Imposition of Minimum Wage Looms for California State Workers

Posted on July 19, 2010 by Walter Haines, Esq.

On July 1, the first day of the new fiscal year, Governor Arnold Schwarzenegger issued a wage order reducing the salary of 200,000 state workers to the federal minimum wage of $7.25 an hour.  Despite State Controller John Chiang’s refusal to comply with the order, the California 3rd District Court of Appeals ruled that the state Department of Personnel Administration (DPA)  “has the authority to direct the controller to defer salary payments in excess of federally mandated minimum wages when appropriations for the salaries are lacking due to a budget impasse.”  California remains without a budget for the coming year as lawmakers continue to debate the best way to close the state’s $19.1 billion deficit. 

The governor’s motive for the minimum wage plan appears to be two-fold.  First, it places pressure on state legislatures to take swift action on establishing a budget.  According to Schwarzenegger spokesperson Aaron McLear, “Every day the Legislature fails to deliver a budget costs the state $50 million.” The major conflict concerns the democrats’ goal of increasing taxes and spending billions on schools and the governor’s proposed tax cuts. Secondly, the governor hopes that the threat of a minimum wage would encourage unions to negotiate new contracts with the administration.  To date, six of the state’s 12 unions, which represent approximately 40,000 workers, have signed contracts involving pay cuts and pension revisions. As for the remaining union workers, the wage order poses a large financial threat.  The DPA has indicated that the average state employee makes $65,000 annually.  A minimum wage cut would reduce this figure to $15,000 per year.  The fact that reimbursements will be issued after a budget is signed is little solace for workers who need to make ends meet until then.  The controller’s office has sated that it would take at least six months after a budget is passed to reinstate workers’ full rate of pay.

The only good news for affected workers is that the minimum wage order may never take effect.  Controller Chiang had indicated that he believes the wage order to be illegal and plans to appeal the district court’s ruling to the Supreme Court before he complies with the order. He further contends that implementing the order is practically infeasible due to the state’s outdated computerized payroll system.  Specifically, the system cannot issue some checks at full salary and other checks at minimum wage.  The Legislature approved $130 million in upgrades to the system in 2004, but the project has been repeatedly postponed by the controller’s office.  According to Chiang, a final “fix” to the system will not be ready until October 2010.

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