A state appeals panel has ruled Walt Disney Company should be subject to Anaheim’s municipal living wage ordinance as a result of a tax rebate the company receives from the city for its Disneyland theme parks.
Anaheim voters approved the ordinance in 2018, applying the requirement to any hospitality employers, including Disneyland Resort areas, benefiting from a city subsidy. The ordinance called for a $15 hourly minimum in 2019 with annual increases of $1 per hour until 2023, when the wage would be tied to the Consumer Price Index.
The lawsuit dates to 2019 when workers sued Walt Disney Company, Walt Disney Parks and Resorts and two Sodexo entities for failing to pay employees the statutory minimum.
Disney moved for summary judgment, arguing it did not benefit from anything that met the legal definition of a city subsidy. Sodexo, which operates restaurants in Disney parks and has derivative liability, joined the motion. Orange County Superior Court Judge William Claster granted the request, prompting the workers to take the issue to the California Fourth District Appellate Court.
Justice Eileen Moore wrote the panel’s opinion, filed July 13; Judges Kathleen O’Leary and Thomas Delaney concurred.
Moore explained the living wage ordinance’s definition of city subsidy includes “any agreement with the city pursuant to which a person other than the city has a right to receive a rebate of transient occupancy tax, sales tax, entertainment tax, property tax or other taxes, presently or in the future, matured or unmatured.”
The operative agreement, the panel said, is a 1996 infrastructure and parking finance agreement in which Anaheim agreed to issue roughly $400 million in municipal bonds for resort district revitalization, infrastructure improvements and an Anaheim Convention Center expansion. Money to repay bondholders was to come from incremental increases in pillow taxes, consumer sales tax and Disney’s property tax.
Disney also agreed to a credit enhancement agreement through which it would cover any shortfalls in the incremental tax revenue pools, as related to bond obligations, as well as a reimbursement agreement through which the city would reimburse Disney for shortfalls if there was money left over after bond payments.
The employees alleged Disney got more than “$200 million dollars to help finance the construction of California Adventure and a parking garage to serve the new park. … The bonds are repaid with and secured by Disney taxes. Instead of going to the city for general purposes, almost all of Disney’s transient occupancy, sales and real property taxes go to payments on the bonds, which will not be paid off until 2036. Disney got a rebate of the best kind: it got its taxes back before it paid them.”
Although Disney failed to get the case dismissed in 2020, as the court rejected Disney’s definition of a rebate, the October 2021 dismissal held the finance agreement doesn’t lessen the company’s tax obligation, and therefore there is no legal subsidy. The appeals panel disagreed.
“By the plain terms of the LWO, the agreement can give the employer a right to receive a return of transient occupancy tax (paid by hotel guests), or a right to receive a return of sales tax (paid by consumers), or a right to receive a return of property tax (paid by property owners),” Moore wrote. “Consequently, the right to receive a rebate of local taxes does not necessarily mean a return of the employer’s own taxes; therefore, the monies returned to the employer need not be traceable back to any taxes specifically paid by that employer.”
The panel focused on the “rebound” years in the reimbursement agreement — those years where Anaheim gives money back if the taxes Disney generates exceed the bond obligations — and said that qualifies as a subsidy under the wage ordinance. While Disney insisted the ordinance didn’t stipulate it was getting its own taxes rebated, the panel said the ordinance isn’t constructed as such.
“Disney’s interpretation makes little sense because employers ordinarily collect — but do not pay — transient occupancy and sales taxes,” Moore wrote. “We cannot rewrite the LWO to conform to Disney’s flawed interpretation.”
The panel reversed summary judgement in favor of Disney and order the company to pay the employees’ legal costs for the appeal.
Representing the plaintiffs are attorneys Richard G. McGracken, Sarah Grossman-Swenson and Ivy Yan, of the firm of McCracken, Stemerman & Holsberry; and Randy Renick and Cornelia Dai, of Hadsell Stormer & Renick & Dai.
Representing Disney are attorneys Alan Schoenfeld, Ryan Chabot and David C. Marcus, of Wilmer Cutler Pickering Hale and Dorr.
Representing Sodexo was attorney Carolyn E. Sieve, of Constangy, Brooks, Smith & Prophete.