Abuse of PAGA leads to Lawsuit
By TOM MANZO | President of the California Business & Industrial Alliance
Dec. 19, 2018
The Private Attorney General Act (PAGA) was signed into law in 2003 by Gray Davis and championed by Senator Joe Dunn. Davis spent 1,778 days as governor and signed 5,132 bills into law and that is an average of 2.89 bills a day. PAGA was approved by Governor Gray Davis on October 12, 2003, just five days after the California electorate voted to recall him from office.
If you are not familiar with PAGA, this law deputizes each and every California employee (and his or her private contingency-fee attorneys) to sue their employers on behalf of the State. The California Labor Laws are composed of myriad rules, standards, and obligations, which touch nearly every aspect of the employment relationship. Many of the California Labor Laws are unclear, cumbersome, counter intuitive and impossible to follow. It is no wonder as the California Labor Law Digest published by the Chamber is over 1,100 pages.
If you are take your lunch later than 5 hours, even a second, it is a violation, or a gift card for the holidays is not put into the overtime rate is a violation. Do you have proper commission agreements? Third break after 10 hours or waived lunch? The list of potential traps just keeps going and it is impossible to follow all of these regulations and many are not appropriate for some industries. The Labor Laws cannot be a one size fits all and I think the only ones who understand these complex laws are the trial attorneys suing businesses daily.
Since this law was enacted over 35,000 PAGA notices have been sent out by the state and most turn into class action lawsuits costing employers millions. PAGA is used by the trial lawyers to start the process and many times settlement amounts going to the state are negotiated in mediation. As a matter of fact what is supposed to go to the aggrieved employees is also negotiated in mediation and what are not negotiable are the trial attorney’s fees thanks to the state.
An employee alleges (without any proof) that for the past year, he has worked 2 minutes of “of-the-c1ock” overtime each pay period attending to miscellaneous tasks related to opening or closing Employer’s place of business. Under the Starbucks decision, discussed supra, the employee has a cognizable claim of failure to pay minimum wages and overtime. Employer has 30 employees and weekly pay periods. Employee’s hourly rate of pay is $ 11.00 per hour, which means the approximate amount of unpaid minimum wages is: $19.07 (2 minutes x 52 pay periods: 104 minutes; 104 minutes / 60 minutes: 1.73 hours; 1.73 hours x $11.00: $19.07), and the approximate amount of unpaid overtime wages are: $9.54 ($19.07 x. 0.5: $ 9.54). So the total approximate amount of wages Employer failed to pay Employee, unknowingly, is $28.61.
Through PAGA, this employee has authority to seek a maximum of $69,508.61 civil penalties and personal damages for the alleged failure of Employer to pay Employee: $28.61, which are 2,430 times the alleged actual damages. With 30 employees your exposure is over 2 million dollars and this does not include employees no longer working for you. Those employees are owed 30 days’ pay and waiting time penalties.
What happens next is where things really go wrong as this employee will never see $ 69,000. All of that is done in negotiations behind closed doors. That Starbucks employee received a check for less than $ 700 and the rest goes to the trial lawyer and the state.
Our organization The California Business & Industrial Alliance filed suit against the State of California on November 28th of this year challenging its constitutionality. The complaint is 54 pages spelling out how this law began and where we are at today. It is time business owners, community leaders, legislators, all learned more about how badly this law is abused and helped facilitate real reform. Employers and employees both lose when it comes to PAGA.
The views expressed above are those of the author and do not necessarily reflect those of the Inland Empire Business Journal.
Will The U.S. Economy Fall Into Recession In 2023?
Will The U.S. Economy Fall Into Recession In 2023? Only If The Fed Intensifies Current Tightening Policies; Consumers To Make Up For Weakness In Other Parts Of The Economy
California On The Verge Of Recovering All Jobs Lost Since Pandemic; Investors Buying Up Larger Share Of Homes In The Inland Empire
The U.S. economy has little chance of falling into a recession this year or next unless the Federal Reserve raises interest rates more than they are currently projecting, according to a new forecast released yesterday at the 13th annual Inland Empire Economic Forecast Conference, hosted by the UC Riverside School of Business.
“Although there are signs of stress in parts of the economy, the wealth created by the excessive fiscal stimulus enacted in 2020 and 2021 continues to drive a consumer consumption binge that will propel the economy forward,” said Christopher Thornberg, Director of the UCR Center for Economic Forecasting & Development and one of the forecast authors. “The only possible thing that could tip things downward in the near-term is if the Fed applies even more aggressive quantitative tightening to control inflation than they’re now projecting.”
If the Fed stamps out inflation in the near-term by forcefully reducing its balance sheet, it will drive up interest rates, cool financial markets sharply, and possibly create a modest recession next year led by consumer cutbacks, according to the new outlook. However, in the longer term, if Fed action is inadequate, the United States may be looking at several years of very weak growth, with consumers in a relatively poor financial position at the end.
“This is now a balancing act,” said Thornberg. “Functionally speaking, policymakers went from maximum acceleration – the stimulus – to maximum braking – tightening by the Fed – over a single year, something that would create turbulence in even the healthiest economy.”
Although the new forecast is predicting economic growth to continue in the nation, California, and the Inland Empire in the short run, albeit at a slower pace (“we’ve cooled from white-hot to red-hot”), in the longer term, the major economic wildcard comes from the growing Federal deficit. According to the new forecast, much will depend on how long bond markets are willing to tolerate the excessive level of today’s U.S. government debt.
In California, the state is on the brink of a milestone: recovering all the jobs it lost during the pandemic-driven downturn and mass retirement. While many states have already reached full recovery, as of this writing, California still has a 47,300 job deficit. However, it’s increasingly likely that the state’s job count will be above water by the end of this year, according to the forecast.
- In the United States, inflation is moderating and may have peaked, but it won’t decelerate rapidly. Expect price growth and interest rates to remain elevated in the near term.
- Consumer spending now accounts for the highest share of U.S. GDP since 2006. This consumption is also apparent in the rapidly growing U.S. trade deficit, which accounts for the largest a share of GDP since the runup to the Great Recession.
- There is a massive amount of equity in the current U.S. housing market driven by a decade of low mortgage debt accumulation. The industry also has very low inventories of existing homes for sale and vacancy rates are still at a record low level. This is not a market that is due for a collapse—at least not yet.
- The major problem for new housing is the ultra-low mortgage rates homeowners currently enjoy. Anyone who sells now will have to go from a sub-3 rate to something in the 5+ category. That is not a move most homeowners make—unless they have to. The ‘move-up’ market is all but frozen.
- California’s employment recovery has been uneven, with inland communities faring better than coastal areas. The Inland Empire has 5% more jobs today than it had prior to the pandemic, while at the other end of the spectrum, there are still 3% fewer jobs in Ventura County.
- California’s labor force contracted during the pandemic and employers have struggled to find workers, especially in coastal communities. The primary reason behind the labor force changes is population growth. From 2019 to 2022, population grew in inland communities and declined in coastal communities, driven by affordability.
- After two years in which California’s housing market went gangbusters, and home prices increased an average 43%, the rising interest rate environment, in addition to stretched prices, has led to a major slowdown in 2022. A price crash in the market is nowhere in sight, although a slowdown in price growth is expected.
- The share of homes purchased by investors in the Inland Empire is at record highs. This parallels the nationwide interest by private equity in purchasing large swaths of residential real estate. This forecast expects the share of homes purchased by investors in the region to increase.
- Current sale price cuts for homes in the Inland Empire are more of a reality check than a price decline warranting concern. The rate of bidding wars has only dipped to levels seen in the early part of 2020.
- The Inland Empire has experienced a tremendous boom in Transport and Logistics employment (16.6% of all jobs in the region are now in this sector). The Information sector has also grown, but lags other employment categories, highlighting the relative underrepresentation of knowledge workers in the region. This forecast expects employment in the Inland Empire to continue expanding, although at a tapered pace.
The 13th annual Inland Empire Economic Forecast Conference was held on October 5th. A copy of the forecast book can be downloaded in its entirety here.
No Near-term Recession Says Leading Forecast; Supercharged Consumers will Propel U.S. Economy into 2023
Recession Potential Will Grow If Federal Reserve Tightens To Control Inflation… But The Sooner The Better; California On Verge of Recovering All Jobs Lost To Pandemic
Despite real signs of stress in parts of the system, for now, consumers will carry the U.S. economy through this year and into 2023 without a downturn, according to Beacon Economics‘ latest outlook for the United States and California. The wealth created by the excessive fiscal stimulus enacted in 2020 and 2021 continues to drive a consumer consumption binge and the new forecast anticipates economic growth to look better in the second half of 2022 (when final numbers are available) than it did in the first half.
Inflation will continue to run hot, and interest rates will continue to rise as a result, but those circumstances are not recession causing, according to the outlook. Instead, expect a slow pace of overall economic growth, with weaker numbers from the more rate sensitive sectors.
“Functionally speaking, policymakers went from maximum acceleration – the stimulus – to maximum braking – tightening by the Fed – over a single year, something that would create turbulence in even the healthiest economy,” said Christopher Thornberg, Founding Partner of Beacon Economics and one of the forecast authors. “But in the near-term, while parts of the economy will remain cool due to rising interest rates, that supercharged U.S. consumer, armed with a $30 trillion increase in household wealth over the pandemic period, will keep momentum going.”
The new forecast also argues that inflation may have peaked but will not decelerate rapidly. “Until the Fed gets serious about tightening, that is reducing the money supply and raising interest rates, expect price growth to remain elevated,” said Thornberg.
Although the potential for a real recession in the nation will increase if and when the Fed applies more aggressive quantitative tightening to control inflation and push up real (rather than nominal) interest rates, the faster the Fed acts the better in order to prevent a truly deep negative business cycle, according to the forecast.
Starting in 2023, if Fed action is inadequate the United States may be looking at 3 or more years of very weak growth, with consumers in a relatively poor financial position at the end. If the Fed stamps out inflation in the near-term by aggressively reducing its balance sheet, it will drive up interest rates, cool financial markets sharply, and possibly create a modest recession next year led by consumer cutbacks. However, the nation would come out of it with a strong private sector.
In California, the state is on the brink of a milestone: recovering all the jobs it lost during the pandemic-driven downturn. While many states have already reached full recovery, as of this writing, California still has a 73,000 job deficit. However, if the economy adds the same number of jobs as it did in the latest numbers in the next data release, the state’s job count will be above water.
“California’s labor force contracted during the pandemic and employers have struggled to hire the workers they need, especially in coastal communities,” said Taner Osman, Research Manager at Beacon Economics and one of the forecast authors. “These difficulties circle directly back to the long-term affordability crisis facing the state as the labor forces in more expensive coastal areas have declined while they have grown in relatively affordable inland communities.”
View the new The Beacon Outlook including full forecast tables here.
It’s The Demand Curve, Stupid…
It’s The Demand Curve, Stupid…
By Christopher Thornberg
The biggest obstacle to slowing inflation is that the real causes of it—excessive consumer demand and rapidly rising wages—are too politically toxic to acknowledge.
The August CPI report showed prices in the United States continuing to increase, contrary to the predictions of most Blue-Chip forecasts and the Federal Reserve. This has spooked the markets and caused a sharp decline in the various indexes—the S&P 500 dropped over 4%. The decline in the markets doesn’t surprise me—they are the ultimate drama queens of the economy, overreacting to everything. They will likely bounce back soon enough.
What does perplex me is how we collectively continue to be surprised when the official inflation forecasts fall well below reality. This same kabuki dance has been repeated almost monthly for more than a year now, with expert economists assuring us that price growth will soon decelerate and maybe even reverse, followed by a gnashing of teeth and predictions of doom when it turns out the data is not living up to the optimism.
I am certainly not suggesting that inflation is easy to forecast—especially on a month-to-month basis. But the problem I see here is different. The major forecasts and official prognostications aren’t just missing the mark, they have consistently predicted lower inflation rates than have been occurring. In statistical parlance the forecasts have bias. And this bias stems from the fact that the cause of inflation has been misinterpreted as primarily a supply chain issue, when in fact it is an excess demand and labor cost issue.
Consider the various explanations for inflation over the last year. They have typically attributed the problem to parts shortages (e.g., empty car dealer lots and high used-car prices), energy markets (the high cost of gasoline), the war in Ukraine and grain markets (food prices) among other issues. The following quote is from a Wall Street Journal reporter discussing her interviews with various economists prior to the summer CPI estimates:
“[June] will probably prove to be the peak for the annual measure of CPI. That’s because pretty much all of the major drivers of the inflation surge this year and last year are fading or outright reversing. Energy prices are on the downswing, most obviously gasoline prices. Upstream, energy and food commodity prices have come down a lot in recent weeks too, which suggests that there’s more easing to feed through to consumers in store, particularly on the grocery front. Supply-chain pressures seem to be gradually improving.”
If we think about inflation as being strictly driven by limitations in inputs, then any relief in those supply pressures should cause prices to fall. But this is not the case today, as the August number clearly demonstrates. The supply-chain theory of inflation is wrong. And the reason many experts continue to get it wrong is because the true causes of today’s inflation—excess consumer demand and rapidly rising labor costs—are politically toxic and difficult to acknowledge in these terse populist times.
Excess consumer demand has been caused by an overstimulation of the economy on the part of the Feds. As I have written many times, the pandemic hit to the economy was never the crisis it was portrayed to be, and the $6.5 trillion in fiscal stimulus, largely funded by $5 trillion in new money created through the Fed’s quantitative easing program, was vastly more than necessary. It set financial markets to new (unsustainable) highs and ultimately generated a 25% bump in household net worth ($30 trillion in new wealth) in just 2 years. This new “wealth” has driven consumer spending to new highs, and that is what is causing inflation. As Milton Friedman famously quipped: “Inflation is caused by too much money chasing after too few goods.”
Looking at the supply side only mistakes the symptoms for the disease. Gasoline prices shot up because the minor issues with supply were magnified by the major jump in demand. Estimates of short-run demand elasticity for gasoline suggest the market is inelastic, but still, an increase in price will lead to a decrease in consumption if those prices are only being driven by supply constraints. Yet, the Bureau of Economic Analysis’ GDP data shows that in the last 18 months, even as energy prices rose 97%, consumption of energy products increased by 7%. Prices rose so dramatically because of the surge in demand, not the limitations on supply.
And now that energy prices are falling as supply catches up, money not spent on energy is simply flowing to other spending—healthcare, housing, restaurants, travel—and causing more inflation in those categories. And those sectors also have supply shortages—driven by labor shortages rather than supply chain issues. Just as excess demand drove up energy prices, excess demand is also causing a rapid increase in worker earnings, which is another important contributor to business costs and output prices. According to the Atlanta Fed’s wage tracker, U.S. worker earnings are now growing at a 6.7% annual pace—the highest rate ever recorded in the 40 years of data they have created.
And therein lies the political problem. If we acknowledge that inflation is being driven by excessive consumer demand, then we must admit that Americans are overconsuming. That’s an idea that doesn’t fit the miserabilist narrative that underpins political debate today. Both parties consistently tell their supporters how terrible they have it and then immediately blame the other party’s policies. Apparently, in the political world, most U.S. households are living hand to mouth, workers are highly underpaid, and we’re all just one paycheck away from financial disaster. To suggest otherwise would be gauche.
For the record, U.S. consumers are overconsuming. Consumer spending as a share of nation’s GDP is the highest it’s ever been, except during the runup to the Great Recession—not a comfortable comparison. This overconsumption is one of the root causes of the growing U.S. trade deficit, currently at almost 5% of GDP, again the widest it’s ever been except for the 2005 and 2006 period. As for the idea that real earnings growth is negative, you only get this result if you use the CPI estimate of inflation, which overstates the situation for technical reasons we won’t dive into here. The appropriate deflator is the PCE deflator from the Bureau of Economic Analysis, and if we use that, real earnings growth is positive, albeit not at a 40-year high pace.
Of course, this story is only explaining the mechanisms within basic monetary theory. If you want to predict how much prices will increase, you only need to look at money supply. The Federal Reserve’s quantitative easing program expanded the money supply of the United States by 40%. Therefore, holding all else constant, prices need to go up by 40% to equilibrate the size of the economy to the size of the money supply.
While the Fed’s quantitative easing caused inflation, oddly their response to the problem has been primarily to push up the Federal Funds rate, the old tool that Ben Bernanke had largely moved past during his tenure. The big hikes in the Federal Funds rate have done very little to reduce the money supply; it has only stopped growing. If the Fed is serious about slowing inflation, they need to engage in quantitative tightening—which they say they will be starting this month.
By tightening of course, they will, by definition, cool consumer demand and weaken labor markets, as these are the ultimate sources of inflation. Given that policymakers are seemingly unwilling to acknowledge that the problem is excessive spending as well as wage growth, it unfortunately suggests they will be unwilling to do what is necessary to slow inflation.
The only question then is how much longer will we continue to be surprised by it.
2 For more about the CPI’s inflation estimate see: https://www.clevelandfed.org/newsroom-and-events/publications/economic-trends/2014-economic-trends/et-20140417-pce-and-cpi-inflation-whats-the-difference.aspx
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