California is the worst state to do business, and it’s not even close.
It seems that with each passing year our state’s business climate gets worse, and legislators refuse to take action to protect small businesses and employees.
The American Tort Reform Foundation just released its annual Judicial Hellholes report — ranking the worst legal systems in the country — and California ranks third. This marks our record 17th year on the list and confirms that the outlook for consumers, employees, and small businesses in our state is only getting bleaker.
Our legal system is tilted heavily in favor of trial lawyers, and the numbers prove it. Last year, plaintiffs’ law firms spent more money on local legal services ads in California — $85.3 million on more than 809,000 ads — than in any other state. Of course, an investment of this magnitude wouldn’t be worth it if there wasn’t a pot of gold at the end of the rainbow. So, what gives?
Let’s get into it.
Proposition 65 has been around for nearly 4 decades and was originally a well-intentioned law designed to protect consumers from potentially dangerous chemicals. Fast-forward to 2022, and the state has expanded the list to over 1,000 chemicals with zero regard for quantity (i.e. non-threatening, trace amounts). What’s worse, failure to place proper warning labels on products can cost up to $2,500 per day.
Unfortunately, because the law allows private citizens, attorneys, and advocacy groups to sue on behalf of the state, California has created what amounts to state-sponsored frivolous lawsuits. Interested parties have nothing to lose if they go fishing for businesses, especially under-resourced small businesses, that can’t keep up with constantly changing state regulations and sue them just to score a quick payday.
Prop. 65 “fishing” expeditions have become a cottage industry in our state; Since 2012, filings have increased by 251%. What’s worse, plaintiff’s attorneys are hauling in over 85% of damages. Even plaintiffs themselves are left with pennies.
In the same vein, businesses are falling victim to a rise in no-injury class-action lawsuits. In essence, these lawsuits claim that companies misled consumers through marketing or product packaging. We’ve all seen ridiculous cases like this in the news — consumers claiming their chip bag had “too much air” or their beverage wasn’t filled all the way, seeking millions in damages. And while you might laugh, this is common practice in California.
In fact, these cases are up over 30% last year alone. Why? Yet again, the plaintiffs lawyers stand to make millions — in our state, they make more than the class members they represent. This year, Welch’s settled a case for $1.5 million where the average payout to class members was $4.94, while lawyers took home $394,657.
If you’re picking up on a theme, it’s because there is one — legal loopholes that encourage trial lawyers to exploit the legal system for personal gain. And there is no better example than the Americans with Disabilities Act. The ADA was designed to ensure public places are accessible to everyone, but our state alone is responsible for over 50% of the country’s ADA litigation. Clearly, something’s not right here.
Take, for instance, website accessibility claims. Since 2018, online ADA filings have increased an incredible 3,000%. Folks known as “serial plaintiffs” — of the same ilk as the Prop. 65 fishers — file claim after claim alleging that California businesses do not provide sufficient accessibility information on their respective websites.
This is particularly troublesome in the hospitality industry and includes claims centered around such technicalities as sidewalk incline grades and the space underneath a desk or sink. When was the last time you saw this information on any website you visited?
I could go on about each example of lawsuit abuse in California, from our misguided Private Attorney’s General Act, known as PAGA or the “Sue Your Boss” law, to Lemon Law abuse in the automotive industry and even emerging COVID-19-related exploitation, but the theme remains the same.
Businesses, workers, consumers, and even lawsuit victims are all being taken advantage of thanks to a broken tort system. Each year, every Californian pays a “tort tax” of $1,900 without even knowing it, as lawsuits skyrocket costs for businesses throughout our state. Lawsuit abuse also costs us a whopping 750,000 jobs.
Don’t for a second think legal issues don’t affect you, your family, your community, or hardworking Californians throughout the state. Without reform, businesses will continue to be targeted, forcing prices higher and workers to be paid less or let go. Our tort system is more impactful than most people realize, and it is high time lawmakers called out this exploitation and enacted meaningful reforms.
Mike Morasco is an Escondido City Councilman and local business owner.