The Left Coast Of Labor

It may be the home of sun, surf, starlets, and Silicon Valley burnouts. But California has added another bit of renown to its image lately: It’s the only place in the country where working mothers can demand accommodations for breast-feeding, and where employees who can’t get along with their coworkers may be considered disabled. Ah, California. The country’s economic engine–as well as the perpetual thorn in employers’ sides. Moving to its own beat, California continues to live up to its stereotype as the country’s most employee-friendly state. Last year no fewer than 30 statutes affecting employers and the workplace were enacted there. Among the state’s progressive measures in recent years: the nation’s first paid family medical leave act, the most rigid wage and hour laws in the country, and a disability law that goes way beyond the federal Americans with Disabilities Act. What’s more, employers that violate workplace safety rules or punish whistle-blowers face stiff criminal penalties. And illegal immigrants can sue for back wages from deadbeat bosses. All in all, even in an uncertain economy, it’s a great time to have a job in California. Employers, however, have a rather different view. General counsel and their deputies are reeling from the pro-worker initiatives of the past three years. Their complaints: higher administrative costs, problems implementing uniform workplace policies, and the threat that more employees will bring lawsuits. Already the price of employment liability insurance in California ranks among the highest in the country–and rising fast. So deep is the frustration that some general counsel are actively challenging some of the recent laws. For instance, Hayward “Dan” Fisk, GC of Computer Sciences Corporation in El Segundo, California, is a member of a consortium of in-house lawyers that is trying to overturn an especially nettlesome–and arguably unconstitutional–statute. California now gives plaintiffs 75 days to respond to summary judgment motions, instead of the prior standard of 28 days. Fisk argues that giving plaintiffs more time amounts to an unfair advantage because it effectively kills summary judgment motions as a tool in quickly defeating frivolous lawsuits. Despite this revolt, Fisk and other GCs may not have much choice but to play by California’s rules. The state is the world’s fifth-largest economy, with 16 million workers, and a $1.3 trillion economic output that exceeds China’s. Indeed, what sizable company doesn’t have workers in California? The reality is that even companies that don’t do business there need to pay attention. For better or worse, California workplace protections often set new standards that are later followed by other states and the federal government. Cost Gripes In-house lawyers have a lot to say about California laws, but they particularly gripe about the cost of doing business in the state. And they may have a point. Peter Taffae, managing director of E-Perils.com, a Los Angeles-based insurance broker, says employment liability insurance rates have increased 50 percent in the last two years, to about $150 per workeralmost three times the rate for midsize companies in other industrial states, such as Ohio–making it among the most expensive in the nation. At Vivendi Universal Entertainment’s Los Angeles office, 75 percent of its employment cases are filed in California, though only 25-45 percent (depending on seasonal hirings) of its workforce is located there, according to Nestor Barrero, vice president-employment counsel. “Even garden-variety discrimination cases these days can cost you $50,000 to $100,000 [in fees and expenses],” he says, “and that’s just to the point of trying to get it dismissed or settled. Out of state it’s probably half of that.” Each new instance of legislative tinkering by California lawmakers drives up corporate costs. New employee handbooks need to be printed and forms drawn up. Also, GCs must turn to expensive outside counsel for guidance. Dawn Ross, senior counsel for labor and employment law at 10,000-employee Union Bank of California (a subsidiary of San Francisco-based Union BanCal Corporation) finds administering the state’s new disability law to be a daily chore that consumes her time and strains human resources. She says it’s virtually impossible for her to develop and implement a uniform disability policy because of the often-bewildering variety of factors employers now have to consider in each case that comes up. Unlike federal law, California uses a broad definition of disability. Hence, employers must make more accommodations for employees who claim to have disabilities so that they can perform their job. Employers complain that this also makes it much easier for employees to sue. “It’s extremely case-by-case,” Ross says about complying with California law, “and that’s put a huge burden on employers.” Employers also have problems with the much-publicized paid family medical leaves. Though the leaves are supposed to be wholly funded through employee payroll taxes, some in-house lawyers predict that employers will end up paying the price for California’s generosity. Many GCs fear that as more employees take a “why not?” attitude in using the benefit, overall productivity will fall and costs will rise as temporary workers fill in. What’s more, they’re skeptical that the state fund earmarked to pay claims, which is already strapped for money, can handle the added burden–which means employers might end up footing the bill. To the bill’s author, state senator Sheila Kuehl, these employers are just being alarmist. “They don’t know what they’re talking about,” she says. “Their claims are just specious.” Some employers, she says, have a knee-jerk reaction to any change in labor laws: “They have opposed antidiscrimination laws; they have opposed just about everything that would benefit employees in terms of flexibility.” Politics, California-Style But corporate lawyers argue that they’re not questioning the public policy reasons behind giving workers leaves or even protecting homosexuals or illegal immigrants. Rather, their complaint is that California pushes workers’ rights to unnecessary extremes. “Why do they insist on passing state versions of laws to take care of problems that the federal government has already taken care of and managed?” asks Marc Kartman, assistant general counsel at Milwaukee-based Rockwell Automation, Inc., which, until 1999, was headquartered in California. For example, many GCs have a beef with the state’s “WARN” law, which goes beyond federal requirements in how much notice companies must give employees about their plans for relocation. To understand the engine behind this latest wave of workplace legislation, look to the state capital. In 1998, after 16 years of Republican control, Democrats, traditional friends of labor, moved back into the governor’s mansion–a triumph that was repeated this past November when Governor Gray Davis was reelected and Democrats won every statewide office. After being out in the wilderness, the Democrats had their chance to push through their pro-labor agenda. There are strong personalities behind that push, as well. Senator Kuehl, a Democrat from Santa Monica, is a prime example. An openly gay former civil rights lawyer and onetime actor (she played the lovelorn Zelda in the popular early 1960s sitcom The Many Loves of Dobie Gillis), Kuehl authored not only last year’s family medical leave benefit but also a disability law in 2000–both of which irk corporate counsel. “I personally like her a lot, but her name seems to be attached to everything that gives me heartburn,” groans Dawn Ross of Union Bank of California. Occasional Pragmatism Despite the best efforts of such diehard advocates as Kuehl, management is not always on the losing side. For one thing, state courts have issued decisions that benefit management. Last year, for instance, in a case involving Sav-On Drug Stores, Inc., a state appellate court ruled in favor of the employer in a wage and hour class action. Moreover, the legislative pendulum sometimes swings in favor of bosses. The state, for instance, passed an emergency measure last year softening a 2001 law that required companies to protect workers’ Social Security numbers and other personal information. Employers complained that the law would have hampered their ability to do background checks on new employees. And Governor Davis, considered to be a pragmatist and less liberal than many of his fellow Democrats in the legislature, vetoed several bills feared by employers. He vetoed guaranteed severance pay for many workers and increased penalties for executives who crack down on company whistle-blowers. The labor defeat that surprised employers most, however, came when Davis killed a bill that would have barred most types of mandatory arbitration agreements. But in-house counsel say that these signs of moderation aren’t enough. Some take a cynical view and chalk up Davis’s gifts to business as mere election-year politicking. Besides, they say, the Democrats in Sacramento have at least another two to four years of lawmaking ahead of them. Mandatory arbitration and beefed-up ergonomics standards, among other defeated measures, are sure to come up again this year. And which way will Davis go in these battles? Ensconced for another four years, Davis is rumored to have presidential aspirations–so businesses are hopeful that he’ll be a moderating force. Still, “everybody’s looking at the Ouija board” to see what will happen, says Fred Main, general counsel of the 13,000-member California Chamber of Commerce. In fact, even pro-labor groups are unsure. “It’s hard to know which way the political winds are blowing,” says Patricia Shiu, a vice president of The Legal Aid Society-Employment Law Center of San Francisco, who drafted the new family medical leave law. Are They Fleeing? But to hear business groups tell it, California is already on a self-destructive path with existing laws. They argue that if the pro-worker trend continues, California risks hurting both employers and employees alike. Given the struggling economy, businesses caution that California must ease current labor laws to keep companies from moving to other parts of the country. But is California–particularly its labor laws–prompting businesses to leave? Studies done a decade ago that examined then-existing labor laws and other ingredients crucial to business growth concluded that California was indeed driving companies away. But recent evidence belies that claim. For example, the state, with its mushrooming technology industry, emerged as the epicenter of the country’s nineties economic boom. According to state senator Kuehl, many progressive, high-tech companies are perfectly happy in California. “Apple [Computer, Inc.], for instance, and other kinds of Silicon Valley entities, are not the ones coming to us saying, ‘You’re killing us,’ ” she says. Besides, Kuehl adds, the companies that are leaving are engaged in manufacturing, not high-end services–and they are going to “either Mexico or Asia; we’re not talking about going to Arizona.” Employment lawyer Shiu of the Legal Aid Society also has little patience for corporate Chicken Littles. “I’ve heard it all before: that the sky is going to fall and businesses are going to flee,” she says. Not only have doomsayers been proven wrong, but they also take the wrong view. To Shiu, California’s labor code recognizes and addresses a fundamental reality: that employees get sick and family crises arise. If anything, she says, the state is building a healthy and stable workforce. “What about the value of an employee’s loyalty and productivity to the bottom line?” she asks. Indeed, the state has long been a pioneer, in laws as well as popular culture and technology. California-born ideas that once seemed wild or controversial to the rest of the nation are now part of the mainstream. For instance, privacy protections were embedded in the state’s constitution in the late 1800s, and California passed its own civil rights laws in the 1950s–long before these rights were recognized by the federal or other state systems. In the early eighties California was the first to set limits on the doctrine of at-will employment, which allows companies to hire and fire individuals at their discretion. And starting in the 1970s, state legislators passed a series of disability protections that predated the federal Americans with Disabilities Act, which didn’t go into effect until the early nineties. “California is the camel’s nose under the tent,” says Eric Joss, an employment specialist at Los Angeles’s Paul, Hastings, Janofsky & Walker. Wise companies should pay attention because those California initiatives that seem outrageous today may be headed their way tomorrow.