THE BOSS IN THE CROSSHAIRS
Gray Davis's parting shot was only the latest of Trial Lawyers, Inc.'s
attacks on California employers.
In a final payback to the trial lawyers who helped bankroll
his failed effort to remain in office, recalled governor Gray Davis signed
into law the Labor Code Private Attorneys General Act of 2004 a mere five
days after his ouster.[61] Modeled on the state's
section 17200 "shakedown statute"—the infamous unfair competition law
that empowers lawyers to sue businesses for any regulatory infraction,
however trivial—the new labor law allowed suits against employers for
similarly petty infractions of California's 500-plus-page labor code.
Under this "Sue Your Boss" law, Trial Lawyers, Inc. could sue on behalf
of current and former workers without having to allege—much less prove—that
they were harmed.[62]
Within six months of the law's becoming effective on January
1, 2004, more than 65 lawsuits had been fiiled, including dubious actions
over violations as laughable as a company that displayed an employment
poster that was printed in a non-regulation type size.[63]
Predictably, many of these suits went after California's deepest pockets,
such as entertainment giants Warner Brothers and Metro-Goldwyn-Mayer;
nearly half of the 50 private-attorney cases that were flied in Southern
California courts named entertainment companies as the offenders.[64]
After this initial flurry of frivolous lawsuits, the legislature,
under pressure from Governor Arnold Schwarzenegger, had to revisit the
Sue Your Boss law only months after it went into effect. A compromise
amendment passed in August will stifle some of the most flagrant abuses,
such as private suits over notice-posting and filing lapses; moreover,
the amended law requires employees to notify the state and the employer
of an infraction before suing, giving the employer an opportunity to cure
it.[65] Only time will tell whether these adjustments
will be sufficient to prevent the statute from driving out California
jobs.
A Labor Lawsuit Legacy
However the Sue Your Boss–law saga turns out, that legislation
is just the tip of the iceberg that is California's employment law, which
undeniably has a chilling effect on job creation in the state. California
Nearly 40% of surveyed companies
plan to move jobs out of the state, and
50% "have explicit policies to halt
employment growth in California." |
has long been a national leader in suits alleging wrongful termination;
by the early 1990s, not only were jury verdicts in employment cases in
excess of $1 million commonplace, but the average such award topped $1.5
million.[66] California's supreme court aggressively
stretched the law to accommodate wrongful firing suits, such as in a 1990
decision that determined that a company granting raises, promotions, and
a "lack of criticism" for an employee could imply lifetime tenure, notwithstanding
a specific statute providing that the worker could be terminated at will.[67]
Although the California Supreme Court in recent years
has not been quite so brazen, the proliferation of wage-and-hour regulations
in the state—and the relative ease of bringing a private action—have nevertheless
made employing California workers an expensive proposition. Examples abound
of California wage-and-hour laws that, even if wellintentioned, undoubtedly
are much more costly than alternative protections that could achieve the
same results:
- California businesses cannot deduct advanced vacation pay from a final
paycheck, even with the employee's prior consent.[68]
- Commissioned salespeople in California can file a complaint against
their boss for "charging them back" for commissions on quickly canceled
accounts, even if the employee wanted such an arrangement, and even
if the employee is earning over $100,000 per year.[69]
- California employees who call in or check e-mail during their vacation
may be entitled to full pay without deducted vacation time.[70]
Some types of employees have been able to obtain special
protections under California law that border from the merely onerous—computer
consultants, even those earning six-figure incomes, are always entitled
to overtime pay[70]—to the absurd: under a 2000 law
signed by then-governor Davis, exotic dancers can sue their employers
for sharing in customer cash payments for "private dances," rather than
treating them as tips belonging solely to the dancer.[71]
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Areas of the law that are pervasive nationally, such as
suits over discrimination and harassment, are stretched to preposterous
limits in California. California courts have held that workers can sue
for age discrimination under the section 17200 unfair competition law—originally
intended to curb antitrust offenses—because "an employer which practices
age discrimination has an unfair competitive advantage."[72]
And a California appeals court permitted the much-publicized sexual-harassment
lawsuit against Warner Brothers for writers' purported off-color jokes
during brainstorming sessions for the often risqué sitcom Friends.[73]
California's elected leaders not only have been complicit in such expansion
of the law; they have prodded it along. In 2003, the state legislature
passed a law creating a right of action for sexual harassment against
an employer for non-employees' conduct.[74]
Suing Away Jobs
Trial Lawyers, Inc.'s employment-lawsuit business hurts
not only California's companies but also its citizens, who are less able
to find quality jobs as a result of the state's overlitigation. A study
completed last year for the California Business Roundtable by the consulting
firm Bain and Company found that, notwithstanding the high-technology
boom, the state had underperformed the national average in high-value
job creation since 1990.[75] An amazing 100 percent
of executives surveyed ranked California's business climate "less favorably
than other states'," and large business leaders ranked workers’ compensation
and litigation as their most pressing concerns in the state.[76]
Unsurprisingly, nearly 40 percent of companies surveyed were planning
to move jobs out of the state, and 50 percent "have explicit policies
to halt employment growth in California."[77] Until
the state can fix its labor-lawsuit problem, the best option for California
job seekers may be to move.
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61. See Jeff Chorney & Jahna Berry, Last Minute
Spending Spree: Plaintiffs' Lawyers Are Opening Their Wallets in Effort
to Keep Democrat in Governor's Office, RECORDER, Oct. 7, 2002, available
at http://www.law.com/ (last visited
Mar. 4, 2005); S.B. No. 796 (introduced by Sen. Dunn, filed Oct. 12, 2003),
codified at CAL. LABOR CODE §§ 2698 et seq. (West 2005); see
also Robert Salladay & Evan Halper, Governor Angered by 'Chaos'
Over Budget; Schwarzenegger Berates Democrats but Prods the GOP Too,
Dissolving a Veneer of Cooperation, L.A. TIMES, July 16, 2004, at 1A.
62. See CAL. LABOR CODE §§ 2699(c) (West 2005); see also Pillsbury
Winthrop LLP, "We're Not in Kansas Anymore": California Employment
Law for the Non-California Employer - Part 1, MONDAQ BUS. BRIEFING,
Feb. 15, 2005.
63. See Morrison & Foerster LLP, "Sense and Sensibility": Legislative
Amendments to the California Labor Code's Private Attorneys General Act
(8/04), MONDAQ BUS. BRIEFING, Sep. 9, 2004 (on flurry of lawsuits);
Mark E. Terman, New Year Will Ring in New Employment Laws: Here's How
You Can Make Sure You're in Compliance, Vol. 6, No. 73 CAL. CPA, Dec.
1, 2004, at 22 (on type-size suits).
64. See Andrew Simons, Labor Litigation Landslide Hits L.A.
Entertainment Companies: Up Front, L.A. BUS. J., June 14, 2004, at
11.
65. See Senate Bill 1809 (amending CAL. LABOR CODE §§ 98.6 and
2699 and repealing § 431); Dale Kasler, Labor Law Was Budget Blocker:
Compromise on 'Sue Your Boss' Provisions Is Meant to Ward Off Nuisance
Complaints, SACRAMENTO BEE, July 29, 2004, at D1; Michael A. Hood,
New Laws That Will Impact California Employers in 2005, ORANGE
COUNTY BUS. J., Dec. 6, 2004, at 26.
66. See Craig A. Horowitz, Righting the Wrongs of Employment
Termination, S.F. RECORDER, July 9, 1992; Mark Pulliam, L.A. DAILY
J., July 7, 1993 (survey of 110 California jury awards in employment cases
in the early 1990s .nding an average verdict over $1.5 million). See
generally Walter K. Olson, THE EXCUSE FACTORY: HOW EMPLOYMENT LAW
IS PARALYZING THE AMERICAN WORKPLACE 42-43 (1997).
67. Gardner v. Charles Schwab, 267 Cal. Rptr. 326 (1990).
68. See CAL. LABOR CODE § 227.3 (West 2005); James J. McDonald,
Wage-Hour Law for Law firms: the risks are increasing, ORANGE COUNTY
LAW., Mar. 2001.
69. See CAL. LABOR CODE § 221 (West 2005); Hudgins v. Neiman Marcus
Group, Inc., 41 Cal. Rptr. 2d 46 (Cal. App. 1995).
70. See CAL. ADMIN. CODE tit. 8, § 11010 ¶ 5 (West 2005).
71. See McDonald, supra note 68; CAL. LABOR CODE § 350 (West
2005); A.B. 2509 (introduced by Assemblyman Steinberg, filed Sept. 29,
2000); see Exotic Dancers Alliance, Accomplishments, at http://www.eda-sf.org
(last visited Mar. 2, 2005).
72. Ogletree, Deakins, Nash, Smoak & Stewart, P.C., Court Upholds $5
Million Award in Age Bias Case, CAL. EMP. L. LETTER, July 7, 2003;
see Alch v. Superior Ct., 19 Cal. Rptr. 2d 29 (Cal. App. 2004);
Herr v. Nestle USA Inc., 135 Cal. Rptr. 2d 477 (Cal. App.), rev. denied
(Cal. 2003).
73. Lyle v. Warner Bros. Television Prods., 12 Cal. Rptr. 3d 511 (Cal.
App.), rev. granted & opinion superseded, 16 Cal. Rptr. 3d 331
(Cal. 2004); see California Supreme Court to Review Sexual Harassment
Claim of "Friends" Writers' Assistant, ENT. L. REP., Oct. 2004.
74. CAL. GOVT. CODE § 12940(j) (West 2005); see Sheppard Mullin
Richter & Hampton LLP, Retroactivity of Third Party Harassment Law
Questioned, MONDAQ BUS. BRIEFING, Feb. 7, of Third Party Harassment
Law Questioned, MONDAQ BUS. BRIEFING, Feb. 7, 2005.
75. CALIFORNIA BUSINESS ROUNDTABLE, CALIFORNIA COMPETITIVENESS PROJECT:
ASSESSMENT OF CALIFORNIA COMPETITIVENESS (2004), available at http://www.cbrt.org/economy.html
(last visited Mar. 4, 2005).
76. Id. at 3.
77. Id.
78. See Stender v. Lucky Stores, 803 F. Supp. 259 (N.D. Cal.1992).
79. Justin M. Norton, Costco Latest in Wave of Gender Bias Suits,
RECORDER, Aug. 18, 2004, available at http://www.law.com/
(last visited Mar. 5, 2005).
80. See Steven Malanga, Class Action? Third Aisle to the Left,
WALL ST. J., June 29, 2004.
81. Dukes v. Wal-Mart Stores, Inc., 222 F.R.D. 137, 142, 187 (N.D. Cal.2004).
82. See Jim Copland, These Actions Have No Class, S.F. EXAMINER,
Sept. 15, 2004.
83. See id.
84. See id.
85. See Malanga, supra note 80.
86. See JOHN H. BEISNER ET AL., ONE SMALL STEP FOR A COUNTY COURT.
. . ONE GIANT CALAMITY FOR A NATIONAL LEGAL SYSTEM, MANHATTAN INST. CIV.
JUST. REP. NO. 7, at 8 (2003), available at http://www.manhattan-institute.org/html/cjr_7.htm
(last visited Mar. 5, 2005) (noting that in aggregative litigation, attorneys
"may pick and choose among the facts presented by the many plaintiffs
in attempting to establish all the various elements of the claim and the
jury is often left with the indelible impression that the collective evidence
counsel offers satis.es each individual plaintiff's particular burden
of proof"). 87. See Victor E. Schwartz et al., Federal Courts Should Decide
Interstate Class Actions: A Call for Federal Class Action Diversity Jurisdiction
Reform, 37 HARV. J. LEGIS. 494, 490-92 (2000).
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Seligman is now pursuing a much-publicized gender-discrimination suit
against Wal-Mart on behalf of 1.6 million women workers.[