California Grocers Association Sues Over Pay Mandates

The California Grocers Association (CGA) has filed federal lawsuits against the cities of Daly City and San Jose challenging grocery pay mandate ordinances approved in those cities.

The Daly City and San Jose lawsuits allege similar violations of law as cases filed by CGA in Long Beach, Montebello, Oakland, San Leandro and West Hollywood. Daly City has mandated an additional $5/hour and San Jose $3/hour in extra pay for a select group of grocery store employees.

“In addition to clearly violating federal and state law, the extra pay mandates will harm customers and workers,” said Ron Fong, president and CEO, CGA. “A $5/hour mandate amounts to a 28 percent average increase in labor costs for grocery stores. That is too big a cost increase for any grocery retailer to absorb without consequence. Options are few. Either pass the costs to customers, cut employee or store hours, or close. Already five stores in Los Angeles County have closed after extra pay mandates were enacted.”

The moves by CGA come a few days after Kroger Co. said it would close two Ralphs stores and one Food 4 Less store in Los Angeles, a decision accelerated by a new city council mandate that requires extra pay for front-line workers. 

According to a statement from Kroger, the mandate will add an additional $20 million in operating costs over the next 120 days, making it financially unsustainable to continue operating the underperforming locations. 

“Ralphs and Food 4 Less provide affordable, fresh groceries, good and stable jobs with growth opportunities to thousands of Los Angeles residents, and proudly supports local community organizations across the city. Unfortunately, the Los Angeles City Council disregarded their own Economic Impact Report by not considering that grocery stores — even in a pandemic — operate on razor-thin profit margins in a very competitive landscape. It’s never our desire to close a store, but when you factor in the increased costs of operating during COVID-19, consistent financial losses at these three locations, and an extra pay mandate that will cost nearly $20 million over the next 120 days, it becomes impossible to operate these three stores,” said a Kroger company spokesperson.

The following three affected store locations will remain open and operational for the next 60 days, closing on May 15.     

Ralphs - 9616 West Pico Blvd.  
Ralphs - 3300 West Slauson Ave.  
Food 4 Less - 5420 West Sunset Blvd.  

On Wednesday UFCW International President Marc Perrone released the following statement regarding the closures: “Kroger has made billions in pandemic profits thanks to essential grocery workers in California and across the country. Kroger’s action today is a cruel attack on essential workers and threatens the food supply for California communities devastated by the explosion of COVID-19 infections in recent months. Essential workers in grocery stores are putting their health at risk every day to make sure families can put food on the table and city leaders are stepping up to ensure they have the hazard pay they have earned."

Grocery chains have been pushing back against pay mandates approved in Seattle, Long Beach, California, New York, Los Angeles and other cities. According to CGA, a recent study found that extra pay mandates of $5/hour could raise consumer grocery prices by about $400 annually for the typical family of four. Alternatively, if grocers were forced to find offsetting savings in operational costs, it would mean a 22% across-the-board reduction in work hours, hurting the very workers these proposals aim to help.

CGA says the extra pay mandates passed by the cities have been illegal in two main ways: 1) By singling out certain grocers and ignoring other groups that employ essential front-line workers, the ordinances violate the U.S. Constitution and the California Constitution’s Equal Protection Clauses, which require similarly situated people to be treated alike; and 2) the ordinances are preempted by the federal National Labor Relations Act, which protects the integrity of the collective-bargaining process.

The suits against Daly City and San Jose were filed in the Northern District of California. Both ask the courts to declare the ordinances invalid and unconstitutional.

“Grocery store workers are frontline heroes, and that’s why grocers have already undertaken a massive effort to institute measures to make both workers and customers safer in stores,” Fong added. “Firefighters, police officers, health care workers, as well as transportation, sanitation, and restaurant workers are essential, yet grocers are the only businesses being targeted for extra pay mandates. These ordinances will not make workers any safer.”

In voting to approve the ordinances, local officials have ignored low profit margins and significant operational costs grocers have incurred in response to the pandemic, including the hiring of tens of thousands of additional employees due to the pandemic, CGA says.

Last week the Valley Industry and Commerce Association (VICA) issued a related statement: 

“The future is bleak for Los Angeles," said Stuart Waldman, president of VICA. "If the LA City Council continues to insert itself in business affairs, disregarding community concerns, expert warnings, and concrete evidence, businesses will not want to invest in Los Angeles. I hope the Council considers the long-term economic impacts of this decision. VICA thanks our front-line workers, but these exclusive and rushed provisions are simply bad policies that will have lasting negative effects on our city. "

Ralphs and Food 4 Less are providing the mandated extra pay to all associates, including those in the three locations scheduled to close as well as the other 65 stores in Los Angeles.  The extra pay is in addition to the total compensation package Ralphs and Food 4 Less currently offers to associates, including competitive wages, comprehensive health care and a reliable pension. The average hourly wage for Ralphs and Food 4 Less associates in Los Angeles is $18 an hour and total compensation is $24 an hour, with premium health care and stable pension benefits factored in, the company said.   

Since the start of the pandemic, Kroger has invested $2.5 billion to both reward associates and implemented dozens of safety measures that continue to be followed today, including $1 billion to better secure pensions. The company also continues to provide incentives for associates, including recently issuing $50 million in rewards to front-line associates.   

Cincinnati-based Kroger employs nearly half a million associates who serve 9 million-plus customers daily through a seamless digital shopping experience and 2,800 retail food stores under a variety of banner names. The company is No. 3 on The PG 100, Progressive Grocer’s 2020 list of the top food and consumables retailers in North America. Kroger operates 188 Ralphs stores who serve customers daily through a seamless shopping experience throughout Southern California and the Central Coast, and 129 price-impact, warehouse-format supermarkets under the banners Food 4 Less in Southern California, Illinois and Indiana, and Foods Co in Central and Northern California.