The California Minimum Wage Hike: Economic Justice or Economic Devastation?

Governor Jerry Brown signed the recently passed minimum wage bill into law today. But a hike to $15.00 an hour could wreak economic devastation on rural areas of the state, especially hard hit will be labor intensive businesses. Many companies will likely explore strategies to mitigate the impact of the steep increases in the minimum wage, but these strategies also carry certain legal risks.

​​California business owners, still struggling to adjust to the minimum hourly wage hike to $10 per hour that took place on January 1, 2016, just got hit with another wage hike- this one even harder for some small businesses to absorb. Governor Jerry Brown, true to his earlier comments that the bill constitutes “economic justice,” signed the legislation into law today. The new law provides for a steady increase in California’s hourly minimum wage annually until it reaches $15 per hour in 2022, with businesses of 25 or fewer employees getting an additional year to comply. Afterwards, the minimum wage will be adjusted for inflation.

Ruben Gonzales, senior advisor of the Los Angeles Chamber of Commerce, iterated what many business owners are thinking, “Everyone wants higher wages for folks, but if you can only raise prices so much you’re going to be forced to cut hours, cut employees, change your business model and [perhaps] automate.”

Not only are most of our clients small businesses but we ourselves are a small business. We know the impact this legislation will have on small businesses. I expect we will be very busy over the next several months helping our clients navigate this new law.

Tina Gehres, President and CEO

Many companies will likely explore strategies to mitigate the impact of the steep increases in the minimum wage, but these strategies also carry certain legal risks. One firm that is helping small businesses navigate the changes is the Gehres Law Group, P.C. “Our clients range from restaurant owners, to IT professionals, real estate investors, medical providers, talent agencies, and a host of other industries, many of whom will experience serious economic stress due to these increases in the minimum wage,” said President and CEO of Gehres Law Group, Tina Gehres. “Labor-intensive businesses will bear the brunt of this legislation and those who can't automate or change their business model will be forced to find ways to adjust to this legislation by making changes to their work force. Advising companies in this process, and frankly helping them avoid bankruptcy, will be a significant portion of our practice in the coming years, I believe," Gehres added.

“Businesses operating in rural areas are especially vulnerable, where overall wages are typically lower and consumers have less disposable income after paying for necessities like rent, transportation and utilities,” Gehres continued. “For those businesses, these increases may very well spell economic disaster."  While the bill gives small businesses with fewer than 26 employees an additional year to comply with the stepped-up wage requirements, many feel that compromise is far from adequate to help struggling businesses. As Gehres points out, "without a flat out exemption or lower wage minimum for start-ups and businesses with 15 or fewer employees, the likelihood of more vacant commercial space, and rising unemployment in these areas is very real. Is it really fair to argue for economic justice in urban areas while turning a blind eye to economic devastation in rural areas?" Gehres argued.​