California regulation

Larry Ribstein —  2 June 2011

PoL tips a Mercury News story about California regulation:

Carl’s Jr. is halting expansion in California and moving its headquarters to Texas. The California permitting process can take up to two years; combined with other regulations, it costs an extra $250,000 more to open a restaurant in California than in Texas.

Some details from the story:

The permitting process alone can take up to two years, while in Texas it can be done in as few as 11/2 months. * * *

California ‘s strict work rules classify general managers as employees, requiring that they take breaks at specified times, harming their ability to manage the business effectively.* * *

If you own a restaurant and your bartender chooses to forgo a break to collect extra tips, you can be sued for wage-and-hour violations. If your trash can is moved by someone else in your store, you can be sued under the Americans with Disabilities Act. If you try to bring renewable energy to the desert, you can be sued by environmentalists and unions. Is it any wonder that many owners are deciding doing business in California is not worth it?

Meanwhile, former TOTMer Todd Henderson visited a small SF business that makes what are reputed to be the best bags in the world and talked to the owner.  Todd reports that

the regulations here drive up costs, which makes his business tough. When I asked why [the owner] didn’t hire more staff, since a made-to-order bag takes 8 weeks to deliver, he told me there was too much uncertainty. Health care is too expensive, and he doesn’t know what costs are coming down the road. And getting good people is difficult when your standards are so high.

Fortunately there are states other than California.  We may soon find out exactly how much California dreamin’ is worth to small businesses. And of course the US isn’t the only country in the world.

Larry Ribstein


Professor of Law, University of Illinois College of Law

13 responses to California regulation


    The question is how much money Carl’s Jr. can make money from selling to California customers. There’s a lively debate over Card and Kreuger on the employment effect of raises in the minimum wage. But whatever the existing evidence based on the laws at the time of the studies, it is surely simplistic to assert that raising the minimum wage is a “race to the top.”


      The SF small-business owner is right: there is a tremendous amount of uncertainty in the market currently. But when is that statement not true? It was certainly true in the late 1990’s, but most market participants simply did not realize it at the time.

      Despite all this uncertainty, Apple is rolling out new products and services, Google is spending top dollar to retain and attract new star employees, and even Microsoft saw an opportunity when it paid $8.5 billion to branch out into a new potential business line. True, these are all tech companies in the middle of a tech boom – but even McDonald’s is pushing both growth in locations overseas and growth in amenities and product offerings domestically. I could be wrong, but this SF small-business owner may realize his fretting and hand-wringing over Obamacare and potential budget deals is costing him business to competitors. Who knows, maybe hiring a few more workers and cutting down on that delivery time may generate enough extra revenue to more than cover any new regulatory costs arising over the next couple years.

      Bottom line: stop pretending to be John Galt taking political stands with your company, and simply run your business. At least, those are my thoughts.


        Sorry, that was meant as a reply to the main post. I agree with your post on raising the minimum wage.


        So small business owners should STFU and get back to work, because Apple, Google, Microsoft, and McDonald’s are all doing fine?



    Great point Matt. I hadn’t thought of it that way. Maybe California should raise its minimum wage to $50/hour and lock up the “top.” Why shouldn’t all of California’s jobs be high-paying?


      I think it is the case that Carl’s Jr stores in Texas do not sell many burgers to California customers. But more to the point, didn’t Alan Kreuger show that increasing the minimum wage did not reduce fast food jobs? I recall a study in maybe the early 1990s.


        No, Kreuger didn’t show any such thing. He had a *very* limited finding — that a “particular” size of a minimum-wage increase, in a “particular” market (geographic and industrial), in *particular* time period, in *particular* economic conditions (all extremely narrow) did not produce *measurable* differences in employment, for the *particular* duration they chose, with the comparison set they chose. No reputable researcher would bet on generalizability of these findings for other minimum-wage increases, in other markets, in other time periods. We still have no good evidence re marginal effects of minimum wage changes on employment.

    Matt Dubuque 3 June 2011 at 9:17 am

    Oh no. California is losing minimum wage jobs at Carl’s Jr. to other states.

    this is TERRIBLE news! We are being thwarted in our race to the bottom!


    “If your trash can is moved by someone else in your store, you can be sued under the Americans with Disabilities Act.”

    This doesn’t make sense. How does the identity of the person moving the trash can generate an ADA claim?


      If a customer moves a trash can into a position that creates an ADA violation (for example, they put the can within 5 feet of a bathroom door) then the business owner is liable and can be sued, even if the trash can’s original position was not an ADA violation.


    The Americans with Disabilities Act is a federal law and applies in all states, not just California.

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