Why is everyone leaving California? It’s a simple and legitimate question. But the answers are unfortunately complicated and not very comforting.
A total of 74 companies moved their headquarters out of California in the first six months of last year alone — including Oracle and Hewlett-Packard, just two of the many Fortune 500 companies leaving California.
The growing list of companies that moved out of California in 2021 can be attributed to many factors both pandemic-related and not. I am often asked — and don’t disagree with the question: “Why is California so anti-business?” The answers (and problem) are more nuanced. Let’s take a closer look.
DOES CALIFORNIA REGULATE BUSINESS TOO MUCH?: A BUSINESS OWNER & ATTORNEY’S PERSPECTIVE
As a proud small business lawyer and small business owner in California, I have written at length about the most recent hurdles to profitably running a business in California. These include high labor costs from a soaring minimum wage, enhanced penalties & regulations affecting multi-site businesses, and across-the-board reinstatement of COVID-19 supplemental pay.
While the weather is great here – and many of us don’t see ourselves moving anywhere else — the bottom line is that being a business owner in California is costly. The Hoover Institution cited many other factors in companies leaving California. This includes high tax rates, as well as high utility and energy costs compounding to create a “declining quality of life for many Californias.” 2022 will likely be another record-breaking year.
At the same time, mandates and policies enacted in Sacramento have expanded civil liability in ways that significantly harm businesses, according to The American Tort Reform Foundation (ATRF). The foundation has called California “the worst ‘Judicial Hellhole’ in the country.”
“California’s Proposition 65, which requires warning labels on products containing any of the 1,000-plus chemicals the state deems possible carcinogens, costs businesses millions of dollars each year,” the foundation said in a press release as an example of California’s litigiousness. “In 2020 and through mid-2021, more than 85% of settlement costs paid by businesses went to trial lawyers. Through July of this year, trial lawyers have made $6.5 million from California Prop-65 settlements.”
The result of it all? National companies are finding more legal headaches for employees located in the Golden State and that obviously affects the bottom line. The “difficult legal climate” has also discouraged some business owners and corporate leaders from locating a facility in California. Others are choosing to relocate their operations to friendlier states.
California’s loss has been a major gain for another state — Texas.
As listed on Texas Governor Greg Abbott’s official website, for the 17th year in a row Texas has ranked the Best State for Business by the nation’s leading CEOs in a 2021 survey by Chief Executive Magazine.
The survey included questions ranging from those about business climate to workforce and quality of life. Governor Abbott boasts of Texas’s commitment to welcoming “innovative, job-creating businesses,” saying:
“Texas continues to dominate as the Best State for Business because of the unmatched competitive advantages we offer: no corporate or personal income taxes, a predictable regulatory climate, and a young, growing, and skilled workforce.”
While the Lonestar state seems to have a growing number of big and small business fans that no doubt benefit from these advantages, for those of us that have decided to stay, there are silver linings in our decisions to do so.
Since 2019, 147 businesses have been granted a total of $593,844,974 in tax credits through the Office of Business and Economic Development (GO-Boz). Additionally, a number of grants and additional tax abatements have been used to incentivize businesses to stay or relocate here from out of state. Increased funding for initiatives related to keeping small businesses includes a grant program that will run through at least January 1, 2030. (Read more about this on page 4 of this California business exodus-focused report).
Also, while out-of-state incentives can seem alluring, moving often comes with many additional operational and compliance-related costs and can be more difficult than initially thought. In summary, the grass isn’t always greener on the other side.
THE BENEFITS OF A PROACTIVE APPROACH: AVOIDING LAWSUITS & INCREASED PROTECTIONS
For those of us unable to pull ourselves away from our California lifestyle, one of the best ways to protect yourself, your business, and your employees, is to ensure you’re taking a proactive approach to regulatory compliance. The cost of verifying that your company policies and procedures are up to date can save you both money and headaches in the long run.
While you may think it can never happen to you, much of my work in labor and employment law stems from surprise lawsuits for cases including:
- Wrongful Termination
- Sexual Harassment
- Administrative Law Hearings
- Civil Rights Violations
- Discrimination Claims
- ADA Violations
- Wage and Hour Class Actions
- PAGA Actions
- FLSA and FMLA Claims
- Misclassification Claims
- Private and Public Whistleblower Claims
- Unfair Competition and Trade Secret Claims
Read more information about labor and employment law cases here. Many times, the difference between a successful proper defense and a costly defeat is the groundwork on the part of businesses and their ability to continuously update their policies pursuant to current laws and to provide updated documentation accordingly.
As cited in a recent post, while it can be time-consuming and challenging to stay up to date on new laws, the cost of non-compliance is much higher than any upfront costs. Staying in compliance can be as simple as a quarterly or annual reviewing and revising of all written policies, handbooks, employment agreements, and confidentiality agreements.
As the Proper Defense Civil Division Founder, I (Justin Vecchiarelli) focus my practice on employment and labor law. My extensive experience has helped businesses of all sizes make sure they are in compliance with all wage and related employment laws (and continue to stay in compliance). At Proper Defense, we are uniquely qualified to help businesses navigate the continuously updated requirements of state and federal employment law.
MAXIMIZE YOUR PROFITABILITY WHILE MINIMIZING YOUR LIABILITY WITH PROPER DEFENSE
Staying in compliance is particularly complex in the State of California, and experienced counsel can be key to ensuring protection from lawsuits. While we are well-versed in providing representation once a lawsuit is filed, sound legal advice BEFORE litigation is much more friendly to your bottom line.
No matter what stage in the compliance process you’re at, for a true advocate that you can trust, in a judgment-free zone, contact Proper Defense Law Corporation today. For a FREE consultation in the Fresno area, call (559) 825-3800. You can reach us at our Beverly Hills location by calling (424) 284-4066. You can also schedule an appointment online on our Contact Us page. It gets better with Proper Defense, we promise
We know we can successfully end your search for a ‘small business attorney near me’ or ‘corporate lawyer near me’. Los Angeles, Beverly Hills, Orange County, Fresno, Hanford, Madera, Merced, Tulare, and Visalia are all areas we serve.
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