The economic impacts of two labor and employment bills identified as job killers by the California Chamber of Commerce are projected in recent analyses by a respected consulting firm.
SB 365 (Wiener; D-San Francisco), which undermines arbitration, could cause California to lose up to 18,000 jobs and up to $129 million in state taxes, according to the analysis.
A separate analysis concluded that SB 616 (Gonzalez; D-Long Beach), which doubles the state’s existing sick leave mandate, could lead to up to 180,000 jobs lost and $1.4 billion in lost state taxes.
Both analyses were conducted by Encina Advisors, LLC on behalf of the California Foundation for Commerce and Education, a CalChamber-affiliated think tank.
SB 365 discriminates against the use of arbitration agreements by requiring trial courts to continue trial proceedings during any appeal regarding the denial of a motion to compel, undermining arbitration and divesting courts of their inherent right to stay proceedings.
The economic analysis estimates that resolution delays caused by the bill would lead to 4,600 to 18,300 jobs lost and $32.3 million to $129.2 million in lost state taxes.
The analysis assumes a delay of one year or more in resolving employment disputes that normally would be resolved through arbitration and estimates the average value of an employment dispute to be $306,856.
This estimated delay harms employees because they would not be able to access their restitution until the case is settled if they prevail.
Similarly, even if the employer prevails, the employer is still harmed because the monetary claim was tied up until resolution. This means that for a year or more, the company was unable to invest the money into company operations or in salaries and wages for others.
Civil Litigation Benefits Attorneys Not Workers
The motive behind SB 365 and its likely result is to increase civil litigation, the CalChamber pointed out in a letter to legislators.
The stakeholder that generally profits from civil litigation is the attorney, not the consumer or worker. For example, consumers and employees typically receive higher awards and have their claims resolved more quickly in arbitration than litigation. The same holds true when one looks at data from California’s own agencies regarding outcomes in litigation versus agency enforcement.
In the case of the Private Attorneys General Act (PAGA), the current average payment that a worker receives from a PAGA case filed in court is $1,300, compared to $5,700 for cases adjudicated by the state’s enforcement agency. Attorneys on average recover a minimum of 33% of the workers’ total recovery, or $372,000 on average in litigation. In addition to receiving lower average recoveries in PAGA cases, workers also wait almost twice as long for their owed wages.
By requiring litigation to continue in every case during the appeal of a denial of a motion to compel, SB 365 undercuts the benefits of arbitration in providing a speedier, less costly forum in which to resolve disputes, the CalChamber stressed.
SB 365 awaits consideration by the Assembly Judiciary Committee after passing the Senate on May 24.
SB 616 imposes new costs and leave requirements on employers of all sizes, by more than doubling California’s existing sick leave mandate, which is in addition to all other enacted leave mandates that small employers throughout the state are already struggling with to implement and comply.
SB 616 amends the California Healthy Workplaces, Healthy Families Act to increase the minimum number of sick days granted under the law from 3 days to 7 days, increase the cap that employers can place on paid sick days from 6 days to 14 days, and increase the number of paid sick days an employee can roll over to the next year from 3 days to 7 days.
The CalChamber has pointed out to legislators that businesses in California that can afford to offer more than three days of sick leave are doing so, but many other employers in this state simply cannot absorb that cost. The mandated, increased labor costs brought on by SB 616 will inevitably either be passed on to consumers as higher prices for goods and services, or force employers to reduce jobs or cut wages or other benefits.
The economic analysis of SB 616 confirms the CalChamber’s assertion.
The primary drivers of the job losses and reduced state taxes are lost worker productivity resulting from increased sick days, and workforce reductions from employers having to compensate workers the same despite decreased work productivity.
Numerous Existing Leave Mandates
Despite the economic struggles that businesses have faced recently, the number of overlapping leaves has grown over the last few years and continues to grow.
While one more paid benefit may not seem significant in isolation, SB 616 must be viewed in the context of all California’s other leaves and paid benefits, especially the special paid leaves required from 2020 through 2023 due to COVID, the CalChamber said in a letter sent to legislators.
Below is a sample of just some of the leaves required by law:
• Cal/OSHA Non-Emergency COVID Regulation: Effective February 2023, employers still must exclude from the workplace workers from the workplace who test positive for COVID-19, which is in effect mandatory unpaid leave.
• Workers’ Compensation: Expanded presumption for COVID-19 until January 1, 2024 so that employees may be entitled to paid leave and benefits under the workers’ compensation system.
• California Family Rights Act (CFRA): Grants 12-week leave for the employee’s own illness or to care for a family member. CFRA was expanded twice in the last two years: in 2020 to apply to small business and to cover additional family members so that it no longer runs concurrently with the federal Family and Medical Leave Act (FMLA) and in 2022 to cover non-family members of the employee’s choosing. Employees can use this leave in smaller one- to two-hour increments if they so choose.
• Family and Medical Leave Act: Grants 12-week leave for the employee’s own illness or to care for a family member.
• Pregnancy disability leave: Grants 4 months of leave.
• Bereavement leave: Effective 2023, employees can take up to 5 days of leave if there is a death of a family member. There is a bill this year to create a second bereavement leave related to fertility and children.
• School/Child Care leave: Expanded in 2016 so that employees can take up to 40 hours per year to care for a child whose school or child care provider is unavailable, enroll a child in school or child care, or participate in school or child care activities
• School Appearance leave: Uncapped leave for an employee who needs to take time off to appear at school due to a student disciplinary action.
• Military Service leave: Uncapped leave provided for military personnel; benefits must continue for at least 30 days. Ten days of leave for military spouses.
• Drug Rehabilitation/Adult Literacy classes: Uncapped leave for employees who wish to participate in alcohol or drug rehabilitation programs or adult literacy programs.
• Organ and Bone Marrow Donor leave: Mandates 30 days paid leave and 30 additional days of unpaid leave.
This list also does not include local ordinances that have broader paid and unpaid leave requirements than those listed above.
SB 616 passed the Senate last week and awaits assignment to a policy committee in the Assembly.