The Family Business Association of California is deeply disappointed that the California Supreme Court ruled today that the voters will not have the opportunity to decide on the Taxpayer Protection Act, which would have protected taxpayers from local tax increases by giving them the right to decide if they wanted to tax themselves.
“We are deeply disappointed that the CA Supreme Court won’t let voters decide on the Taxpayer Protection Act. This court probably would not have allowed Proposition 13 to be on the ballot in 1978. What a shame for California voters,” said FBAC Political Director Robert Rivinius.
The justices – six of the seven appointed by Democratic governors – agreed with the arguments made by the Governor and Democratic legislative leaders that the measure would have constituted a “revision” of the Constitution because they would “fundamentally restructure the most basic of government powers” and therefore could only be enacted through established protocols for changing the Constitution, not a voter initiative.
The court ordered the initiative – placed on the ballot by the signatures of over 1 million Californians – stricken from the ballot.
It is the first time in decades that the court removed an initiative measure from the ballot.
Undeterred by this setback, proponents of the TPA, including FBAC, are making plans to place a new taxpayer protection measure on the 2026 ballot.
A recent ruling by the California Supreme Court is just one more reason why family businesses are working to pass the California Fair Pay and Employer Accountability Act in November. Doing so will be by far the best shot at reforming how the state deals with Labor Code violations and ensuring that both employees and employers benefit.
At issue is the Private Attorneys General Act, or PAGA, signed into law by Gov. Gray Davis as he was about to be recalled as a thank-you gift to trial lawyers and unions for their support. This law deputizes employees to file lawsuits against employers on behalf of the state for even minor and inconsequential violations of the 800-page Labor Code – and allows trial lawyers to receive huge sums that are far greater than the alleged victims receive.
In a recent settlement, attorneys made $21 million while the employees received $108 each. Family businesses and nonprofits have become major targets for predatory lawsuits that are often minor technical violations.
Attorney Bruce Scheidt, a shareholder with Kronick Moskovitz Tiedemann & Girard in Sacramento – a proud sponsor of the Family Business Association – says the Supreme Court decided that trial courts do not have inherent authority to dismiss or narrow PAGA lawsuits on manageability grounds, overturning a lower court ruling.
“This major ruling will continue to permit plaintiffs’ lawyers to use the threat of a PAGA lawsuit to bring broad and unrelated wage-and-hour claims to put pressure on employers to settle companion class action lawsuits, which are governed by manageability requirements that require plaintiffs to prove an employer consistently imposed a uniform policy or de facto practice that dominates over individualized issues,” Scheidt wrote.
“The high court refused to adopt the same manageability requirements on PAGA claims, holding that trial courts have ‘numerous tools’ to manage PAGA claims, such as limiting the presentation of evidence at trial and encouraging plaintiffs to be ‘prudent in their approach to PAGA claims,’ and that trial courts have discretion to reduce civil penalties that ‘may help to lessen the manageability concerns inherent with these [PAGA] actions.’ However, these tools are not a substitute for a trial court’s ability to dismiss a PAGA lawsuit where the plaintiffs cannot prove a uniform policy or practice of violating the Labor Code.”
It is expected that the Fair Pay Act would substantially reduce the number of lawsuits by eliminating the financial incentive to plaintiffs lawyers who use PAGA to extort millions of dollars from employers. The initiative would benefit employees and employers by:
Replacing PAGA’s bounty hunter provision with an alternative enforcement mechanism through the state’s Labor Commissioner: Only the Labor Commissioner could file an enforcement action to collect penalties under PAGA, and workers would not be able to hire a private attorney.
Requiring the Legislature to provide funding for enforcement.
Allowing employers to correct identified Labor Code violations without penalties.
Ensuring that 100% of penalties for uncorrected violations go to workers.
And doubling penalties if employers willfully violate the law.
Family businesses are the bedrock of our state’s economy. The state’s 1.4 million family businesses employ 7 million Californians. Nationally, they generate 57% of the GDP, employ 63% of the workforce, and create 75% of all new jobs.
At the same time, family businesses invest more in their employees’ training and benefits, are more likely to promote women to executive management, are less likely to lay off workers in tough economic times and engage in higher levels of philanthropic giving – while enjoying a better record on environmental stewardship.
With this track record, you would think the lawmakers and regulators in Sacramento would want to encourage family businesses to grow and expand. Unfortunately, our family businesses did not fare as well in 2022 as we would have liked. And with a recession potentially looming, we can only hope that lawmakers and the Governor are more willing to take steps to support family businesses when they return to the Capitol
The Family Business Association, and the broader business community generally, did achieve some victories. Perhaps most significant was the defeat of AB 2932, which would have imposed a tremendous cost on employers by reducing the weekly overtime threshold from 40 hours to 32 hours and mandating that employees’ base rate of pay be increased. The provisions of this bill would have been impossible to comply with, exposing businesses to innumerable lawsuits under the state’s misguided Private Attorneys General Act, thus discouraging job growth in the state and likely reducing opportunities for workers. Fortunately the bill quietly died.
Another win – at least for now – was the defeat of AB 1400, which would have created a government-run health care system, and its companion bill, ACA 11, which would have raised taxes by an estimated $162 billion the first year alone, with those taxes likely increasing every year to cover rising health care costs. Had these measures passed, it would have led to significant layoffs and relocations as employers would have been forced to cut costs to pay the higher taxes. However, proponents have already said they’ll bring the proposal back in 2023, so the threat continues.
However, family businesses also saw several bills enacted that will add to the cost of doing business in California. And two bills we supported were vetoed.
The first was AB 1951, which would have created a full sales and use tax exemption for the purchase of manufacturing equipment, which exists in 38 other states. The bill would have been particularly helpful for the 70% of manufacturers that have 20 or fewer employees and would have been a powerful incentive to create more high-wage jobs, ensuring that students being trained in STEM fields would have opportunities when they enter the workforce.
Governor Newsom cited the loss of tax revenue for local governments but did leave the door open to reconsidering the issue as part of the budget process next spring.
The other veto was particularly painful. AB 2611 was an FBA-sponsored bill that would have placed a definition of what a family business is into state law and would have been a good foundation for future legislative and regulatory efforts to help family-owned businesses that have called California home for generations.
The bill passed both houses of the Legislature without opposition, but the Governor – a family business owner himself – vetoed it.
Despite these vetoes, California’s family businesses are committed to the Golden State and to continuing to be the bedrock of their communities. We will continue our efforts in 2023 to enact legislation that supports family businesses and to oppose measures that would make it more difficult for them to thrive and be passed down to the next generation of family ownership.
We are deeply disappointed by the Governor’s veto of our sponsored bill, AB 2611 (Daly). The legislation would have created a definition of a family business in state law. As we may be the only organization working to keep family businesses in California, we thought that such recognition in state law would be a good foundation for our efforts. We did have plans to expand on the legislation, but unfortunately, before vetoing the bill, the Governor did not ask us about that.
There seems to be denial at the State Capitol about family businesses and family business owners leaving the state, but we know it is happening. When last we surveyed our members, 50% of those responding said they were either planning to move to a friendlier, more affordable state with less onerous regulations, or were at least considering it. On most national business surveys, California comes up as the most difficult state in the nation in which to do business. Our family business members find it very difficult to deal with the onslaught of new regulations that are signed into law every year.
We want to thank each of our members that have stayed the difficult course of keeping Californians employed, keeping the lights on and families and the world fed. Though this administration did not recognize your contributions, we always will. You are the real heart and backbone of our economy. You are great employers who value your employees and are very philanthropic within your communities.
While the veto of our bill feels like just one more nail in the coffin of family businesses in California, be encouraged that this bill made it to the Governor’s desk with unanimous, bipartisan support and zero opposition. This is a foundation we look forward to building upon.
Ballot measure would help parents pass their family business along to their childre
The COVID-19 pandemic hit many family-owned businesses hard. Now as California emerges from the crisis, those businesses are still struggling to stay afloat.
There are 1.4 million family businesses in California. They provide jobs for seven million Californians. These businesses improvised, innovated and gave their blood, sweat and tears to keep their doors open during the height of the pandemic.
It’s now been four months since Gov. Gavin Newsom lifted pandemic executive orders and reopened the state. Yet despite what we all hoped would be a return to normal, California family businesses continue to face more uncertainty.
First, the labor shortage is causing many businesses to cut operating hours or delay expansions that could grow their business. Then the Delta variant hit — spreading throughout the state and causing renewed alarm. And supply chain shortages that are so frustrating for consumers are squeezing businesses who are already under strain and now are unable to restock shelves.
Through all this, family businesses have been learning the full effects of Prop 19, which narrowly passed in November 2020 and brought the Death Tax back to California.
Prop. 19 had some good elements, but it took away voter-approved constitutional protections that allowed families to keep a business or home they worked so hard to acquire.
Now when a parent passes away and leaves behind a family business or home, their children are hit with the Death Tax — reassessment to current market value, triggering a massive property tax increase in the midst of grieving a parent’s death.
The Death Tax is cruel and unfair. When the children can’t come up with the cash to pay the new annual property tax bill, they are forced into an unwanted sale. Lost are California family businesses that took decades of hard work to build along with the dream of passing on a legacy to children and grandchildren.
California can’t afford to lose more family businesses who are uniquely connected and invested in the success of their local community.
That’s why it is so important that we pass the Repeal the Death Tax Act, which will soon be gathering signatures for the November 2022 statewide ballot.
The Repeal the Death Tax Act will restore the constitutional taxpayer protections that California family businesses relied on for nearly 35 years.
The measure brings back the ability of Californians to transfer a family business, farm or other non-primary residential property, valued up to $2.4 million and indexed for inflation, to their children upon the property owner’s death without triggering reassessment and a huge property tax increase.
The measure will also allow parents and grandparents to again transfer their homes to their children and grandchildren upon death and maintain the property taxes at current level.
In essence, the Repeal the Death Tax Act will help to preserve the long-term wishes of parents to pass on their family business or home to their children.
Please think of the family businesses that you rely on. They may have been in operation for generations, not only serving customers but giving back to the entire community. We need these family-owned businesses in California. So when you see signature gatherers in front of stores, please sign the petition for the Repeal the Death Tax Act or visit HJTA.org/RepealTheDeathTax to learn how you can help.
This op-ed originally appeared in the Mercury News.
