Between 2018 (after Gavin Newsom became Governor of the state), through 2021, California has lost 352 corporate headquarters, including Tesla, Charles Schwab, Oracle, Hewlett Packard Enterprises, and McKesson.
The Hoover Institution did a deep dive study with data, showing just how bad things have become:
An earlier version of this paper examined only the first six months of 2021. This revision includes all of 2021. We find that the number of companies relocating their headquarters out of California in 2021 occurred at twice the rate of 2020. Our findings show that 352 companies moved their headquarters to other states just in the period from January 1, 2018, through December 31, 2021, based on either the date of the announcement or the date of documentation with the state, whichever came first. Every month in 2021, twice as many companies relocated their headquarters as in the prior year. The monthly average for 2021 also significantly exceeds the monthly averages for 2018 and 2019. California lost both very large companies, including eleven Fortune 1,000 companies between 2018-21, and small, rapidly growing companies with the potential to become transformational. From this perspective, California is not only losing current leading businesses, but potential future leading businesses as well.
Taxes, regulatory burdens, a lack of a qualified workforce, and the difficulty (if not impossibility) in expanding operations are all factors cited by the statisticians. But what they often do not factor in is the adversarial relationship toward business created by certain regulatory agencies. The California Air Resources Board (CARB), with its draconian emission and green policies, has all but killed trucking, the automotive industry, and natural gas production in the state. The Employment Development Department’s malfeasance, coupled with its AB5 enforcement helped to finish off what is left of the owner-operator trucking industry, and has all but eliminated the entrepreneur, solopreneur, and independent professionals that used to call the state home. Now, the Department of Fair Employment and Housing (DFEH) aka the Civil Rights Division, has entered the fray to wipe the floor with anyone who’s left.
According to an investigation by the California Policy Center (CPC), the DFEH has never been a well-regarded agency or even particularly effective. CPC uncovered a 1997 state audit report that laid bare that administrative inefficiencies led to case backlogs and failure to resolve many of the complaints filed with DFEH within the imposed, one-year deadline. Half of the complainants ended up acquiring outside counsel, while the other half languished in bureaucratic purgatory, waiting for DFEH to take action that never came. Those with limited resources were underserved and ultimately ignored.
In 2009, the RAND Institute also did a study on the DFEH and its inefficiencies. The RAND investigation discovered,
a need to align DFEH resources with its obligations: either reduce DFEH’s responsibilities or increase staff resources. RAND also came up with an Option C of sorts: a limited authority for the department to take cases directly to court. “In the alternative,” the authors opined, “perhaps DFEH should be provided with an alternative to FEHC, and permit the DFEH to bring civil actions directly in Superior Court where claimants with meritorious claims have been unable to secure counsel on a contingency basis.
Instead of using taxpayer dollars to employ competent staff and trim the fat elsewhere, the agency decided to employ Option C on steroids. Like pouring gasoline on a dumpster fire, Governor Jerry Brown decided to reward the incompetent agency with its own personal slush fund. Both the CPC and other oversight organizations point to the 2012 “Bounty Hunter” provision, or Senate Bill 1038, signed into law by Brown, as the excuse DFEH needed to make itself an illegitimate enforcement arm.
A year after the RAND report, Jerry Brown replaced a termed-out Arnold Schwarzenegger in the Governor’s Office. Toward the end of his first legislative session in 2012, Governor Brown signed Senate Bill 1038 granting DFEH authority to take discrimination complaints to court. In a deviation from the RAND recommendation, that authority was not limited just to the underserved population – if dispute resolution failed, any case was eligible. The bill further abolished the Fair Employment and Housing Commission which had adjudicated DFEH cases.
SB1038 also provided DFEH with a special fund that was sourced outside of the state’s General Fund. This special fund is where deposits of all court awards and settlements would be held in order to support the existing state designated budget. This budgeting mechanism has worked much like the Private Attorneys General Act (PAGA), merely incentivizing lawsuits with bigger payouts in order to obtain a greater financial return.
DFEH rebranded itself the Civil Rights Division (CRD) in July of 2022, and also rebranded their mission, fully embracing the activist bent, pursuing spurious lawsuits, and manufacturing charges of systemic harassment and patterns of discrimination out of what seems like whole cloth. Attorney Mark Herr, spokesperson for Activision, which is fighting current litigation brought against it by the CRD, agreed with this assessment.
I would surmise that this is part of the general zeitgeist in California, because the California regulatory environment is almost entirely hostile to business.
So, you know, there is a very clear California approach to doing business, and that appears to be to drive business out of California.
So much so that even the California Employment Law Council (CELC) has filed an amicus curiae brief (lit. friend of the court) in support of Activision.
As an Amicus Curiae, the California Employment Law Council (“CELC”) submits this brief because the California Civil Rights Department’s (“CRD’s”) attempt to intervene in a lawsuit brought by the federal Equal Employment Opportunity Commission (“EEOC”) would have far-reaching consequences that would adversely affect the CELC and its members — as well as undermining the purposes of Title VII and other federal laws by permitting state agencies to derail settlements for their own financial and political gain.
Those are harsh charges from the state’s own experts of employment law. The CPC is also petitioning to see the CRD neutered.
In 2022, lawmakers approved a name change for DFEH to the Civil Rights Department (CRD). According to CRD staff, the name change was based on “stakeholder feedback” and intended to more fully capture the range of services offered by the department. Paralleling this expansion of scope is the department’s reputation for regulatory hostility toward employers. As one news report noted, “While the DFEH may not be nearly as famous as its federal analog, it’s an agency that’s becoming more and more aggressive.” As part of that aggressive posture, DFEH has also developed a reputation for “bigfooting” its way into major cases – figuratively stepping on and over plaintiffs and other regulators who developed those cases – to take control and potentially to reap the rewards, in a manner that has caught the attention of many, including EEOC.
In “The Lawyers Who Ate California,” journalist Matt Taibbi did a three-part expose on this adversarial regulatory environment, particularly when it comes to business. Taibbi focused on the CRD lawsuit against Activision as a case in point.
Sometimes in journalism, however, a story you think is about one thing, turns out really to be about something very different. The tale is barely about Activision. The real protagonists are the regulators.
In the spirit of California, long the cradle of American innovation, a small group of government litigators spent nearly a decade dreaming up an aggressive new vision of corporate regulation, one that’s seen agencies like California’s DFEH act like high-end plaintiffs’ firms. They laugh off mediation, jump quick as you can to litigation they may be mandated to avoid, then couple blunt public accusations with eye-catching damage demands that open at ten or fifteen times the size of previous record awards. Also in the California spirit there are ruthless box-outs of other regulatory agencies, private attorneys, and even the agency’s own in-house lawyers for the sole rights to be claimants in each of the target firms’ stories, told by media pals who act more like production partners than journalists.
That pretty well sums up some of the major issues surrounding the CRD. Mark Herr has lots of receipts that show CRD deliberately bypassed the discovery phase and cherry-picked instances from deposition testimony in order to create a pattern of systemic harassment. Herr explained:
It becomes clear that CRD became turbocharged to file an action, and on July 21 [2021], they filed an action against a lawsuit in California Superior Court in which they alleged all kinds of wrongdoing on the part of Activision.
But tellingly, included harassment claims and some lurid and sensational individual instances that they claim prove the broader problem of a systemic harassment problem.
According to Herr, the EEOC’s role is to deem whether harassment or a violation of civil rights does exist; if the EEOC determines there is the existence of violation or discrimination, it is the CRD’s role to takes that determination and place a monetary amount on that claim—it is not tasked with creating new claims, or to uncover patterns of systemic harassment or racism. In stepping over the judgment of the EEOC, CRD crossed the boundary set that would effectively deal with employment and civil rights claims, and allow a speedy and efficient resolution for the person or persons lodging the discrimination claim. Herr alleged:
There are many problems with this, not the least of which is that it’s not true.
I mean there were instances of misconduct and the company acted on those instances of misconduct. But the company has adamantly denied that there was a systemic problem and the individual cases that the CRD cited were either taken out of context or they omitted some important facts.
So, up to this point, the only thing that we have that’s hinky here is that the CRD broke their agreement with the EEOC and brought an action that involved harassment when they had agreed that that was going to be the purview exclusively of the EEOC.
The CRD appears to have a multi-pronged approach in its newfound activism, most egregious is the litigation of the case in the court of public opinion—before it even reaches a judge’s chambers. Herr continued:
At the same time—and we only really get a great appreciation for this after we get some discovery from them under the California Public Records Act—they engage in a comprehensive attempt to try us in the media. Now we know that elected officials, when they bring cases, go to the media. What we uncovered was that they [CRD] were working the media behind the scenes extensively, and even as some disfavored media were being told by the CRD that they don’t comment on open cases, we have emails between them and The Wall Street Journal and other publications in which they are saying, we’d love to talk to you off the record, and we have reason to believe that they do.
Then on November 16th [2021], I think it is the Wall Street Journal has a bombshell front page story that says not only does the CRD have all these allegations, but that the CEO of the company, Bobby Kotick, did not pay attention to problems, that the company didn’t tell the board, and that there were even more egregious cases than [what] were in the complaint.
Activision rightly fought back against this naked defamatory action. In keeping with its past incompetency, CRD was simply blowing smoke. They had uncovered nothing because they never fully investigated the matter. Herr said:
That forward what we subsequently learned is that they never completed their investigation, just before they filed suit against us.
They were sending letters to us saying, “Okay, we need to do more discovery.” And if you’re doing more discovery, it means that you haven’t completed your investigation and that the discovery that they wanted to do was substantial. So, clearly they had not. They either never investigated harassment or they were doing it on the sly.
Possibly both. As Herr further explained, the EEOC announced it had reached a tentative settlement with Activision, and that settlement was then submitted to the courts. Here is where the CRD began to further overreach.
Three things happened: Number 1, the CRD hires two former EEOC lawyers who had worked on the EEOC case, and they did that without getting clearance from the EEOC. That’s an ethics violation of California. So, now we got Number 1, we have them filing a suit under false auspices and without completing their investigation.
Number 2, they now have hired conflicted lawyers to go forward with this. Number 3, they then launch a campaign to undermine the EEOC settlement, and they or their proxies make at least 10 attempts to derail the settlement through legal maneuvers and claims that are so specious that the federal court rebukes them for some of their conduct and calls what they’re doing unseemly. That’s actually a quote.
So, CRD hires former EEOC lawyers in violation of California ethics standards to look at the case, and then these lawyers work on behalf of the CRD to undermine the EEOC settlement that has already been filed in the courts. So much so, that the court actually rebuked the agency. These bold maneuvers against Activision are not an isolated case. Recent cases that have come before the CRD appear to show a similar precedent.
The Riot Games lawsuit may have marked the beginning of this pattern. In early 2020, private plaintiffs’ attorneys were representing a group of female employees who filed a sexual harassment and gender discrimination suit against the video game producer. A $10 million settlement was agreed upon, but DFEH and the state’s Division of Labor Standards Enforcement (DLSE) decided it wanted to block the settlement, alleging the employees’ attorneys made,
“procedural mistakes, failed to determine a proper dollar value for their clients, and made a headline-grabbing demand of $400 million – a number a Riot Games spokesperson described as ‘not grounded in any fact or reasonable analysis’ and did not consider ‘key factors such as job title, duties, skills, experience, or education.’”
According to the CPC, that amount was nearly 30 times larger than the total settlements in 2019 that DFEH had garnered. It also exceeded the largest individual settlement reported in the department’s 2020 Annual Report by a factor of 200.
Despite rebuttals filed by plaintiffs’ attorneys, DFEH rejected the allegations and filed its own rebuttals. In 2021, in order to end the madness, Riot Games agreed to a master settlement of $100 million. The Master Settlement allotted between $5-$8.5 million for DFEH attorney fees and costs. DFEH requested $7.1 million. DLSE was awarded $3 million through a related PAGA claim, another administrative state regulatory cudgel used to undermine small business in California.
As Activision fights this spurious and naked money grab, CRD has Tesla in its sights. Tesla is one of the corporations that has made the California Exodus, moving its corporate headquarters from Fremont, California, to Austin, Texas, and expanding its manufacturing facilities there. Tesla CEO Elon Musk had moved his SpaceX operations from California to Texas as well.
Whether due to spite or that it feels as though Tesla is easy pickings, in early 2022, DFEH filed a lawsuit and proudly announced it in an April 13 press release on its website.
The CPC surmised,
The DFEH complaint against Tesla is a thorough scalding of a company brand, beginning with its non-union status: “Tesla’s Fremont factory is the only nonunion major American automotive plant in the country… Tesla’s brand, purportedly highlighting a socially conscious future, masks the reality of a company that profits from an army of production workers… working under egregious conditions.” As evidence of “egregious conditions,” DFEH notes that the plant had been inspected 17 times in twelve years, though Tesla’s reply claims that DFEH never sought jurisdiction in any prior complaints. DFEH accused the company of running a “racially segregated workplace” and cited its pending relocation to Austin, Texas, as “another move to avoid accountability.”
So with the continued harassment of Activision in order to get them to settle, and the latest suit against Tesla, it is clear that the adversarial targeting of corporation is now CRD’s bread and butter. Empowered by the ill-conceived SB1038, the agency is less interested in protecting the civil rights of employees, and more interested in collecting money to fill their coffers and corporate scalps for their belt.
Since that 2021 Hoover Institution study, 21 more companies, including McAfee and Kelly-Moore Paints, have exited California. Kelly-Moore Paints made its announcement in April. It is apparent that doing business in the once-Golden State coupled with the threat of specious litigation continues to be too high a price to pay.
