The California Dream is Driving Small Business Away

The California Legislature’s high tax, high cost of living, anti-business climate continues to drive businesses large and small and many of their employees out of the state. Shockingly, the Democrat-led supermajority of elected representatives double down on costly regulatory policies and ignore the actual state of economic affairs in California. We have seen the direct negative impact on both large and small businesses, and on the everyday lives of families and workers whose jobs are disappearing, creating the nation’s highest rate of unemployment.

California’s unemployment rate stands at 5.5%, with more than 1 million people claiming unemployment. Orange County is faring slightly better than the state as a whole, with unemployment at 4.6%, but that is still too high. The fiscal cost of unemployment to the state budget is simple: higher unemployment means less State revenue and increased costs through unemployment checks. Welcome to the state’s deficit — projected to be $17.7 billion this year and $35 billion by the 2027-28 fiscal year.

Small business owners across the state are being forced to bear the brunt of our deflating economic future. California’s unemployment insurance debt to the federal government is now on the shoulders of the state’s small business owners. Five years ago, California borrowed $20 billion from the federal government because the state’s Employment Development Department (EDD) didn’t have enough money to pay a large number of claims during the COVID pandemic. With the principal reaching $23.2 billion by the end of this year, and the state making no payments, the burden to pay this unemployment debt silently falls upon employers in the state. Why should employers have to repay the loans plus accrued interest when it was Sacramento that got us into this mess in the first place?

Another key example of the anti-business climate in California is the ongoing challenges posed by the Private Attorneys General Act (PAGA) to business owners. The original intent of PAGA was to allow employees to file lawsuits to recover civil penalties for Labor Code violations. However, this system quickly became a predatory tool for unscrupulous plaintiff attorneys filing nuisance suits against businesses. Despite reforms in 2024, I have taken multiple meetings with restaurant and small business owners from all across my district who are still experiencing significant issues with PAGA and who claim that the problem has gotten worse.

The number of lawsuits against employers has actually increased because bad-faith law firms saw that their success rate would drop. In response, plaintiff lawyers responded by filing more cases. What never changed were the penalties themselves, which remain so severe and one-sided that even a single proven allegation can shut down a business by forcing it to pay the full legal costs for an entire class of workers. Avoiding court is not much better; arbitration meetings typically cost these businesses around $150,000 to convene.

Restaurants, exceptionally low-margin businesses, feel this burden more than almost any other sector. Meal break premium penalties have become one of the most common triggers for litigation. State law requires a 30-minute meal break before the sixth hour of work begins. If a break is missed, begins even one minute late, is interrupted for any reason or ends early, the restaurant must pay the worker an additional hour of wages and can still be sued for the violation.

Even when employees voluntarily waive their breaks, the risk remains. Workers may sign a form stating they prefer to continue working instead of taking a meal period, yet lawsuits have been filed claiming these waivers were signed under coercion. Employers must then defend themselves against an allegation that is nearly impossible to disprove.

The most damaging aspect of PAGA, and an issue that Sacramento must address, is the absence of limits on legal fees. The result can be devastating. A restaurant in my district is currently being sued for $100,000 even though video footage shows the employee leaving for lunch on time, but because the employee forgot to clock out, the manager had to manually adjust the timecard and now is being sued. The  choice for the restaurant owner is to settle or go to court and then decide if they can stay in business and provide good jobs or raise prices to cover the cost of doing business in California. Any choice is a bad choice.

If Sacramento truly wants to become business and worker friendly, it must listen to local business owners and cut bureaucratic red tape. Only then will Orange County, and California, be able to fulfill the California dream. Let’s make California affordable again.