In fiscal crisis, Legislature should push economic recovery

State leaders working on California’s public finances should also be doing all they can to promote California’s economic recovery. A start would be to send a powerful message that we genuinely welcome private investment in California employees and the production of goods and services.

California’s recovery will come sooner and will be stronger if we successfully promote increased investment and protect investment already here. Substantial legislation will make California a more attractive place to do business, and will be recognized nationally by business decision-makers, who during the recovery will decide how much personnel or facilities to add or retain in California — if any — and how much to develop in another state.

We should act soon: The UCLA Anderson Forecast released in December predicts higher unemployment in California in 2009, and then weak job growth throughout 2010 as California experiences a “jobless recovery.”

At the same time, a Small Business & Entrepreneurship Council survey lists California as the second-toughest state in the nation for small businesses. A number of business group surveys this past year ranked California near the bottom in the way it promotes fair resolution of civil disputes.

A few simple statutory changes would go a long way toward achieving this.

These proposals are not new — in fact, most have been proposed in recent years, but have died in the Legislature’s Judiciary committees. They do not cost taxpayer dollars, nor do they reduce public health or safety.

Past opponents to the proposals — largely the organized plaintiffs’ bar — have successfully blocked their path. I hope opponents of any of these suggestions will explain their reasoning in the context of our current economic situation. Or, that opponents propose additional amendments that will make California a more attractive place for business investment.

Here are some proposals:

•  Bring more fairness to the state’s class action law. A simple change would allow plaintiffs and defendants equal ability to appeal a judge’s decision to “certify” a class filing. Defense and plaintiff’s lawyers — and the courts — have acknowledged that the situation puts defendants at a disadvantage, forcing them to undergo a costly legal challenge, regardless of whether the lawsuit has merit and even if the certification decision deserves a second look. Correcting this disparity would be a resonating economic recovery message.

•  Encourage settlement of lawsuits. Taxpayers, businesses, and the judicial branch benefit when a dispute can be settled short of going to court. California trial court settlement procedures and judicial rulings have encouraged and upheld mediation and arbitration. The Legislature could amend the private attorney general statute to require that private lawyers should engage in reasonable attempts to settle before resorting to litigation. Doing so would send a message that California is taking a positive step toward becoming a less-litigious state.

•  Establish a floating post-judgment interest rate. Defendants found liable for money in a court case have a right to appeal the decision. During the time the case is on appeal, interest accrues on the amount owed, to compensate the plaintiff for lost use of the money if the lower court ruling is later upheld. California law sets this interest rate at a fixed 10% — a far better return than the plaintiff could expect from a traditional investment. For the defendant, this locked-in interest rate is an excessive penalty on the right to seek judicial review. At least 15 states have established a floating post-judgment interest rate, usually set a few points above the Prime Rate. California should adopt this fair solution.

• Clarify California’s employee meal and rest break rules. Every California employer is required by law to make sure his employees have time to eat and rest. Our state’s class action lawsuit industry has been thriving on the argument that to “provide” a break means to “ensure” it is taken. The result has been multi-million dollar confrontations, confusion, and lost time for owners, managers, and employees. Courts have recognized this, but a judicial solution — if it comes at all — won’t be soon. State leaders should act now to enact a crisp clarification. This will chance an unfortunately strong national perception about California employment law and could prove beneficial as hiring decisions are made in the early stages of economic recovery.
These legislative changes will help put the state back on track toward economic recovery.