The Golden State is known for its sandy beaches, picturesque mountains and sunny, temperate days. However, according to a recent survey of in-house counsel with business interests in California, the state’s litigation and business climates don’t necessarily measure up to the excellent weather.
The survey, conducted by California law firm Archer Norris, in partnership with ALM Marketing Services (which shares a parent company with Corporate Counsel), portrays the state’s business environment as a veritable wild west of litigation and regulatory risk.
One of the most revealing survey questions was how to sum up the legal environment in California. The responding in-house counsel used many words (some NSFW) to describe doing legal work in the state. However, of those PG-rated responses, the most common was “burdensome,” followed by “complex.” Other phrases used were “anti-private sector” and “overtly hostile to business interests.”
Litigation in the employment area appeared to be causing respondents the most problems, with 67 percent citing particular litigation risk in this category. This probably won’t come as too much of a surprise, as the state is known as one of the most plaintiff-friendly for workers trying to sue their employers.
“Wage and hour is a big issue in California,” Randy Berholtz, general counsel at San Diego, California-based Innovus Pharmaceuticals, told CorpCounsel.com. “I think all the employee vs. independent contractor issues are also really big.” Large companies in the state—like elsewhere in many parts of the country—have gotten caught up in lawsuits over whether workers are truly “employees” in the eyes of the law. The latest is Uber Technologies Inc., which is fending off a high-profile California misclassification class action.
The next risk litigation category cited by in-house counsel was environmental and regulatory matters. Eugene Blackard Jr., managing partner at Archer Norris, told CorpCounsel.com that although there are any number of challenges posed by California’s regulatory regimes, Proposition 65 stands out. “That proposition alone has spun off so many headaches and so many problems for businesses in California that we could probably be busy full time just working on Prop 65,” he said. The frequently updated regulation requires companies to provide notices to consumers about potentially hazardous chemicals and may require testing and revamping of products sold in the state.
In a place known for litigiousness, many in-house counsel reported having their hands full with lawsuits. Some 40 percent of respondents faced decisions over whether to settle or go to court in 10 matters or more over the last year. It seems to Blackard that some California clients are more prone to go straight to settlement to avoid the heightened risk involved in bringing the case through the state’s judicial system. “It does create a situation where clients are settling far more cases than they ever should,” he said, “because they don’t want to be involved in the California litigation process.”
Given the challenges at hand, it seems outside counsel representing companies in California need to be on top of their game. The survey indicated that when choosing outside counsel, California’s in-house lawyers value responsiveness most, as some 72 percent said that getting phone calls returned and providing efficient client service was of great value to them in scoping out firms. Next came knowledge of industry and business and overall proposed litigation costs—both being cited by 69 percent of respondents. As for what influences buyers’ evaluations of firms post-litigation, perhaps not surprisingly, results proved to be the No. 1 factor.
Blackard said that Archer Norris approaches California’s legal climate by focusing on things that clients can control. “The biggest thing is: we want to provide our corporate counsel with certainty of cost and, as much as we can, in the results we provide them,” he said. The firm also focuses on helping companies plan for the future by not just looking at litigation now, but what might be on the horizon.
Of course, despite the drawbacks in-house counsel face in California, some businesses are still thriving there. In this year’s listing of Fortune 500 companies, 53 are headquartered in California. But there’s also evidence that some companies are moving out.
Berholtz agrees that working in California does have some advantages such as relative proximity to Asian markets and the brainpower provided by high-caliber universities, as well as, of course, the famous weather. “We are here for the people and the climate,” Berholtz said.