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welcome to the California labor law Odyssey I’m the host Tom Manzo . I’m here with Chris Walton – owner of Jays maintenance. We’re gonna talk about his company and discuss challenges he’s faced with his business. Welcome to the show Chris. Thank you very much Tom. So tell me about your company Jay’s Maintenance is a janitorial provider. We provide professional janitorial services to a variety of clients across the state of California We’ve been doing that since 1969 How many employees do you have? Currently we’re a a little bit over 700 That’s a very large employer Where are you based out of. We’re based in Glendale, California. So how many employees did you have in 1969? My mom and dad. They started the company We actually just celebrated our 50th anniversary last week. It’s a momentous year. That’s amazing! When did you really start to see growth within the company? When did you get to a hundred employees? Our biggest contract was with Levitz furniture which my dad landed by walking in there in 1969. We worked with Levitz for 35 years. We cleaned all their stores across the country. 150 stores at one point. and so we probably reached the hundred employee mark in 1976 and 200 employees in the early 1980s Then we kind of hit a plateau and we were at 350 for almost 20 years Then we just landed a new contract back in 2017 which catapulted us to the 700 mark So that’s a lot of families of employees that are helped. What is the longest term employee you have at your company? We have an employee who works at a site in Pasadena who has been with us for over 30 years. We celebrate her every 5 years We make sure we keep track of her. What you said is true, Tom Taking care of all those families at the fiftieth anniversary party last week ,we talked about the fact that over these 50 years we’ve employed over 11,000 employees 11,000 …now that’s an amazing number! Many of them were able to purchase houses and raise their families Now they have their grandchildren You know they’ve become part of the fabric of their community I’m really proud of the fact that we helped them to do that and we are their primary job in most cases Then you’re paying them better than minimum wage? We’ve always tried to keep it above minimum wage. It depends on the contract sometimes we’re forced to pay minimum wage due to the contract But we’ve always tried to be 50 cents to a dollar above minimum wage just to attract the best employees Sure, because I would imagine in a maintenance company it’s a struggle to keep good employees and keep employees long-term Especially in a good economy You have been successful for over the last 5-10 years Have you felt more pressures running a business in California? Has it become more difficult for you? Absolutely I think it kind of ebbs and flows First it was bogus workers comp claims that came in Attorneys latched on to workers comp as a source of revenue for them. All of a sudden we saw a huge increase, huge spike in bogus claims. Those bogus claims made our X-mod skyrocket. X-mod skyrocketing means your rates are gonna go up. At one point we were close to having to shut our doors because of the renewal for the workers comp rate that we were gonna be paying. When was that? That was somewhere in 1999 to 2001 So then as you stated, the problem with trying to run a company in California is there are new laws every day As an employer of employees across the state we also have to keep track of local municipalities and their laws As the minimum wage went from a federal law to a state law, now it’s a city law We have 40 different minimum wages we have to track and we never know if a

city is gonna bring on a new one. Cities now are getting into the sick time law Right. So they’re each deciding what they want for their own little municipality and it’s different accrual systems, it’s different maxes, it’s different payouts The whole system is different San Francisco has been very challenging I think, for a lot of people in California Then I just read that San Jose is trying to get a $16 hour minimum wage now. Well when you get to 15 the next logical step is to say let’s go to $20 Yeah. We’ll all be at $15 by 2022 Right. So, as you get through the whole workers compensation scenario, what is the newest biggest challenges that you’re facing recently? I mean the obvious answer is the PAGA claims. Our biggest current issue … And PAGA stands for the Private Attorney General Act and that was a law that was passed in actually 2003 by Gray Davis and enacted in 2004. What PAGA does is it deputizes the citizens to act as the hands of the labor enforcement agency. So they now are telling you about the rules and what should be done. In theory it was a great law, I think the design behind PAGA made sense as it was supposed to smoke out the underground economy and go after the bad employers. It was supposed to take care of the employees that were having wage theft committed against them. Because the Labor Commissioner is short on resources and they can’t patrol the tens of thousands of businesses in the state of California their solution as you said earlier was to deputize private attorneys to go out and go after these companies. The unfortunate reality is PAGA goes after obvious targets like the big retailers of the world. PAGA does not go after the underground economy At the end of the day, if I have an issue – with the labor commissioner – all of the settlement money in a labor commissioner claim goes straight to the employee. But at the end of a PAGA suit, it could be as little as 7% to 10% of the money of a settlement ends up going to the employees I think the biggest issue is a lot of times the underground economy and the law is designed to punish people that are in the underground economy …but the reality is somebody in the underground economy does not have a business that’s been in existence for 50 years. Right. They do not have the ability to pay for a six to seven figure lawsuit. Right. The underground economy just ends up walking away. They close their doors and move on. The state will try to find them and fine them but they really can’t. So the law does not work for the underground economy whatsoever That’s true And I think there are some simple fixes that we could suggest to the legislation, right, and I actually went up to Sacramento a few weeks ago and toured around and met with a lot of legislators to bring up some ideas and I think the main issue they all wanted to see was some wording that would craft a new modification of the existing law in order to make this system a little bit more fair. It’s a very complex law and just so everybody watching the show is aware of it, you know the labor law digest is 1100 pages and if you have one violation it can then be enforced by the Private Attorney General Act. That’s how that law was made and once they find a rule that you’ve done wrong they can actually request records. They can then say “okay, well, I think you could have done several other things” and it almost becomes the fishing expedition to find out what else did you do wrong It could be rounding incorrectly. Were they punching in and out on time? Did you have the right employee ID number on the paycheck? There’s just a laundry list of things that they’re looking for and asking for and I think that’s what makes it difficult. I think part of what we’re trying to do with the show is to educate. We want legislators to watch this show. We want business owners and employees and the public to watch the show because many times the employees are promised the pot of gold and they end up getting very little money It’s always the attorneys that take home the lion’s share Trial lawyers in California are abusing a law called the Private Attorneys

General Act or PAGA to get rich and they’re harming the state’s small businesses, nonprofits and even labor unions in the process. PAGA was signed into law in 2003 by then governor Gray Davis. He said it would empower workers. Instead the law became a lucrative scam for trial attorneys. Here’s how it works: Trial attorneys figure out that by threatening businesses with PAGA claims for labor code violations they could quickly reach out-of-court settlements Sometimes for millions of dollars Because the state labor code is more than 1,000 pages long, even the smallest misstep like late lunches or a typo on a pay stub can lead to a PAGA claim with crushing financial penalties. More than 35,000 PAGA notices have been sent to employers since 2004 but that doesn’t mean employees or benefiting. In 2018 Uber settled a PAGA lawsuit for $7.8 million. The attorneys kept $2.6 million. The state took $3.6 million and the drivers took home just $1.08 each Other settlements are similar. One top PAGA attorney even admitted that the law was never intended to compensate employees. California needs to enforce its own labor laws and stop empowering trial attorneys to extort businesses and deceive employees To learn more, visit cabia org As far as the Private Attorney General Act is concerned, it’s obviously affected you. That’s why you’re on the show and I think it would be great if you could just share with the viewers your story of what happened with you The beginning of our PAGA journey was actually with a bogus Worker’s Comp case and a bogus wrongful termination case. I think one of those attorneys handed off our our ex-employees information to another attorney who then handed it to another attorney so it was like three steps away from anyone that even knew or cared about our employee That’s a big issue, you know, there’s a lot of attorney referrals and attorneys can collect money from one attorney to another for a referral We see this a lot. Workers Comp attorneys will refer a wage and hour labor attorney and that’s how these lawsuits really start It’s one of the ways …but anyway, go ahead. No please, that’s information that it wasn’t aware of. So at the point when we got the first notice of the PAGA claim it was actually at the point when our period to cure had already ended. We had never received the letter that was required by the statute We had no idea it was coming. We had received a letter from an attorney asking us if we needed help defending ourselves but we had no idea what it was about. In the period of cure – correct me if I’m wrong – that only gives you an opportunity if there is a inaccurate name on a paycheck stub and you get 33 days to correct that. In theory the period to cure should allow you to do anything from fixing an incorrect pay stub to making up for a missed lunch period. You’re allowed to do whatever you need. Yeah on that cure period the cure period is really limited in scope and the bigger issue as you mentioned earlier is that when the attorney sends you a letter, they aren’t giving you any specificity about what happened. They’re simply saying “we think you’re not paying overtime, we think you’re not paying lunches, we think you’re not providing meal breaks, we think you’re not doing this and rounding up rounding down.” So yeah when they ask for your stubs and your pay stubs are incorrect I think at the end of the day they kind of zeroed in on the pay stubs So we’re with a payroll company that was providing the pay stubs and we took it for granted that all the information that was legally required was on there It turns out that I think either our name or our address was missing on the stub. It was on the check but it was not on the pay stub So amazing. So that was a $100 penalty per pay period, per person multiplied out by a year. It turned into, you know, combined with other penalties they basically came and said we’re gonna sue you for over a million dollars. A million dollars, I mean, just because

the name wasn’t on the actual pay stub. It’s almost hard to believe Walmart just got done – they’re settling a lawsuit for $102 million Wow. It is because of final paycheck stubs. Apparently when the employee had their last day they would give a final check and that check had the date on it but it did not have the week ending date. Imagine that. A hundred and two million dollars and the bulk of that money will go to the attorneys It will go to the state and it will not go to the employees. They are figuring at max some of the employees will get a thousand. Most of them are gonna average less than a hundred. Of $102,000,000 one-third of that will go to the attorney and that’s one of the issues that I have with the law. It’s really hard to prove damages if you worked an hour of overtime and I didn’t pay that hour of overtime That’s very clear about what I owe you I owe you overtime I didn’t pay you plus I owe you the penalty for not having paid it on time. But in the case of PAGA they’re saying that our employees were damaged because our address was missing Our address is in all kinds of different places it’s in all of our training documents it’s on their timesheet They see it all the time There’s no damages. There was a company in Sacramento recently that settled for $1,000,000 and the employees badge number and the number on the paycheck did not match. Wow. That was 1 million dollars and it was about 300 employees Wow .So walk me through this a little bit So you have a payroll company that’s taking care of your payroll They have inaccurate information on there. Yeah. So what happens? Where did you go then on your lawsuit? This lawsuit dragged on probably four and a half years before we finally got to settlement Four and a half years! So as a business owner – and this is the one thing that I think people need to understand – what is the emotion that you’re going through? One side of you is thinking four or five years ago you were on your 45th year and here’s the thing… Wow …look at all these families and people we’ve employed and good we’ve done for our community and you have the weight of one of these lawsuits hanging over your head How does that play emotionally? How does that make you feel on a daily basis? It’s a terrible feeling and it’s a scary feeling because the reality is we don’t have a massive bank account. We don’t have a huge line of credit We really had no way to survive a million dollar settlement During those five years we really were wondering where the heck is this going to go? And to add salt to the wound you’re also paying your attorneys the whole time so we ended up paying over $250,000 just to defend ourselves over those five years which was money we didn’t have. Just a lot of money. I’ll tell everybody when it comes to these kind of lawsuits, instead of somebody making $17 or $18 an hour at your company, an extra two hundred and fifty thousand dollars maybe they could have been making $19 or $20 an hour maybe You could have reinvested. Maybe you could have done more marketing and sales and added more customers, added more employees. That $250,000 gets taken from the bottom line and that is way more difficult than I think most people realize We offer pretty rich vacation benefits for our employees as a way to encourage them to stay with us. It’s a retention tool Sure, so we pay probably in the neighborhood of $175,000 to $250,000 in vacation payouts every year and one of the things that kept occurring to me was that we were gonna have to stop that. We were gonna have to stop taking care of our employees because of this potential settlement. Fortunately it worked out that got some money back from the payroll company because they realized that they had some responsibility to it At the end of the four years we ended up at mediation so Just so everybody else knows and understands that these all end up in mediation and the ones that fight it are the large corporations Even the large corporations that fight it lose and smaller corporations have tried and lost. The United farmworkers fought it. Their organizers claim they weren’t getting lunches and the United Farm Workers said we are going to fight this in court We’re going to take it to the end We believe this is wrong They lost. It cost them almost $200,000,000 so it’s a no-win situation

Without a doubt. So these all end up in mediation. So you’re in mediation – walk us through mediation What was the first number they told you when you sat down. I mean it’s been and I have to tell you one thing I know this a little bit because we were texting back and forth That was the second mediation that was the second suit so tell us about the first meeting or the first suit they both were very similar. They come in well …You’ve had two PAGA lawsuits! I have had two The second one has a pending settlement so I don’t want to get too deep into the weeds of that one. Okay. That’s not signed sealed and delivered yet but I will explain a little bit of the difference of why that one ended quickly. So in the first settlement negotiation, they were still coming in with that million dollar number right when you sit down and walk in. So I don’t remember exactly who gave the first offer in terms of a price but I think they came down to like $850,000 and we came back with – if I remember correctly – we came back at like $75,000 So we kind of worked from $ 850,000 and $75,000 all the way back and forth. Spent a whole day in order to end up at 225,000 so we basically set it for about a quarter of their original demand which, in theory, could have been done on day one That’s what I learned. Yeah Out of the 275,000, how much did the attorney that sued you get out of that? The attorneys that sued got 40% they got $88,000 40% …40% How much did the state end up getting? They took maybe $95,000 it was about 43%. Wow So wait a minute now, the wronged employee… how much did they get? Well there were other fees There another like 7% of fees for the for the person that had to send out the money – all the checks. There was an Uber case and I talk about this one all the time, it was $7,750,000. $2,600,000 went to the state on no… $3,600,000 went to the state $2,600,000 went to the attorney and $1.08 went to each employee But the company that you’re talking about that sends out all the checks got $775,000. Wow I think if you’re one of those companies that send out checks it’s a good business It’s a really good business. Just make sure that you’re following all the labor codes as you do that .Yeah So how much did some of the average employees get? Yeah as little as $1 and I think the max payout was like $103 Oh my word. The average was $49 but we had 120 employees below five dollars. We also had seven thousand dollars in checks that were not cashed Then where did that money go? We’re trying to figure that out right now but it’s it’s gonna end up getting donated to a charity because in order to redistribute that to the people that did cash their checks, they wanted another five thousand dollars to do that! So we decided that didn’t make sense Sounds like a racket to me it’s an interesting business. So you’ve been through it two times and maybe some people would say, “hey an employer that’s been through this should have learned the first time.” How did you end up being in this situation a second time? How would you answer that? It’s a great question. Let me put it to you this way, Yeah . We have a member of our nonprofit organization that’s been sued four times. Wow. And they’re a trucking company and you’d say what’s the matter with you guys, how did you end up getting sued four times? One of them was the drivers, one of them was the warehouse workers, one among was the office staff and another one circled back into the drivers because it’s very difficult to keep track of a drivers time. It’s very difficult to know when that person clocks in and out You try documenting it. Try putting everything in logs but it’s still “you’re guilty until proven guilty” when it comes to one of these. You’re innocent until proven guilty and it’s impossible to prove you’re innocent. You’re never innocent. Yeah. To answer your question a little bit of it was probably taking our eye off the proverbial ball The second part was not really realizing exactly what we could do and not feeling like we had a solution. We have our employees sign all of our training documents. They know when they need to take their breaks, they know when their lunches are scheduled. We’ve posted on the wall. They put on their timesheets

they call on their IVR system so we’re doing all kinds of things to be proactive about it but I don’t think we were following up well enough so the change today in 2019 and 2018 is that we’re following up on it and the change for 2019 is that we’re starting to proactively pay any penalties for people that are missing meal breaks. And we’ve always paid overtime. We’ve always given but it really goes back to you have an 1100 page labor law digest. How do I keep up with all these things and when judges change things and change rules. So there’s a large company ABM industries and it could be a competitor of yours. They are janitorial service company so they have a hard time clocking in and clocking out The company said, “hey, we know you’ve had some problems. Install our phone app and your employees can punch in and punch out for everything that’s all taken care of.” Well, one thing everybody left out was you needed to reimburse that employee for some of the phone expense even though the app didn’t add costs to it. The PAGA claim was $5,400,000 and there’s a lot of other things that people get sued on Commissions. Are they calculated correctly? How are they listed on a paycheck stub? Bonuses. Flat rate bonuses. How do you calculate these things? If I give somebody a gift card every Thanksgiving and please go buy yourself a turkey we appreciate all your years of service we want you to do that. If they work overtime you better make sure you’re calculating that $25 gift card into their overtime right. A lot of employers just don’t know it. They don’t understand. So that’s why this law is so troubling because most people don’t understand it. Nobody’s doing anything intentionally if you were doing things intentionally you wouldn’t be in business 50 years. For sure. You wouldn’t be sitting here That’s right You should be getting a medal. You should be getting a certificate. That’s what you should be getting – not attacked by these vicious attorneys. It’s just a bad situation. if you had something that you could say to the legislators as it relates to the Private Attorneys General Act, what would you say? I would say, Mr. or Mrs. legislator, let’s really try to stop these frivolous lawsuits. Let’s get the money out of the attorney’s hands and let’s put the state back in charge of helping the employers run effective businesses. Let’s create a system that protects our employees effectively. Let’s make sure that the money that is owed to our employees goes back in their pockets and not into the pockets of attorneys who really don’t care about our employees. We care about our employees much more than any attorney in this state does. We want to make sure that the system that we are abiding by is doing exactly that Thanks for being on the show Chris Thank you, Tom

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