California small businesses are in dire straits. As a former U.S. Small Business Administration Associate Administrator, I’ve seen firsthand the deteriorating situation for entrepreneurs in the Golden State.
And sadly, COVID-19 isn’t solely to blame. Businesses were fleeing or shutting their doors for good, and California’s workforce was shrinking, long before the pandemic. Unfortunately, this trend will only continue unless lawmakers prioritize cleaning up our backwards legal system and reversing their anti-employer agenda.
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It’s quite the feat for America’s largest economy—the 5th largest in the world—to rank as the worst legal jurisdiction in the country, but California has done just that. In fact, the Golden State is the American Tort Reform Foundation’s (ATRF) worst Judicial Hellhole this year. What’s worse, some of the damage could be irreversible.
For starters, our Private Attorneys General Act (PAGA), is now infamously known as the “Sue Your Boss Law.” This single law has become employers’ worst nightmare and a cash cow for both the state and trial attorneys looking to score an easy payday.
Any employee can sue their employer not only on behalf of themselves, but also on behalf of other employees and the entire State of California. On top of that, our state’s judicial malfeasance has allowed these lawsuits to cover multiple jurisdictions at once, ballooning potential damages.
These lawsuits leverage their vague scope to sue small businesses over issues as small as typos on a paystub. Whether these cases have merit or not is almost irrelevant to many trial lawyers, who know they can score easy wins on settlements from businesses who can’t afford to go to court. Worst of all, even if a plaintiff wins, the State of California gets a full 75 percent of the money, while attorneys leave with a third of the remaining settlement money. So even legitimate victims get pennies on the dollar of what they are owed.
In the same vein as PAGA, California Americans with Disabilities Act (ADA) claims are out of control. As recently as 2020, we led the nation in ADA lawsuits with 5,869, more than double the next highest state. What began as a law to ensure public spaces are accessible to everyone has turned into a favorite for serial plaintiffs, and the most recent data shows California alone is responsible for more than half of all ADA filings nationwide as of June 30, 2021.
This has become especially egregious when it comes to website accessibility lawsuits, with plaintiffs arguing that dimensions such as the distance from a sink to a floor or underneath a desk must be included in online materials. And want proof is there that this is abusive? Look no further than the fact that seven plaintiffs, all represented by the same law firm, have filed over 450 lawsuits. Does this seem legitimate, or more like fishing until you get a bite?
Of course, small businesses are again in the crosshairs with ADA claims. Thanks to our Unruh Civil Rights Act, fines are $4,000 per violation—a fine unique to California alone. Small businesses have been sued for as little as a mirror being positioned an inch too high or a sidewalk angled off by one degree. Mom-and-pop shops are the easiest targets since they don’t have the legal war chests of large corporations to prove most of these claims are frivolous. Is this really what our justice system was meant for?
From Prop 65 to Prop 22 to broad definitions of “misleading marketing” and what defines a “public nuisance,” California’s legal woes run deep. But just like PAGA and ADA, they all center around the general theme of misguided, supposedly “pro consumer” laws that have done nothing but shutter businesses in our state and raise prices on the very consumers these laws claim they are trying to protect.
Right now, small business openings are down 40 percent compared to pre-pandemic. And according to new data, it appears as if those businesses could be gone forever. Fewer openings and more closures are the new normal, and while the pandemic certainly hurt, our damaging policies are why it is the toughest time in history to open a business in California.
Without reform, our “golden” state could rust into ruin.