Minneapolis and St. Paul Minimum Wage Ordinance

I. Summary of Minneapolis’ Minimum Wage Ordinance

1.Timeline

*Increases to account for inflation, every subsequent January 1st.

2. Applicability
Minneapolis Ordinance § 40.320 applies to every employer, regardless of where that employer is located, that has an employee working within the City of Minneapolis (“Minneapolis”) for two hours or more in any particular calendar week, running from Monday to Sunday. Therefore, if you have an employee who works one hour week one in Minneapolis but then works two hours week two in Minneapolis, the Ordinance only applies to week two. This ordinance includes employers operating under a collective bargaining agreement. Employees who work less than two hours in a particular week within Minneapolis are not covered by the ordinance. An employee or her representative may not waive the minimum wage requirement.

Determining Time Worked
An employer may make a reasonable estimate of an employee’s time spent working in Minneapolis for purposes of determining if any employee has performed at least two hours of work in a calendar week within Minneapolis. Documentation of how the reasonable estimate was derived may include, but is not limited to, dispatch logs, delivery addresses and standard estimated travel times, or historical averages. Smart phone apps also exist for the purpose of GPS location and payroll time tracking.

Determining Business Size
Minneapolis’ ordinance applies to both “small” and “large” businesses. “Large business” means all employers that had more than one hundred persons performing work for compensation in the previous calendar year. “Small business” means all employers that had one hundred (100) or fewer persons performing work for compensation in the previous calendar year.

To determine an employer’s size, count the total number of persons performing work for compensation. Add each person per week for each week of the previous calendar year and divide by 52. Include full-time, part-time, jointly-employed, paid interns, seasonal, and temporary workers, no matter where they are located. This calculation determines whether an employer is considered “large” or “small” for purposes of the ordinance. Franchise, full-service restaurant and new businesses determine size differently as described below.

If you operate your business pursuant to Minnesota’s franchise law, Minn. Stat. § 80C.01, and the franchisor and all franchisees own or operate an aggregate of more than ten locations nationally, then you are a large business under the new Minimum Wage ordinance. You do not need to count the total number of employees.

If your business is a full service restaurant in Minneapolis which is not operated pursuant to Minnesota’s franchise law and has fewer than ten locations nationally, each restaurant location is treated as a single, unique employer solely for the purposes of determining business size. So, you will need to count the number of employees in each restaurant location to determine whether it is a “large” or a “small” business under the new ordinance. For purposes of this rule, a full-service restaurant is an establishment in which food and beverage are served and which provides table service to customers to facilitate the ordering and delivery of food and beverage.

If there are more than ten restaurant locations nationally, the non-franchised restaurant may not treat each restaurant location individually. Instead, to determine business size the restaurant must add together the total number of employees working for the restaurant, regardless of location.

To determine the size of a new business, count the average number of workers per week during the first 90 days after the new business began operation. Then determine if it is considered a “large” or “small” business under the ordinance.

Special Considerations for City-Approved Training or Apprenticeship Programs
For city-approved training and apprenticeship programs, employers must pay employees under the age of twenty not less than eighty-five percent of the minimum wage rate, rounded up to the nearest nickel, for the first 90 days of employment. After the first 90 days, the employer must pay no less than the applicable minimum wage rate. To view the criteria to qualify as a City-Approved Training or Apprenticeship program click here.

Persons Exempt
Persons who are exempt from the state minimum wage under Minnesota Statute § 177.23 (the state minimum wage law) are also exempt from the Minneapolis municipal minimum wage. Additionally, a) independent contractors and b) certain workers participating in a Minnesota Department of Employment and Economic Development program for persons with disabilities are exempt from the minimum wage ordinance.

Moreover, employee time spent in Minneapolis solely for the purpose of travelling through the city from a point of origin outside the city to a destination outside the city, with no employment-related or commercial stops in the city, except for refueling or the employee’s personal meals or errands, is not covered by this article.

Additionally, tipped employees are not exempt. Tips and gratuities do not affect the new minimum wage owed to employees. No employer may directly or indirectly credit, apply, or utilize gratuities towards payment of the minimum wage.

Definition of Wages
Wages include salary, hourly pay, piece rate pay, commissions, and non-discretionary performance bonuses. Tips and employer payments toward medical benefits plans are not wages.

The costs of the following items are not considered wages: 1) uniforms or specially designed clothing required by an employer which is not appropriate for use except in that employment; 2) equipment used in the course of employment, except tools of a trade, a motor vehicle, or other equipment which may be used outside the employment; 3) consumable supplies required in the course of the employment; or 4), or travel expenses in the course of employment, except for those incurred in traveling to or from the employee’s residence. An employer may not deduct these items from an employee’s paycheck if those deductions reduce the employee’s wages below minimum wage.

Additional Compliance Requirements
Employers must display a workplace notice poster within each of their facilities in Minneapolis in a visible and accessible location. The poster should be displayed where employees can easily read it. The poster is available for download on the Minneapolis City website. Employers must display the poster in English and in each of the primary language(s) spoken by employees at the particular workplace, if published by the Civil Rights Department. Employers are required to keep records showing the wages paid to each employee and the number of hours worked by each employee for at least three years. Employers must allow employees to see these records on request. Employers must also allow the Civil Rights Department to inspect these records on request to monitor compliance with the law.

II. Summary of Saint Paul’s Minimum Wage Ordinance

1. Timeline

* Once an employer has hit the $15 minimum wage, thereafter the minimum wage is automatically increased to whatever the city minimum wage rate is that applies to Saint Paul (the adjusted minimum wage rates will be announced September 1 of each year).

2. Applicability
Saint Paul’s minimum wage ordinance § 224.01 is largely similar to Minneapolis’ ordinance but varies slightly in timeline and applicability. This ordinance applies to every employer, regardless of where that employer is located, that has an employee working within the City of Saint Paul (“Saint Paul”) for two hours or more in any particular calendar week. Employees who work less than two hours in a particular week within Saint Paul are not covered by the ordinance.

Determining Time Worked
An employer may make a reasonable estimate of an employee’s time spent working in Saint Paul for purposes of determining if any employee has performed at least two hours of work in a calendar week within the Saint Paul. Documentation of how the reasonable estimate was derived may include, but is not limited to, dispatch logs, delivery addresses and standard estimated travel times, or historical averages. Smart phone apps also exist for the purpose of GPS location and payroll time tracking.

Determining Business Size
An employer’s business size for the current calendar year is based upon the average number employees per week during the previous calendar year. Employers are defined in the ordinance as “Macro” (more than 10,000 employees); “Large” (more than 100); “Small” (100 or less); and “Micro” (fewer than 5). In determining the number of employees, all employees on a full-time, part-time, joint, or temporary basis shall be counted, whether or not the persons work in Saint Paul.

For a new business, the employer’s business size for the current calendar year is based upon the average number employees per week during the first 90 days after the first person working for compensation began work.

Determination of business size for any establishment operated pursuant to a franchise as defined in Minn. Stat. § 80C.01, shall be classified based on the total number of employees at all franchise locations owned and operated by a single franchisee. Note that the Saint Paul ordinance, as opposed to the Minneapolis ordinance, looks at the number of locations owned by the individual franchisee as opposed to the total number of franchisor and franchisee locations.

If your business is a full service restaurant in Saint Paul which is not operated pursuant to Minnesota’s franchise law and has fewer than ten locations nationally, each restaurant location is treated as a single, unique employer solely for the purposes of determining business size. So, you will need to count the number of employees in each restaurant location to determine business size.

Similarly to the Minneapolis ordinance, if there are more than ten restaurant locations nationally, the non-franchised restaurant may not treat each restaurant location individually. Instead, to determine business size the restaurant must add together the total number of employees working for the restaurant, regardless of location.

Special Considerations for Youth Training and Youth Employment
If you employ youth workers under the age of twenty years in a City-Approved Youth-Focused Training or Apprenticeship programs, the minimum wage rate cannot be less than eighty-five percent of the city minimum wage for small employers rounded up to the nearest nickel. To view the criteria to qualify as a City-Approved Youth-Focused Training program click here.

Employees who are 14 —17 years of age must be paid not less than eighty-five percent of the city minimum wage for small employers and rounded to the nearest nickel during their first ninety days after the date of hire. After more than 90 days after the date of hire, employees who are 14—17 years of age shall be paid the applicable city minimum wage. To view more information about youth employment click here.

Persons Exempt
Employers who employ independent contractors or persons with disabilities that are classified as extended employment workers as defined in Minnesota Rules part 3300.2005, subpart 18 and participating in the Minnesota Statutes, Section 268A 15 extended employment program, are exempt from the ordinance. Saint Paul Saints players who appear on the team roster pursuant to a negotiated contract are also exempt. Additionally, employees covered by a collective bargaining agreement may waive the ordinance in their collective bargaining agreement. Like Minneapolis’ ordinance, tipped employees are not exempt.

Definition of Wages
Wages for purposes of this ordinance mean compensation due to an employee by reason of employment, payable in legal tender of the United States, checks on banks, or direct deposit to the employee’s choice of demand deposit account convertible into cash on demand at full face value.

Additional Compliance Requirements
Employers must provide employees with an annual notice that they are entitled to minimum wage and have the right to report violations if: payment of minimum wage as required by this ordinance is denied by the employer; or the employee is retaliated against for requesting payment of minimum wage; or the employee is retaliated against for reporting a violation. The St. Paul Department of Human Rights and Equal Opportunity has created a notice poster available on the Saint Paul City website. Employers must display the poster in a conspicuous and accessible place in each establishment where such employees are employed. The poster shall be printed in English and any other languages that the department determines are needed to notify employees of their rights under this ordinance. Also, if an employee handbook exists, ordinance details and notice must be included.

Additionally, an employer shall create and retain records documenting wages paid to each employee for a period of not less than three years from the date such hours were worked. Employers must allow employees to see these records on request. Employers must also allow the Civil Rights Department to inspect these records on request to monitor compliance with the law.

If an employer fails to create and retain adequate records or does not allow the department reasonable access to the records and an issue arises as to an alleged violation of an employee’s rights under this ordinance, it shall be presumed that the employer has violated this ordinance, absent clear and convincing evidence otherwise.

III. Special Considerations for Restaurants
Under both Minneapolis’ and Saint Paul’s minimum wage ordinance, tips and gratuities do not affect the minimum wage owed to employees. No employer may directly or indirectly credit, apply, or utilize gratuities towards payment of the minimum wage. Thus, restaurant employers are going to have to confront the rising cost of labor as a result of minimum wage increases. Within the restaurant industry in particular, the wage ordinance has drawn criticism that it could lead to counter service in restaurants, more automation, tighter staffing or even small-business closures — all of which could be an unintended boon for larger businesses. This change in law puts restaurant owners in a tough spot. Many restaurants might now have to look at surcharges, or raising the hourly wage while dropping tips. Unfortunately, implementing a “no tip” policy would upset most restaurant staff. In a recent survey, over 68% of restaurant staff said they would not take an increase in hourly wage if tipping were removed. See Upserve Restaurant Insider, “The Impact of Minimum Wage Increases on Restaurants and Tipping.” (Mar. 28, 2019). This isn’t surprising, as a past study indicated that 97% of servers preferred tipping as their payment method. Id.

Restaurant owners will have to engage in creativity and bargaining to minimize the impact of the rising cost of labor without imposing a “no tipping” policy. Restaurants can possibly look for high volume items that every table might order, such as pop, and increase the price by mere cents. They can also market take-out orders, corporate delivery catering, and special events or modify inefficient hours of operation. If it’s a franchise, they could use their volume to negotiate contracts with vendors to get a reduction in costs based on buying larger quantities.

IV. Summary and Key Takeaways from Graco, Inc. v. City of Minneapolis
On November 10, 2017, appellant Graco, Inc. sued the City, seeking a declaratory judgment that state law preempts Minneapolis’s minumin wage ordinance and a permanent injunction against its enforcement. Following a court trial, the district court determined that state law, specifically the Minnesota Fair Labor Standards Act (MFLSA) which requires a lower minimum wage than Minneapolis’ rule, does not preempt the ordinance. The court reasoned that the MFLSA sets a floor, not a ceiling, for minimum-wage rates and therefore the MFLSA is not in conflict with the ordinance. The court also determined that the MFLSA leaves room for municipal regulation and accordingly, regulation of minimum-wage rates is not solely a matter of state concern. Based on these determinations, the district court denied Graco’s request for a declaratory judgment and permanent injunction.

A divided court of appeals panel affirmed. Graco, Inc., 925 N.W.2d 262. The majority rejected Graco’s argument that the ordinance conflicts with state law because it prohibits what the MFLSA expressly permits an employer to pay: the state minimum wage. Id. at 268. Rather, it determined that the MFLSA sets a floor, expressly requiring employers to pay at least the minimum wage and therefore the ordinance operates in harmony with the MFLSA. Id. at 268–69. The majority also concluded that the Legislature did not intend to exclusively regulate the field of minimum-wage rates and the MFLSA accordingly does not preempt the City’s regulation of minimum-wage rates. Id. at 274.

The dissent disagreed, concluding that the MFLSA expressly permits an employer to pay any wage equal to or greater than the state minimum wage. Id. at 277 (Johnson, J., dissenting). Reasoning that the ordinance prohibits what the MFLSA permits—wages between the state minimum wage and the City’s higher minimum wage—the dissent concluded that the ordinance conflicts with the MFLSA. Id. at 278–79.

On January 22, 2020, the Minnesota Supreme Court affirmed the court of appeals decision holding that the “[l]egislature did not intend to occupy the field of minimum-wage rates’ and because the city’s rate would not prevent employers from complying with the lower state rate, Minneapolis’ ordinance could stand.” The court reasoned that because the legislature stated plainly that employers “must” pay “at least” the minimum hourly rate provided by the statute (Minn. Stat. § 177.24, subd. 1(b)(1)–(2)), the legislature clearly contemplated the possibility of higher hourly rates. In addition, the court noted that the MFLSA requires that all Minnesota employers must pay each employee wages “at a rate of at least” the statutory amount. Minn. Stat. § 177.24, subd. 1(b)(1)–(2). From this language, the court found that it is clear that the MFLSA establishes a minimum-wage floor for employers across the state. Hence, this floor leaves room for municipalities to regulate above. Accordingly, the court held that the MFLSA does not so fully occupy the field of minimum-wage rates that it is solely a matter of state concern. Graco, Inc. v. City of Minneapolis, No. A18-0593, 2020 WL 356249, at *3 (Minn. Jan. 22, 2020).

V. Other Cities Considering a Minimum Wage Ordinance Similar to Minneapolis’ and Saint Paul’s Ordinance
So far, it doesn’t appear that the movement to hike the minimum wage has made much headway outside of the state’s two largest cities. Ann Lindstrom, a lobbyist with the League of Minnesota Cities, said she’s not aware of any other cities in the state that are considering or debating a minimum wage increase. See MPRnews, “St. Paul Approves Phasing in Higher Minimum Wage” (Nov. 14, 2018).

However, in Rochester, Minnesota, the Rochester City Council updated guidelines where businesses applying for financial assistance must indicate they are creating jobs that pay at least 16 dollars an hour, which is up from 12 dollars per hour. This is the first time the City of Rochester is updating the criteria for businesses applying for financial assistance since 2003.

Additionally, Governor Tim Walz said during the campaign he’s open to a statewide $15 minimum wage and said in a tweet he’d “be proud to sign it into law if it came to my desk as governor.” See MPRnews, “St. Paul Approves Phasing in Higher Minimum Wage” (Nov. 14, 2018).

More recently, the Republican-led Minnesota Senate has passed a provision in the Senate Jobs, Energy and Commerce Budget that would stop cities from requiring higher minimum wages or sick time for workers that are different than what is already in state law. The proposal would be retroactive to 2017 and would undo minimum wage. “It will keep Minnesota labor laws uniform,” said Sen. Eric Pratt, a chief sponsor of the bill. “A patchwork of regulation poses a real threat to commerce in the state.” However, this provision doesn’t have much of a chance of surviving as the DFL-controlled House and Governor Tim Walz are opposed to the bill.