Regulations causing employers to flee the state
By Jonathan Fraser Light
I have a running sick joke with one of my insurance broker clients. Every month he tells me how many of his clients have left the state because they can’t stand to run a business here. Others of my employer clients are leaving when they can. Meat packers, computer chip component makers, recreational product manufacturers — all are leaving for other states or other countries because they can’t put up with California’s overly technical and burdensome employment law environment.
A $15 minimum wage sounds great for many workers whose employer can’t leave the state (fast food, hospitality), but those who are mobile are leaving in droves. Even agriculture is moving to Nevada where they can grow crops hydroponically or otherwise indoors.
On top of that, one small class action can wipe out a business because of the multiple layers of penalties that apply to even minor violations.
For example, a single late meal break triggers a meal break “penalty” of one hour of pay; but that isn’t just a one-time “penalty” according to the law. It means more “wages” owed to employees. As a result, plaintiffs’ lawyers can add a separate “penalty” for a wage statement violation ($100 per pay period), a waiting time penalty of 30 days’ pay (failing to pay all wages to a departed employee), and penalties under the Private Attorney General Act ($100-$200 per pay period). When you have dozens of employees, or thousands in some cases, even if many of those employees worked only a single day (which isn’t unusual with temp employees), they each can be owed thousands of dollars in penalties because of a single meal break violation. Not fair, say the employers. And they’re right. It’s driving businesses under and away.
We’ve created a legal stranglehold that no employer can possibly get right 100 percent of the time. My clients complain that they treat their employees fairly, pay better than minimum wage, provide other perks, but then they get burned because of a single disgruntled employee who quits, or is fired, and then goes to an attorney who turns over every pebble looking for any violation to support a class action lawsuit.
Think your company has all its bases covered? I guarantee that no matter how confident employers are that they are doing everything correctly, the odds are excellent they are doing something wrong. One client just settled a class action for $700,000 based on having late meal breaks. It wasn’t intentional; the employees had done it this way for years and liked it — but technically it was a violation. A former employee who was terminated for good cause found a lawyer to take the case and file a class action. The company’s employees had been paid far above market, and some had been with the company for more than 30 years. Unfortunately, to prevent any other problems, the owner’s solution was just to close the facility.
A few changes to the law solely related to meals and rest breaks might bring at least some relief to employers, but I don’t have much confidence that our overly employee-friendly state legislature will address these issues. The rules often legislate to the worst of the worst employers — and certainly, they are out there — but the majority of employers do right by their employees and don’t intend to run afoul of the law. Or, when they do, it’s often no harm to the employees.
Here are a few thoughts on changes that could help: If a technical violation is found for late meals (starting after the end of the fifth hour of work), give the employer 30 days to cure, as with certain pay stub violations. Exclude repeat offenders. Employees would have to show actual harm due to a late meal or rest break. Call meal and rest break penalties what they are — penalties — so that plaintiffs’ lawyers won’t be tempted to layer them with additional penalties that balloon what is owed by the employer. Restrict certain penalties to employees who have worked for the employer for at least 30 days. When 500 temps can be owed $4,000 each for working a single week, the system is broken. Give the court discretion to determine the penalty based on some showing of harm and the equities. If employees in a class action don’t make a claim, let the settlement money revert to the employer.
By the way, that insurance broker client? He’s moving his operations online and relocating to Colorado.
• Jonathan Fraser Light is the managing attorney at LightGabler in Camarillo. Email him at email@example.com.