LAW ALERT: Cal. Upholds Municipal Order Regulating Ability to Replace Workers Upon Buying a Business

On July 18, 2011, the California Supreme Court issued its opinion in the case California Grocers Association v. City of Los Angeles, in which it upheld the Grocery Worker Retention Ordinance enacted by Los Angeles in December 2005. That ordinance provides that when grocery stores of a specific size are acquired by a new owner, the current employees have certain rights during a 90-day transition period. These rights include: the seller must prepare a list of non-managerial employees with at least six months employment as of the date of transfer and the buyer of the store must hire from that list during the transition period. Furthermore, the hired employees may only be discharged for cause during the transition period and that, at the end of the transition period, the buyer must prepare a written evaluation of each employee’s performance and “consider” offering all “satisfactory” employees continued employment. There are similar ordinances that have been adopted by several other California municipalities, such as Berkeley (Marina Business Workers), Emeryville (Hotel Workers), and San Jose (Airport Business Workers).

The California Grocers Association challenged the ordinance on the grounds that it was preempted by state and federal law as well as violating the equal protection provisions of the California and U.S. Constitutions. The Association’s primary argument was that the provisions of the California Retail Food Code “fully occupied” the field of health and sanitation standards for grocery stores and that the local ordinance conflicted with its provisions. Both the trial court and the court of appeals agreed with the California Grocers Association and held the ordinance to be invalid.

In reversing the lower courts’ decisions, the California Supreme Court found it significant that the Retail Food Code went only to establishing health and sanitation standards within the retail food category. The Court held that it did not address other employee conditions in retail food stores, such as hiring and termination rights. Because the Retail Food Code did not “fully occupy” the field in this regard, the Court found that the Los Angeles Ordinance was not preempted by the state law.

The California Grocers Association also argued that the National Labor Relations Act likewise preempted the municipal ordinance. Once again, the California Supreme Court found that because the NLRA was silent on specific issues addressed by the municipal ordinance, it did not fully occupy the field and therefore did not preempt it.

Finally, the California Supreme Court rejected the argument that it violated the equal protection clause. The Court found that the ordinance was a valid exercise of a local government’s “police powers” to regulate its local workforce.

Although the case only involved the Los Angeles Municipal Ordinance concerning grocery stores, the Court’s analysis will likely apply to other similar municipal ordnances throughout the state. California employers who are contemplating the purchase of a competing business should consult with legal counsel to determine whether any local ordinances affect the rights of employees who work at that business to ensure a smooth transaction.