and Reagan National Airports, the MWAA has had a narrow living wage requirement since 2002 for custodial, ground maintenance, security guard and window washing services that the authority directly contracts for. The current living wage is calculated by averaging the living wages specified by the city of Alexandria and Montgomery County for their contracts. The current living wage required by the MWAA for these service contracts noted above ranges from $13.17 per hour to $13.54 per hour. Philadelphia The city of Philadelphia s 21 st Century Minimum Wage and Benefits Standard Ordinance is applicable to the city owned and operated airport. The current living wage rate is $12.00 per hour. The ordinance applies to every contract, lease, concession agreement, franchise agreement or agreement for financial aid. In addition, there is a benefits requirement for full-time employees mandating health insurance for full-time employees equal to the least valuable plan offered by the employer to its full time employees. Seattle The voters of the city of SeaTac approved a $15.00 minimum wage intending to cover employees at Seattle-Tacoma International Airport. In December, 2013 a King County Superior Court judge ruled that the city of SeaTac does not have authority to set wage rate standards for the Seattle-Tacoma International Airport as the airport is under the exclusive jurisdiction of the Port of Seattle. That ruling was appealed to the state Supreme Court which

8 Page 8 of 10 heard the case in June No decision from the state supreme court as of this writing. Observers expect the court to address the issue of whether the Port of Seattle has the authority to set its own minimum wage standard for employees that work at the airport. In July of 2014, the Port of Seattle Commission approved a living wage policy covering airfield support workers (nearly 3,500 workers) at Seattle International Airport. Under the policy, effective January 1, 2015, airfield support workers will earn a minimum wage of $11.22 per hour and hourly minimum compensation of $13.72 (includes tips, healthcare and other benefits). Effective January 1, 2017, these figures will increase to $13.00 per hour and $15.50 per hour respectively. Beginning in January 2018 these figures will be indexed to the rate of inflation. Paid leave of one hour per forty (40) hours worked was also part of this new policy. St. Louis The City St. Louis has had a living wage ordinance covering the airport since The ordinance covers any party (except the airlines) that has a written agreement such as a lease, concession agreement, franchise or easement agreement with the St. Louis Airport Commission. The wage rate is set at 130% of the federal poverty guidelines for a family of three (3) adjusted every April 1. The 2015 wage rate is $12.56 per hour if health benefits are provided to the employee. Where health benefits are not provided to the employee, the living wage rate is $16.58 per hour. San Jose Mineta San Jose International Airport is covered by the city of San Jose s living wage ordinance. The ordinance covers any person, corporation, partnership, etc. that conducts commercial activity at the airport under a contract or permit issued by the city, including subcontractors of any contractor. Ground transportation providers, construction contractors and state or federal agencies are excluded from the ordinance. The current living wage rate under the ordinance is $14.13 per hour if health benefits are provided to the employee. If health benefits are not provided to the employee, the living wage rate is $15.38 per hour. The living wage rate is adjusted for inflation annually. Los Angeles The city of Los Angeles has had a living wage ordinance since In 2009 the city s ordinance was extended to LAX. Airport employers are required to comply with the living wage ordinance. A covered employer includes city financial assistance recipients, contractors, subcontractors and companies that operate under a public lease or license. This would include the airlines that operate under an Air Carrier Operating Permit or master lease agreement. The living wage rate effective July 1, 2014 is $11.03 per hour if health benefits are offered and $15.84 per hour without health benefits. San Francisco The city of San Francisco has a living wage ordinance called the Minimum Compensation Ordinance that is applicable to SFO International Airport. The current living wage rate effective January 1, 2015 is $13.02 per hour. Employees covered by SFO s Quality Standards Program receive an additional fifty (50) cents per hour. Employees covered by SFO s Quality Standards Program are generally those employees that have access to the Airfield Operations Area (AOA) or are involved in passenger or facility security. The requirements of the city ordinance apply to any written agreement (including without limitation, any lease, concession, franchise or easement agreement) for the exclusive use of real property under the jurisdiction of the San Francisco Airport Commission. The ordinance also applies to any sublease and agreements between airport tenants and subtenants and any other person or entity that performs services on airport property.

9 Page 9 of 10 VI. Policy Considerations in Establishing a Living Wage Requirement Determining the Initial Wage Rate and Future Increases How will the initial wage rate be determined? For example, should it be set at a specific dollar amount or at a specific percentage of an existing index or measure like the state minimum wage or federal poverty rate? If the later, what percentage of the index or measure (e.g. 100%, 110%, 130%) is appropriate? Will the wage rate increase annually by indexing it to inflation or by pegging it to a measure such as the state minimum wage or federal definition of poverty which changes periodically? Should a lower wage rate be authorized if the employer provides basic health insurance to its employees? If the program covers concession employees will a tip credit against the living wage rate be allowed for employees that receive tips? Coverage How broad should the coverage be? In other words, what MAC written contracts, leases, permits and other written instruments should a living wage requirement apply to? Should it include all or some of the following? Contracts for the purchase of services. Concession agreements. Lease agreements including subleases. Licensing agreements such as the MAC s Limited Airside License Agreements. Airlines with valid operating permits or operating agreements including the airline s subsidiaries and subcontractors. Implementation Should existing contracts, leases and license agreements be grandfathered so the wage mandate applies only upon the renewal date of an existing contract, lease or license agreement or to a new contract, lease, or license agreement? Should any wage requirement enacted by the board apply to the current concession bidding process? If the current round of concession bidding is excluded is it fair to include future concession bids from the living wage mandate? In other words, is the disparate treatment of vendors with different contract expiration dates a problem? Exemptions Should certain types of employers be exempt from the living wage requirement? Common exemptions in other living wage ordinances include: Contracts under a certain dollar amount. Minneapolis and St. Paul exclude contracts under $100,000. Small business exemption. The Minneapolis and St. Paul ordinances exclude small businesses as defined by Minnesota law as noted previously in this memorandum. Temporary and/or seasonal workers, interns and workers-in-training. Businesses whose employees are covered by a collective bargaining agreement. Ground transportation providers at airports.

10 Page 10 of 10 Construction contractors. (Note: These would typically be covered by prevailing wage requirements). Governmental entities. Enforcement How will the living wage ordinance be enforced? Most living wage ordinances have some kind of posting and notice requirements to employees informing of their rights under the living wage requirement. Will MAC staff enforce the living wage requirement? If so, what staffing and funding levels are necessary to ensure compliance with the living wage requirement? Should a private cause of action be granted to employees to pursue claims against employers? Should the forum for a private cause of action be arbitration or court? Will employers be required to produce wage records in order to periodically audit compliance with the requirement? Should the ordinance bar retaliation against employees that file complaints with appropriate sanctions for employers that retaliate against employees? Penalties and Sanctions For Non-Compliance What types of penalties or sanctions, if any, should be adopted to discourage employer violations with the living wage requirement? For example, some living wage ordinances impose fines for violations and ban employers who violate the law from bidding on contracts for a certain period of time. What types of remedies should employees have against an employer who violates the living wage requirement? Possible remedies include back pay, with or without interest, and punitive damages. THIS IS AN INFORMATIONAL ITEM ONLY. NO ACTION IS REQUESTED AT THIS TIME.