Op/Ed: Frivolous Lawsuits Prolong California’s Economic Recovery

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By Steve Rosansky, President and CEO of the Newport Beach Chamber of Commerce, and Former Newport Beach Mayor and Councilmember

Like the rest of the nation, the ongoing coronavirus pandemic has ravaged California’s economy.

In 2020, millions of hardworking Californians went from having a steady income to collecting unemployment. The coronavirus lockdowns resulted in some local businesses being shut down permanently, taking the jobs and services they provided with them. With fewer jobs and fewer businesses in existence, California’s economy is suffering tremendously.

Over time, the lockdowns are ending. Businesses that can afford to reopen are doing so, and Californians have slowly gone back to work. The newly developed vaccines bring further hope that perhaps the pandemic-led suffering is coming closer to an end. And while this is a tremendous step toward recovery, a lot more must be done before our economy gets back on its feet.

In order for this to happen, California businesses must succeed.

Unfortunately, the California business community was suffering well before the pandemic hit the U.S. That’s because there are numerous laws in place that make it incredibly difficult – not to mention unusually expensive – to conduct business in the Golden State. Some of these laws are old and some are new; however, they all demonstrate the ongoing anti-business tendencies of California lawmakers – ones that will be detrimental to our state’s recovery if they are not fixed.

A recent example of this is Assembly Bill 5. AB 5 went into effect in January of 2020, and quickly its powerful impact served as a major stressor on California’s businesses just months before the pandemic hit.

When AB 5 became law, it reclassified certain categories of independent contractors as employees. For independent contractors, this meant they lost the freedom to control their own work schedules and the flexibility to be their own boss. It also meant that many were out of work, resulting in a massive job loss in the state.

For employers, AB 5 meant a total restructuring of their businesses, as hiring a worker full time rather than as an independent contractor is an entirely different process, as well as a whole new set of expenses.

If an employee is improperly classified, the employer faces the risk of being sued. Unfortunately, AB 5 is set up to be applied retroactively, meaning employers also face the risk of being sued for a misclassification that happened years before AB 5 was implemented. In trial lawyer terms, this translates into open season on suing employers.

As a result, lawsuits poured in. Businesses are being sued over the most technical of technicalities, resulting in the loss of money, time and resources for misclassifications that, in many cases, took place years ago. For many small businesses – particularly now given the pandemic – the cost of such lawsuits is too much, and they’re being forced to shut down.

This is just one of the numerous laws that open the door to frivolous lawsuits against the businesses that are the backbone of our economy. Another example is California’s Private Attorneys General Act (PAGA), which was enacted in 2004 for the purpose of protecting workers, but eventually become known as the “Sue Your Boss” law.

PAGA essentially allows employees to file a lawsuit against their employers – on behalf of themselves, their coworkers, and the state – over virtually anything. And I mean anything. In fact, many PAGA lawsuits revolve around things as small as a typo in a paystub.

No matter how nitpicky or technical the lawsuit, employers and business owners continue to work under the constant threat of lawsuits like these, and others. When they can’t afford to fight it off or are forced to settle, they shut down, and all Californians suffer as a result.

Before the pandemic, anti-business litigation made California an undesirable place to conduct business. Now, given the state of the economy, it makes it virtually impossible. As such, it is time that Californians demand that our lawmakers put their foot down and do something to address this ongoing problem and allow our business climate to improve so that we can shorten the long road ahead to recovery.



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