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.
Comstock’s Magazine, a leading business publication covering the greater Sacramento area, recently included articles about five FBA members in its annual family business issue. You can learn more about
Ceronix, an Auburn-based company that pivoted to become a leader in the replacement market for gaming machines;
the Fruit Bowl, a 76-year-old produce stand that attracts customers from all over the greater Stockton area;
Morrow Surveying, which has provided high-quality land surveying and mapping services throughout California and western Nevada;
Pyro Spectaculars, which produces stunning fireworks displays for the Macy’s Fourth of July show, Super Bowls and more;
and Ramos Oil, which has been delivering bulk fuel to farms, ranches, construction companies and more since 1951.
In addition, you can also read FBA Chairman Ken Monroe’s column on the difficulties of running a family business.
The Family Business Association of California this week awarded Sen. Kelly Seyarto, R-Murrieta, with its Legislator of the Year award for his leadership in efforts to restore the ability of parents to pass along homes and business properties to their children without incurring potentially massive property tax bills.
FBAExecutive Director Robert Rivinius, right, and FBA legislative advocate Dennis Albiani, center, present the Legislator of the Year Award to Sen. Kelly Seyarto.
“Due to rapid inflation in property values, immediately reassessing family ranches, businesses and homes to current market values often forces the younger generations to sell their family homes and businesses to pay the higher property taxes,” said FBA Executive Director Robert Rivinius.
“Family businesses are the foundation of the state’s economy and our communities, and the state should not be making it harder for family businesses to continue from one generation to the next. Senator Seyarto deserves our thanks for taking the lead in this effort to protect family businesses.”
Seyarto introduced a measure this year that would have asked voters to reinstate voter-approved protections that allowed the inheritors to maintain their parents’ or in some cases grandparents’ property valuations and tax levels.
These protections were narrowed or repealed altogether by Proposition 19 in 2020.
Because Prop. 19 took effect just three months after the measure was enacted, many taxpayers were caught unaware and forced to sell their homes and other property. Many affected taxpayers only became aware of Prop. 19’s changes while grieving the death of a parent or grandparent that resulted in an inheritance of property.
Opposed by powerful public employee unions, the measure, SCA 4, failed passage in the Senate Governance and Finance Committee in May.
“I am honored to receive this recognition from the Family Business Association,” said Senator Seyarto. “SCA 4 had one purpose, to restore protections for taxpayers and to keep the intrusive reach of the government away from their family inheritance.
“As we know, Prop 19 resurrected the death tax at a time when we should be making it easier for Californians to inherit property without asking them to absorb the burden of additional taxes. Upward economic mobility cannot be achieved unless we let people own what they create through decades of hard work. I want to thank the FBA for their advocacy and support for California’s families.”
About Senator Seyarto:
Seyarto is a native Californian who served as a firefighter for 35 years, retiring in 2015 as a battalion chief. He was first elected to the Murrieta City Council in 1997 and served through 2006 when he chose not to seek another term to spend more time with his family. After he retired from the fire service, he was again elected to the City Council in 2016 and served as mayor. He was elected to the Assembly in 2020 and then to the Senate in 2022. He and his wife, Denise, have lived in Murrieta since 1991.
About the Family Business Association:
Founded in 2012, the Family Business Association of California is the only organization working exclusively at the Capitol to educate lawmakers and regulators about the importance of family businesses to the state’s economy and to their communities and to advocate positions on legislation and regulations. FBA has also taken the lead to defeat numerous proposals that would have made it much more difficult to keep businesses family-owned from generation to generation. For more information about FBA, visit www.myfba.org.
Editor’s note: This column first appeared in Comstock’s magazine in Sacramento. It is part of a package of articles about family businesses, including several profiling FBA members.
The line from “The Godfather,” “It’s not personal, it’s strictly business,” does not apply to the members of a family business. For us, there are a wide range of emotions that start at an early age as we realize that we are part of something that consumes our parents’ time, including conversations at dinner and the holidays. These emotions continue into adulthood and certainly drive many decisions regarding our futures.
But the one emotion that stays with us whether we join the family business or choose another profession is pride and the desire to see the family business prosper into the next generation.
How does pride drive operating a family business? That depends on your generation. For the founding generation, your heart and soul goes into building a business that you hope will stand the test of time and attract the next generation to participate in keeping it going. For the next generation, you want to make the previous generation proud of your decisions and the direction you take the business. But you also seek to create the opportunity and atmosphere to entice the next generation to join the business.
My family is part of a multi-family business that sells and services tractors as a primary line. My grandkids don’t ask if Grandpa or Mom or Dad are at work; they ask if they are at the “tractor farm.” Those thoughts are cute and make us want to work even harder to cultivate a business that they will have the opportunity to operate someday.
What traits make up a successful family business? Family Business magazine’s editor-in-chief Amy Cosper recently identified five traits that I think are core parts of every successful family business:
Stability. We generally adopt a long-term perspective, focusing on legacy and generational continuity.
Authenticity. We thrive on personal relationships and genuine connections. Most of us are unapologetic and crystal clear about what we stand for.
Values. We are guided by core values and principles established by founders and embraced by generations and branches of a family tree.
Employee focus. We prioritize employees’ well-being and consider them a part of our extended family.
Community. We have deep-rooted connections within our local communities.
To be successful, we need advisors who can provide clear-eyed advice to family members about how best to maximize the value of their share of the family business. Unfortunately, this also often includes recommending if we would be better off financially by selling the business and moving out of California.
In many cases we would be. But what our advisors often do not recognize is that the emotional attachment to seeing the family business prosper and be passed on to the next generation is stronger than the desire to just make money and move on.
In our region, there are two organizations that really understand the emotions of being part of a family business. One is the Family Business Association of California, the only organization solely representing the interests of family businesses at our Capitol. As FBA’s chairman, I often meet with legislators, many of whom will fondly comment about coming from a family business even as they enact new laws and regulations that make it more difficult for their family to run their business. I imagine that must make for some interesting conversations at their family gatherings.
Another is the Capital Region Family Business Center, a nonprofit run by family businesses trying to figure out how to perpetuate their business to the next generation. Both organizations have clear missions, and I encourage all family businesses in our region to strongly consider joining them.
There is a lot of talk today about the purpose of business. The classic viewpoint is that it’s to maximize the return on investment for the shareholders. But others argue that businesses must expand their purpose to include multiple stakeholders — not just shareholders but also employees and their community.
The funny thing is, family businesses have been doing both for ages. The only way to perpetuate a family business is to make decisions that make sense for the long term. The business must be profitable and beneficial to the shareholders today, but it can’t just satisfy the stock market or a private equity partnership in the short term. The same logic applies to taking care of employees, customers and the communities that we serve. We must create an environment that allows for long-term success in all those areas.
Family businesses are the rock of our state’s economy and its communities. FBA will continue doing everything we can to educate our officials that they need to keep that in mind when devising new laws and regulations that, when you add them up, make owning a successful family business more and more difficult.
A wide range of emotions run deep within family businesses, from the anxiety about keeping it running to the simple pride of being part of a history. But in the end, it is worth every drop of emotion to create a future that benefits so many.
Ken Monroe is the president of Holt of California, a family-owned business since 1931 and a Caterpillar dealer for 16 counties, from Yuba City to Merced. He is also chairman of the Family Business Association of California.
Our guest contributor says that many family-owned businesses may leave California or sell out to larger corporations if Assembly Constitutional Amendment 1 becomes law.
California is notorious for being one of the worst places in the nation to do business. For years, businesses have dealt with the high cost of living, onerous and expensive regulations, complex employment laws and, of course, high taxes.
In fact, Chief Executive magazine consistently ranks the Golden State as having the country’s worst business climate, while the Tax Foundation ranks California 48th, ahead of only New York and New Jersey.
But thanks to Proposition 13, property taxes at least remain in the relatively moderate range and are predictable. In addition, local governments must obtain approval from two-thirds of the voters in most cases to raise local sales taxes, parcel taxes and general obligation bonds that are repaid via property tax bills. However, a proposal to make it easier to raise those taxes is quietly gaining momentum in the Legislature. Assembly Constitutional Amendment 1 last week was placed in the suspense file by the Assembly Appropriations Committee but is still very much alive and is scheduled for a hearing on Sept. 1. Should this constitutional amendment become law, it may well be the straw that breaks the back of many California family businesses. The California Taxpayers Association estimates that ACA 1 could increase local taxes by $255 million a year.
ACA 1 would reduce the two-thirds requirement for any “infrastructure” project with an easier-to-obtain 55% threshold. And the way infrastructure is defined, most tax increases would be covered. A fact sheet released by proponents makes it clear that raising taxes is the goal. It points out that just half of the tax proposals requiring a two-thirds vote are enacted, compared to 80% of school bonds, which can be approved with a 55% majority. Additionally, it notes that nearly 80% of tax measures needing a two-thirds vote received more than 55%.
While all businesses are affected by actions taken by lawmakers and regulators in Sacramento and at city hall, family businesses are often impacted especially hard. Most California family businesses are in the small to medium-sized range. Most don’t have the revenues that large corporations have to hire teams of lawyers and accountants to figure out the best way to cope with higher taxes and expensive regulations.
Family businesses should be supported, not burdened further. We are focused on the long term, not the next quarter. We are deeply rooted in our communities. And seven out of 10 family businesses have more than one generation of employee families working for us ⏤ loyalty few major corporations can match.
This isn’t the first time this measure has come before the Legislature, and in past years it failed to gain traction. This year, however, proponents of higher taxes seem to have momentum – even newly installed Assembly Speaker Robert Rivas is a coauthor.
As the Howard Jarvis Taxpayers Association puts it, “ACA 1 is a tax increase, and worse — it’s an engine to raise taxes over and over again in every local election, just by calling any government spending ‘infrastructure,’ even if it’s really for salaries, programs or to free up existing revenue to cover pension liabilities.”
If we lose the protections against higher property tax bills, on top of all the other factors that drive up the cost of doing business, you’re going to see more businesses leaving California or at least moving operations to more business- friendly areas. Family businesses that can’t move will be more likely to sell to larger companies that won’t necessarily have the same commitment to their communities and their employees.
And that would be a blow to communities supporting the measure that would be far greater than any increased tax revenue they might receive. We urge lawmakers to keep that in mind and defeat ACA 1.