Shirley began to experience significant problems with the employee’s performance. There were a series of mishaps that would have caused many other employers to ask the employee to find another job. Since Shirley could not afford an employment law attorney, she rode things out and kept her new employee around for 10 years, mainly out of fear of the consequences if she fired the employee.
Oh, happy day, when Shirley’s employee quit. Not only did she quit, but she got another job which eliminated any claims against Shirley’s unemployment insurance. Shirley felt she was in the clear – until receiving a letter from the Department of Industrial Relations’ Division of Labor Standards Enforcement. They stated that there was a claim for unpaid overtime by the former employee. Shirley provided the records for the three years for which the government could go back, and felt comfortable that she had meticulously followed the rules.
Unwilling to spend a large amount of money in legal fees, Shirley went to the hearing without an attorney, confident that she was in the clear. That was until the hearing officer told her she could not operate her alternative schedule the way she had been, and the way her employees preferred. If they converted to 10-hour days, the employees had to work only four days a week. This was something Shirley was not alerted to when instituting the program back in 1994. The hearing officer concluded that Shirley owed the former employee $112 in back pay.
Then the hearing officer informed Shirley she also owed the former employee $3,388 in penalties related to the alleged payroll violation. The officer asserted that even if Shirley had owed just one hour of unpaid overtime, the penalty would still be the staggering figure of $3,388. She also told Shirley that if she appealed and lost, the penalty would be increased to $5,000. Remember that this is for $112 over a three-year period.
Shirley’s story is not unique. People starting a business in a state like California assume all the risk. They have to become experts in employment, tax, and worker’s compensation law. If they are subject to sales tax, they must serve as a collection agency for the government, but remain liable for any incorrect interpretations of the rules. Business owners are subject to city laws, county laws, state laws and federal laws. As evidenced by Shirley’s case, even if you meticulously follow the rules, you can either pay enormous legal fees to attempt to protect yourself or suffer unbelievable and disproportionate consequences.
Shirley is one of those people who is creating livelihoods for others and providing vital services for the community. The government treats her more like a pariah than an asset, and California’s legislature continues to spew out a 1,000 bills a year just making things worse.
Businesses are moving in droves to other states where regulations like this do not exist. The bigger picture is that every time we have a recession, it gets harder to bring jobs back because of states like California who – with the collaboration of the federal government – make it less and less appealing to either start a business or hire someone. If you want to create a new enterprise today, you have to have a team of lawyers and CPAs. When you hear stories like this, it doesn’t take much to understand why 15 million Americans are still out of work and things are not getting any better.