When Will California Finally Protect Small Businesses from Lawsuit Abuse?

California’s atrocious legal environment coupled with the Legislature’s relentless pursuit of liability expanding principles has earned the Golden State the dubious honor of being named the “Top Everlasting Judicial Hellhole” in the nation, by the American Tort Reform Foundation.

We have received this unfortunate honor, not once, but 16 times over the past 20 years. The result? Californians pay for lawsuit abuse and excessive tort costs in the form of an annual “tort tax” of nearly $575 per person. The costs of this litigation also result in nearly 210,000 jobs lost each year.

I was a franchise owner on the Central Coast for 17 years. My community was always supporting me, my business, and other locally owned businesses. That’s what makes a community strong. Yet, we are often the targets of these types of shakedown lawsuits. I feared the threat of a lawsuit. There was nothing to protect me.

Lawsuit Abuse Slows Economic Rebound

At a critical time when California small-business owners are trying to rebound from COVID-19, unscrupulous attorneys are unsympathetically filing suits in record numbers based on technical violations and fail to allow business owners to correct the problem even though the violation caused no harm.

Small businesses are being weighed down by unwarranted lawsuits related to the Private Attorney General Act and the Americans with Disabilities Act. These suits have become a cottage industry for unscrupulous attorneys who turn California’s labor laws and protections upside down. What’s the main outcome? It’s not protecting workers or people who are disabled. It’s lining the pockets of these lawyers – all off the backs of small-business owners and consumers.

The intent behind the Private Attorney General Act when it was signed into law in 2004, was to protect workers from unscrupulous employers – those who fail to pay 40 hours of work, overtime, or pay employees with hot checks. I agree. Those employers should be held accountable. But that’s not at all what’s happening. Instead, these lawsuits have become “gotcha” class actions, all based on technical violations when no one was actually hurt.

Pennies for Employees, Thousands for Lawyers

Aggrieved employees see pennies, while these lawyers walk away with thousands of dollars. Can you imagine being an employer and having to pay out thousands of dollars in penalties because you failed to have the beginning date and ending date, sick time, or vacation time listed on the check stub even though every employee was paid, paid on time and the check cleared the bank?

Unfortunately, businesses are rarely given a warning or even a customer complaint about noncompliance until suit-happy trial lawyers take them straight to court.

As small businesses struggle to stay afloat, the cost of an abusive shakedown lawsuit could very well put them out of business for good. Almost 60% of Californians believe that lawmakers are not doing enough to combat lawsuit abuse.

It wouldn’t take much for them to look and see how our small businesses are struggling and to give them relief from shakedown lawsuits. One reform would signal California is back in business. And it would rightfully protect small-business owners, their families, and the jobs they create.

About the Author 

Victor Gomez is executive director of California Citizens Against Lawsuit Abuse. He wrote this for CalMatters, a public interest journalism venture committed to explaining how California’s Capitol works and why it matters.