Gov. Gavin Newsom recently signed a slew of misguided bills into law that will further tip the scales against California’s already struggling job creators in 2024.
Bad policies and over-complicated labor laws have caused hundreds of businesses to flee in recent years, taking thousands of jobs with them. It’s no wonder California currently leads the nation in mass layoffs.
One of the key contributors is the Private Attorneys General Act, a law that allows an employee to take legal action against their employer for any perceived violation of the state’s more than 1,000-page labor code. That includes even accidental violations that could amount to little more than a typo on a pay stub.
Far from empowering workers, PAGA has become a cash cow for trial lawyers looking to target small- and medium-sized businesses. This has led to a surge in lawsuits, often with questionable merit. As a result, businesses are forced to navigate a costly legal minefield to stay afloat. Unfortunately, many get so tied up in legal fees and settlement payouts that they end up laying off employees or closing their doors altogether.
Since the law took effect in 2004, PAGA lawsuits have increased by more than 1,000%. Over the last six years, trial attorneys have raked in a staggering $8 billion, capitalizing on PAGA to pursue frivolous claims.
Now, Newsom is determined to kick the state’s employers while they’re already down. Assembly Bill 594, which was recently signed into law, authorizes local prosecutors to enforce labor code violations. This means it’s not just private attorneys but public ones as well who might put a target on the backs of businesses for misinterpreting the state’s complicated labor laws. These lawyers might even be awarded fees from the suits they pursue.
For now, the law won’t allow them to sue under PAGA specifically, but it does pose yet another threat to employers. And worse, these lawsuits will be on the taxpayers’ dime. In fact, $18 million has already been allocated to local agencies for this enforcement.
It doesn’t stop there. Another newly minted law would increase penalties for employers who misclassify employees as independent contractors. The fine could be up to $25,000. But the total cost of respecting the employment status of an independent contractor could be much higher. This misclassification could also trigger a PAGA suit, leading to thousands of dollars spent on legal fees. With that kind of risk, many businesses will think twice before working with a contractor.
But freelancers have suffered enough in California after the passage of Assembly Bill 5. This disastrous law threatened the livelihood of countless Californians by forcing them to be considered full-time employees — even if it wasn’t their wish. The fact that AB 5 now includes carve-outs for hundreds of industries is a testament to its abject failure.
The cumulative impact of these policies is clear: California businesses are navigating treacherous waters that threaten their viability. Newsom’s over-regulation risks stifling innovation and job creation, pouring more salt on the wound of California’s already-ailing economy.
Tom Manzo is the president and founder of the California Business and Industrial Alliance.