A proposed ordinance requiring businesses on city-owned property to sign labor peace agreements is drawing renewed opposition from business groups citing both constitutional concerns and economic risks to struggling establishments.
The California Restaurant Association has enlisted legal counsel to challenge the mandate if adopted, while a new economic analysis warns the requirement could force closure of businesses still recovering from pandemic losses. The Santa Monica City Council directed the City Attorney in August to draft the ordinance, which would apply to any new, amended or renewed lease, license or concession agreement on city property.
Fisher & Phillips LLP, representing the restaurant association, notified the City Council in an Aug. 27 letter that mandated labor peace agreements violate federal labor law and are unconstitutional.
"Mandated LPAs are unlawful regardless of the specific language of the LPA Ordinance and are a governmental overreach," wrote Todd A. Lyon, an attorney with the firm's San Francisco office.
The legal challenge centers on the National Labor Relations Act, which Lyon argues preempts state and local laws that interfere with workers' rights to choose whether to unionize. The letter cites a recent federal court ruling in Oregon that found a similar state mandate violated the Supremacy Clause of the U.S. Constitution. Fisher & Phillips also brought that case in Oregon.
Labor peace agreements typically require employers to allow union organizing without interference, while unions agree not to strike or disrupt operations. The proposed Santa Monica ordinance would focus initially on commercial tenants at the Santa Monica Pier, though it could extend to other city-owned properties including the airport, beach facilities and Third Street Promenade.
Councilmember Dan Hall, a supporter of the measure, has argued labor peace requirements create business continuity by preventing strikes. City officials note that Los Angeles World Airports, Long Beach and Los Angeles County have successfully implemented similar policies.
While much of the discussion about a new law in Santa Monica has focused on property like the Santa Monica Pier, language used to direct staff to work on the proposal described city owned property as the trigger causing critics to fear it could be applied to anyone with tables on the sidewalk.
Nearly three dozen Pier and local business owners sent a letter to city officials in August opposing the current proposal, warning the mandate could destroy the Pier's character by squeezing out independent merchants.
Opponents say the rules may be illegal
Lyon's letter outlines multiple legal theories for challenging the ordinance. Under the NLRA's Garmon preemption doctrine, he argues, the mandate would violate employees' Section 7 rights to choose their own labor representation without external pressure.
"By requiring employers who operate businesses with city leases sign an agreement with a labor organization that binds the employer's conduct, the LPA Ordinance would favor unionization before employees even have the chance to exercise their Section 7 rights," Lyon wrote.
The letter also invokes Machinists preemption, which prevents state and local governments from interfering with contract negotiations between unions and employers. Lyon argues the ordinance would alter what should be a matter for negotiation into a non-negotiable condition dictated by the City Council.
"This alters what would ordinarily be a matter for negotiation into a non-negotiable condition dictated by the Council, for the benefit of the unions, which is disallowed," the letter states.
The legal argument draws on a 1986 U.S. Supreme Court case in which the Los Angeles City Council's attempt to condition taxi franchise renewals on settlement of a labor dispute was ruled preempted by federal labor law.
Lyon also warned the mandate could violate employers' First Amendment rights and their Section 8 rights under the NLRA to speak openly about unionization.
New economic argument released
A separate economic analysis released Tuesday adds to opposition by warning the mandate would impose new costs on businesses already operating at substantial losses.
The Hatamiya Group reviewed a decade of financial data and confidential profit-and-loss statements from Santa Monica businesses leasing city property. The analysis found profit margins collapsed during the pandemic from 7% to 16% before 2019 to as low as negative 109% in 2020.
Margins remain deeply negative today, ranging from negative 16% to negative 50% in 2024, with further declines in 2025, according to the report.
"For the most part, locally owned businesses across the City have not rebounded from the downturn caused initially by the COVID-19 pandemic," the analysis concluded. The report warned that labor peace agreement mandates "could further exacerbate declining profit margins and higher costs facing local business owners."
The analysis also cautioned that businesses might avoid Santa Monica properties subject to the mandate, resulting in longer vacancies and reduced city revenues. Many city leases are tied to sales, meaning declining business revenue directly affects what the city collects.
Jot Condie, president and CEO of the California Restaurant Association, said restaurants face mounting pressure from rising costs.
"Restaurants are facing unprecedented cost increases, from labor to food to compliance, all while still recovering from the pandemic," Condie said. "Layering on new mandates like this will put many local restaurants in an impossible position."
Previous attempts were abandoned
Santa Monica has long promoted progressive labor policies in its hospitality sector. In 2000, the city required a labor peace clause in the ground lease for the Viceroy Hotel, which sits on city-owned land. That agreement paved the way for the Viceroy to become Santa Monica's second unionized hotel.
By 2002, the Loews Santa Monica Beach Hotel had signed a union contract, followed by the Sheraton Delfina. Four of Santa Monica's luxury hotels were unionized in the subsequent years, representing about half the city's high-end hotel rooms. Housekeeper wages rose from about $7.25 to $11.25 an hour during the organizing campaigns.
The city considered a broader labor peace mandate in 2018 that would have applied to all businesses on city property. The proposal faced intense pushback from small business owners and was eventually rejected by the City Council.
Lessons from the minimum wage
The debate over Santa Monica's labor peace proposal comes as California examines the impacts of its $20 minimum wage for fast-food workers and critics of the labor peace proposal say there are lessons in unintended consequences from the wage rules.
Initial analysis of the wage was mixed. A University of California, Berkeley study found the wage increase did not reduce overall fast-food employment and led to only a 2% increase in menu prices. However, an Employment Policies Institute analysis found California's fast-food sector lost roughly 19,100 jobs between September 2023 and mid-2025, including about 16,000 jobs lost after the wage took effect.
However, critics say recently released data from the Bureau of Labor Statistics verifies their position.
According to the BLS, California has lost approximately 19,100 fast-food jobs since Governor Gavin Newsom signed the $20 minimum wage law, including nearly 16,000 positions eliminated after the law took effect in April 2024. The state's 3.3% job loss rate was more than double the national average, accounting for 25% of all fast-food job losses nationwide during the period. Surveys found 98% of restaurant operators raised prices, 89% reduced employee hours, and 70% cut staff in response to the mandate.
The Hatamiya Group analysis noted Santa Monica's economy remains fragile, with General Fund revenue falling nearly 27% during the pandemic and tourism down 9% year over year.