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CRIMINAL BRANCH (213) 485-5452 CIVIL BRANCH (213) 485-6370 of tke Tag cAttermg ffire WRITER'S DIRECT DIAL (213)485-5403 7El:1e cAngrle, alifurttia NUMBER JAMES K. HAHN CITY ATTORNEY 09 0 7 5 REPORT NO. MAY 1 9 1QQA REPORT RE POSSIBLE REVISIONS TO THE CITY'S LIVING WAGE ORDINANCE CONCERNING THE COVERAGE OF CITY TENANTS The Honorable City Council City of Los Angeles Room 607, City Hall 200 N. Main Street Los Angeles, CA 90012 [Council File 96-1111-S1 not transmitted but referred to] Honorable Members: THE COVERAGE OF CITY TENANTS UNDER THE LIVING WAGE ORDINANCE. The City's Living Wage Ordinance ("LWO"), Los Angeles Administrative Code §§ 10.37 et seq:, has beep)op,erative since May 5, 1997. While a number of questions have arisen about the interpretation or application of this legislation in the past year, perhaps of greatest interest recently have been questions raised concerning the extent to which activities of City tenants have been and should be covered. In § 10.37.1(h) the LWO defines "service contract" so as to cover those leases and licenses issued by City departments under which "services are rendered for the City" where it has been determined that "but for" such lease or license the "services to be rendered probably would otherwise be rendered by City employees." The meaning of this ordinance AN EQUAL EMPLOYMENT OPPORTUNITY - AFFIRMATIVE ACTION EMPLOYER EIGHTEENTH FLOOR, CITY HALL EAST • 200 N. MAIN STREET • LOS ANGELES CA 90012-4131 Recyclable and made from recycled waste TeK:9 The City Council City of Los Angeles Page 2 language has been center stage most prominently in connection with disputes over whether the LWO should apply to certain airline leases let by the Department of Airports.' The purpose of this report is to offer the Mayor and City Council an opportunity to clarify and possibly modify the LWO in regard to City tenants. BACKGROUND. One of the subjects discussed when the LWO was in development was consideration of which City tenants would be covered and which would not. Those tenants to be covered were those rendering services for the City where it could be said that but for their role in providing those services, the services would probably be provided by City employees. Determination of who would be covered by the LWO and who would not ("who's in, who's out) constituted an important, if brief, part of the deliberations on the LWO. This Office took a preliminary stab at making the distinction by circulating a document at that time showing examples of which tenants might be "in" and which might be "out." The coverage of tenants represented an extension of one of the two main branches of the LWO. Under one such branch, coverage is effected over those expending City financial assistance for economic development or job growth. Under the other branch, the LWO covers those rendering services to the City -- the typical service contractor. Yet, it was recognized in the LWO that some tenants provide services for the City. As stated in the LWO's preamble: Among those so rendering services for the City are some of the tenants and concessionaires operating at City facilities. LWO § 10.37, ¶ 2(emphasis added). So the LWO's service contractor branch was extended to cover such tenants. As with service contractors, in determining which tenants should be "in" and which should be "out" of LWO coverage, attention was to be directed to the 1 The LWO expressly applies to all City departments, including "independent" departments such as the Department of Airports. See § 10.37.1(b). This Office refused to approve the LWO as to form and legality because of our opinion that such coverage cannot be squared with the independent authority conferred on those departments by the City Charter. The commissions heading those departments, however, retain the authority to adopt separate, lawful policies or to adopt by reference the LWO. In the case of the Department of Airports, the Airports Commission has not adopted the LWO for contracts on a blanket basis. It has chosen, instead, to apply the LWO on a case-by-case basis. The City Council City of Los Angeles Page 3 touchstone of LWO coverage -- the identification of which tenant employees could rightly be regarded as substitutes for City employees. As also stated in the preamble: The service contracts, as well as the tenants and concessionaires, that are subject to this article are those that through their employees render services that otherwise probably would be performed by City employees. Even though these contractor employees are to work under the direction and control of the contractor, they may nonetheless be seen as substitutes for City employees. Id. This approach was taken for tenants as varied as food concessions at City airports to golf and tennis pros at City recreation facilities to the Ports of Call Village at the Port of Los Angeles to the tenants at El Pueblo de Los Angeles (Olvera Street) to duty free shops and buses at City airports. These, then, were the fundamental principles underlying LWO coverage at the time of the ordinance's birth. It can be seen and might be recalled that the analytical framework erected at that time regarded tenants as either wholly in or wholly out of LWO coverage. It is in retrospect that we can plainly see that a "who's in, who's out" approach necessarily implies a "primary activity" standard (or something like it), where the primary activity of the tenant determines whether "but for" its performance by the tenant through its employees, the primary activity would be performed directly by the City using City employees. The absence of such a standard necessarily would imply that every tenant is at least potentially covered, with coverage perhaps depending on the particular services being rendered. This result, however, was clearly not intended by the LWO. Application of these principles to City tenancies soon revealed uncertainties about the scope of coverage and questions by some about the fairness of the "wholly in, wholly out" concept. It was seen that the activities tenants might perform could be several and varied, but the determination on coverage was being predicated exclusively upon the tenant's "primary activity." With this "primary activity" alone determining coverage, ancillary or "secondary" activities were being deliberately ignored for this purpose. Thus, as an example, coverage of a food concessionaire depended on evaluation of the "primary" activity ofthe concessionaire -- the selling offood to the public. Depending on the situation, such concessionaire may or may not have been covered by the LWO. All the while, however, it was understood that such concessionaires would be engaged in activities that supported the "primary" one -- such as maintenance and security. These "secondary" activities played no role in determining LWO coverage. The City Council City of Los Angeles Page 4 What this meant in practical application was that ifthe "primary activity" ofthe tenant passed muster under the LWO,then all the employees, save for those excluded by the definition of employee in § 10.37.1(e), would be covered. Conversely, if the "primary activity" did not pass muster, then no employee would be covered. Seemingly anomalous results followed: Not all City food concessions, for instance, need be covered -- for a number offactors go into the determination of coverage, including whether the services are seen as "essential to the City operation, the "views" ofthe responsible City department, and the "history of the operation." See Regulation No. 1.2 So, conceivably some City food concessions might be covered and others not. As an example, the restaurants at Olvera Street are regarded as "out," while the food concessions at LAX are seen as "in." Whenever this occurs, employees performing similar work may find themselves at different compensation levels. .4 The deliberate inattention to "secondary activities" leads to coverage of some such employees and non-coverage of others. A tenant's employees may perform a variety of tasks. Thus, continuing with the food concessionaire as an example, in addition to personnel required to prepare and serve food to the public, maintenance workers might be on the payroll as might security personnel. A City contract with a vendor to perform such maintenance or security services likely would otherwise be covered by the LWO. But where a tenancy is deemed to be "out," none of the employees will be covered. —I Workers located in close proximity to each other performing essentially the same duties may be working at different compensation levels. Consider custodial workers at an airline terminal. Some may be employed by the Department of Airports, others by service contractors of the Department, still others directly by tenant airlines, and yet others by contractors of the airlines. A very real possibility exists under these conditions that the compensation levels for workers working virtually side-by-side performing essentially the same duties can vary widely. These seeming anomalies can only be explained in terms ofthe ostensible goal ofthe LWO -- to identify those employees of service contractors and tenants who can be regarded as serving in the stead of City employees. Since in the absence of such contractors and tenants the City 2 Rules and Regulations for Implementation of Article 10, Chapter 1, Division 10 and Article 11, Chapter 1, Division 10 of the Los Angeles Administrative Code (September 24, 1997). The City Council City of Los Angeles Page 5 would perform some activities and not others, the variability in coverage only makes sense from this standpoint. The question of coverage has been framed most prominently lately in regard to airline leases for the movement of passengers and cargo.

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