FBA Executive Director Robert Rivinius was invited by Assembly Member Cottie Petrie-Norris, D-Laguna Beach, to be on a panel at today’s Select Committee on Small Business and Entrepreneurship hearing. Following is a letter sent to committee members afterwards summing up FBA’s views.
Dear Assembly Member Petrie-Norris
Thank you for the opportunity to participate on the California Comeback: Pandemic Recovery for Small Business panel today. Many excellent points were raised and discussed by you and the panelists. I will summarize my recommendations here for the committee members not attending the hearing:
- A most critical problem facing family businesses is workforce development. Due to federal and state programs, many workers can make more money not working than they make working. Our members report that when employees are called to ask them to come back to work, the reply often is that they are making more money not working and might consider coming back when the benefits end. It is important not to implement new programs or extend existing programs that create this outcome.
- The regulatory system in California is crushing many small businesses. The large California Labor Law Digest published by the Cal Chamber contains over 1,000 pages of fine print. How can anyone be expected to comply with that? And this is just one form of the massive and costly regulatory system in California.
- Something must be done to curb Private Attorneys General Act (PAGA) lawsuits. This allows employees to sue on behalf of the state. PAGA was originally enacted to help the state regulate its underground economy – those businesses that operate unlawfully outside of tax and licensing requirements. But PAGA also allows employees to sue for almost every Labor Code violation, not just serious violations or those dealing with health and safety — even something as innocuous as listing the corporate name on a pay stub instead of a company name. The average settlement in these cases is a staggering $1.2 million and attorney’s fees average more than $405,000 per case.
- CTE funding is critical to create and fund vocational training programs at the K-12 and community college levels to teach skills that will help graduates get better jobs.
- Due to the COVID crisis, the state now has a UI fund debt to the federal government of about $22 billion. Nothing has been put in the state budget to begin paying off this debt. This could result in a dramatic increase in unemployment insurance fees to California’s employers.
Thanks again for the opportunity to comment. We always stand ready to provide input from California’s family businesses.
This op-ed appeared on the California Globe website
These days, it is hard to avoid headlines about the latest businesses going under and more lost jobs due to COVID-19 in California. But not only are California’s businesses suffering like most across the country, we have it even worse for one reason: lawmakers did virtually nothing last session to protect our businesses against California’s worsening lawsuit abuse problem. With everyone back in Sacramento, my hope is that issue will seriously be considered this year.
Let’s start with California lawmakers’ failure to curb the oncoming wave of COVID-19-related frivolous lawsuit, while in fact creating more ways in which businesses can be sued. Did you know that businesses must actually prove they did not give a customer or employee COVID-19 instead of plaintiffs providing any evidence of their own? They are required to spend precious resources on discovering who may have gotten sick and where, even if they were following all appropriate public health guidelines. If this seems backwards, it is. And it’s the perfect storm for lawyers looking to turn a buck via lawsuit settlements – a recipe for disaster for our state’s struggling family business owners. And this is only one of the ways that our lawmakers let our business community down during this past session.
Then there is the issue of California’s notorious Private Attorneys General Act (PAGA), which allows any “aggrieved employee” to sue on behalf of the state for the most trivial “violations” imaginable, such as a typo in an employee’s paystub or a clerical error on a timesheet. Why are these utterly useless lawsuits continuously filed in the Golden State? Because under PAGA, there is the potential for a huge payout, which – as usual – attracts the state’s aggressive trial attorneys.
Under PAGA, 75 percent of penalties paid by non-compliant employers goes to the state. Therefore, the employees who bring the suit are left with 25 percent, a third or more of which goes to the lawyers. In the most classic example of why this needs to be changed, a 2019 PAGA lawsuit against Uber resulted in a $7.75 million settlement – $2.3 million of which went to the plaintiff’s counsel. This left a little over $1 to the average Uber driver.
In addition, the threat of PAGA lawsuits prevents employers from working with their employee’s need. As an example, Jim comes to work at 6:00am, so is required by state law to have lunch at 11:00am. All of Jim’s friends at the business have their lunch at noon, so Jim would like to put his lunch off an hour so he can join them. The employer must say no, the law won’t allow that and you could sue me if I OK it. Another example, Sue would like to skip her afternoon break so she can be there for the start of her son’s little league game. Again, the employer must say no, for the same reasons.
It’s senseless laws like this like this that allow trial attorneys to reap the benefits of our broken legal system, while leaving our businesses owners to suffer the consequences. As the Executive Director of the Family Business Association of California, I know that our lawsuit abuse problem is hurting struggling, family-owned businesses. If we want to ensure we actually have an economy to come back to once this crisis is over, lawmakers must prioritize protecting, rather than harming, the employers in this state, and ending these unwarranted lawsuits.
Contact: Robert Rivinius, Executive Director
The Family Business Association of California today issued the following statement expressing disappointment in Gov. Gavin Newsom’s decision to support Proposition 15, the measure on the November ballot that would create an $11.5 billion tax increase on businesses.
“The Family Business Association is composed of family-owned businesses that have been investing in California for decades. Our members have a long-term view. We create jobs and opportunities for thousands of Californians. COVID-19 has hit us hard. Global, offshore competition has narrowed our margins. Asking us to now pay in many cases two or three times the amount in property taxes that we have historically paid means higher wages will be deferred and what limited job growth there is will stop and any new jobs likely will be created in other states. Proposition 15 is a terrible idea, especially during these difficult times. We are very disappointed by Governor Newsom’s endorsement of this proposition that will seriously harm our businesses and our employees’ job security.”
At the July 29 FBA Board of Directors meeting, “no” positions on three ballot propositions were adopted:
No on Proposition 15 – the infamous “split roll” initiative backed by public employee unions would remove Proposition 13 protections for commercial properties and create about $12 billion a year in new property taxes. The unions reportedly will spend $40-50 million to get the initiative passed by California voters. FBA is part of a coalition of over 2,000 associations, businesses, and individuals opposing the measure. The county assessors in California also oppose the initiative as unmanageable and extremely difficult to implement. The campaign has a very good website full of information at www.noonprop15.org.
No on Proposition 19 – The assaults on California property owners and taxpayers never stop. And once again the California Legislature has advanced a massive tax increase at the last possible moment, sponsored by the California Association of Realtors. Assembly Constitutional Amendment No. 11 (ACA11) takes away Proposition 13 protections that California families have under current law and replaces them with a billion-dollar tax increase. This is Proposition 19. Under Prop. 58, a home of any value and up to a million dollars of assessed value of other property may be transferred between parents and children without reassessment. Proposition 19 (2020) would repeal Proposition 58 (1986) and force the reassessment of inherited or transferred property within families. The only exception is if the property is used as the principal residence of the person to whom it was transferred, and even that exclusion is capped. The Legislative Analyst’s Office estimates that the repeal of the “intergenerational transfer protections” guaranteed by Props. 58 and 193 will result in 40,000 to 60,000 families getting hit with higher property taxes every year. Prop. 19’s massive tax increase has been included in this initiative to offset another proposed constitutional change: the expansion of the ability for older homeowners to move to a replacement home and transfer their base-year property tax assessment from their previous home to the new property. While this “portability” expansion has some merit, voters rejected this idea in 2018. The backers of the proposal think they can sell it again by adding a tax increase.
No on Proposition 21 – This would amend state law to allow local governments to establish rent control on residential properties over 15 years old. The potential reduction in state and local revenues is tens of millions of dollars per year in the long term. FBA has always opposed rent control efforts as bad public policy, for a variety of reasons.
We also are considering support of Proposition 22, an initiative by the app-based driving industry. Many FBA members use app-based driving services to deliver food and the ill-conceived AB 5 of last year requires that such drivers become employees of the app-based company, rather than contracting with the company.