Nevada’s minimum wage law continues to be a minefield for employers. On August 14, 2015, in the case of Hancock v. the State of Nevada, the First Judicial District Court held two, key minimum wage regulations as unconstitutional. First, the Court ruled employers cannot include tips or gratuities to calculate an employee’s cost for health insurance premiums. Second, the Court ruled employees must receive employer-provided health insurance before employers can pay the lower-tier minimum wage. Nevada Labor Commissioner, Shannon Chambers, recently asked the Court to stay enforcement of the ruling while she appeals the case to the Nevada Supreme Court.

In 2006, Nevada voters ratified ballot question 6 that amended the Nevada Constitution to require employers to provide every employee a minimum wage. If the employer “provides” qualified health insurance to its employees, the employer may pay the lower-tier wage, currently $7.25/hour. If the employer “does not provide” health insurance to its employees, the employer must pay the employee the higher-tier wage of $8.25/hour. Although the Amendment first used the verb “provide,” it later notes “[o]ffering [health insurance] within the meaning of this section shall consist of making [it] available to the employee . . . at a total cost to the employee for premiums of not more than 10 percent of the employee’s gross taxable income from the employer.” NEVADA CONST. art. XV, § 16(A) (emphasis added).

After ratification, the Labor Commissioner enacted regulations to enforce the Amendment, including the two regulations at issue in Hancock: (1) NAC 608.104(2) allowing tips, gratuities, and other income to be included in the “gross taxable income from the employer”; and (2) NAC 608.100(1) allowing employers to pay the lower-tier wage if it merely offers health insurance—regardless of whether the employee accepts it or not.

In Hancock, the plaintiff argued both regulations were unconstitutional because: (1) tips or gratuities could be added in the “gross taxable income from the employer” under NAC 608.104(2); and (2) the employee must actually receive the employer-provided health insurance before the employer can pay the lower-tier wage, contrary to NAC 608.100(1). The Court agreed and ruled both regulations unconstitutional.

First, the Court evaluated whether tips and gratuities can be included in the employee’s cost of the health insurance and ruled that they cannot. The Court held the text of the Amendment precluded inclusion of tips and gratuities as income “from the employer.” The Court found the clause “10% of the employee’s gross taxable income from the employer” unambiguous, and ruled “gross taxable income” only includes funds received directly “from the employer.” Under this definition, the Courts reasoned that tips and gratuities are excluded from the clause. The Court also noted that the Amendment expressly provided “[t]ips or gratuities received by employees shall not be credited as being any part of or offset against the wage rates required by this section.” NEVADA CONST. art. XV, § 16(A) (emphasis added). Additionally, the Court held public policy precluded any contrary reading because including tips and gratuities in the clause “gross taxable income from the employer” would increase the cost of healthcare to employees, which, according to the Court, contravened the Amendment’s purpose. On these bases, the Court ruled NAC 608.104(2) unconstitutional.

Second, the Court evaluated whether an employer may merely offer health insurance to pay an employee the lower-tier wage under the Amendment. The district court held an employee must actually receive employer-provided healthcare before an employer can pay the lower-tier wage. Although “provide” and “offering” were used interchangeably in the Amendment and may lead to multiple, reasonable interpretations, the Court concluded the Amendment was not ambiguous, “provide” and “offering” are not synonyms, and the initial use of “provide” required that the employee receive something in exchange for the lower-tier wage. Otherwise, the court reasoned, “the employees . . . who reject insurance plans offered by their employer would receive neither the low-cost health insurance envisioned by the [Amendment], nor the raise in wages [the Amendment’s passage] promised.” In short, the Court also ruled NAC 608.100(1) unconstitutional and an employee must actually accept the qualifying insurance before an employer can pay the lower-tier wage.

On September 4, 2015, the Labor Commissioner appealed the Court’s order, and the Supreme Court of Nevada will determine these issues. In the interim, Nevada employers paying the lower-tier minimum wage should consider the following issues:

• Whether to pay employees the higher-tier minimum wage ($8.25/hour). If the higher-tier minimum wage is paid, an employer should discuss with its legal counsel whether health insurance is not required and it is not required to analyze whether the health insurance qualifies;
• Whether to pay the lower-tier minimum wage ($7.25/hour). If this lower-tier minimum wage is paid, an employer should review its health insurance policy, and scrutinize its health insurance to ensure the employee’s 10 percent share of the qualified, health insurance premium does not to include tips, gratuities or any other non-employer provided income;
• Discuss with its legal counsel whether an audit of its payroll is appropriate to ensure every employee paid the lower-tier minimum wage affirmatively (in writing) accepted the qualifying health insurance;
• Discuss with its legal counsel whether or not it should take steps to avoid daily overtime, which is tied to the Nevada minimum wage, by scheduling employees to only work eight hours (10 hours in some cases) in a 24-hour period that starts when the employee begins work.

If an employer suspects any potential legal issues related to its payroll practices, including the Nevada minimum wage, it should discuss such issues with its employment counsel.