Frivolous PAGA lawsuits are making some lawyers rich, but they aren’t helping workers or employers

This op-ed by FBA Chairman Ken Monroe appeared in the Los Angeles Times on December 6, 2018

Fourteen years ago, California set up a new method for enforcing its complex wage and hour laws.

Ken Monroe
Ken Monroe

The legislation, called the Private Attorneys General Act, or PAGA, allows private attorneys to sue employers on behalf of a class of company employees.

The ostensible motivation behind the law was to protect workers. But in reality, PAGA lawsuits have made it more difficult for family-owned businesses like mine to be flexible with employees. Predatory trial lawyers take advantage of the law, using as their playbook the more than 800 pages that make up California’s labor code.

PAGA lawsuits have made it more difficult for family-owned businesses like mine to be flexible with employees. PAGA sets penalties for each labor code violation, no matter how minor: $100 for each employee per pay period for an initial violation, and $200 for each employee per pay period for each subsequent violation, and other possible penalties. These violations can be stacked, with multiple penalties for each statutory wage violation.

As I learned the hard way, these penalties can add up fast, easily reaching hundreds of thousands of dollars for a small company like ours (and millions for larger businesses). The end result is that employers have to enforce onerous labor regulations that often do not benefit employees, or risk getting sued. For instance, we have employees who start their work day early and don’t necessarily want to stop for lunch at 10 a.m. They would rather wait until their friends take their lunch breaks, so that they can eat together.

As a family-owned business, we wanted to take employee desires into account, so we used to let them wait to eat — even though state law requires that hourly employees take a half-hour meal period after five hours of work, whether they want to or not.

Then, about two years ago, we were hit with a PAGA lawsuit. A disgruntled former employee had linked up with San Diego trial lawyers who specialize in such suits. Like virtually all companies that find themselves the target of a PAGA or class-action lawsuit, we negotiated a settlement rather than take the risk of losing in court and facing the onerous maximum penalties prescribed by the law.

In what was a pretty standard negotiation, the attorneys received 35% of the settlement, the state got 2%, the mediator got 2% and the disgruntled former employee got $7,500. The 300 employees that made up the class action each received between $23 and a few thousand dollars.

Our employees did better than some plaintiffs, at least. Google recently paid $1 million to settle a similar lawsuit. Its employees got $15 each, while the lawyers who brought the case walked away with more than $300,000. Uber drivers did even worse. They got $1.08 each, the lawyers $2.3 million.

The law of unintended consequences has since kicked in at our company. We have had to institute strict rules about meal and rest breaks and the accuracy of time cards, to ensure that we are always in compliance with California’s complex labor laws.

Now employees who want to work through their lunch so that they can go home early or eat with fellow employees are simply out of luck. We cannot legally accommodate their reasonable requests. The company cannot risk another PAGA lawsuit.

We’ve received many complaints from our employees about our strict adherence to every clause on every page of the labor code, and we’re sorry to take away their flexibility. But our hands are tied. Making matters worse, a California appeals court ruled in September that business owners can now be held personally liable for certain violations.

Ask any human resources consultant what employees want in the workplace and their answer is likely to include: respect, trust, recognition, autonomy and flexibility. Unfortunately, California’s labor laws and regulations are making it increasingly difficult for businesses to provide these things.

Lawmakers defeated two bills this year that would have given employers the right to fix problems before PAGA suits could be filed. The Family Business Assn. continues to search for solutions.

In the meantime, I encourage state legislators to come by any of my company’s locations, from Merced to Redding, and talk to employees who now can’t eat lunch with their friends or leave early to go to a doctor’s appointment.

Surely this isn’t what the authors of the Private Attorneys General Act had in mind.

Ken Monroe is the chairman of the Family Business Assn. of California and the president of Holt of California.

Family businesses celebrate milestone anniversaries

While family businesses are the bedrock of California’s economy and its communities, keeping a business going for decades is extremely difficult. Studies show that only 30 percent of family businesses survive into the second generation, 12 percent to the third, and only 3 percent to the fourth generation and beyond. But in 2018, eight family businesses that are members of the Family Business Association of California celebrated milestone anniversaries, demonstrating that despite the difficulties of running a successful business in California well-run companies can thrive for generations, said FBA Executive Director Robert Rivinius. “This year’s list of anniversaries includes a wide range of companies, including two that marked their 100thyear in business,” Rivinius said. “The families who have these businesses growing for 50 year or more deserve recognition for their hard work and their ability to navigate the state’s difficult tax and regulatory regime.” Profiles of five of the companies can be found on the FBA website: Shubert’s, Lund, Pini, Lippow, Jim Dobbas The companies are: Gorrill Ranch, Durham, was founded in 1918 by Ralph Gorrill, an engineer who was part of the team building what became U.S. 99. He purchased 2,400 acres along Butte Creek from the Leland Stanford estate. Teaming up with a colleague, Gorrill learned the rice industry and today the ranch is a small but prominent grower of rice and orchard crops. The ranch is now run by the fourth generation of family members. http://gorrillranch.com/our-story Pini Hardware, Novato, was also founded in 1918, by a Swiss immigrant who opened a general store which within a decade became one of the largest employers in town. The Young family became involved in ownership in 1968 and today the store is operated by the third generation of the family. http://www.piniacehardware.com/about-pini/ Shubert’s Ice Cream and Candy, Chico, was founded in 1938 by Leonard C. Shubert, who left Montana at the age of 54 to find a location in California for an ice cream shop. When he drove into Chico, he knew he’d found his location and since then the shop has become a community institution. The fourth generation of the family now make ice cream and candies on the premises. https://shuberts.com/our-story/ Valley Truck and Tractor,Yuba City, was established in 1948 and today is the leading John Deere dealer in Northern California. https://www.valleytruckandtractor.com/about-valley-truck-tractor-yuba-city-chico-ca–info Lippow Development, Martinez, was officially formed in 1948 – 44 years after Leo Lippow arrived in the United States as a penniless immigrant. Now run by the third generation of the family, the company owns and operates a diverse portfolio of commercial and industrial properties in California and Arizona.  https://www.lippow.com/about Lund Construction, North Highlands, was founded 1958 by George and Alta Lund out of their garage. Now in their third generation, the company specializes in pre-construction, earthmoving, and pipeline services. https://www.lundconst.com/company/ Vanella Farms, Chico, began in 1968 when 23-year-old Bob Vanella purchased his first almond huller. Today, the company grows and processes almonds, walnuts and other crops on 3,000 acres and is a wholesaler that sells nuts to customers around the world. https://vanellafarms.weebly.com/about.html Jim Dobbas, Inc., Newcastle, began its heavy equipment contracting business in 1968 and today specializes in emergency and derailment response services for class 1 railroads. The company is now run by the second generation of the family. http://www.jimdobbasinc.com/about/company-overview Rivinius noted that the state’s 1.4 million family businesses employ 7 million people and tend to pay their employees better, train them better, and provide more generous benefits than nonfamily companies. About the Family Business Association of California (FBA): 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. For more information, visit www.myfba.org.

Family Business Assn. Presents Its First Outstanding Legislator Award to Adam Gray

Asm. Adam Gray, right, receiving FBA award from legislative advocate Dennis Albiani at FBA’s Annual Meeting of Members

The Family Business Association of California, the only organization advocating exclusively for California’s thousands of family businesses, has awarded its first Outstanding Legislator Award to Assembly Member Adam C. Gray, D-Merced, for his record on legislation crucial to family businesses during the recently concluded session.

The award was presented at FBA’s Annual Meeting of Members this month in Sacramento.

“Gray is a member of the influential New Democrats caucus – lawmakers who are committed to a pragmatic approach that promotes the interests of hard-working Californians alienated by the extreme partisanship of both the left and the right,” said FBA Executive Director Robert Rivinius.

“He had a 100 percent voting record on FBA’s key bills this session and played an influential role in advancing business-friendly bills and amending or blocking bills that would have harmed family businesses. That’s not surprising since he comes from a family business background.”

Gray’s grandfather, Ernest Denault, established Merced Dairy Supply to serve the Central Valley’s growing dairy industry and the company continued to thrive under Gray’s father, Robert. In fact, Adam Gray’s first job was washing storage barrels and loading feed bags for the family business.

After graduating from UC Santa Barbara, Gray went to work for then-Assembly Member Dennis Cardoza, focusing on agricultural issues and later owned a small public affairs and communications firm while also serving as a lecturer at UC Merced. He was elected to the Assembly in November 2012.

FBA’s public policy goals for 2019

FBA’s Board of Directors has adopted the following public policy goals for 2019

State tax issues. FBA needs to be diligent in this debate to maintain fair and equitable business and personal taxes in California:

  • Continue our leadership role to maintain prohibition on Estate Tax in California.
  • Split Roll is headed for the 2020 statewide ballot and rolling back of Proposition 13 continues to be a concern in California. FBA will fight against any proposal to negatively impact commercial property taxes.
  • Continue to oppose efforts to enact a sales tax on business services.

Regulatory and lawsuit relief continues to be a top priority for FBA members but regulations surrounding labor relations and human resource management provide additional challenges to our members. FBA will focus on opposing legislation and regulations that impact labor and our workforce and relief from PAGA lawsuits against family businesses.

Workforce development and identifying a qualified and available source of labor is an increasing challenge. FBA will work to support workforce development opportunities that help provide a trained workforce.

Publicize FBA policy, legislative and regulatory positions. FBA will work to achieve coverage of those positions and opinions in the news media.

FBA will continue to explore opportunities to assist the transfer of ownership and property between family members and through successive generations and oppose efforts to make that more difficult.

Continue to build relationships with key legislators, new legislators and new administration officials through such means as:

  • Sponsoring the 7th Annual Family Business Legislative Conference.
  • Meeting one-on-one with more key legislators, new legislators, and officials of the new Administration to educate them on the importance of family businesses and what issues are critical to family businesses
  • Encouraging FBA members to call on their legislators and engage employees in both education and advocacy to illustrate the impacts state government has on family businesses and their employees.
  • Participating in coalitions, public events, and hearings advancing the importance of the family business model and family business issues.

The Economy is Not Overheating

Elliot Eisenberg, Ph.D., Graphs and Laughs, LLC

The U.S. unemployment rate recently fell to 3.7%, a rate last seen in 1969. This very low rate is giving the Fed and many other market watchers reasons to worry that the labor market, and thus the overall economy, may be overheating. While it is true we are late in a business cycle, labor market indicators suggest that we are not as late as we may think. To be precise, job growth remains too high, wage growth remains too low, and the employment rate still has room to rise before we run out of workers and hit full employment.

Elliot Eisenberg

Over the past year, the U.S. working-age population has grown by about 225,000 a month. Given that 60.4% of that population works, that means the US economy needs to create 136,000 jobs/month to keep the unemployment rate stable. However, over the past three months, job growth has averaged 218,000/month, and over the past year 211,000/month. As a result, the economy is creating more jobs than required to simply absorb new labor market entrants. This alone suggests that the economy is not at full employment. When we reach full employment, net new job growth will settle at or about 136,000 jobs/month.

Another sign that we are not on the verge of an overheated labor market is that wage growth remains quite subdued. When an economy is short of workers, employers compete for scarce labor, and in the process push up wages, causing inflation to rise. But we see none of that. Over the past year labor productivity growth has been 1.3%, and if you add to that the Fed’s 2% inflation target, you get 3.3%. Wage growth below 3.3% will not cause inflation to increase. And, sure enough, wage growth over the past year has been just 3.1%. If the economy really was overheating, wages would be growing at a much faster rate.

Another clue that the labor market will not seize up anytime soon is that the percentage of working Americans at 60.4% remains well below its pre-recession peak of 63.4%. While a return to 63.4% is unlikely, due to an aging population, more persons going to college, and a few other factors, the rate has been steadily rising since hitting a cyclical low of 58.2% in July 2011. Moreover, the percentage of 25 to 54-year-old persons (those of prime working age) that are working has been rising for almost eight straight years but is still full one percentage point below its pre-recession peak of 80.3%. As a result, I suspect that the percentage will rise at least a bit higher before it tops out.

Lastly, the unemployment rate is no longer as good a measure of labor force slack as it was in the past. Here is one example why: Until recently, finding part-time work that still allowed one to go on job interviews was virtually impossible. Thus, many who looked for a job were out of necessity unemployed. Today, with platforms such as Uber, TaskRabbit, Fiverr and others, one can be employed while actively looking for a more suitable full-time job. As a result, comparing the low unemployment rate of today to similar rates in the past will lead one to conclude that the labor market is tighter than it really is.

Despite a near 50-year low in the unemployment rate, because of technological changes and a careful reading of demographics and data, it seems that the labor market still has some room to vigorously expand before monthly employment growth must slow. As a result, the Fed need not worry that the 3.7% unemployment rate is indicative of an economy that is about to overheat due to a worker shortage – yet.

Elliot Eisenberg, Ph.D. is President of GraphsandLaughs, LLC and can be reached at Elliot@graphsandlaughs.net.  His daily 70-word economics and policy blog can be seen at www.econ70.com.  You can subscribe and have the blog delivered directly to your email by visiting the website or by texting the word “BOWTIE” to 22828.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Four family businesses join the Family Business Association of California

Four more businesses recently joined the Family Business Association of California, the only organization exclusively working to protect the interests of family businesses in Sacramento.

Mag Bay Yachts was founded in 2013 by father and son Michael and Barrett Howarth in Adelanto. The company manufactures fiberglass fishing boats and sells them in the U.S., Mexico, and the Caribbean. They employ 15.

Longhorn Meat Company was established in 1976 and is now owned and operated by second- generation Phil Kattenhorn, who took over when his father retired. The company is a retail meat processor and seller located in Auburn and employs nine. The company has been awarded Best Butcher Shop by the Auburn Journal, and featured in Comstock’s Magazine.

Western Engineering Contractors was founded by Don Carroll in 1982 and has grown the general engineering construction company to 135 employees. The company does grading, paving, and underground construction within a 100-mile radius of Sacramento.

Medina McKelvey LLP is a Roseville-based law firm founded by Alex Medina and Brandon McKelvey in 2014. The firm specializes in wage and hour defense (Private Attorneys General Act, or PAGA lawsuits), employment law, and general litigation.

FBA Executive Director Robert Rivinius said the owners of the four companies recognize the challenges of doing business in California, especially for family-owned firms.

“California’s family businesses create the bulk of new jobs, look at the long-term, treat their employees as extended family and stakeholders, and are far more responsive to local needs than corporations headquartered thousands of miles away,” Rivinius said.

“Yet the state’s ever-increasing tax and regulatory burden makes it harder and harder for these firms to remain strong. During the recently concluded legislative two-year session, FBA led a coalition to defeat a dangerous plan to impose a California inheritance tax that would have jeopardized the future existence of many of these companies, and these four businesses recognize the need for family businesses to band together.”

About the Family Business Association of California (FBA):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. For more information, visit www.myfba.org.