In the recent 2023-2024 Judicial “Hellhole” Report by the American Tort Reform Foundation (ATR), California once again found itself in an unfavorable position, securing the third spot on the list.
This revelation comes as no surprise, particularly for small and medium-sized business owners grappling with the challenges presented by the state’s legal landscape. California has routinely maintained its position as one of the top “judicial hellholes” in the nation, securing the first spot in 2021 and ranking third in both 2022 and 2023.
The culprit at the heart of the issue is the Private Attorneys General Act (PAGA), a problematic law that empowers greedy trial lawyers to target businesses for even the slightest infractions — even accidental ones — against the state’s over 1,000-page labor code. PAGA has inflicted considerable harm on thousands of California employers, burdening them with exorbitant legal fees and settlement payments.
PAGA has become a cash cow for trial lawyers looking to target businesses. This has led to a surge in lawsuits, often with questionable merit. In fact, since the law took effect in 2004, PAGA lawsuits have increased by more than 1,000%. In the past six years, trial attorneys have raked in a whopping $8 billion, taking full advantage of PAGA to pursue frivolous claims.
Unfortunately, PAGA isn’t the only law hurting California’s ratings. According to ATR, Proposition 65 “has become one of the plaintiffs’ bar’s favorite tools to exploit. Baseless Prop-65 litigation unjustly burdens companies that do business in California.” Under Proposition 65, businesses are forced to place “ominous warning signs” on any product containing a trace of any of the 1,000 non-threatening chemicals. Despite many of these chemicals being labeled as safe, they are frequently used by lawyers to target businesses to the tune of millions of dollars.
Now, Governor Newsom’s new labor laws that he recently signed into law indicate that he’s determined to bring California back to the number one judicial hellhole ranking. One of the new laws he signed, Assembly Bill 584, authorizes local prosecutors to enforce labor code violations. This means that beginning in 2024, businesses will not only have to worry about private trial lawyers, but public ones as well. On top of that, Newsom has increased penalties for employers who misclassify independent contractors, which can now cost employers up to $25,000.
California is poised to intensify the challenges faced by businesses, solidifying its position as a daunting legal landscape for job creators.