Featured Article - "Lowering California’s Unemployment Rate: An Open Letter to Gov. Jerry Brown"

Lowering California’s Unemployment Rate: An Open Letter to Gov. Jerry Brown

By Lonny Zilberman

When you first served as governor of California, I was 15-years-old and had little interest in the state’s unemployment rate. In the early 1980s, I had my own newspaper route (which I later realized was one step removed from involuntary servitude), and the state’s unemployment rate hit a whopping 10 percent.  California's economy was listless and the country was slowly recovering from a deep recession.   Fast forward 30 years and as Yogi Berra famously said, “its déjà vu all over again.”  Except now I’m an employment attorney, the country is slowly recovering from the “Great Recession,” and California’s unemployment rate is over 12 percent!

The only good news from Sacramento is that bills sent to Gov. Arnold Schwarzenegger seeking to increase burdens on employers, were “terminated” with his veto pen.  Now, with your election and with your party controlling the Legislature, I have a real concern that you might try to resurrect some previously vetoed bills.  If that happens, it will only pile on more regulations on California’s already over-regulated and litigious business climate.  This will perpetuate our high unemployment rate and result in employers leaving the state, lower tax revenues, and of course, negative consequences for employees in all industries. 

As the new year approaches, I want to provide you with some advice on what employment laws California does not need, as old bills might resurface for your signature, and also offer some advice on opportunities to effectuate a positive change that might help create more jobs (not just lawyer jobs) and decrease the state’s unemployment rate, which I know you support. 

First, a brief review of some previously vetoed bills that might make their way to your desk in the new legislative session, and which should be vetoed again.  Gov. Schwarzenegger has vetoed the “Gender Pay Penalties Act” on three separate occasions.  This bill would have substantially increased penalties for disparate gender pay.  While eliminating illegal pay differentials is a concept everyone can agree on, Labor Code 1197.5 already provides penalties for employers who illegally pay employees based on gender.  This bill would do little more than to increase frivolous litigation because there would be a stronger incentive to sue, resulting in no material benefit to workers, but only to the lawyers who bring and defend these suits. 

Another often-vetoed bill by your predecessor addressed expanding leave rights under California’s Family Rights Act (CFRA).   For example, AB537 would have expanded the definition of “family” to allow employees to take up to 12 weeks of job-protected leave to care for an ill adult child, sibling, grandparent, grandchild, or parent-in-law.  It would have also created a “rebuttable” presumption that an employee who spends time with a family member who has a serious health condition is “caring” for that family member.  If signed into law, this bill would potentially give every California employee a 12-week job protected leave per year if they claim that anyone remotely associated with them has a “serious health condition.”

California already has the strongest and perhaps most advanced employee leave statutes and workplace protection laws in the nation.  If a bill like this were to be signed into law, employers are likely to see a dramatic increase in the use of CFRA, contributing to an increase in employer’s liability and loss of production.  Instead of expanding the confusing network of leave laws that presently exist, and adding to litigation exposure for employers, you should be working with employers to eliminate confusion and create a system of leave laws that offer both employers and employees flexibility to meet their respective needs.

More absences in the workplace not only results in a loss of production, but also contributes to low moral among co-workers that have to pick up the remainder of the work when no immediate replacement is possible. These indirect costs vary by employer but invariably require additional expenses in HR departments to handle additional CFRA claims and manage the replacement of workers.  Additional CFRA regulations will result in a rise of legal disputes with regards to eligibility and will likely expose employers to additional lawsuits, which are very costly.

Then there was SB836, which would amend the Fair Employment and Housing Act (FEHA) to include “familial status” as a basis for employment discrimination claims. This was also vetoed.  Today, almost anyone fits into some “protected” status and if we were to add something as ambiguous as “familial status” as a new “protection,” it would result in endless and unnecessary litigation to try and define what discrimination on the basis of “familial status” really means, as well as unnecessarily restrict employers’ ability to make personnel decisions.

Another bill that your predecessor vetoed tried to significantly increase penalties for misclassifying employees as independent contractors (SB622).  This legislation would have assessed large ($25,000) penalties against employers who “willfully” misclassify employees as independent contractors. While everyone can agree that proper employee classification is important, is a single violation of a worker as an independent contractor worth $25,000?  Who does that really help?  These types of exorbitant penalties only drive large employers from this state and small employers into bankruptcy. It stokes the flames of frivolous litigation, which costs jobs.        
 
Now, let me turn to some legislation that will likely improve California’s overall business climate and lower the unemployment rate, while still upholding employee protections.

More than any other area of California employment law, the state’s “unique” meal period provisions, found in Labor Code Section 512, present a number of issues that have cost California employers hundreds of millions of dollars in wage and hour class action settlements.  The central issue is whether employers must “provide” a meal period or “ensure” one is taken, and when during the employee’s shift they must be taken.  The tidal wave of class actions has resulted in an onslaught of “seminars” and “training” sessions on how to avoid liability, but those are not the kind of jobs that I’m sure we need.  And, employers are trained to treat grown adults like children (“Have you taken your lunch break yet?”)  Rules forcing employees to take lunch rather than leave early to be with their family, or terminating employees for meal period violations doesn’t reflect sound public policy or what California wants to be known for in the 21st century.

While the state Supreme Court’s decision in Brinker v Superior Court is expected to bring some clarity on these issues in 2011, it may not.  Rather than hoping Brinker provides finality, you should urge that the Legislature provide immediate clarity by amending Labor Code Section 512.  This clarity will allow employers to better manage breaks and will also stop the insanity of multi-million dollar settlements over missed meal periods that does nothing but increase the cost of doing business in California and also lines the pockets of attorneys who have launched Web sites with names like “Got Overtime” and “Meal Breaks R Us.” 
 
Speaking of meal breaks, Labor Code Section 226.7 imposes a statutory penalty of one additional hour of pay upon employers for meal period violations.  While this penalty clearly applies when the meal period was denied altogether, it is less clear when there is a very minor violation (e.g., when a 30-minute meal period ends one minute early), particularly when the employee is responsible for the violation.  The Legislature should consider taking the common sense approach utilized by federal courts in not penalizing employers for de minimis violations.

California’s requirement to pay overtime for working more than eight hours per day puts it at a competitive disadvantage against many neighboring states (Arizona, Utah, Colorado, New Mexico and Oregon).  It also considerably limits scheduling flexibility and forces employees to work five eight-hour days, resulting in more traffic congestion, lost family time, and increased commuting costs.  You might want to ask the Legislature to reverse this rule, restoring some of the “flexibility” AB60 falsely claimed it was providing over a decade ago.  Some employers might actually offer “flexible” work hours and schedules that would not penalize folks who don’t want to abide by a rigid eight-hour schedule.

Our wage orders exempt certain employees from overtime, but they do not clearly define exempt status, which have also prompted class actions resulting in multi-million dollar settlements.  Scared by litigation costs, employers have responded by classifying even management-level employees as non-exempt and subjecting these employees to overtime rules.  You should ask the Legislature to adopt some of the federal exemption rules, such as the one for “highly compensated” employees, in order to provide at least one bright line rule for employers. 
     
Governor, to paraphrase one of your campaign commercials, at this point in your life you’re ready to make the tough decisions California needs to prosper.  During your first stint as governor you created 1.9 million new jobs.  If you want to repeat that performance, you should seriously consider these proposals.

Lonny Zilberman is a partner at Wilson Turner Kosmo in San Diego.  He specializes in all aspects of employment law, including management training and litigation on behalf of California employers.

Reprinted and/or posted with the permission of Daily Journal Corp. (2010).